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IN THE HIGH COURT OF SOUTH AFRICA

KWAZULU-NATAL LOCAL DIVISION, DURBAN

CASE NO.19/2002

In the matter between:

FLEXI HOLIDAY CLUB....................................................................................................First Plaintiff

TRAFALGAR HOLIDAY RESORTS...........................................................................Second Plaintiff

TRAFALGAR HOLIDAY RESORTS (PTY) LTD......................................................... Third Plaintiff

STAR VACATION CLUB.................................................................................................Fourth Plaintiff

and

LA LUCIA SANDS SHAREBLOCK LIMITED....................................................................Defendant

J U D G M E N T

KOEN J

INTRODUCTION:

[1] This is an application for the amendment of the Defendant’s plea. The amendment will have the effect of introducing three special pleas not previously pleaded, and repositioning a ‘point in limine’ which already forms part of the plea. The action pending between the parties is one in terms of which the First Plaintiff, Flexi Holiday Club, the Second Plaintiff, Trafalgar Holiday Resorts, the Third Plaintiff, Trafalgar Holiday Resorts (Pty) Ltd, and the Fourth Plaintiff, Star Vacation Club, have instituted claims against the Defendant for the restoration of certain shares, and failing restoration for the value of the shares, on the basis that the Defendant had disposed of these shares with full knowledge of the Plaintiffs’ ownership thereof.

BACKGROUND:

[2] Ex facie the particulars of claim, each of the First, Second and Fourth Respondents is cited in similar terms as ‘a duly constituted club, with the power to sue and be sued’. In its plea, the Defendant admitted the identity of the Plaintiffs but denied the citation of the Plaintiffs and pleaded:[1]

‘(a) In amplification of the denials in respect of the allegations pleaded…the Defendant pleads as follows:

(i) The First, Second and Fourth Plaintiffs are associations formed subsequent to 31 December 1989.

(ii) These associations carry on business which have as their objective the acquisition of gain.

(iii) The Plaintiffs are not registered companies.

(iv) In the premises and by virtue of the provisions of section 31 of the Companies Act 61 of 1973 these Plaintiffs at all relevant times did not have locus standi.

(b) In the alternative to (a) above, the Defendant pleads that:

(i) The First, Second and Fourth Plaintiffs consist of more than one person.

(ii) The Plaintiffs are not companies or otherwise have corporate personality as envisaged by Section 30 of the Companies Act 61 of 1973.

(iii) In the premises, the Plaintiffs at all relevant times did not have locus standi’.

[3] On 28 August 2006 Hugo J granted an order pursuant to the provisions of rule 33(4) separating the following issues for separate determination before all other issues:

‘1. That the question of the locus standi in judicio of the First, Second and Fourth Respondents be determined separately and be disposed of ante omnia having regard to the provisions of section 30 and 31 of the Companies Act 61 of 1973;

2. That, with regard to the application of the provisions of section 30 and 31 of the Companies Act, the following specific issues be determined: at the time of their formation as clubs or associations or at any material time thereafter:

2.1 whether the First, Second and Fourth Respondents consisted or consisted of more than 20 persons;

2.2 whether the First, Second and Fourth Respondents had or have as purpose the carrying on of business that has for its object the acquisition of gain by the said clubs or associations or by the individual members thereof;

2.3 whether the First, Second and Fourth Respondents were registered in terms of the Companies Act 61 of 1973;

2.4 whether the First, Second and Fourth Respondents were formed in pursuance of some other law;

2.5 whether the First, Second and Fourth Respondents were formed in pursuance of Letters Patent or Royal Charter before 31 May 1962;

2.6 whether the First, Second and Fourth Respondents exist solely of persons who are members of a designated profession as contemplated in section 30 of the Companies Act;

2.7 whether the First, Second and Fourth Respondents have any legal existence and consequently have local standi in judicio to   pursue the main action;

2.8whether the First, Second and Fourth Respondents have any members recognised by law as such; and accordingly

2.9 whether the First, Second and Fourth Respondents have any members with local standi in judicio to pursue the main action.

3. That all further proceedings in the main action be stayed until the question of the locus standi in judicio of the First, Second and Fourth Respondents has been determined and disposed of by way of a trial hearing;

4. That paragraph 3 is to be read subject to existing orders of this division.

5. That the costs are reserved’.

[4] Sections 30 and 31 of the Companies Act No. 61 and 1973, referred to in the above order, provided as follows:

‘30(1).  No company, association, syndicate or partnership consisting of more than twenty persons shall be permitted or formed in the Republic for the purpose of carrying on any business that has for its object the acquisition of gain by the company, association, syndicate or partnership, or by the individual members thereof, unless it is registered as a company under this Act or as formed in pursuance of some other law or was before the thirty-first day of May, 1962, formed in pursuance of Letters Patent or Royal Charter’.

‘31 No association of persons formed after the thirty-first day of December 1939, for the purpose of carrying any business that has for its object the acquisition of gain by the association or by the individual member thereof, shall be a body corporate, unless it is registered as a company under this Act, or is formed in pursuance of some other law or was before the thirty-first day of May, 1962, formed in pursuance of Letters Patent or Royal Charter’.

[5] The trial proceeded on the issues separated for determination before Van Der Reyden J from 26 to 28 November 2008.  When closing argument was to be presented on 15 May 2009, the Plaintiffs:

(a) brought an application to reopen their case and lead further evidence; and

(b) the order granted by Hugo J was amended by an order granted by Van Der Reyden J on the 15 May 2009 which read:

‘1. That the Plaintiff’s application to reopen its case and lead further evidence is granted.

