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Flexi Holiday Club v La Lucia Sands Shareblock Limited (90/02/01) [2006] ZAKZHC 6 (31 March 2006)

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REPORTABLE

IN THE HIGH COURT OF SOUTH AFRICA

DURBAN AND COAST LOCAL DIVISION

CASE NO. 4990/2002

In the matter between:

FLEXI HOLIDAY CLUB Applicant

and

LA LUCIA SANDS SHAREBLOCK LIMITED Respondent

________________________________________________________

J U D G M E N T

Delivered on: 31st March 2006


PATEL, J. :

[1] If necessity be the mother of invention, the leisure industry has creatively sought refuge in her ample bosom. Various schemes have been devised whereby holiday makers may enjoy a week or two of holidays both at home and abroad by purchasing time-share for designated weeks in particular resorts. In this country the time-share industry is regulated by the Property Time-Sharing Control Act No. 75 of 1983 (‘The Act’). This Act, according to the applicant’s submission, has to be read together with the Share Blocks Control Act No 59 of 1980. The essential feature of the time-share scheme is that the owner buys shares in an immovable property which entitles him and his heirs to use a designated part of the immovable property for a fixed time in the year.


[2] This scheme is similar to a share-block scheme whereby the owner is entitled to an undisturbed use of a designated portion of the immovable property in a building not only during his lifetime but is able to devolve his shares on to his heirs. It differs from a sectional title scheme in one essential respect in that the designated area purchased under sectional title is transferred in ownership whereas both in a time-share scheme and in a share block scheme the ownership of the immovable property vests in another legal entity.


[3] The similarity between these schemes is that body corporate rules or house rules govern the use of the property and a levy is payable for the maintenance of common areas, payment of municipality rates and insurance premiums. An individual shareholder by virtue of his ownership of a share block and by virtue of the terms of the Use and Occupation Agreement, relating to that share block, will have the right to occupy a particular suite or apartment for a particular week each year. By and large, he uses the week or two as holiday accommodation each year.


[4] In order to give time-share owners greater flexibility a further scheme has been devised whereby owners of time-share are able to transfer their time-share or share blocks in particular resorts to companies running holiday clubs in exchange for points. These points enable the owner of a time-share to enjoy a holiday in resorts other than the one in which he owns a time-share.


[5] The applicant, Flexi Club, is one such holiday club company. The respondent, La Lucia Sands Share Block Limited owns a holiday resort development in Umhlanga Rocks, known as La Lucia Sands. Ms Mary Rose Farrell (‘Farrell’) has the right to occupy the sixth and seventh weeks of the year relating to unit 30 in La Lucia Sands. Farrell wishes to transfer these share blocks to the applicant. The respondent has refused to transfer these share blocks.


[6] The applicant seeks an order directing the respondent to do all things necessary to transfer these share blocks to the applicant. The further relief foreshadowed in paragraphs 2, 3, 4 and 5 of the Notice of Motion is consequent on the grant of the aforesaid first order. Farrell has not been made a party to these proceedings nor has she filed an affidavit in support of the application. A conditional counter-application brought by the respondent was abandoned at the hearing by counsel for the respondent so was any reliance on the supplementary heads filed by the respondent. It was also made common cause that all of La Lucia Sands is used as residential accommodation.


[7] The essential issue therefore which remains for determination on the papers is whether the consent of the respondents is required for the transfer of the share blocks from Farrell to the applicant. The relief, in essence, is to force the respondent to do what is necessary to transfer these share blocks from Farrell to the applicant and to recognise the applicant as cessionary of the Use and Occupation Agreement relating to these share blocks.


[8] It is not the applicant’s case that it sought the respondent’s consent for the said transfer and the respondent unreasonably refused the same. This application is premised on the applicant’s clear understanding that it does not need the consent of the respondent. All that it needs to do is to ask the respondent to sign the necessary transfer documents.


[9] It is not in dispute that the applicant previously owned certain other share blocks in the respondent which were sold by the respondent in order to recover unpaid levies. It would appear that the bad credit record of the applicant may be the reason why the respondent has adopted the position which it has. This, however, is not clear from the papers. The respondent’s case as presented in argument is that even if Farrell wanted to sell the shares to a person or an entity other than the applicant, its consent was still required.


[10] The respondent’s opposition is premised on the essential point that in law it has discretion whether to consent to the transfer or not. The alternative would mean that the respondent would be forced to transfer to a company which had a bad credit record or the identity of the payer of the levies could not be established because it was a loose association of people or, put at its worst, it could be an entity which had brothel keeping as its primary activity. The respondent’s case is therefore that its consent was required as a matter of form.


