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SOUTH GAUTENG HIGH COURT, JOHANNESBURG

Case No.  49285/09

In the matter between:

 

THE CHEMICAL, ENERGY, PAPER, PRINTING, WOOD

AND ALLIED WORKERS UNION                                                                      First Applicant

THABANI PHIWAYINKOSI MDLALOSE                                                      Second Applicant

 

and

 

OUPA ISSAC SHONGWE                                                                             First Respondent

PILISO PASCO DYANI                                                                             Second Respondent

MOTLALLEPULA KRISMIS TSOLO                                                           Third Respondent

KEITH RONALD VICTOR JACOBS                                                          Fourth Respondent

DONALD MLINDWA GUMEDE                                                                     Fifth Respondent

MASTER OF THE NORTH GAUTENG HIGH COURT                                Sixth Respondent

CEPPWAWU INVESTMENTS (PTY) LTD                                               Seventh Respondent

LETSEMA INVESTMENTS (PTY) LTD                                                      Eighth Respondent

FIRSTRAND BANK LTD                                                                              Ninth Respondent

DEREK THOMAS                                                                                        Tenth Respondent

JUDGEMENT

MEYER, J

 

[1]        The applicants seek an interim interdict in terms of part A of the Notice of Motion, which is an order interdicting certain payments from the seventh respondent’s FNB account, pending the hearing of part B of the Notice of Motion, which seeks the removal of the first respondent as a trustee of the CEPPWAWU Development Trust and the appointment of new trustees.  The matter is opposed by the first, seventh, eighth, and tenth respondents (‘the respondents’).

 

[2]        The urgency by which the application for interim relief was brought is in issue.   There was, in my view, in all the circumstances no unreasonable delay on the part of the applicants in launching the application on 24 November 2009 once their attorney was advised on 25 September 2009 of the approximately R45 million payment that had been made to the eighth respondent on 23 September 2009.  The delay that there was is adequately explained.  I should also mention that the present application comprises about 1 300 pages and argument lasted more than five hours on Friday, 11 December 2009.  An injustice will result if the application for interim relief is not presently determined.       

 

[3]        The locus standi of each applicant is in issue.  It is asserted in the answering papers that the proceedings have not been authorised by the first respondent.  It is not necessary for me to decide this issue at this interim stage since the second applicant, by virtue of his membership of the first applicant and the provisions of the trust deed, is a contingent beneficiary of the trust, has a direct and substantial interest in the proper administration of the trust and the funds held by the seventh respondent, and he has a right to an account.  Compare:  Gross and Others v Pentz [1996] ZASCA 78; 1996 (4) SA 617 (A), at p 628, and Doyle v Board of Executors 1999 (2) SA 805 (C), at pp 812F – 813B.  An application for the removal of a trustee may, in terms of s 20 of the Trust Property Control Act, be brought by someone with an interest.  It follows, in my view, that the second applicant has a sufficient interest to seek the relief which is sought in this application.

 

[4]        The first applicant is a trade union with about 63 000 members, who are employees in the paper, wood, petroleum, pharmaceutical and chemical industries.  The first applicant is the beneficiary of the CEPPWAWU Development Trust (‘the trust’), which trust is governed by its trust deed. 

 

[5]        The primary object of the trust is to generate income from investments and other sources and to utilise the income to provide financial assistance to its beneficiary, the first applicant, and to the first applicant’s members, their families and communities (clause 3.1).  Its subsidiary object is to make investments in ventures which are likely to contribute to the empowerment and development of the first applicant’s members, their families and their communities (clause 3.2).  The trust must be governed by three trustees appointed by the first applicant, by two ‘Investco’ trustees, and by two ‘professional’ trustees (clause 5.1).  There may not be fewer than five trustees.  If the number of trustees in office drops to below five, then the remaining trustees are only empowered to act in preservation of the assets and investments of the trust (clause 5.5).   The trustees have the duties commonly associated with their office, including the preparation and maintenance of books, financial statements and the like (clause 6).  No trustee in his personal capacity may have any interest in or derive any benefit from any contract which the trustees may conclude with any trust, organisation, company or individual (clause 7.2.22).  The trustees must at all times exercise their powers independently and in what they deem to be the best interests of the trust and in accordance with the primary and subsidiary objects of the trust and for the benefit of the first applicant (clause 7.3.4).  The trustees shall ensure that not less than twenty five percent of the income earned on any investment owned by the trust in any one financial year is paid to the first applicant by no later than six months after the end of that financial year, unless the first applicant has, at the request of the trustees, consented otherwise.  The trust will be deemed to have earned income if income has been earned by any company held by the trust regardless of whether such income has been declared as a dividend (clause 10).     

