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Southern African Furniture Manufactures (Pty) Ltd and Another v Kamaz Holdings (Pty) Ltd (Civil Appeal No. 16 of 201) [2001] BWCA 27 (20 July 2001)

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IN COURT OF APPEAL OF BOTSWANA HELD AT LOBATSE
CIVIL APPEAL NO 16 OF 2001
HIGH COURT CIVIL CASE NO 483 OF 2000
IN THE MATTER OF:
SOUTHERN AFRICAN FURNITURE
MANUFACTURERS (PTY) LTD  1ST APPELLANT
BALDWIN NCHITE   2ND APPELLANT
AND
KAMAZ HOLDINGS (PTY) LTD         RESPONDENT
B.S. SPILG SC (WITH B.D. LEBURU) FOR THE APPELLANTS DR. H. LEVER SC FOR THE RESPONDENT
JUDGMENT
CORAM: P.H. TEBBUTT Ag. PRESIDENT N. ZIETSMAN JA SIR JOHN BLOFELD JA
SIR 1QHN BLOFELD 1A:
It is convenient to set out the companies and the personalities, referred to in this judgment. The 1" Appellant is South African Furniture Manufacturers (Pty) Ltd, hereafter referred to as SAFCO. Mr. Nchite is the principal director. He is the 2nd Appellant. He is also a director of Dwinchi Woodtech (Botswana) (Pty) Ltd, hereafter referred to as Dwinchi. i he respondent is Kamaz Holdings (Pty) Ltd, hereafter referred to as Kamaz. Mr. Moskovic is the relevant director of

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Kamaz. He is also a director of Rainbow Management (Pty) Ltd, hereafter referred to as Rainbow.
Kamaz was the registered owner of Lot 21336 Phakalane, Gaborone, an industrial property. On 19th April 1991 Kamaz sold this property to SAFCO. At that time part of that property was already occupied by Dwinchi under a tenancy agreement. Dwinchi carried on business manufacturing furniture. A substantial stock of wood was held at these premises for that purpose. Some part of these premises were occupied by Rainbow at the date of the sale. The correspondence annexed to the affidavit of Mr. Nchite indicates that in 1998 there had been High Court proceedings between Rainbow and Dwinchi, but the full nature of these proceedings is not disclosed in this correspondence save that one element was the maintenance of this property at Lot 21336 by Rainbow.
The sale agreement of 19th April 1999 between Kamaz and SAFCO was supported by two further legal documents, namely, a special notarial bond passed by SAFCO in favour of Kamaz and a personal guarantee by Mr. Nchite. This sale agreement was signed by Mr. Nchite on behalf of SAFCO and by Mr. Moskovic on behalf of Kamaz. The price of Lot 21336 was P4,000,000.00 of which P3,400,000.00 was to be paid on transfer through a loan from the Botswana Building Society. This sum of P3,400,000.00 was paid by the Building Society to Lesetedi & Co., Kamaz's attorneys, who then issued payment to Rainbow.

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I turn to the relevant clauses in the sale agreement.
PURCHASE CONSIDERATION
The purchase consideration shall be the sum of P4,000,000.00 (Four Million Pula) payable as follows:
(a)    
The Purchaser has secured a loan from Botswana Building Society in the sum of P3,400,000.00 (Three Million Four Hundred Thousand Pula). The said loan less any amount owed by the Seller to First National Bank in respect of the property, shall be paid by the Botswana Building Society to the Seller upon registration of a bond in favour of the Botswana Building Society over the said Lot 21336, Phakalane, Gaborone. The conveyancing of the property and registration of the said bond shall be done through the attorneys.
(b)    
The balance of P600,000.00 (Six Hundred Thousand Pula) shall be paid by the Purchaser to the Seller as follows:-
(i) during the first six months after the payment of P3,400,000.00 aforementioned the Purchaser shall pay the sum of P6,000.00 (Six Thousand Pula) every month to the Seller for a period of six months. The first such payment shall be payable on the fifth day of the month immediately after the payment of the P3,400,000.00.
(ii) upor. the expiry of the first six months
aforementioned   the      balance
outstanding shall be paid in eighteen (18) equal and consecutive monthly instalments the first such payment shall