2. That the Order made on 28 August 2006 is amended by the addition of a new paragraph numbered 2(bis) in the following terms:

“That in addition to and separate from the application of sections 30 and 31 of the Companies Act, the separate and distinct existence of the First, Second and Fourth Plaintiffs shall be also separately determined.”

3. That the matter is adjourned to 7, 8 and 9 December 2009 for the hearing of the further evidence.

4. That costs are reserved.

5. That it is recorded that the court will sit in Pietermaritzburg on the adjourned dates’.

[6] On 7 December 2009 the further evidence of Mr Ridl was adduced on behalf of the Plaintiffs.The matter was thereafter adjourned and written argument submitted. 

[7] On 7 December 2010 Van Der Reyden J delivered a detailed written judgment determining that ‘the relevant separated issues fall to be resolved in the Plaintiffs’ favour and are so resolved’.

[8] Leave to appeal having been granted by Van der Reyden J, the Supreme Court of Appeal[2] on 30 March 2012, determined as follows: 

‘1. The appeal is dismissed with costs including the costs of two counsel where employed;

2. The separated issues identified in the Order of Court dated 28 February 2006, and as amplified in the Order of Court dated 15 May 2009, are decided in the first respondent’s favour with respect to first respondent and no order is made with respect to those issues insofar as the second and fourth respondents are concerned;

3. The appellant is ordered to pay the first respondent’s costs of the hearing and the separated issues from the date of the application to the date of this order including any reserve costs in relation to the separated issues;

4. All other questions of costs are reserved for the trial court’.

THE SPECIAL PLEAS SOUGHT TO BE INTRODUCED:

[9] In this judgment I will not deal with the point in limine referred to in the proposed amendment, as the amendment in relation thereto relates only to repositioning it in the plea and does not entail the introduction of a new defence. There is no reason why it cannot remain in the position it appears in the plea.

[10] The three special pleas sought to be introduced are phrased in the following terms:

‘Special Pleas

First Special Plea

1. The Defendant denies the First, Second and Fourth Plaintiffs have locus standi in judicio to proceed with their action.  For the purposes of the Special Pleas these three plaintiffs are referred to as “the club/s” or by their names or abbreviated names.

2. The clubs aver that they are duly constituted clubs, with the power to sue and be sued, each with their principal place of business at 1 Crompton Street, Pinetown, KwaZulu-Natal.

3. The Defendant avers that although an universitas is not incorporated by statute or any type of formal registration, an universitas is a corporate body under common law and can never be referred to as an “unincorporated association”.  By contrast, the Defendant avers that an unincorporated association is not a legal entity distinct from its members, while separate legal personality is the most important characteristic of an universitas or legal person.

4. The Defendant avers that the clubs are not universitates personarum nor do the clubs have separate legal personality.  The details to sustain these allegations are pleaded next.

5. The Defendant avers that, for a club to have authentic, genuine and valid separate legal personality under our common law as an universitas personarum, such club must comply with five core characteristics.  The five core characteristics are:

5.1. The club must be an association founded on the basis of mutual agreement between its constituent members.  This entails that the club will come into being if the individuals who propose forming the club have the serious intention to associate inter se as members and are in agreement on the essential characteristics and objectives of the club (universitas) pleaded next:

5.2. The club must be an association or entity distinct from its members and independent from the individual members’ rights and duties: as such, a club (universitas) must be autonomous and free from external control or influence especially by or from its founders (or founder members): external control and influence by founders members are features of foundations, trusts, unincorporated associations, proprietary or subsidiary companies in a group of companies, and not of bona fide or genuine universitates personarum :

5.3. The club must be an association which has perpetual succession:

5.4. The club must be an association or entity capable of owning property apart and independently from its members and must be capable of suing or being sued apart and independently from its members: and finally,

5.5. The object which an universitas personarum pursues must be lawful and must not primarily be the acquisition of gain or profit for itself and/or its members.

6. The Defendant avers in particular that whether or not an association possesses the required characteristics of an universitas personarum is a factual question which in general depends on the nature of the association, the manner of its formation, its constitution, its objects and its activities, its continued functioning and, in particular, its fidelity to its original formation and constitution.  “Constitution” is here pleaded in both the sense of how the club was formed and how the club’s constitution was recorded and thereafter changed in the course of the conduct of the club with regard to its members inter se.

7. The Defendant avers further that the existence of the above characteristics, and especially whether there has been a resolute fidelity to those characteristics, may be inferred from the association’s written constitution, its rules, its conduct and its own presentation to the world on what it is, how it operates and its stated raison d’être.

8. The Defendant avers that the three plaintiff clubs, Flexi Holiday Club (“Flexi Club”), Trafalgar Holiday Resorts (“Club Trafalgar”) and Star Vacation Club (“Star Club”) are not authentic, genuine or valid universitates personarum or “clubs” as claimed for the facts pleaded below which, the Defendant avers, should be regarded as common cause:

8.1. None of the clubs was formed by its individual members who decided with serious intent to associate with each other, inter se, to form a holiday club:

8.2. Each club was formed as a product of the Club Leisure Group: the Club Leisure Group has sixteen such products in total:

8.3. The entire Club Leisure Group is owned and controlled by Messrs Anthony Nicholas Ridl (“Ridl”) and Stuart John Lamont (“Lamont”) through their family trusts called respectively Eagle Trust and Hibiscus Trust:

8.4. None of the clubs has a club house.  None of the clubs has any employee or employees to attend to regular club business:

8.5. There is no regular club business: members do not meet to engage with each other inter se:

8.6. None of the clubs functions other than through the holding company of Club Leisure Group (Pty) Ltd and its many subsidiary companies whose principal places of business are all at 1 Crompton Street, Pinetown, Province of KwaZulu-Natal. 