[11] It was further argued on behalf of the respondent that the application must fail because no case is made out on the papers that the applicant’s consent was indeed sought because the only party who could properly ask for the consent to transfer was Farrell, the owner of the share blocks. She is neither a party to this litigation nor has an affidavit been filed on her behalf. Although there is merit in this submission, the respondent cannot succeed on this point if the interpretation constrained for by the applicant is to succeed, provided the applicant has placed before the respondent documentary evidence indicating Farrell’s intention to transfer these share blocks.


[12] The applicant’s submission in its essential formulation is that as a matter of law the respondent’s consent is not required. The Articles of Association of the respondent read with the Use Agreement does not require the consent of the respondent for the transfer of the shares. Put at its highest, the respondent has no discretion whether to transfer or not. Once an application is made to it, even by a party other than owner of the share blocks concerned, it must effect transfer provided of course there is supporting documentation that the owner wishes to sell her shares. If it fails to do so it can be forced to do so by an order of court.


[13] The starting point for the present enquiry is the relationship between a shareholder and a company. The rules governing an association of members in relation to a company’s affairs are governed by the Articles of Association and the Memorandum. Shares are indeed traded daily in the market without the consent of the company concerned. In a traditional shareholder/company relationship, the shareholder enjoys a personal right against the company to share in its profits by receiving dividends and perhaps on liquidation to share in its eventual assets if any.


[14] In Liquidators Union Share Agency v Hathorn 1927 AD 240 at 251 Innes C J said:


As already remarked, a share is a ius in personm, the ownership of which passes by cession in due form.’


As a rule therefore a share places no obligation on its holder and is freely transferable without the consent of the company provided the cession is valid. In Estate Milne v Donohoe Investments (Pty) Ltd and Others 1967(2) SA 359(A) at 370F the Court stated:


‘The question is essentially one of construction of the relevant articles applicable; and the prima facie right of a shareholder to deal freely with his shares must perforce yield to contrary provisions ascertained on a correct construction of the company’s articles.’

[15] There is, however, a fundamental difference. As far as share blocks in the so called ‘time share’ company is concerned, a registered shareholder has both duties and obligations. His obligations are spelt out in the Articles of Association and in the Use and Occupation Agreement. The holder of shares has an obligation to pay levies and in an appropriate case and in terms of Sect 14 of the Share Blocks Control Act may have a loan obligation to the share block company. This much was common cause between the parties. Moreover, sect 12(d) of the Act makes express provision for the Minister of Trade, Commerce and Tourism to make regulations:


Regarding the control over and the operation of property time–sharing schemes, including the payment of levies by purchasers and the establishment of levy funds.’

[16] These obligations are not in dispute which of necessity means that every sale of a share block would require an assignment of the seller’s right and obligations as envisaged by the Articles of Association and the Use and Occupation Agreement. This would entail a cession of rights and a delegation of the obligation of the seller to the purchaser.


[17] It is a trite proposition of our common law that a delegation of obligations requires the consent of the creditor. As was said by Botha J A in Dage Properties (Pty.) Ltd. v General Chemical Corporation Ltd. and Another 1973 (1) SA 163 (AD) at 173 H :


Parliament must be assumed to know the law, and to have been aware of the fact that there are many contractual rights which entail a delectus personae and cannot be ceded without the debtor’s consent, (Wessels, Law of Contract, 2nd ed., para 1696, 1699-1701, 1711-1714), and that obligations are in law incapable of assignment without the consent of the creditor.’


[18] In Jacobz v Fall 1981(2) SALR 863 (CPD) a plaintiff purchaser sought to compel the defendant seller of a share block to transfer such share in the share block company to it. On an argument on an exception Marais AJ, as he then was, found (see page 872 B) that what the plaintiff was in essence seeking was to compel specific performance, and that it could not do so unless a further allegation was made by the plaintiff in its particulars of claim that the consent of the creditor, namely the share block company, had been sought and obtained. This case is not only apposite but it reinforces the common law position. In keeping with the applicant’s position there is no allegation in the founding papers that the consent of the respondent was ever sought or obtained.


[19] The creditor can waive his consent to the delegation of the obligations as required by the common law if one can tease out or imply such waiver from the language of the Articles of Association or Use and Occupation Agreement or for that matter any other agreement between the parties or an act of Parliament. No other agreement is constrained for by the parties. The Share Blocks Control Act is silent on this. No other act of Parliament been relied upon by the applicant. The search for an express or implied waiver must therefore be confined to the language of the Articles of Association and the Use and Occupation Agreement.


