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NORTH WEST HIGH COURT, MAFIKENG

CASE NO. 797/2010

In the matter between:

BOTSHELO WATER BOARD .......................................................................APPLICANT

and

MALCOLM DESMOND BAILEY .......................................................1^ST RESPONDENT

MRS C.E. BAILEY ............................................................................2^ND RESPONDENT

REGISTRAR OF DEEDS ....................................................................3^RD RESPONDENT

HOME OBLIGORS MORTGAGE ENHANCED

SECURITIES (PTY) LTD ......................................................................4^TH RESPONDENT

____________________________________________________________________________

JUDGMENT

____________________________________________________________________________

GUTTA J.

[1] The applicant sought the following relief against the respondents:

“1.1. Pending the finalization of an action for the cancellation and setting aside of the Sale Agreement and registration of ownership of the property known as house no 1533 Setshedi Close, Unit 6, Mmabatho, in the district of Molopo, North West Province, which action shall be instituted by the Applicant within 30 days of the date of the granting of the interdict;1[sic]

(a) Respondents be interdicted and/ restrained from selling and or disposing off the property known as house no 1533 Setshedi Close, Unit 6, Mmabatho, in the district of Molopo, North West Province;

(b) Respondents be interdicted and/ or restrained from encumbering the property known as house no 1533 Setshedi Close, Unit 6, Mmabatho, in the district of Molopo, North West Province;

(c) Third Respondent be interdicted and/ or restrained from registering, adjusting any title, and/or endorsement against the title deed of the property known as house no 1533 Setshedi Close, Unit 6, Mmabatho, in the district of Molopo, North West Province;

(d) Costs of this application.

(e) Such further and/ or alternative relief as the above Honourable Court deems meet[sic].”

[2] The facts are briefly that the applicant’s predecessor in title, namely, Bophuthatswana Water Supply Authority, was the registered owner of Erf 1533, Setshedi Close, Unit 6, Mmabatho (“the property”).

[3] During 1999, the applicant’s Board of Directors, after receiving recommendations from the applicant’s Chief Executive Officer and management, resolved to dispose of its housing stock, which included the property, subject to the approval of the Minister of Water Affairs.

[4] Executive Appraisers evaluated the property and submitted a report dated 11 May 1999 to the Manager: Technical Services, North West Water Supply Authority.

[5] On 14 March 2000, the Minister of Water Affairs granted the applicant permission to dispose of its housing stock, subject to the following conditions, that:

5.1. the Board confirms in writing that they do not intend buying any houses in the future;

5.2. the sale of the houses shall not be used as a method to enrich employees and that there shall be no double benefits; and

5.3. the Board shall gradually sell the houses at market related prices and using market mechanisms, such as per open tender, conducted by a reputable independent party subject to confirmation by the full Board.

[6] The applicant, on 05 July 2001, resolved to sell all properties listed in the schedule for sums not less than that reflected in the schedule. As per the schedule, the property was valued for R135 000.00.

[7] The first and second respondents alleged that as the current occupants of the property, they were granted first option to purchase the property at the market value, given by Executive Appraisers.

[8] During 2001/2002, the applicant and the first and second respondents entered into a deed of sale for the property for the sum of R135 000.00.

[9] The third respondent, on 06 August 2002, registered transfer and ownership of the property in the name of the first and second respondents.

[10] The applicant seeks an interim interdict, to interdict the first and second respondents from selling or disposing of the property pending an action for the cancellation and setting aside of the sale agreement. The application is premised on:

10.1. fraudulent misrepresentation to the Board of the North West Water Supply Authority;

10.2. a contravention of the conditions set by the Minister of Water Affairs on 14 March 2000.

[11] Three preliminary points were raised by the first and second respondents in their answering affidavit, concerning:

11.1 the striking out of hearsay evidence;

11.2. the delay in applying for an interdict/delay in issuing summons in the main action;

11.3. the late filing of the applicant’s replying affidavit. This point was abandoned by the first and second respondents.