8.7. Although the clubs have engaged in protracted litigation with the Defendant since February 2002 the clubs do not pay legal fees.  The clubs’ legal fees are paid by the Club Leisure Group.

8.8. The Club Leisure Group is a conglomerate of business entities, such as companies, proprietary clubs and trusts, engaged for profit in organising local and foreign travel tours, reservations for shipping cruises and air travel as well as holiday accommodation both locally, regionally and abroad:

8.9. The trustees of the clubs are directors and shareholders in various companies in the Club Leisure Group.  As such, none of the ordinary members of the clubs, alternatively, an insignificant number of ordinary members, has a position on the board of trustees that runs each club.

9. In amplification of the above averments, the Defendant avers further that:

9.1. The founder members of Flexi Club are Ridl and Lamont.  Ridl and Lamont, as founder members, have absolute and unfettered control of all sixteen clubs in the Club Leisure Group.

9.2. Ridl, Lamont and Rioma Cominelli (the wife of Lamont) are the founder members of Star Club, save that Ridl and Lamont, as founder members, are in absolute unfettered control of Star Club.

9.3. Rioma Cominelli, William Arthur Melvin Giles, Neville David Schaeffer and Sydney Polwarth were the founder members of Club Trafalgar. 

9.4. Rioma Cominelli remains as a founder member of Club Trafalgar, while Giles, Schaeffer and Polwarth have resigned and Trafalgar Holiday Resorts (Pty) Ltd, the owner of Club Trafalgar, appointed Ridl and Lamont as founder members.  Ridl and Lamont, as founder members, have absolute and unfettered control of Club Trafalgar.

9.5. Through the agency of the founder members who appoint themselves trustees of the clubs, and the directors in the Club Leisure Group who answer to the aforesaid trustees, the clubs purchase shares in share block companies which the clubs’ trustees proceed then to take over or to control by gaining representation on the share block company’s board of directors at their general meetings.

10. As a further indication that the clubs are not genuine universitates personarum, the Defendant avers that, in terms of the common law, where an association’s constitution is silent on the matter, a member may resign at any time, subject to paying the annual subscription (if not yet paid), and the resignation becomes effective by the unconditional delivery of a letter of resignation to the appropriate officials of the association.

11. By contrast, the Defendant avers that:

11.1. All ordinary members of the plaintiff clubs who joined any one of those clubs before July 2013 are contractually indentured members without the right to resign.

11.2. The contracts that bind the ordinary members to the clubs do not have a resignation clause at all.

11.3. Furthermore, members of the clubs are not entitled to resign.  The heirs of those members, whether born or unborn, are bound in perpetuity to the clubs as well.

11.4. The failure to have a resignation clause in the statutes, constitution, rules or contracts of the clubs is a clear indicator the clubs are not associations incorporated under the common law as universitates personarum, but that such clubs are unincorporated associations, alternatively, proprietary clubs or disguised subsidiary companies (pleaded below), designed to assist the owners, Ridl and Lamont, as founder members (the most privileged of club members) of the Club Leisure Group in their acquisition of gain qua members.

Second Special Plea

12. The Defendant avers that each of the clubs has the form or simulation of an universitas personarum but not the substance.  In particular the Defendant avers that:

12.1. Each club is treated and marketed by the Club Leisure Group as a product, and, accordingly, each club is not in fact or reality an authentic or genuine club, but analogous to a proprietary club, alternatively, a subsidiary company in the Group under its absolute unfettered control.

12.2. The disguise of the clubs used to avoid being unmasked as subsidiary companies in the Club Leisure Group is sophisticated.  Each club is a sham, masked from the public as to its true position by the cloak and form of a club, yet without substance.

13. In particular the Defendant avers that at all material times hereto:

13.1. Ridl and Lamont have, and always have had, absolute, unfettered and effective control of all the clubs, including all the Plaintiffs, as well as the thirteen other clubs in the Club Leisure Group;

13.2. Ridl and Lamont are, and always have been, the directing minds and effective controllers of all the clubs, including all the Plaintiffs, and the thirteen other clubs in the Club Leisure Group;

13.3. Ridl and Lamont are the owners of the Club Leisure Group and all its subsidiary companies, which subsidiary companies number more than forty companies;

13.4. Ridl and Lamont are in effective control of more than two hundred share block companies under the control of the Club Leisure Group;

13.5. The other six trustees of Flexi Club (including Shaun Gilbert Hornby, the Group’s attorney of record) as well as all the other trustees of Club Trafalgar and Star Club, assiduously and without independent reflection or decision making, do the bidding of Ridl and Lamont and have no independent say or decision making with regard to the running of the Plaintiff clubs in the Group at all.

13.6. Furthermore, the Defendant specifically avers that the other trustees of the clubs in the Club Leisure Group are mere pawns of Ridl and Lamont and do not in any manner or under any circumstances exercise any form of independent judgment or fiduciary duty whatsoever that would be expected of an independent committee member in a genuine universitas personarum or a director in a public, private or non-profit company.

13.7. Finally, with regard to the above averments the Defendant avers further that, a fortiori, no ordinary club members have any meaningful say in the running of the clubs that could affect Ridl and Lamont’s absolute unfettered control of the clubs.

14. Accordingly, the alleged separate corporate personality of the clubs should be disregarded by this Honourable Court in order to give effect to the true position of the clubs.