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be due and payable on the fifth day of the month immediately following the expiry of the initial six months.
(c)    
AH amounts referred to in paragraph 6 (b) above shall be by way of postdated cheques which shall be deposited at the attorneys office upon the signing of this agreement and the said attorneys shall immediately pass on the said cheques to the Seller.
(d)    
All payments herein above referred to shall be drawn in favour of the Seller and shall be in the currency of Botswana and shall be payable at Gaborone or at such other place as the Seller may in writing so direct.
(e)    
The balance payment of P600,000.00 (Six Hundred Thousand Pula) shall attract interest at 1% above bank prime rate. Such interest shall be capitalised on a monthly basis and shall accrue effective from the date of receipt of the amount referred to in clause 6(a) above up to date of final payment.
9. CONDITION OF PROPERTY
9.1 The property voet stoets (as is) and the Seller gives no warranty whatsoever as to the condition of the property.
12.      VARIATIONS
This agreement constitutes the whole agreement and no variations, additions, amendments, delegations, shall be of any force or effect unless reduced into writing and signed by both parties in the presence of subscribing witnesses.
13.      BREACH
13.1 In the event that either party should default in any of its or their obligations in terms hereof, and persisting in such default for a

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period of 14 (fourteen) days after written notice will have given to it or him requiring such default to be remedied, then without prejudice to any other rights which the innocent party may have in terms hereof or at law the innocent party will be entitled to:
a.       Specific performance or
b.       cancellation of the agreements
In additior to the above options, the aggrieved party shall also be entitled to sue for any damages it may have suffered as a result of the breach.
13.2 In the event of the Purchaser failing to pay any amount on due date the Seller may in addition to the options available to them under 11.1 above, the Seller may, declare the whole amount outstanding due and payable with immediate effect. In such event the said sum or sums which has been declared due and payable shall be payable upon demand failing which the Seller shall be entitled to sue for the immediate recovery thereof together with the interest prescribed under this agreement and costs on an attorney and own client scale including 10% collection commission."
13.3 Notwithstanding the aforegoing, in the event of any dispute arising out of this agreement, or the implementation hereof, the Purchaser shall be obliged to continue making payment of the instalments referred to in this agreement without deduction while any such dispute may be pending."
SAFCO paid the six months instalments of P6000.00 per month and the first two instalments of P38130.60 but stopped their next cheque for payment of a further P38130.60 which was due and payable on 14th January 2000. As a

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result Kamaz requested immediate payment of the whole amount still outstanding of P610,089.60 together with interest thereon at the rate of 1% above prime rate under clause 13.2 of the sale agreement. They also asked for costs on an attorney and own client scale and for 10% collection commission. None of this was forthcoming from SAFCO. Kamaz then brought proceedings against the two respondents and applied for summary judgment. The two respondents resisted this application filing an affidavit by Mr. Nchite together with exhibits. On the 8th December 2000 Lisimba J granted summary judgment to Kamaz. SAFCO and Mr. Nchite appeal that decision to this Court.
I turn to certain other factual matters. Also on 19th April 1999 an agreement was made between Rainbow and Dwinchi whereby Rainbow undertook to do some repairs to the building at Lot 21336 free of charge. This agreement, hereafter referred to as "the Snags agreement'7 was signed by Mr. Moskovic on behalf of Rainbow and by Mr. Nchite on behalf of Dwinchi. Thereafter some work was done to Lot 21336 by Rainbow. But Mr. Nchite alleges that the work done was insufficient and inadequate and that as a result rainwater has entered the building badly damaging the wooden goods and causing great loss to property owned by SAFCO.
I now turn to consider the law applicable to granting summary judgment which is
not in dispute.
Order 34 (3) of the High Court Rules states:-

