|
|
[Home]
[Databases]
[WorldLII]
[Search]
[Feedback]
South Africa: Supreme Court of Appeal |
[Database Search] [Name Search] [Recent Decisions] [Noteup] [Help]
In the matter between:
Wimbledon Lodge (Pty) Ltd Appellant
and
Stephen Malcolm Gore NO First Respondent
Robert John Walters NO
Second Respondents
Trevor Philip Glaum NO
Harbour’s Edge Body Corporate Third Respondent
Before: Olivier, Schutz, Zulman, Streicher JJA and Heher AJA
Heard: 7 March 2003
Delivered: 31 March 2003
Sectional titles – disparity between deeds of sale and registered sectional plan – common areas lost – fraud – voting – use of nay votes gained by fraud – resolution deemed passed – appointment of curator to body corporate – whether sum of deeds of sale equivalent to pre-incorporation contract for benefit of body corporate – powers of same.
_______________________________________________________________
JUDGMENT
_______________________________________________________________
SCHUTZ JA
[1] The applicant below (now appellant) complains that a fraud was committed on him, and others, by one Scharrighuisen. The latter’s estate has been sequestrated and two of the corporations which he used for his schemes have been liquidated. The first two respondents (below and here), Messrs Gore, Walters and Glaum, are liquidators of the one or the other of these corporations.
[2] The appellant, Wimbledon Lodge (Pty) Ltd (‘Wimbledon’), owns a unit in a sectional title development on erf 4600 Gordon’s Bay. The third respondent (here and below) is the Harbour’s Edge Body Corporate, which controls the scheme. Wimbledon is owned by one Cuninghame, who deposes on its behalf. His accusation is that a large part of the common property was secretly appropriated by Scharrighuisen for the benefit of the two corporations which he controlled. They are Casisles Coastal Property Investments CC (‘Casisles’) (which was the ‘developer’ in terms of the Sectional Titles Act 95 of 1986 – ‘the Act’) and Harbour’s Edge Commercial Properties Holding (Pty) Ltd (‘Harbour’s Edge’).
[3] The building was not intended to be occupied by the unit-holders. It was to be used as a hotel. The rentals earned were to be placed in a pool which, after expenses had been met, was to be distributed according to individual participation quotas. According to the plan which was annexed to the deeds of sale, the common property was to include restaurants, kitchens, a parking basement, a squash court, necessary service areas and much more. That plan showed that there would be 86 sections with a total area of 5 886 square metres. It is not Wimbledon’s case that a fraudulent misrepresentation was made when the sales took place, in the sense that Scharringhuisen then already intended to cheat buyers. Wimbledon’s case is that the sectional title plan which Scharrighuisen had registered in the Deeds Registry subsequently, without informing buyers, provided for 120 sections with a total area of 14 420 square metres. The extra area was achieved, not by enlarging the building, but by the appropriation of a large part of the common property. Of the 34 extra sections, 10 are registered in the name of Casisles and 12 in the name of Harbour’s Edge. How the 12 sections reached Harbour’s Edge (these are the valuable ones) we are not told, as, despite a challenge to disclose, there came only the statement that the sections ‘were purchased’ from Casisles. As the entries in the Deeds Registry stand those 22 sections are owned by the one or the other of the two corporations, now in liquidation, and their area has been subtracted from the common property of the other unit-holders. It is these doings that Cuninghame describes variously as a fraud or a theft. The exact legal categorisation hardly matters. These allegations stand essentially unchallenged.
[4] Section 41 of the Sectional Titles Act 95 of 1986 provides:
‘Proceedings on behalf of bodies corporate.-(1) When an owner is of the opinion that he and the body corporate have suffered damages (sic) or loss or have been deprived of any benefit in respect of a matter mentioned in section 36 (6), and the body corporate has not instituted proceedings for the recovery of such damages, loss or benefit, or where the body corporate does not take steps against an owner who does not comply with the rules, the owner may initiate proceedings on behalf of the body corporate in the manner prescribed in this section.
(2) (a) Any such owner shall serve a written notice on the body corporate calling on the body corporate to institute such proceedings within one month from the date of service of the notice, and stating that if the body corporate fails to do so, an application to the Court under paragraph (b) will be made.