15. The Defendant avers in regard to the above allegations that Ridl and Lamont, through their absolute and unfettered control of their clubs, gain an excessive and unfair advantage in their operation in the timeshare industry inter alia in the following respects.

15.1. Ridl and Lamont are able to exact from all share block companies they seek to control compliance under all of South Africa’s legislative enactments without the inconvenience of one South African statute being applied to their clubs.

15.2. The Defendant avers that the aforesaid staggering power permits Ridl and Lamont, through their abuse of the form of universitates personarum, to avoid the strictures of all Companies Acts, the Share Blocks Control Act and the Property Time-Sharing Control Act in the conduct of their control of the clubs.

15.3. The Defendant avers that the aforesaid staggering power permits Ridl and Lamont to operate the clubs above, outside and beyond the strictures of our law, and thereby, to gain unfair advantage in their dealings with conventional companies and share block companies, their own ordinary club members and consumers in general.  The Defendant avers further that they abuse their power to gain control of share block companies.

16. The Defendant specifically avers that the constitutions of the clubs are designed to allow Ridl and Lamont, as founder members and trustees, absolute and unfettered control of the clubs in a manner that is alien to genuine fiduciary duties in authentic universitates personarum and alien to the fiduciary duties of directors in companies falling under the jurisdiction of the Companies Acts 1973 and 2008.

17. In particular the Defendant avers that the absolute control held by Ridl and Lamont appears ex facie the constitutions of the clubs in inter alia the following respects:

17.1. The position of the founder members and the trustees and the appointed trustees is entrenched beyond recall by the ordinary members of the clubs. 

17.2. The Defendant avers that such immunity from recall is conclusive evidence that the clubs are not authentic or genuine universitates personarum.

17.3. The position of the trustees is entrenched by the provisions relating to proxy votes. Furthermore, no proxy may exercise a vote if the chairman of the meeting (Ridl, Lamont or one of their nominees) decides that the proxy or the proxy giver’s interests are opposed to the interests of the clubs. 

17.4. Ridl and Lamont are the sole deciders of what the clubs interests are.

17.5. Ridl and Lamont also have and hold absolute, unfettered and total control of who they decide holds interests opposed to the clubs.  There is no appeal against their decisions.

17.6. The position of the trustees allows them absolute power to change unilaterally the payments to be effected by ordinary members to the clubs.

17.7. The trustees have authority to accord non members access to club accommodation even when ordinary members have no right to accommodation but merely a right of access to accommodation if and when accommodation is available.

18. The Defendant reiterates that, in the circumstances, the alleged separate corporate personality of the clubs should be disregarded by this Honourable Court in order to give effect to the true position of the clubs.

19. The true position of the clubs is that they are products of the Club Leisure Group under the absolute and unfettered control of Ridl and Lamont and accordingly are not authentic or genuine universitates personarum under the common law.

Third Special Plea

20. The issue whether Flexi Holiday Club was in breach of sections 30 and 31 of the Companies Act 61 of 1973 was decided on 30 March 2012 by the Supreme Court of Appeal.  Flexi Club was found not to violate the aforesaid sections.

21. No decision was rendered by the Supreme Court of Appeal with regard to Club Trafalgar and Star Club concerning sections 30 and 31 of the Companies Act 61 of 1973.

22. On 1 May 2011 the Companies Act 71 of 2008 came into operation and thereby repealed the Companies Act 61 of 1973.

23. The Defendant avers that subsequent to 30 March 2012, and particularly since July 2013, Flexi Holiday Club, Club Trafalgar and Star Club, following suit, have changed their business models and have begun aggressively to advertise their services as a travel, tourist and holiday accommodation clubs.  These clubs remain products of Club Leisure Group.

24. The Defendant avers further that the business model employed by the clubs since 30 March 2012 and especially since July 2013 violates the new provisions of section 8 (3) of the Companies Act 71 of 2008.

25. The provisions of section 8(3) provide that:

“(3) No association of persons formed after 31 December 1939 for the purpose of carrying on any business that has for its object the acquisition of gain by the association or its individual members is or may be a company or other form of body corporate unless it-

(a) is registered as a company under this Act;

(b) is formed pursuant to another law; or

(c) was formed pursuant to Letters Patent or Royal Charter before 31 May1962.”

26. In regard to section 8(3) the Defendant denies that the First, Second and Fourth Plaintiffs have title to sue in this action.

27. In amplification of the denials in respect of the allegations pleaded in paragraph 26 above, the Defendant pleads as follows:

27.1. The First, Second and Fourth Plaintiffs are associations formed subsequent to 31 December 1939.

27.2. These associations carry on business which has as its objective the acquisition of gain for the association, its members and, in particular, its founder members.

27.3. The Plaintiffs are not registered companies.

27.4. In the premises, especially and particularly since July 2013, and by virtue of the provisions of section 8(3) of the Companies Act 71 of 2008 these Plaintiffs do not have locus standi in judicio.

28. The Defendant avers that an association purporting to be an universitas personarum can lose its status as such at any stage after its formation if and when it comes into breach of the statutory provisions pleaded above.

29. The Defendant avers that the First, Second and Fourth Defendants have lost their status (if it ever existed) of being universitates personarum by or after July 2013 and further, that once lost, their status as universitates personarum can never be revived.

30. Accordingly, the Defendant avers that this Honourable Court should declare the First, Second and Fourth Plaintiffs nullities’.