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"Upon the hearing of an application for summary judgment the defendant may -
(b) satisfy the court by affidavit.... that he has a bona fide defence to the action, such affidavit
         shall disclose fully the nature and grounds
of the defence and the material facts relied upon therefor."
The words of Order 34 were considered in the case of Du Setto (Sunnvside II)
(Ptv) Ltd and Two Others v. Financial Services Company of Botswana Ltd
CA19/93. Tebbutt J A in his judgment stated that the defendant -
"..must disclose what his defence is and set out the material facts upon which it is based and while he need not deal exhaustively with the facts and evidence relied upon to substantiate his defence or with the detail or precision required of a pleading, he must set them out with sufficient particularity and completeness to enable the court to decide whether the affidavit discloses a bona fide defence or not.
The allegations in the affidavit must not be bald, vague or sketchy. What is required is that the defence be not set out so baldly, vaguely or laconically that the court, with due regard to all the circumstances, receives the impression that the defendant has, or may have, dishonestly sought to avoid the dangers inherent in the presentation of a fuller or a clearer version of the defence which he claims to have."
This was the approach of the Court a quo. But in this Court the Appellant also relied on the case of Nedperm Bank Limited v. Verbri Products CC 1993 (3) SA 214 (W) where at 224 Zulman ] stated:
"... in appropriate cases where there is some factual basis, or belief, set out in the affidavit resisting summary judgment which

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would enable a Court to say that something may emerge at a trial, and there was a reasonable probability of it so emerging, that the Defendant would indeed be able to establish the defences which it puts up in its affidavit and which at the particular time it might have difficulty in precisely formulating or in precisely quantifying because of lack of detailed information."
The approach of the Court in that case is one that has to be closely considered here.
Dr. Lever for the Respondents also reminded the Court of the well-known case of Gilinsky and Another v Superb Launderers and Dry Cleaners (Ptv) Ltd 1978 (3) SA 807 (C). In that case Van Winsen J said (at page 811 B-D):
"It was, however, argued on appeal that the learned Judge ought to have exercised a discretion to refuse summary judgment despite his conclusion as to the inadequacy of defendants' affidavits, and this Court is prepared to consider the validity of this contention.
No doubt Rule of Court 32 (5) is couched in the form it is because the framers of the Rule were mindful of the fact that a summary judgment bears the hallmark of a final judgment. It accordingly behoves a Court to exercise great care before affording the plaintiff such an order. The Courts - quite rightly -never tire of pointing out the drastic consequences of a summary judgment order and that the natural corollary to this is that such an order will only be given if the Court can be persuaded on the evidence before it that the plaintiff has what has sometimes been referred to as an unanswerable case.
The phrase "unanswerable case" is to be interpreted as the equivalent of saying that by granting a summary judgment order there will be no miscarriage of
justice.

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The Judge a quo did not have the advantage of having Gilinskv cited before him but clearly this decision must be taken into account by this Court.
The Appellant's prime submission is that the evidence before the Court contained in the affidavit demonstrates that the controlling mind of Kamaz and Rainbow was Mr. Moskovic. When Kamaz and Rainbow did business with SAFCO and Dwinchi their affairs were inextricably intertwined, so that the affairs of one company cannot properly be decided without taking fully into account the affairs of the other. Further the submission is made that the controller of both companies was Mr. Moskovic, who misused or abused the principle of corporate personality.
Mr. Spilg for the Appellant submits tha* there are a number of separate matters
that demonstrate the truth of these proposition.
1. The sale agreement at clause 7 refers to the Seller being "entitled to remain in occupation of a portion of Lot 21336". The evidence contained in a letter from Mr. Moskovic of the 28 January 1999 discloses that Rainbow was then in occupation of a portion of the property. It seems likely that it was still in occupation on 19 April 1999 when the sale agreement was signed so it follows that when reference was made in clause 7 to the Seller been entitled to remain in occupation this was probably a reference to Rainbow and not Kamaz.

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Lesetedi sc Co, Kamaz's attorneys, wrote to Rainbow on the 29th May 1999 referring to their receiving payment of P3400,000.00 from Botswana Building Society saying "at the request of Kamaz Holdings (Pty) Ltd we issued payment to yourselves the same day."
As this letter was written to Rainbow this reference to "yourselves" would seem to be a reference to Rainbow and not Kamaz. Payment to Rainbow would be contrary to the provisions of clause 6 (d) of the agreement which requires all payments to be drawn in favour of the Seller.
All the other payments made under the sale agreement were made by SAFCO to Rainbow, also contrary to clause 6 (d) of the agreement.
In correspondence between Mr. Nchite and Mr. Moskovic about both the sale agreement and the snags agreement Mr. Moskovic wrote on Rainbow notepaper except for one letter where he used Kamaz notepaper. In each case below his signature were typed the words "managing director" and nothing more, so it was never