 

[6]        The trust owns all the shares in the seventh respondent, which is the investment vehicle of the trust.  The seventh respondent in turn holds all of the shares in several special purpose vehicle companies, which SPV’s hold investments in employer companies, such as Aspen, Barloworld and Sasol.  The employer companies have typically offered a significant shareholding in their companies at a substantial discount to the market price of the shares to form black empowerment partnerships.  The tenth respondent, in paragraph 82 of the respondents’ answering affidavit, states that the seventh respondent and its subsidiary SPV’s has ‘…a cumulative investment value as of date of approximately R400 000 000.00 to R500 000 000.00.’       

 

[7]        The first respondent was appointed a ‘professional’ trustee of the trust when it was formed.  For the recent past he has been the sole de facto remaining trustee of the trust.  The first respondent is a director of the seventh respondent.  From 2000 onwards the seventh respondent concluded three management agreements with the eighth respondent, which agreements have undoubtedly conferred great benefits on the eighth respondent.  The last one was concluded on 12 April 2007 between the trust, the seventh respondent, and the eighth respondent.   This management agreement provides for the payment of management fees to the eighth respondent and it gives it a 27,5% equity stake in all investments held by the trust through the seventh respondent.  The eighth respondent forms part of the Letsema Group of Companies with the shares in its holding company owned by the first respondent and the tenth respondent, the latter being the executive officer of the seventh respondent.    

 

[8]        The relevant SPV’s investment in Aspen was unwound during the first half of 2009 and the SPV was left with significant cash in the form of dividends that it had received and the proceeds of the shares that had been sold.  The relevant SPV was left with cash in the sum of about R327 million as at June 2009.  After making allowance for potential liabilities to SARS and fees for external service providers, a balance of about R165 million was left.  It was claimed that a sum of about R45 million was owing to the eighth respondent.

 

[9]        On 12 August and 1 September 2009, the first applicant’s attorneys addressed letters to the tenth respondent, who is the chief executive officer of the seventh respondent.  The seventh respondent’s attorneys replied by letter dated 4 September 2009.  The following undertaking was given in paragraph 18.2 of this letter:

’18.      Having said that, our client appreciates that there is anxiety, misplaced as it is, from certain quarters whence your purported instructions have come, and to allay such anxiety our client took further steps to assure such Union members that –

18.1      ….

18.2      whilst our client’s contractual obligations to Letsema Investments (Pty) Limited are of a long standing nature, have always been well known to and openly discussed with the trustees of the Ceppwawu Development Trust and with the Union leadership from time to time, have never been in dispute, and in terms thereof an amount of approximately R48 000 000.00 is presently due, owing and payable to Letsema Investments (Pty) Limited, our client assures the concerned members that payment thereof will not be made to Letsema Investments (Pty) Limited at this stage, to afford the NEC a reasonable opportunity to consider the applicable agreements pertaining to Letsema’s contractual entitlement thereto;’

 

[10]      In the midst of an exchange of correspondence that followed, the seventh respondent’s attorneys, who are also acting for the first, eighth, and tenth respondents in the present proceedings, advised the first applicant’s attorneys in a letter dated 25 September 2009 that the seventh respondent

‘… was neither obliged nor entitled to delay any longer the payment of the aforementioned amount to Letsema which was due, owing and payable to it, and accordingly on 23 September 2009, our client paid Letsema the aforesaid amount.’

 

The amount that was paid to the eighth respondent on 25 September 2009 was just over R45 million. 

 

[11]      It is contended by the applicants that the payment was in breach of the undertaking previously given and in bad faith.  It is further contended that if the payment was not specifically instructed by the first respondent, it must have occurred with his knowledge and consent and in the circumstances constitutes a breach of his fiduciary duties as well as a breach of the provisions of the trust deed.  The tenth respondent states the following in the respondents’ answering affidavit:

’42.      However, it is devoid of any substance that the amount of R45 197 786 which was paid out to the Eighth Respondent on 23 September 2009, was a payment made in conflict with an undertaking given in writing by Mendelow or that the Seventh Respondent was not entitled or obliged to do so in accordance with its long standing and well recognised contractual obligation to the Eighth Respondent.

 

 43.      The circumstances pertaining to that payment are comprehensively dealt with in Mendelow-Jacobs’ letter of 25 September 2009, annexure “TM54” to the founding affidavit.’

 

 

[12]      The undertaking that was given in paragraph 18.2 of the seventh respondent’s letter of 4 September 2009 is, however, clear and unambiguous.  One would, at the very least, have expected prior notice of the payment to have been given to the first applicant or to its attorneys.