[11] The Plaintiffs oppose the proposed amendment on the basis that the Defendant ‘is endeavouring to reintroduce its challenge to the First, Second and Fourth Plaintiff’s locus standi in judicio, which is an issue that has already been adjudicated upon in this action’; that is that the matter is res iudicata.

THE ISSUES BEFORE VAN DER REYDEN J:

[12] During the course of his judgment, Van Der Reyden J commented as follows with reference to Defendant’s counsel’s submissions, which he accepted:

‘Mr Dickson argued that the issue relating to the onus concerns three distinct, but interrelated questions:

Firstly, leaving aside for the moment a consideration of sections 30 and 31 of the Companies Act, do the clubs pass muster under the common law to be accepted as common law bodies corporate?

Secondly, must the clubs’ existence as universitates personarum be determined only by considering their constitutions without regard to extrinsic evidence, or are there circumstances which permit one to examine the activities of the association?

Thirdly, if the clubs hypothetically pass muster under the common law, what then is the effect of sections 30 and 31 of the Companies Act on their existence? …

Mr Dickson submitted that, even if one assumes that the clubs, qua associations, are acting in the interest of their members, the clubs still have to prove that they are validly constituted.  In that regard the clubs have to prove not only that they are bona fide common law bodies corporate but also that they do not fall foul of sections 30 and 31 of the Companies Act’.

[13] It is apparent from the aforesaid that the separate locus standi in iudicio of the First, Second and Fourth Plaintiffs as universitates personarum was an issue which the court had to determine apart from the effect the provisions of s 30 and 31 of the Companies Act may have.

THE POSITION OF THE SECOND AND FOURTH PLAINTIFFS:

[14] In the course of his judgment, the learned judge commented:

‘However the constitution of Star Vacation Club[3] does not claim the necessary characteristics of perpetual succession and corporate identity apart from its members.  So it fails at the first hurdle.  … Nonetheless Club Trafalgar[4] shares with Flexi Club[5] an array of well worded clauses in their constitutions each claiming the characteristics of an universitas personarum …’

[15] Immediately prior to granting the order, the following finding is made:

“I am furthermore satisfied that the Plaintiffs’[6]  possess the characteristics of a universitas and that they operate as unincorporated voluntary associations’.

[16] Although the order that followed did not distinguish in express terms between the position of the First and Second Plaintiffs on the one hand and the Fourth Plaintiff on the other hand, insofar as it refers to the ‘relevant separated issues’ being ‘resolved in the Plaintiffs favour, the judgment properly construed decided, as is also apparent from the body[7] thereof, that the ‘relevant separated issues’ that being the locus standi of the First and Second Plaintiffs only, was decided in favour of those Plaintiffs.

[17] During the course of evidence before Van Der Reyden J, it further appeared from the evidence of Mr Ridl that the Second and Fourth Plaintiffs in any event did not own any shares in the Defendant. Consequently they would lack locus standi in the form of a legally recognised interest, to pursue the litigation against the Defendant.  They however continued as parties to the litigation and this aspect does not appear to have received further attention in the order granted.

[18] The notice of appeal subsequently filed recorded that the Defendant appealed against the order of Van Der Reyden J, particularly ‘in terms of which the following orders were made in favour of the Respondents[8] on 7 December 2010, to wit:

‘I am furthermore satisfied that the Plaintiffs’ possessed the characteristics of a universitas personarum and that they operate as unincorporated voluntary associations.

INTERIM ORDER GRANTED

Having reached this conclusion it follows that the relevant separated issues fall to be resolved in the Plaintiffs favour and are so resolved.”

And on 28 February 2011 to wit:

“1. The separated issues are identified in the order of court dated 28 February 2006 and as amplified in the Order of Court dated 15 May 2009 are decided in the Plaintiffs’ favour.

2. The Defendant is ordered to pay the costs of the hearing of the separated issues from the date of the application to separate to the date of this order including any reserve costs in relation to the separated issues”.’

[19] Insofar as the order granted by Van Der Reyden J could be construed as also determining the issues separated in favour of the Fourth Plaintiff, it would with respect, have gone too wide, at least[9] insofar as the Fourth Plaintiff did not prove that it had any separate legal existence and the Second Plaintiff did not prove a legally recognized interest. The appeal to the Supreme Court of Appeal would have definite prospects of success to that extent. 

[20] At the hearing of the appeal before the Supreme Court of Appeal it was however correctly conceded and accepted by the Plaintffs at the outset, that the Second and Fourth[10] Plaintiffs did not hold any shares in the Defendant. Accordingly, the issues raised in the appeal would be moot with regard to those two entities.  Hence the statement by Boruchowitz AJA at paragraph [2] of the unanimous judgment of the Supreme Court of Appeal that:

‘The Second[11] and Third[12] Respondents are also clubs[13] which conduct time sharing schemes but they no longer have any interest in this appeal’.

[21] Although the Second and Fourth Plaintiffs were thus effectively removed from consideration in the appeal before the Supreme Court of Appeal, they remained active parties in the present action and in relation to the application for amendment of the Defendant’s plea.  When I queried their standing with the Plaintiffs’ counsel in regard to the amendments sought, the claims of the Second and Fourth Plaintiffs in the action were expressly abandoned and the wasted costs occasioned by their misjoinder in the action were tendered by the Plaintiffs.

[22] What remains to be considered in relation to the proposed special pleas to be introduced is therefore only the position of the First Plaintiff.