[12] On the first point, Mr Hitge, for the first and second respondents, alleges that:

12.1. the deponent to the applicant’s founding affidavit commenced employment on 01 July 2009 and cannot have personal knowledge of the alleged fraudulent misrepresentation made to the Board of the North West Water Supply Authority on 05 July 2001;

12.2. the applicant had two months, from the date of filing the answering affidavit, to confirm the facts in the replying affidavit but failed to do so. Nor have members of the Board of the North West Water Supply Authority or ROMLAB Consultants deposed to confirmatory affidavits;

12.3. paragraphs 6.9, 6.21, 6.22 and 6.24 do not fall within the deponent’s personal knowledge and constitute hearsay evidence, and should be struck out, alternatively disregarded.

[13] The deponent to the founding affidavit, in his replying affidavit, alleges that the allegations in his founding affidavit are based on facts and documentation in the possession of the applicant.

[14] I have perused the specific paragraphs which the first and second respondent allege constitute hearsay evidence and I am of the view that the deponent, in his capacity as Chief Financial Officer of the applicant, would have information at his disposal from which he could have gained knowledge of the facts averred to in the founding affidavit.

[15] I have had regard to the nature of the evidence, the purpose for which it was tendered and the probative value of the evidence. I am of the view that the first and second respondents will not suffer any prejudice if the evidence is admitted, and I will allow such evidence. See Section 3 of the Law of Evidence Amendment Act 45 of 1988.

[16] Accordingly, the first and second respondents’ application to strike out, alternatively disregard the paragraphs is dismissed.

[17] Turning to the second point in limine, namely, the consequence of the applicant’s delay in applying for an interdict, in enrolling the application for interdict, or delay in issuing summons in the main action.

[18] It is the applicant’s case that it only became aware of the fraudulent misrepresentation on perusal of the final ROMLAB Forensic Investigation Report. There is no date provided when the final report was received.

[19] Mr Hitge submitted that:

19.1. the time delay relates to principle and policy, that the nature of this type of relief is urgent and that the Court is asked to make an infringement on the first and second respondents’ property rights to sell their own property;

19.2. there is no explanation in the applicant’s founding affidavit or replying affidavit why the applicant has not instituted the action;

19.3 the applicant’s claim may be subject to extinctive prescription;

19.4 the applicant has had the ROMLAB report since February 2008.

[20] As stated supra, the applicant, in his replying affidavit, failed to state when the final ROMLAB report was received and only attached the draft ROMLAB report dated 06 February 2008. Mr Masilo submitted from the bar that the final report arising from the forensic investigation was only tabled in 2010. I cannot entertain evidence placed before me in this fashion.

[21] Seeing that the applicant relied on the draft forensic report in its founding affidavit, the Court can assume that on 06 February 2008, the applicant was aware that a fraudulent misrepresentation was perpetrated as alleged.

[22] More than three years lapsed since the applicant received the draft forensic report and the applicant has not instituted an action against the first and second respondents for cancellation of the sale agreement. The applicant only served the application on 16 April 2010, which is two years after it received the ROMLAB draft forensic report.

[23] Furthermore, although the applicant filed its replying affidavit on 04 August 2010, it only applied for a date from the Registrar on 22 October 2010 and the matter was enrolled for hearing on 03 March 2011.

[24] To date, the applicant has not issued summons against the first and second respondents. Mr Masilo, for the applicant, submitted that the reason for same is because there is a prayer in the notice of motion that the applicant will institute action 30 days after the Court grants the interim interdict. This argument, in my opinion, has no merit. Nothing prohibited the applicant from issuing summons against the first and second respondents.

[25] There is no reasonable explanation for the applicant’s failure to issue summons.

[26] I agree with the submission made by Mr Hitge that had the applicant instituted the action in February 2008, then the trial of the action may have been finalised.

[27] It is apposite in the circumstances to quote from the case of Juta and Co. Ltd v Legal and Financial Publishing Co. (Pty) Ltd 1969 (4) SA 443 (C) at 445c–f, where Van Wyk J stated:

“If one bears in mind the long delays for which no explanation has been given, that as far back as December the applicant had numerous clear cases of copying in his possession, according to the letter written by the applicant, and that up to now no action has been instituted, it seems that the applicant has erred in selecting this method, namely an application for an interdict pendente lite, but even if it was the appropriate procedure at the time the applicant has, by reason of the facts stated above, forfeited its rights to this temporary relief. Had it issued summons at the time when the notice of motion proceedings were instituted, the trial could already have taken place.