[20] Before I proceed to look at the relevant provisions of the Article of Association and the Use and Occupation agreement I might, in passing, state that it is settled law that there is a presumption against the waiver of an existing right (see Woolfsons Credit (Pty.) Ltd. (Formerly Vavasseur (S.A.) Credit (Pty.) Ltd.) v Holdt 1977(3) 720(N) at 724F-G). Where a document on which the claim of waiver is based is capable of two interpretations, the interpretation that should be preferred is the one that does not take away from existing rights. The onus thus rests on the applicant to prove that on a proper interpretation of the above documents the respondent has waived the right to consent.


[21] Counsel for the respondent submitted that on a proper construction of the respondents Articles of Association, there appears a clear and express indication that the right of the respondent to consent has remained intact. Article 14 and 15 read together deal with the circumstances under which shares become transferable, including the circumstance under consideration, namely, where a shareholder sells his shares. Section 15 (11) provides:


‘… but the directors shall have the same right to decline or suspend registration as they would have had in the case of transfer of the shares by the member in whose name they stand registered.’


Stripped of the inelegancy in the drafting of these clauses, Article 14 read together with Article 15, in particular Article 15(ii) preserves the director’s right to decline or suspend the registration.


[22] It is also the respondent’s contention that Article 91 of the Articles of Association further reinforces this position. Article 91 provides:


A member shall only be entitled to sell and transfer his share to another

person if –

  1. the member and the proposed transferee of the shares have entered into an agreement complying with the Share Blocks Control Act, including without limitation the provisions of section 16 and of section 17 read with Schedule 2 of the Share Blocks Control Act;

  2. the member and the proposed transferee have entered into an Agreement of Cession of the Use Agreement in such form as is from time to time required by the directors of the company, whereby the proposed transferee has duly assumed all the transferor’s obligations to the company;

  3. in the case of a person who has purchased shares on suspensive conditions and has not yet taken transfer of those shares, such person shall in addition, furnish to the company the written consent of the member in whose name the shares are registered to the sale of those shares, the transfer thereof and the cession of his rights in the Use Agreement.’


[23] The above section of the Articles has not in express language done away with the common law requirement that a creditor’s consent is required for an effective delegation to take place. Can it be said that this section has, by implication, done away with this requirement. In my view, it has not. All that this Article does is to lay down pre-requisites or the minimum requirements which the seller has to comply with.


[24] This view is fortified by the wording of Article 91(2) which requires ‘the proposed transferee to duly assume all the transferors obligations to the company’. The word ‘duly’ is defined in the Oxford English Dictionary to mean:


in accordance with what is required or appropriate; following proper procedure or arrangement.’


In James v Mendelowitz 1984 (4) SALR 383 (CPD) at 390 I the court held that ‘“duly” means, legally and linguistically, “as was due”, “in fitting, proper manner’.


[25] Clause 13 of the Use Agreement (Annexure C) which deals with cession of rights under the agreement further fortifies this position. The ultimate sentence reads:


Before transfer is effected into the name of the transferee the company shall require satisfactory proof that the member has ceded his right, title and interest in and to this agreement to the transferee, and that the transferee has duly assumed all the transferor’s obligations to the company.’


The meaning of the words ‘duly assumed’ has already been discussed above. This clause, however, also requires that ‘the company shall require satisfactory proof’ that there has been a legally valid cession and a delegation. These facts have to be brought to the mind of the company and the company must either be satisfied or at least have an opportunity to be satisfied that the transferee has duly assumed the obligations.


[26] That in my view is the end of the case. I do not propose to deal with the applicant’s further arguments although they have the seductive appeal of commercial expediency. The applicant has failed to make out a case that the respondent’s consent is unnecessary.


[27] In the result, the application is dismissed with costs.




__________________________

C.N. PATEL

JUDGE OF THE HIGH COURT

DURBAN AND COAST LOCAL DIVISION


Date of hearing : 22 April 2005

Date of Judgment : 31 March 2006

Counsel for applicant : Mr. R.A.K. Vahed S.C.

Instructed by :

Hornby, Smyly, Glavovic Inc.

Applicant’s Attorneys

4 Burnside

1 Builders Way

HILLCREST

Kwa-Zulu Natal

Counsel for respondent : Mr. R.J. Salmon

Instructed by :

Janice Sellick

Respondent’s Attorneys

19 Oakleigh Drive

Berea

DURBAN