THE DEFENCE OF RES IUDICATA:

[23] It has been stated that ‘…the requisites for a valid defence of res iudicata in Roman-Dutch law are that the matters adjudicated upon, on which the defence relies, must have been for the same cause, between the same parties, and the same thing must have been demanded… The rule that the same thing must have been demanded in both actions has been held to mean “that where a court has come to a decision on the merits of a question in issue, that question, at any rate as a causa petendi of the same thing between the same parties, cannot be resuscitated in subsequent proceedings”.’[14]

[24] In order to determine whether an issue was res iudicata, it is proper to have regard to the pleadings and the judgment in the earlier case.[15]

DISCUSSION:

[25] Although paragraphs 1 and 2 of the order granted by Hugo J might on a first reading suggest that what was separated was the issue whether the First Plaintiff had the required locus standi in iudicio by ‘having regard to the provisions of sections 30 and 31 of the Companies Act 61 of 1973’, paragraph 2 of the order granted by Van Der Reyden J on 15 May 2009 made it clear that ‘(i)n addition to and separate from the application of sections 30 and 31 of the Companies Act’ there was a further issue to be determined namely ‘the separate and distinct existence of the First, Second and Third Plaintiffs…’[16]  Clearly, whether the First Plaintiff had an existence separate and distinct from its members, that is whether it was a universitas personarum at common law, was clearly an issue separated for determination.

[26] Furthermore, it was an issue which Van Der Reyden J decided in favour of the First Plaintiff, as expressed in the judgment.  Prima facie, ex facie the terms of the constitution of the First Plaintiff, this finding in favour of the First Plaintiff that it has an existence, separate and distinct from its members, would appear to be correct.

[27] The parties could not have been in any doubt that this was an issue before the trial court on which Van Der Reyden J had ruled and that it was an issue in the appeal before the Supreme Court of Appeal. The notice of appeal specifically stated that the appeal was inter alia directed against the trial court’s finding ‘that the Plaintiffs possess the characteristics of a universitas personarum …’ and the ruling that the ‘separated issues as identified in the order of court … dated 15 May 2009 are decided in the Plaintiffs’ favour’.

[28] Although that finding was identified as one of the grounds in respect of which the appeal lay, the separate existence or otherwise of the First Plaintiff appears to have received little attention if any thereafter in the appeal before the Supreme Court of Appeal, possibly because the terms of the constitution of the First Plaintiff were clear. It appears not to have been an issue on appeal because the judgment of the Supreme Court of Appeal proceeded on the basis that ‘the issue on appeal is whether the first respondent[17] is to be recognised in law, having regard to the provisions of ss 30 and 31 of the Companies Act 61 of 1973 (the Act)’.  The judgment proceeded[18] on the basis that ‘the first respondent is a voluntary association known as Flexi Holiday Club (the club) …’ Further on,[19] it is stated that one of the principal defences raised by the appellant was that the club had been formed for the purpose of gain, or subsequent to its formation had pursued gain in contravention of the prohibition contained in s 30 of the Act and that, consequently, it had no lawful existence.  The high court … held that there was no merit in the appellant’s contention and that the first respondent had the requisite locus standi in judicio’.

[29] The issue as to whether the first plaintiff was correctly found by Van der Reyden J to have possessed the characteristics of a universitas personarum therefore appears to have taken a back seat in the appeal.

[30] The Defendant argued that the separate existence of the First Plaintiff was incorrectly overlooked in the appeal and placed particular emphasis on paragraph 19 of the judgment of the Supreme Court of Appeal where the following was said:

‘It is, at the outset, necessary to dispose of certain contentions advanced by counsel for the appellant. He submitted that although the club possesses the main characteristics of a corporate body under the common law (a universitas) it was in fact not a valid universitas as its object was primarily the acquisition of gain.  It was further submitted that the club was not a club in the true sense.  An authentic club was ordinarily member owned and controlled, whereas it is the trustees who in the present case have absolute control of the club. It is neither necessary nor relevant to decide these questions.  Whether the club is a universitas or an authentic club was not an issue before the court below’.

[31] Clearly, whether the First Plaintiff was a universitas was ‘an issue’ before Van der Reyden J. The answer thereto was however clear and possibly because little attention was thereafter given thereto, categorized as not ‘in issue’ in the ‘court below’.

[32] Indeed, the judgment on appeal concluded that:

‘[20] The central question which is dispositive of the appeal is whether the club was formed or is carried on for the purposes of conducting a business that has for its object the acquisition of gain by either the club or the individual members thereof’.

[33] After a detailed discussion the learned Judge of appeal concluded that:

‘… I do not consider that ordinary persons would describe the activities carried on by the club as the carrying on of a business for gain as envisaged in ss 30 and 31 of the Act.  Accordingly the appeal cannot succeed’.[20]

[34] Much of the argument before me has centred on what was meant by the statement in paragraph 19 of the judgment of the Supreme Court of Appeal. Read in its entirety in the context of the litigation, the issues separated and the judgment of ‘the court below’, it is capable of an interpretation that what was sought to be conveyed was that the question whether the First Plaintiff was universitas or an authentic club, was not really contested and indeed accepted, hence not ‘in issue’ and therefore not really ‘an issue’ before the trial court.

[35] However, whether the First Plaintiff was a universitas or an authentic club certainly was an issue before Van Der Reyden J on the pleadings, the issues separated for determination, and in the learned judge’s judgment. He decided the issue in favour of the First Plaintiff. That ruling was specifically challenged in the notice of appeal and was certainly raised in argument by the Defendant’s counsel by submitting before the Supreme Court of Appeal that ‘…although the club possesses the main characteristics of a corporate body under the common law (a universitas) … it was … not a club in the true sense’.