There is such a thing as the tyranny of litigation, and a court of law should not allow a party to drag out proceedings unduly. In this case we are considering an application for an interdict pendente lite, which, from its very nature, requires the maximum expedition on the part of an applicant.”

[28] The SCA in National Council of Societies for Prevention of Cruelty to Animals v Openshaw [2008] ZASCA 78; 2008 (5) SA 339 (SCA) at 346 cited the above case with approval. The SCA held at paragraph e–f, p. 346 that the delays are highly prejudicial to the respondent and the Court dismissed the appeal on account of the appellants’ delay in instituting the principal action to which it claimed interdictory relief is ancillary.

[29] Similarly, in casu, the property had been transferred to the first and second respondents in August 2002. As lawful owners of the property, they have the right to dispose or sell the property. The applicant wishes to make inroads on the first and second respondents’ rights as lawful owners of the property. This is clearly prejudicial to the first and second respondents.

[30] In Chopra v Avalon Cinema SA (Pty) Ltd & Another 1974 (1) SA 469 (D) at 472D–F the following was stated:

“Although the rule envisaged that the applicant would institute action within 30 days of confirmation of the rule, it is, to my mind extraordinary that the applicant should not have taken immediate steps to launch his action. Although 18 months have passed, no summons has as yet been issued. I have no doubt that if the action had been instituted shortly after the granting of the rule, it would have been dealt with by the Court and a decision given before now. The failure to press on with the main action is a ground for doubting whether the applicant has a genuine claim and it might well be regarded as an abuse of the procedure for obtaining relief pendente lite.”

[31] The conduct of the applicant in the circumstances, in failing to institute the action in 2008 or even simultaneously with the filing of the notice of motion and in failing to provide this Court with any reasonable explanation leads me to conclude that the applicant forfeited its right to the interim relief it is seeking.

[32] Notwithstanding above, I will briefly deal with the merits. Mr Hitge submitted that the applicant has not proved all the requisites for an interim interdict, namely:

32.1 a prima facie right;

32.2 a well-grounded apprehension of irreparable harm;

32.3 balance of convenience;

32.4 no suitable or alternative remedy.

[33] The applicant alleges that the resolution of the Board of Directors was based on a fraudulent misrepresentation and that the sale agreement was contrary to the condition set by the Minister, in that:

33.1. the property was sold at a price less than the market related value. The sale agreement was based on a valuation which was two years old and did not reflect the market price of the property;

33.2 the Executive Appraisers submitted fraudulent reports;

33.3. the sale was not on open tender, which would have enabled the applicant to get competent current market prices. An independent party was not appointed to conduct the sale of the property. The appellant could not sell the property by way of private treaty when the Minister’s approval was subject to a condition that the sale be conducted by an independent party by way of open tender.

[34] It is on these grounds that the applicant intends launching an action for the cancellation of the sale and an order declaring the sale agreement void ab initio.

[35] Mr Masilo submitted that the contract concluded between the applicant and the first and second respondents is voidable because of the misrepresentation committed by the applicant’s officials.

[36] The first and second respondents denied that:

36.1. the consent of the Minister for the disposal of the property was required;

36.2. the first and second respondents were enriched by the sale of the property as it was sold in accordance with the valuation obtained from the independent valuation;

36.3. a private treaty in accordance with an independent valuation report qualifies as a market mechanism and that the Minister did not only prescribe the sale by way of open tender;

36.4 the property was initially valued at R250 000.00.

[37] The first and second respondents alleged, inter alia, that:

37.1. the true market value of the property at the time of the approval was R135 000.00;

37.2. the valuator who conducted the property survey was an independent party and the Board of Directors used their own discretion in deciding to dispose of the property by private treaty based on the evaluation.

[38] The first consideration is whether the applicant has established a prima facie right, which the first and second respondents have invaded on a balance of probabilities. See Zuen v Minister of Defence [2005] ZAGPHC 16; 2005 (6) SA 446 (T).