(b) If the body corporate fails to institute such proceedings within the said period of one month, the owner may make application to the Court for an order appointing a curator ad litem for the body corporate for the purposes of instituting and conducting proceedings on behalf of the body corporate.
(3) The court may on such application, if it is satisfied –
(a) that the body corporate has not instituted such proceedings;
(b) that there are prima facie grounds for such proceedings; and
(c) that an investigation into such grounds and into the desirability of the institution of such proceedings is justified,
appoint a provisional curator ad litem and direct him to conduct such investigation and to report to the Court on the return day of the provisional order.
(4) The Court may on the return day discharge the provisional order referred to in subsection (3), or confirm the appointment of the curator ad litem for the body corporate, and issue such directions as it may deem necessary as to the institution of proceedings in the name of the body corporate and the conduct of such proceedings on behalf of the body corporate by the curator ad litem.’
[5] The relief that Wimbledon seeks is the appointment of a curator to the body corporate, so that he may investigate these events, and, if so advised, take action against Casisles and Harbour’s Edge, aimed at somehow restoring the position. The three liquidators resist this claim on a variety of legal, not factual, grounds, mainly directed against Wimbledon’s locus standi to apply for the appointment of a curator or against the body corporate’s locus to bring the proceedings contemplated. Van Reenen J, sitting in the Cape Provincial Division of the High Court, held in favour of the respondents. The body corporate, acting through its trustees, did not resist the application.
[6] It will be observed that one of the jurisdictional facts provided for in s41(1) is, that an owner be of the opinion that he and the body corporate ‘have been deprived of any benefit in respect of a matter mentioned in section 36 (6)’.
[7] Section 36 (6) provides:
‘The body corporate shall have perpetual succession and shall be capable of suing and of being sued in its corporate name in respect of –
(a) any contract made by it;
(b) any damage to the common property;
(c) any matter in connection with the land or building for which the body corporate is liable or for which the owners are jointly liable;
(d) any matter arising out of the exercise of any of its powers or the performance or non-performance of any of its duties under this Act or any rule; and
(e) any claim against the developer in respect of the scheme if so determined by special resolution.’
[8] Van Reenen J found against Wimbledon, inter alia on the ground that no special resolution in terms of s36(6)(e) to sue Casisles had been passed, which is indeed the case. The ‘developer’ was, as stated, Casisles, so that against it a special resolution was required. An ordinary resolution to allow Harbour’s Edge to be sued was also rejected. The uncontradicted evidence of Cuninghame makes it plain that if it had not been for the improprieties to be described below the ordinary resolution would have been passed. Whether, but for them, the special resolution would also have been passed is nowhere clearly stated.
[9] Confining myself then to the ordinary resolution, in order to decide whether it was properly rejected one must have regard to how the voting went, and why it went the way it did. At the general meeting 44 unit-holders voted in favour of a resolution that the body corporate take action against Scharrighuisen’s two corporations. All the trustees, who included Cuninghame, voted in favour of the motion. But their votes were swamped by the votes that Casisles and Harbour’s Edge had acquired in the way described, plus the contrary votes of six other unit-holders. Those six were all controlled by one Krecklenburg, a chartered accountant who worked for Scharrighuisen. Had the two corporations not voted against it, the resolution would have been carried. (In terms of the definition contained in s1 of the Act a special resolution requires a three-fourths majority both in number and in value. What the requirements for an ordinary resolution may be depends upon s32(3) and (4) of the Act and upon the content of the rules. We do not have the rules before us.)
[10] Can this situation be countenanced? I think not. I am content to start with the Roman Law. In D50.17. 134.1 Ulpian tells us ‘Nemo ex suo delicto meliorem suam condicionem facere potest’, rendered in Watson’s translation as ‘No one is allowed to improve his own condition by his own wrongdoing’. This fundamental principle has been applied expressly at least twice in this court, in Principal Immigration Officer v Bhula 1931 AD 323 at 330 and Parity Insurance Co Ltd v Marescia and Others 1965 (3) SA 430(A) 433 and 435. It finds exact application to this case. Scharrighuisen, through his corporations, by means of his fraud, obtained at least apparent ownership of the contested sections. That carried with it the apparent right to direct the votes of the owners of those sections. This vote was then used to smother an attempt to reverse the consequences of the fraud; ie his successors, the liquidators, in casting their votes were using his estate's strengthened position, obtained by fraud, to maintain the hold over those sections.