[36] The finding of the Supreme Court of Appeal seems, with respect, to have proceeded on the premise that assuming[21] the First Plaintiff to be a universitas and a club in the true sense with the threshold requirement of a membership exceeding 20 members (that is bringing it within the ambit of sections 30 and 31 of the Companies Act), it did not fall foul of the provisions of ss 30 and 31 if it did not have as ‘its object the acquisition of gain’.

[37] If the First Plaintiff had as its object the acquisition of gain, a finding on that aspect would be dispositive of the entire appeal. But if it was found that it was not ‘carrying on a business for gain as envisaged in ss 30 and 31 of the Act’, then the First Plaintiff would not be invalid for want of compliance with ss 30 and 31 of the Companies Act, but it would remain in issue whether the trial court was correct in concluding that the First Plaintiff was a universitas personarum. More specifically, and with respect correctly, no finding on appeal would then have been made in respect of the correctness of the trial court’s finding that the First Plaintiff was a universitas personarum.

[38] A complicating fact however is that in paragraph 28 of the Supreme Court Appeal judgment it is recorded that:

‘The parties have agreed that, should the appeal be dismissed, the following order should be made:

1. The appeal is dismissed with costs including the costs of two counsel where employed;

2. The separated issues identified in the order of court dated 28 February 2006, and as amplified in the order of court dated 15 May 2009, are decided in the First Respondent’s favour with respect to first respondent and no order is made with respect to those issues insofar as the second and fourth respondents are concerned;

3. The appellant is ordered to pay the first respondent’s costs of the hearing and the separated issues from the date of the application to the date of this order including any reserve costs in relation to the separated issues;

4. All other questions of costs are reserved for the trial court’.

[39] It is difficult to decide what to make of that agreement between the parties. It appears to be clear in its terms, that is that ‘should the appeal be dismissed’, obviously on the issues before the Supreme Court of Appeal, an order was to issue that the issues separated in the court order dated 15 May 2009 are decided in the First Respondent[22] favour i.e. including that the First Plaintiff has a separate and distinct existence. The agreement as to the appropriate order that should follow appears to have been concluded without it being qualified in any way dependant upon the basis on which the appeal might be dismissed. Presumably, it related to the appeal being dismissed on whatever basis, that is that the First Plaintiff had locus standi and that it did not fall foul of the provisions of ss 30 and 31, or that the First Plaintiff did not have locus standi at common law. If that is the way it should be construed, then the agreement is probably ambiguous and would achieve an incorrect result in law. If the appeal was dismissed because the First Plaintiff did not fall foul of the provisions of ss30 and 31, it would still leave the issue of the separate existence of the First Plaintiff at common law, unless that had been conceded impliedly by the First Plaintiff’s counsel, hence making the application of ss 30 and 31 the sole issue on appeal, in which case the order agreed would be the correct order to grant if the Supreme Court of Appeal found that the First Plaintiff did not contravene the provisions of ss 30 and 31. 

[40] Ultimately, it seems unnecessary to even try and resolve that conundrum. Two possible scenarios arise. One interpretation is that the separate existence of the First Plaintiff at common law had come to be recognized and accepted by the Defendant and was no longer an issue in dispute, and the correctness of the finding by Van der Reyden J in that regard was conceded on appeal. Alternatively, if the agreement did not mean that or could not be extended that far, then the correctness of the finding by Van Der Reyden J that the First Plaintiff was a universitas personarum appears not to have been decided on appeal, in which case the order of Van Der Reyden J that the First Plaintiff was a universitas personarum still stands unaltered.  On either basis one is left with a court order (by agreement between the parties as the correct order to follow, in the Supreme Court of Appeal, or the order of Van der Reyden J which has not been reversed on appeal) between the same parties having decided, whether rightly or wrongly, that the First Plaintiff was a universitas personarum at common law with separate existence. On either basis that would to me seem to render this issue res iudicata.

[41] If I am correct in that regard then insofar as the Defendant now might wish to introduce further new arguments and grounds for contending that the First Plaintiff is not a universitas personarum but a sham,[23] these are arguments that should have been advanced at the time when the locus standi of the First Plaintiff was challenged. Additional grounds for attacking the First Plaintiff’s locus standi cannot be reserved and advanced piece-meal in subsequent litigation, but should all be advanced for once and for all when the challenge to locus standi was raised and adjudicated. 

[42] It follows from the above that the Defendant is not entitled to the amendment to introduce the first and second Special Pleas.

[43] As regards the Third Special Plea some additional comment is called for. The Third Special plea is novel in that it seeks to rely upon events, namely an alleged change in a business plan which allegedly transformed the First Plaintiff into an association which pursues the acquisition of gain, subsequent to the decision of the Supreme Court of Appeal.  Whether the First Plaintiff adopted such a plan and whether it in fact now pursues the acquisition of gain, are of course not issues to be addressed at this stage of the proceedings.  The question simply is whether these are issues, assuming that they might be decided in favour of the Defendant, which may legitimately be introduced as issues in the trial in the light of the findings already made regarding the First Plaintiff’s locus standi in iudicio by the trial court and the Supreme Court of Appeal.

[44] From 1 May 2011, ss 30 and 31 of the 1973 Companies Act were replaced with s 8(3) of the new Companies Act No. 71 of 2008 which provides:

‘8(3) No association of persons formed after 31 December 1939 for the purpose of carrying on any business that has for its object the acquisition of gain by the association or its individual members is or may be a company or other form of body corporate unless it –

(a) Is registered as a company under this Act;

(b) Is formed pursuant to another law;

(c) Was formed pursuant to Letters Patent or Royal Charter before 31 May 1962’.