[39] Mr Masilo attempted, in his heads of argument as well as his address to Court, to introduce a further ground for cancellation of the contract, namely, the non-compliance with the Public Finance Management Act (“PFMA”).

[40] Mr Masilo, on behalf of the applicant, submitted that as the applicant was the owner of the property, it had a prima facie right and that in terms of the PFMA, the property vested in the applicant and could not have been sold at the price for which it was sold if the applicant was made aware of the true state of facts. He submitted that the National Treasury was supposed to grant approval if the property was sold for less than the market value, and that the applicant had a clear right to receive fair value, which it did not, hence apprehension of harm had been established.

[41] Mr Masilo referred the Court to the judgment by the Supreme Court of Appeal (“SCA”) in City of Tshwane Metropolitan Municipality v RPM Bricks (Pty) Ltd 2008 (3) SA 1 (SCA), where the Court held that the failure by a statutory body to comply with provisions which the legislature has prescribed cannot be remedied by estoppel because that would give rise to a transaction which is unlawful and therefore ultra vires. He also referred the Court to the case of Municipal Manager: Qaukeni Local Municipality & Another v FV General Trading CC 2010 (1) SA 356 (SCA), where the Court held that a municipality was allowed to approach Court to review a decision to award a contract where the contract was concluded in breach of prescribed procurement procedures.

[42] The applicant cannot introduce new grounds for cancellation of the contract in his heads of argument and from the bar, and the Court accordingly will disregard any reference to the PFMA.

[43] The Court has considered the allegations made by the respondents in deciding whether the applicant has a prima facie right. Clayden J in Weber v Mitchell 1948 (1) SA 1186 (W) at 1189 stated that the “right to be set up by an applicant for a temporary interdict need not be shown by a balance of probabilities. If it is prima facie established though open to some doubt” that is enough.

[44] The prescribed manner to determine whether a prima facie right has been made out, has been formulated as follows:

“The proper manner on approach is to take the facts set out by the applicant, together with any facts set out by the respondent which the applicant cannot dispute, and to consider whether, having regard to the inherent probabilities, the applicant should on those facts obtain final relief at the trial. The facts set up in contradiction by the respondent should then be considered. If serious doubt is thrown on the case of the applicant he should not succeed in obtaining temporary relief, for his right, prima facie established may only be open to ‘some doubt’.”

[45] It is open to some doubt whether the applicant can obtain final relief at the trial when considering the facts set out by the applicant in his founding affidavit, together with the facts set out by the respondents which the applicant cannot dispute, as set out in more detail infra.

[46] The basis for the applicant’s setting aside of the contract of sale is the alleged fraud committed not by the first or second respondent but by a third party.

[47] The allegation that the executive appraisers who were appointed by the applicant submitted fraudulent reports in respect of the value of the property is denied by Mr André van der Westhuizen, the sole member of Executive Appraisers CC.

[48] Two years after the Executive Appraisers submitted their valuation, the Board of the North West Water Supply Authority approved the sale on the market value as provided by Executive Appraisers. There is no evidence on the papers before me to suggest fraud.

[49] The question is whether the person who perpetrated the alleged fraud was an independent person, or a person acting in collusion with or as an agent of one of the parties. See Karabus Motors (1959) Ltd v Van Eck 1962 (1) SA 451 (C) at 453.

[50] The applicant fails to state clearly who perpetrated the alleged fraud, and this throws some doubt on its bona fides and prospects of success in the main action.

[51] It is not clear on the papers, if the person who committed the fraud was an independent person or acting in collusion with another. The applicant is silent on whether Executive Appraisers were acting independently or as agents for the North West Water Supply Authority.

[52] I am accordingly doubtful that the applicant has established a prima facie right.

[53] The second consideration is whether the applicant established a well-grounded apprehension of irreparable harm.

[54] Mr Masilo submitted further that the applicant has placed the property on the open market for R160 000.00 and the applicant will suffer irreparable harm if the property is sold as the applicant will not be able to seek redress from the Court for the cancellation and setting aside of the sale agreement.