[11] Not confining oneself to the language of delict or wrongfulness, one finds the quoted precept scattered about the law. The principle of fictional fulfilment in contract is an example. If a party is under a duty not to prevent the fulfilment of a condition, he is treated as if has been fulfilled, if he fails in that duty. Similarly the principle that a provision in a contract that has been obtained by fraud may be rectified: Weinerlein v Goch Buildings Ltd 1925 AD 282 at 288, 292 and Benjamin v Gurewitz 1973 (1) SA 418(A) at 422A, 425if-426A.
[12] Applying the principle, the case must then be seen as if the resolution had been passed. But the trustees, whilst finding themselves among the 44 aye voters, and being apparently sympathetic to Cuninghame’s cause, consider themselves to be incompetent to bring action because of what they assumed to be a vote binding them not do so. Perhaps it would have been wise for the trustees and/or Cunninghame to have proceeded to court, before the meeting or during its adjournment, in order to obtain a determination that the votes of the liquidators and the six were not to be counted against the proposed resolutions. And I would suggest to the trustees and Cunninghame that they may choose to dispense with the services of the curator to be appointed once this court has made it clear that the resolution should be treated as having been passed. I shall make provision in the order at the end of this judgment to facilitate agreement along these lines. However, as things stand now the body corporate declines to institute action and the question remains whether Wimbledon is entitled to have a curator appointed. Although I have confined myself to the clear case of the ordinary resolution, the reasoning is equally applicable to a special resolution procured by reliance on a voting base derived from fraudulent conduct. There is no reason why the curator should not investigate this question and, if the established facts justify action against the developer, deal with the matter in his report to court.
[13] The jurisdictional facts that an owner must establish in order to entitle him to apply for the appointment of a curator are set out in s41(1). They are:
1. The owner must hold an opinion.
2. The opinion must be either (a) that he and the body corporate have suffered damages (again sic) or loss or (b) that he and the body corporate have been deprived of a benefit in respect of a matter mentioned in s36(6).
3. The body corporate has not instituted proceedings for recovery.
[14] The third requirement has been established. That this should be a requirement seems to me to be a necessary counterpart to the sections of the Act divesting individual owners of control and vesting it in the body corporate. If the body corporate is seen not to do its duty, then an individual’s powers may, to an extent, be restored.
[15] As to the first requirement, it is clear that Wimbledon, through the mind of Cuninghame, held the opinion. I shall assume, without deciding the point, that the mere existence of a subjective opinion is not enough, but that there is also an implicit requirement that such an opinion can reasonably be held. The argument for the respondents is essentially that on the facts of this case it is not legally possible to reasonably form the opinion. Whether this is correct is bound up with the enquiry into the second requirement, which is concerned with the content of the opinion.
[16] The first legal argument is that neither the body corporate nor the trustees, as opposed to individual members, may pursue an action against the developer or his creatures, based on a difference between what he has sold to them, on the one hand, and the building as actually built according to the registered sectional title plan – this in fraud of them. The argument is that when the corporation comes into being it does so to administer what has been built according to the registered plan, so that it has and can have no concern with what has gone before. (But note that fraud in relation to the parking area may have been practised after the body corporate was formed.) I do not agree with the argument. In the first place, s36(6)(e) expressly contemplates a developer being sued by the corporation (or failing it by a curator) ‘in respect of the scheme’. In the second place, section 1 defines a ‘scheme’ as a ‘development scheme’ and the latter is defined as meaning ‘a scheme in terms of which a building or buildings situated or to be erected on land . . . is . . . for the purposes of selling . . . to be divided into two or more sections . . .’ (emphasis supplied). So the scheme may exist before even the building has been erected. See also the definition of ‘developer’ in s1 in which the phrase ‘or to be erected’ also appears. In the legislative contemplation it would have been strange if the developer could be sued by the corporation for deviation from the registered plan but not for deviation from the plan on which the whole development was sold.