[45] Mr Tee, for the Defendant, has submitted that in considering whether a valid defence may be introduced by the Third Special Plea, regard must be had to section 8(3) of the new Companies Act and not sections 30 and 31 of the previous Act.  He has inter alia also referred in this regard to section 12(1) of the Interpretation Act[24] which deals with the effect of the repeal of a law and provides that ‘where a law repeals and re-enacts with or without modifications, any provision of a former law, references in any other law to the provisions so repealed shall, unless the contrary intention appears, be construed as references to the provision so re-enacted. He also referred to Schedule 5 item 10 of the Act dealing with transitional arrangements in the new Companies Act which under the heading of ‘preservation and continuation of court proceedings and orders’ provides:

‘(1) Any proceedings in any court in terms of which the previous Act immediately before the effective date are continued in terms of that Act, as if it had not been repealed’. 

[46] A comparison of the relevant provisions in the old and new Acts immediately reveal the omission of the reference to ‘more than 20 persons’ from s 8(3), and then relevant to his argument;

(a) The omission of the word ‘permitted’ from s 8(3), which now only refers to an association of persons ‘formed … for the purpose of   carrying on any business that has for its object the acquisition of gain …’;

(b) The reference in s 8(3) that such an association having for its object the acquisition of gain cannot be one which ‘is or may be a company or other form of body corporate unless … it is registered as a   company under this Act’.

Mr Tee has argued that something similar to the prohibition against ‘permitting’ such an association as provided in the old Act, is imported by the words ‘or may be’ in s 8(3).

[47] Regarding the use of the word ‘permitted’ in the old Act, and assuming something like it being necessarily imported in the new Act,[25] it was submitted with reference to Suid-Westlike Transvaalse Landboukorporasie Beperk v Phambili African Traders Association,[26] referring to Shaw v Simmons and Blackman in ‘Commentary on the Companies Act’[27] in regard to the position in the old Act, that the following would be the position:

‘The word “permitted” in s 30(1) has been included in order to clarify that an association that is not formed for the purpose of gain, but subsequent to formation pursues gain, is in contravention of the prohibition in s 30.  It also caters for the situation where the association is formed with 20 or less (sic) members but its members subsequently exceed 20.  Section 30 is likewise contravened.  Once the number of 20 is exceeded the association is illegal and a nullity and remains so even if subsequently the number drops below 20’.

[48] Whether it is the new or the old Companies Act that applies and whether the words ‘or may be’ conveys something similar to ‘permitted’ or not, appears to be irrelevant. The purpose for which an association is formed, specifically if it is formed not for the purpose of carrying on any business that has for its object the acquisition of gain, is not cast in stone in perpetuity.  But what purpose an association is formed for or what its operations permit, can in the case of a universitas with a separate juristic personality only be determined with reference to its constitution. If a particular office bearer, trustee, manager or other management officer of such universitas administers its affairs in such a manner that it becomes one pursuing the acquisition of gain, he or she would be acting ultra vires the constitution and could be brought to book by his co-trustees or ultimately the members of that association, or potentially any other party with a sufficient legal interest.  The association would not have ‘permitted’ those ultra vires acts of acquisition for gain and it would not have lost its entitlement that it ‘may be … (an)other form of body corporate’ because of that conduct.  The association will only be permitting its object being extended to ‘the acquisition of gain’ by unanimous approval of all its members, or if a formal amendment to constitution permits such conduct and now provides for such purpose. In the latter instance, it would have been formed for a new purpose or object. 

[49] The crucial question is to determine the purpose for which the First Plaintiff  was formed according to the very constitution which gives it separate juristic personality, to determine whether a universitas falls foul of the provisions of either the old Act or the new Act.  In order to determine that ‘purpose’ one must have reference to its constitution at the moment when the constitution was adopted or amended.[28] Its purpose is to be found in its constitution and not in the intention of managers or controllers.

[50] There has been no suggestion that by unanimous assent of all its members the First Plaintiff has changed its object and purpose, alternatively that there has been a change in the constitution to that effect.  All that is alleged is that there has been a change in the business model of the First Plaintiff and that it has ‘begun aggressively to advertise their services of travel, tourist and holiday accommodation club’. The constitution of the First Plaintiff was considered and the contention that it was formed as an association which carries on business and has as its objective the acquisition of gain for the association, expressly rejected in the judgment of the Supreme Court of Appeal. That issue is res judicata.

[51] I am accordingly also not satisfied that the amendment to introduce the Third Special plea should be granted.  As commented in Huey Extreme Club v McDonald t/a Port Helicopters:[29]

‘ …the fact that a club may make a profit is irrelevant for the purposes of s 30 of the Companies Act.  The focal point remains whether the club was “formed for the purpose of carrying on any business that has as its object the acquisition of gain by the association or by the individual members thereof”.’

COSTS:

[52] The First Plaintiff was successful and there is no reason why the costs should not follow the result and the Defendant pay its costs.

ORDER:

[53] The Defendant’s application for the amendment of its Plea is dismissed with costs.

________________________

DATE OF HEARING: 30 & 31 July 2014

DATE OF DELIVERY: 4 September 2014

PLAINTIFF’S COUNSEL: MR N.J. TEE

PLAINTIFF’S ATTORNEYS: V O’CONNELL INCORPORATED

TEL.:  031 368 9960

DEFENDANT’S COUNSEL:  MR I L TOPPING

DEFENDANT’S ATTORNEYS:  HORNBY, SMYLY, GLAVOVIC INCORPORATED

TEL.:  031 305 3641

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