[55] The sale of the property appears to be the main reason why the applicant avers that it will suffer irreparable harm as it will in essence defeat the applicant’s action for the cancellation of the sale agreement.

[56] The first and second respondents deny that the property has been put up for sale, and also allege that the market value is not more than R750 000.00, which valuation is corroborated by Mr van der Westhuizen, a professional valuator.

[57] The applicant, in the replying affidavit, merely denies that the first and second respondents do not intend selling the property instead of satisfying the Court of the true position.

[58] The fact that the first and second respondents dispute the sale of the property, leads me to conclude that the applicant had not discharged the onus to prove a well-grounded apprehension of irreparable harm.

[59] In considering whether the balance of convenience favours the granting of the interim relief, the Court must weigh the prejudice to the applicant if the interim interdict is refused against the prejudice to the respondent if granted.

[60] It is trite that this requires a consideration of the applicant’s prospects of success in the main action.

[61] The Court has a discretion when granting an interim interdict, “The stronger the prospects of success, the less the need for such balance to favour the applicant, the weaker the prospects of success the greater the need for it to favour her”. See LAWSA Vol. 111 paragraph 21.

[62] Mr Masilo submitted that the balance of convenience favours the granting of the order for the following reasons:

62.1. The contract of sale was concluded as a result of a fraudulent misrepresentation;

62.2 The applicant did not receive the fair value of the property;

62.3. The applicant may not be able to be restored to the position in which it was before the misrepresentation was made;

62.4. An unlawful and invalid transaction may not be corrected as the respondents may dispose of or further encumber the property.

[63] Mr Masilo submitted further that the prospects of success favour the applicant because of the non-compliance with statutory provisions and that the doctrine of estoppel does not operate.

[64] For the applicant to succeed in the main action for the cancellation and setting aside of the sale agreement, the onus will be on the applicant to prove that the applicant was induced to enter into the contract by a fraudulent misrepresentation.

[65] Where only two parties were involved, the innocent party may rescind the contract as a result of misrepresentation. But, in circumstances where the misrepresentation was made by a third party, then the general principle is that when no one is to blame, the loss must lie where it falls, no rescission is permitted in these circumstances. See The Law of Contract in South Africa RH Christe 4^th Edition p. 314.

[66] In the case of Karabus Motors (1959) Ltd v Van Eck 1962 (1) SA 451 (C) at 453, Watermeyer J said the following:

“It is a general rule of our law that if the fraud which induces a contract does not proceed from one of the parties, but from an independent third person, it will have no effect upon the contract. The fraud must be the fraud of one of the parties or of a third party acting in collusion with or as the agent of one of the parties. (See Wessels Law of Contract para 1122).”

[67] As the alleged fraud was not committed by either the first or second respondent, the applicant’s prospects of successfully setting aside the deed of sale on the grounds of fraudulent misrepresentation are slim.

[68] Further, the applicant as the lawful owners of the property and innocent parties stand to be prejudiced by the interim interdict when they were not party to any fraudulent misrepresentation.

[69] Accordingly, the balance of convenience does not favour the granting of the interim relief.

[70] On the final requirement of an interim interdict, I am of the view that the applicant has an alternative remedy, namely, a claim for damages against the persons who allegedly committed the fraudulent misrepresentation. See Pratman & Another v Edwick 1951 (1) SA 443 (A) at 449.

[71] On the merits, I am of the view that all the requisites for the granting of an interdict have not been met.

[72] Accordingly, I grant the following order:

a) The application is dismissed;

b) The applicant is to pay the first and second respondents’ costs.

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N. GUTTA

JUDGE OF THE HIGH COURT

APPEARANCES

DATE OF HEARING : 03 MARCH 2011

DATE OF JUDGMENT : 19 MAY 2011

COUNSEL FOR APPLICANT : ADV M.H. MASILO

COUNSEL FOR 1^ST & 2^ND RESPONDENTS : ADV M.G. HITGE

ATTORNEYS FOR APPLICANTS : KGOMO MOKHETLE & TLOU ATTORNEYS

(Instructed by WAKS SILENT INC.)

ATTORNEYS FOR 1^ST & 2^ND RESPONDENTS : SMIT STANTON INC.

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