[17] Indeed it seems to me that a developer’s position is closely analogous to that of a promoter of a company, who owes fiduciary duties to the company being formed before it is able to function for itself. These duties bear close comparison with the duties of directors once the company is operational. A promoter’s position was described by Bristowe J in In re The Contributories of the Rosemount Gold Mining Syndicate in Liquidation 1905 TH 169 at 196:
‘It is well established that promoters stand in a fiduciary relation to the company which they promote. They are not merely its parents, but they are its creators. They fashion and mould it according to their will. They endow it with powers or limit its activities in any manner they think fit. And they cannot complain if the law makes them (as it does) the guardians and protectors of its infant life. The duties and obligations which this position of trust places upon promoters are (to use the words of LINDLEY, LJ, IN Re Olympia Limited [1898] 2 Ch 165) “imposed by the plainest dictates of common honesty as well as by well-settled principles of company law”. They include the duty of not making a secret profit at the company’s expense, and also (if they wish it to enter into contracts with or make payments to themselves) to furnish it with a board of directors, “who can and do exercise an independent and intelligent judgment on the transaction” (see Erlanger v New Sombrero Phosphate Co 3 AC 1236 per Lord CAIRNS). It was held in the Erlanger case that a contract for sale between the promoters and the company could not stand where the company’s concurrence had been obtained by means of a board of directors who were merely the nominees and creatures of the promoters.’
[18] These remarks seem to me apposite to the developer of a sectional title scheme. According to the rule in Foss v Harbottle (1843) 2 Hare 461, 67 ER 189, it is the company (in this case the corporation) and not individual members, which should, in the first place and unless other factors be present, hold a developer responsible for his misdeeds. It is then only right (as I think the statute provides) that the individuals complaining should have the advantage of the information and the funds of their corporation in pursuing an allegedly errant developer.
[19] Supporting the conclusion that the developer in this case should be equated to a promoter, is the fact, in my view, that there was a pre-incorporation contract, in part for the benefit of the third party yet to come into being, the body corporate, which would come into being upon the registration of the transfer of the first unit. That contract, in my view, consists of the sum of the contracts between the developer and individual buyers and it explicitly includes in what was to be received those parts of the common property which have since been excluded. It is suggested that a difficulty may arise if it emerges that all the plans attached to deeds of sale were not the same. That has not been raised by the respondents, but if there is indeed a problem then the curator may have to think about it. The possibility is no reason for refusing relief now. As far as acceptance of the benefit goes, it is plain that the body corporate implicitly accepted the benefits and duties of the pre-incorporation contracts.
[20] The other legal argument for the respondents is that because it is the unit-holders and not the corporate body who own the common property (in undivided shares), there can be no talk of the corporation having suffered damage or loss or having been deprived of a benefit, upon its not receiving a large part of the hitherto common property. I am of the view that in order to satisfy the subsection these adverse events must be suffered not only by the applicant for the appointment of a curator but by the body corporate as well, for the reasons that the ‘and’ in ‘he and the body corporate’ not only ordinarily conveys a conjunctive meaning, but that the word is twice succeeded by the plural verb ‘have’, indicating that both he and the body are being referred to. Moreover, one would hardly expect that the legislature would require the body corporate to sue in matters which did not concern it.
[21] Does the fact that the body corporate arguably (I leave the matter open) does not own the common property in the technical legal sense mean that it does not suffer loss in a case like this, where it has not received an important part of what it was supposed to receive, so that it might control and use it? I think not. Again ignoring the legal technicalities of how a sectional title scheme is structured, the substance of the matter is that the body corporate is little more than the aggregation of all the individual owners. Their good is its good. Their ill is its ill. The body corporate is not an island, whatever the law of persons may say. Most of the rent that it earns may ultimately go to the owners, but in the meantime it collects the rent and uses a part of it to perform its manifold duties of control, administration and management, of not only the common property but of the scheme as a whole – see sections 36(4), 36(6), 37, 38 and 39.
[22] It will be observed that one of the subsections which I have just listed is s36(6), already quoted. Section 41(1) states as an express alternative matter upon which an opinion may be formed, the deprivation of a benefit in respect of a matter mentioned in that subsection. Does the contemplated action fall within any of its subdivisions? Let me start with s36(6)(a), which confers the power to sue in respect of ‘any contract made by it’. I have already explained why, in my opinion, there is a pre-incorporation contract in existence which confers on the body corporate benefits with regard to the common property. If that be so then (a) is satisfied.
[23] It this be not correct, another basis is provided by s36(6)(d), which gives power to sue in respect of ‘any matter arising out of the exercise of any of its powers or the performance or non-performance of any of its duties under this Act or any rule’. Once one rejects the argument that the body corporate is entitled only to what is presently registered in its favour and not what was undertaken to be given prior to registration, then, in my opinion the body corporate is under a duty to recover for its members and itself that to which it was entitled.