 

[13]      The applicants seek the removal of the first respondent as a trustee of the trust in the B part of the notice of motion on the grounds that he has breached his duties as a trustee, is impossibly conflicted in respect of his duties and his personal interests, and that he accordingly is unable to discharge his obligations as a trustee.  The applicants further seek the appointment of certain trustees in order to constitute the required complement of trustees and to enable their meetings to be quorate.  In support of the grounds upon which they rely for the relief they seek in the B part of the notice of motion, they inter alia aver that no meetings of the trustees have been held, no books of account have been kept, and no financial statements have been prepared.  The contention on behalf of the applicants is that the trust, the seventh respondent, and the eighth respondent have at all material times been controlled by the first respondent.  It is averred that the first respondent, as the sole remaining de facto trustee, has allowed the trust’s investment vehicle of which he is a director, the seventh respondent, to pay a sum of about R45 million to his own company, the eighth respondent, of which he is also a director and direct or indirect shareholder.  The payment was made in circumstances where the validity of the management agreement in terms whereof the payment was made was questioned and investigated and despite an undertaking given in writing by the respondents’ attorney that the payment would not be made until the first applicant’s NEC had had a reasonable opportunity to consider the applicable agreements pertaining to the eighth respondent’s contractual entitlement to the R45 million payment.  It is averred that the management agreement may be invalid or unenforceable on a number of grounds.  It is averred that despite the primary purpose set out in the trust deed and the provisions thereof and despite the large sums of money that had been received by the seventh respondent, the trust had not received any money other for a sum of about R1 million that had been paid to the first applicant directly. The production of information is also sought in terms of part B of the notice of motion.  The applicants aver that the first applicant’s requests for information in the hands of the first respondent as trustee of the trust and as a director of the seventh respondent have not been complied with.     

 

[14]      The relief sought in the B part of the notice of motion is resisted by the respondents on several grounds.  It is inter alia denied that the first respondent or the tenth respondent, who is the chief executive officer of the seventh respondent, either jointly or individually at any stage controlled the board of directors of the seventh respondent.   It is averred that the first applicant at all material times ‘has always had a majority of representatives of the First Applicant serving on the Board of Directors of the Seventh Respondent.’  It is averred that the payout to the eighth respondent arose from a longstanding and well recognised contractual entitlement and any further delay in the R45 million payout would have caused an escalation in the accrual of mora interest on the amount.  It is denied that the third management agreement is invalid or unenforceable on any basis and it is averred that the three management agreements have been duly authorised and approved by all the parties concerned.  The eighth respondent’s 27.5% equity stake in all investments held by the trust through the seventh respondent is justified on various grounds.  It is averred that the trust would have received income from the seventh respondent this year had it not been for the interference of the applicants herein and that the payment from the seventh respondent to the trust of the 25% net profit in the Aspen transaction could only be effected once the trust ‘has been rendered quorate by the appointment of the trustees designate.’  It is averred that the fact that the first respondent is the only remaining de facto trustee is not of his making, ‘but rather the result of infighting and discord within the Union, which has led to its structures being presently not duly constituted’.  It is averred that until recently there was no business of the trust which could be separated from the business of the seventh respondent and accordingly no ‘practical need’ to open any bank account or to keep books of account or prepare financial statements for the trust.  It is averred that there has always been a full flow of information and full furnishing of documentation and accounting to the first applicant in respect of the affairs of the seventh respondent.      

 

[15]      I have mentioned only some of the numerous issues raised on the papers.  The brevity is intentional and despite temptation to the contrary in order not to prejudice any of the parties when part B of the notice of motion is determined.  I am mindful that the respondents have had relatively little time in the circumstances to prepare and file their answering affidavits and they have co-operated in facilitating the expeditious finalisation of part A of the notice of motion.   The respondents for purposes of the adjudication of the interim relief did not rely on their Rule 35(12) notice for the inspection of what appears to be voluminous documents and the applicants’ alleged failure to comply therewith.  Their rights have also been reserved to file comprehensive answering affidavits in future in order to fully deal with part B of the notice of motion.

 

[16]     Having considered the facts as presented by the various parties in accordance with the approach formulated in Webster v Mitchell 1948 (1) SA 1186 (W), at p 1189 and as qualified in Gool v Minister of Justice and Another 1955 (2) SA 682 (C), at p 688E, the applicants have, in my judgment, established a prima facie right although open to ‘some doubt’.  See also:  Eriksen Motors (Welkom) Ltd v Protea Motors, Warrenton, and Another 1973 (3) SA 685 (A), at p 691C-G.