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clear which company he was representing except by reference to the heading on the notepaper.
5.     
Mr. Moskovic wrote to SAFCO on 16 February 2000 requiring immediate payment of the total amount due under the sale agreement citing clauses 13.2 and 13.3 of this agreement. Despite the fact that this was an agreement made by Kamaz he wrote on Rainbow notepaper and made no specific reference to Kamaz in that letter.
6.     
The two agreements were both signed on the 19* April 1999. They are inconsistent about the condition of the property. In the sale agreement the property is sold "voet stoets". In the snags agreement there are set out details about repairing the property free of charge.
7.     
The contents of the correspondence between Mr. Nchite and Mr. Moskovic were mainly about the need for repairs to be done to the building to prevent water getting in. These repairs were never done.
In his letter of 14 December 1999 Mr. Nchite wrote:

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"We are sorry to advise you that we had no change on the leaking
roof     We see no other alternative than to stop our first
payment  Immediately the roof is fixed we will issue a new
cheque."
The Appellants submit that until discovery and cross-examination it is impossible for the Appellant further to set out the irue position of Kamaz and Rainbow and Mr. Moskovic. They submit that the facts set out above strongly support their submissions.
Dr. Lever submitted that the Appellant's approach was unsustainable because it concentrated on the conduct of the companies and of Mr. Moskovic whereas the proper approach was to concentrate on the agreements. He drew attention to the sales agreement emphasising that it was in writing and that it contained no ambiguity and was backed up by the two further documents, already referred to, both of which were in writing and in proper form. Dr. Lever submits that it is trite law that each company has a separate juristic entity. He further submits that the facts disclosed here did not support the submissions of the Appellant that one company was agent of the other or that Mr. Moskovic abused or misused the principles of corporate personality. He draw the attention of the Court once again to the sale agreement pointing out that it was never varied in accordance with clause 12 and submitting that there was also a breach of clause 13.3. All these factors he submits are insurmountable obstacles to the Appellants.

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Mr. Spilg in his reply referred to the "golden rule" of interpretation. In
Coopers SC Lvbrand SC Others v Bryant 1995 (3) SA 761(A) at 768 Jourbert
JA said:
"The correct approach to the application of the 'golden rule' of interpretation after having ascertained the literal meaning of the word or phrase in question is, broadly speaking, to have regard:
(1)    
to the context in which the word or phrase is used with its interrelation to the contract as a whole, including the nature and purpose of the contract, as stated by Rumpff CJ supra;
(2)    
to the background circumstances which explain the genesis and purpose of the contract, ie to matters probably present to the minds of the parties when they contracted. Delmas Milling Co Ltd v Du Plessis 1955 (3) SA 447 (A) at 454 G-H; Van Rensburg en Andere v Taute en Andere 1975 (1) SA 279 (A) at 305 C-E; Swart's case supra at 200E-201A and 202C; Shoprite Checkers Ltd v Blue Route Property Managers (Pty) Ltd and Others 1994 (2) SA 172 (C) at 180I-J;
(3)    
to apply extrinsic evidence regarding the surrounding circumstances when the language of the document is on the face of it ambiguous, by considering previous negotiations and correspondence between the parties, subsequent conduct of the parties showing the sense in which they acted on the document, save direct evidence of their own intentions. Delmas Milling case at 455A-C, Van Rensburg's caase at 303A-C, Swart's case at 20IB, Total South Africa (Pty) Ltd v Bekker NO 1992 (1) SA 617 (A) at 624G, Pritchard Properties (Pty) Ltd v Koulis 1986 (2) SA 1 (A) at 10C-D."
I gratefully adopt this statement of principle and apply it to this case.
The Appellant in his written heads of argument also referred the Court to the case of Cape Pacific Ltd v. Lubner Controlling Investments (Ptv) Ltd SC Others