[24] That leaves s36(6)(e) – dealing with a claim against the developer. The reason for the inclusion of this subsection seems to be to require that a strong majority is needed before the unit-holders may turn against the person who has been responsible for the creation of their units. A decision to proceed against any other person could be taken by ordinary resolution under s36(6)(d) or one of the other subsections.
[25] For the reasons given I am of the opinion that Wimbledon has established also that it will be competent for the body corporate to institute action in some or other form, so the last bar to establishing its locus standi falls.
[26] As to whether a curator ought to be appointed, the court has a discretion under s41(3), having regard to whether it is satisfied that the body corporate has not sued (satisfied), that there are prima facie grounds for such proceedings (a strong prima facie case of fraud has been made) and that an investigation into the desirability of instituting proceedings is justified. In my opinion there is ample justification.
[27] Finally, we are sought to be persuaded of the incompetence or ultimate futility of any action that is contemplated. Wimbledon has not spelt out what relief the body corporate ought to seek. It has merely suggested possibilities. The Act does not require exact specification. That should, in my view, await the completion of the investigation. The respondents know that the case that the estates that they are liquidating face is fraud. That is enough. The curator should obtain proper advice and properly investigate the facts. There has been no complete investigation in the case before us and that is unsurprising. Fraud is a crime committed in a corner. To give an instance of the arguments raised by the respondents, it is said that if a claim for rectification of the deeds registry is brought (this is one of the suggested remedies) the interests of bona fide third parties may be affected. These include bondholders. The bondholders are not before us. In the order I propose, provision will be made for them to be served. It may be (I say may) that if the Deeds Registry is rectified their bonds will have to stand. I do not know. There was also reference to a lease over part of the property, but that lease appears to have expired.
[28] I can see other possible difficulties ahead, difficulties which may be overcome, or which may prove fatal, but it is not for me to express opinions at this stage. For the respondents’ arguments to succeed they will have to persuade me, at least, that there is little chance of any claim ever succeeding. That they have not done.
[29] The appeal is allowed with costs including the costs of senior counsel. The order of the court a quo dismissing the application with costs is set aside and replaced with the following order:
1. Mr D R Mitchell SC, a practising advocate of the Cape Bar is appointed to act as a provisional curator ad litem to the third respondent in terms of section 41(3) of the Sectional Titles Act, 95 of 1986.
2. The return day of this order before the Cape High Court is to be Thursday, 12 June 2003 when the provisional order may be discharged or the appointment of a curator ad litem may be confirmed and further directions may be given by the Court for the institution of proceedings in the name of the third respondent.
3. This appointment of the provisional curator ad litem shall take effect two weeks after the date of this order.
4. The provisional curator ad litem is directed to:
4.1 conduct an investigation into the grounds and desirability of the institution of proceedings on behalf of the third respondent in order to:
4.1.1 take such steps as are necessary to obtain registration of the immovable property listed in the schedule annexed to this order as common property of the Harbour’s Edge Sectional Title Scheme; and/or
4.1.2 claim such damages as may be legally recoverable as a result of the alleged misconduct of the developer and any of its successors in title as set out in the affidavits filed of record on behalf of the applicant.
4.2 Report the results of his investigation and his recommendations to the Cape High Court on the return day.
5. The fees and disbursements of the provisional curator ad litem shall be paid by the third respondent, subject to such rights of recovery thereof from the first and/or second respondents as may be a part of the proceedings referred to in paragraph 4.1 above.
6. Service of this order is to be effected upon:
6.1 The Registrar of Deeds;
6.2 Nedbank Limited;
6.3 The third respondent.
7. This order shall be published once in the Cape Times and Die Burger newspapers.
8. The first and second respondents, in their nominal capacity as cited, are ordered to pay the costs occasioned by their opposition to the application for the appointment of a provisional curator ad litem, jointly and severally, the one paying the other to be absolved.
_____________
W P SCHUTZ
JUDGE OF APPEAL
CONCUR
OLIVIER JA
ZULMAN JA
HEHER AJA
SAFLII:
|
Terms of Use
|
Feedback
URL: http://www.saflii.org/za/cases/ZASCA/2003/33.html
.RTF of original document