 

[17]      The relief which the applicants seek in this part of the application is aimed at the preservation of the status quo in the interim.  Part A of the notice of motion seeks an order interdicting the transfer ‘of any funds’ from the seventh respondent’s FNB banking accounts in the interim.

 

[18]      The tenth respondent, in paragraph 70 of the respondents’ answering affidavit, states the following:

‘The freezing of the funds will be extremely prejudicial and detrimental to the business of the Seventh Respondent, as it would not be able to conclude any further transactions, not be able to pay the monthly management fees to the Eighth Respondent, not be able to pay its auditors, who have just produced draft interim financial statements for the period 1 March to 31 August 2009, not be able to pay its attorneys (who are working on matters other than this one), not be able to pay income tax, Captial Gains Tax and Secondary Tax on Companies when these become payable early next year, apart from other ordinary and regular operating expenses.’

 

[19]      The second applicant, in paras 41- 43 of the applicants’ replying affidavit, states the following:

41.       If regard is had inter alia to paras. 154, 155 and 156 of the Founding Affidavit, it is clear that the Applicants do not seek an order “freezing” monies which have correctly been set aside by CI in respect of CI/CPI’s potential tax liability to SARS or in respect of monies that are due to external service providers.  Similarly, the Applicants do not seek an Order “freezing” monies which have been allocated in respect of the sale of shares in Business Ventures 670 (Pty) Ltd.

 

42.       I and the First Applicant had by now assumed that monies set aside for SARS, external service providers and the seller of Business Ventures 670 (Pty) Ltd’s shares would have been paid over.  If this is not so, these issues can be addressed by way of an appropriate order.

 

43.       Part A of the Notice of Motion is directed towards preventing the relevant Respondents from dealing with the bulk of the funds which CI currently hold in the Wierda branch bank account in a manner which is at odds with the provisions of the Trust Deed and the objectives of theTrust.  It is not the Applicants’ case that it is entitled to an Order effectively freezing every last cent in that account.’

 

[20]      The applicants filed a draft order prior to the hearing of this part of the application in terms whereof they only seek an order interdicting the transfer of funds from the seventh respondent’s FNB banking accounts ‘to the eighth respondent’, ‘in respect of new investments’, and ‘for legal fees in respect of this application’ pending the hearing of the application for the relief in part B of the notice of motion.

 

[21]      The reason why the applicants seek the interim interdict in respect of payments to the eighth respondent is because they fear that further payments may happen (replying affidavit, para 48) and they

‘maintain that the contractual relationship between Letsema, CI and the Trust needs to be fully investigated.  On the face of it, the Third Management Agreement is invalid by virtue of the fact that it was concluded in breach of Clause 7.2.22 of the Trust Deed.  The trustees to be appointed will need to take legal advice on this issue and act accordingly.  Any potential prejudice to Letsema can be remedied in due course by an appropriate payment of interest.’  (replying affidavit, para 46)  

 

[22]      The tenth respondent, in paragraph 71 of the respondents’ answering affidavit, states as follows:

‘At the risk of over emphasizing, I repeat that no further payments, apart from the usual management fees, are due to the Eighth Respondent for a considerable period of time and in any event not before June 2010.’

 

This statement does not amount to an undertaking that no further payments, apart from the usual management fees, will be made to the eighth respondent pending the hearing of the application for the relief in part B of the notice of motion.

 

[23]      The reason why the applicants seek the interim interdict against payments in respect of new investments is that the first respondent is the sole trustee of the trust and he is bound by clause 5.5 of the trust deed, which requires that where the number of trustees drops below five, the trustees must only act to preserve the assets of the trust.  This is common cause.  I further agree with the submission made by adv. SF Burger SC, who appeared with adv. JC Butler SC for the applicants, that it is implicit in that prohibition that no new investments be made. 

 

[24]      The applicants also assert that it is in terms of clause 10 of the trust deed not competent for the first respondent to allow income earned on any investment owned by the trust to be re-invested into a fresh investment without and before at least 25% of the income earned in financial year has been passed on to the trust for the ultimate benefit of its beneficiaries.  They assert that the objectives of the trust cannot be realised if the respondents are allowed to reinvest income earned in new investments (replying affidavit, paras 48 – 49).  This interpretation of clause 10 of the trust deed is in issue and need not be resolved by me at this interim stage in the light of my other findings herein.        