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1995 (4) SA 790. Smalberger JA dealt with "piercing the corporate veil
two passages in his judgment.
At 802 he said:

"Equally trite is the fact that a court would be justified in certain circumstances in disregarding a company's separate personality in order to fix liability elsewhere for what are ostensibly acts of the company. This is generally referred to as lifting or piercing the corporate veil. ( I shall confine myself to the use of the word piercing.) The focus then shifts from the company to the natural person behind it (or in control of its activities) as if there were no dichotomy between such person and the company (Henochsberg on the Companies Act 5th ed vol 1 at 54). In that way personal liability is attributed to someone who misuses or abuses the principle of corporate personality.
The law is far from settled with regard to the circumstances in which it would be permissible to pierce the corporate veil. Each case involves a process of enquiring into the facts which, once determined, may be of decisive importance. And in determining whether or not it is legally appropriate in given circumstances to disregard corporate personality, one must bear in mind
'the fundamental doctrine that the law regards the substance rather than the form of things-a doctrine common, one would think, to every system of jurisprudence and conveniently expressed in the maxim plus valet quod agitur quam quod simulate concipitur',
(Dadoo Ltd and Others v Krugersdorp Municipal Council (supra at 547).)
Whatever the position, it is probably fair to say that a court has no general discretion simply to disregard a company's separate legal personality whenever it considers it just to do so (Botha v Van Niekerk en 'n Ander 1983 (3) SA 513 (W) at 524A; Gower's The Principles of Modern Compaiiy Law 5th ed at 133)."
Smalberger J A also said (at 803-4):
"It is undoubtedly a salutary principle that our Courts should not lightly disregard a company's separate personality, but should strive to give effect to and uphold it. To do otherwise would

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negate or undermine the policy and principles that underpin the concept of separate corporate personality and the legal consequences that attach to it. But where fraud, dishonesty or other improper conduct (and I confine myself to such situations) is found to be present, other considerations will come into play. The need to preserve the separate corporate identity would in such circumstances have to be balanced against policy considerations which arise in favour of piercing the corporate veil.... And a court would then be entitled to look to substance rather than form in order to arrive at the true facts, and if there has been a misuse of corporate personality, to disregard it and attribute liability where it should rightly lie. Each case would obviously have to be considered at its own merits."
I also accept the definition of agency as a fiduciary relationship which exists between two persons, one of whom expressly or impliedly consents that the other should act on his behalf so as to affect his relations with third parties, and the other of whom similarly consents so to act or so acts. See Bowstead and Reynolds on Agency 16* Edition at paragraph 1 -001.
In the light of the law apposite to this case and the factual submissions made by the Appellant I find the approach by the Respondents too narrow. It does not deal convincingly with the unusual factual features presented in this case. These features indicate to me that the affairs of these two companies and of Mr. Moskovic are potentially so closely connected and intertwined that I consider it right to allow this appeal so that they can be fully investigated. I am unable to say that there would be no miscarriage of justice if this appeal were dismissed. On a strict and legalistic reading of Order 34 Dr. Lever's submission has considerable force but I am nevertheless persuaded, on taking a broad view of this case, that I should exercise my discretion in favour of the Appellant.

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The Appellants in their written heads of argument raise a number of other grounds of appeal. Apart from some analysis of the amount of the claim Mr. Spilg did not go into them in any detail in his submission nor did Dr. Lever.
As I would allow this appeal for the reasons already given I do not consider it necessary or appropriate to deal with the other grounds set out in the Appellant's heads of argument. If they are relied upon in the substantive trial of this action they can be dealt with there.
In my view this Appeal should be allowed and the order granted by the Court a quo substituted by the following order:
 1.     
The Order of the Court granting summary judgment with costs is Set aside.
 2.      The Appellants are given leave to defend the action.
 3.      The costs of the summary judgment application and of this appeal are reserved for decision at the hearing of the trial.
DELIVERED IN OPEN COURT THIS 20™ DAY OF JULY 2001
SIR JOHN BLOFELD JUDGE OF APPEAL

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I AGREE:        
P.H. TEBBUTT
P.H. TEBBUTT ACTING PRESIDENT
1 AGREE:        
N. ZIETSMAN JUDGE OF APPEAL

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