 

[25]      The reason why the applicants seek the interim interdict against funds of the trust being used to pay legal fees in respect of this application is based on the contention that the first respondent opposed this application, not the trust or the seventh respondent.   I have referred to paragraph 70 of the respondents’ answering affidavit wherein the tenth respondent states that ‘[t]he freezing of the funds will be extremely prejudicial and detrimental to the business of the Seventh Respondent, as it would … not be able to pay its attorneys (who are working on matters other than this one), …’.  The objection is not aimed at an inability to pay its attorneys in respect of this matter.  Furthermore, the tenth respondent in paragraph 15 of the respondents’ answering affidavit states that the eighth respondent  ‘…certainly has no interest in the relief which the Applicants claim in both Parts A and B of the Notice of Motion’ and in paragraph 22 thereof that his ‘…joinder in this application constitutes a misjoinder….’.  Although the seventh respondent opposes this part of the application, no resolution of the seven respondent’s board of directors has been presented.                                         

 

[26]      It is common cause that the seventh respondent is the investment vehicle of the trust.  The tenth respondent, in para 145 of the respondents’ answering affidavit, states that

‘…what is abundantly apparent from the trust deed, is that it is a delicately balanced instrument, which is designed to ensure that the First Applicant does not have control over the Trust.  It has the right to appoint three of the seven trustees, with two of the remaining trustees being appointed by “Investco”, and the two “professional trustees” being replaced when necessary, by the remaining trustees in office.  See clause 5 of the Trust Deed.’ 

 

[27]      It is also common cause that the trust is not properly constituted and that it is presently dysfunctional.  It can therefore at present not control the seventh respondent effectively.  The trust should determine who the directors of the seventh respondent should be.  No meeting of the trust can be quorate as long as the number of trustees is below five, no binding resolution can be taken in regard to further investments by its investment vehicle or in respect of the third management agreement.   

 

[28]      I am accordingly satisfied that the applicants have established that they have no other satisfactory remedy and their apprehension of loss should this interim interdict not be granted is, in my view, reasonable under all the circumstances.

 

[29]      I now turn to the requirement whether the balance of convenience favours the granting of the interim interdict.  In assessing the balance of convenience, a court is required to weigh the prejudice which an applicant will suffer if the interim relief is not granted against the prejudice which a respondent will suffer if the interim interdict is granted.

 

[30]      In a different context it was submitted by Adv. E Wessels, who appeared on behalf of the respondents, that there is no suggestion on the papers that a new investment is on the horizon and that there is a long lead time to the conclusion of new transactions.  This means that any prejudice to the seventh respondent in respect of new transactions can only be remote and minimal. 

 

[31]      Investment transactions that have been concluded, such as the acquisition of shares in Business Ventures 670 (Pty) Ltd, do not fall within the ambit of the interim relief which is presently sought and inroads will therefore not be made on the seventh respondent’s existing contractual obligations.

 

[32]      The eighth respondent has recently received payment of R45 million from the seventh respondent and prejudice to it if management payments are withheld pending a hearing of part B of the application is also unlikely.  The relief presently claimed is aimed at preserving about R100 million in the FNB banking accounts of the seventh respondent pending the hearing of the application for the relief in part B of the notice of motion.  Any monies to which the eighth respondent is in due course shown to be entitled are accordingly safely preserved.  Any potential prejudice to the eighth respondent can be remedied in due course by an appropriate payment of interest.                    

       

[33]      The relief in part A of the notice of motion seeks the preservation of the status quo.  The first respondent, as the sole trustee, is obliged to preserve the trust assets in terms of clause 5.5 of the trust deed until the minimum number of trustees has been appointed.  Adv. Burger SC on behalf of the applicants submitted that the seventh respondent is in a similar position to the trust.  No investments should be made and no payments should be made under a disputed management contract pending the appointment of trustees and the determination of the first respondent’s position as a trustee.  I agree with these submissions. 

 

[34]      The balance of convenience, in my view, supports the interim relief presently sought.

 

[35]      In the result the following order is made:

 

1. The non-compliance with forms and process provided in the Uniform Rules of Court is condoned, and the matter is determined as one of urgency in terms of the provisions of Rule 6(12)(a).

2. Pending the hearing of the application for the relief in part B of the notice of motion, the first, seventh and eighth respondents are hereby interdicted and restrained from transferring, or permitting the transfer of any funds out of any account held in the name of the seventh respondent with the ninth respondent at the Wierda Valley branch of the ninth respondent, at 50 Wierda Road West, Sandton, to effect any payment to the eighth respondent or in respect of new investments or for legal fees in respect of this application.

3. Part B of the application is postponed sine die.

4. The costs of part A of the application are reserved for determination at the hearing of part B of the application.

                          

 

 

 

 

 

 

 

 

 

 

                                                                                   

P.A. MEYER

JUDGE OF THE HIGH COURT

 

 

15 December 2009

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