Dawson v Sidney on Vaal CPA

Without reaching a decision or making a finding the high court pointed out that the applicant had failed to establish that it would be just and equitable to place the first respondent under the administration of the Director General: Land Affairs as envisaged in section 13(1) of the CPA Act inter alia on the basis that the applicant was not precluded from applying in terms section 13(1) of CPA Act  without having exhausted the remedies contained in section 10(2) to 10(5) or section 11(6) and 11(7) of the CPA Act.

Essence

High court decided that it would not be just and equitable to place the respondent under administration after the explanations were accepted by the high court. 

Decision

(603/2019) [2021] ZANCHC 2 (8 January 2021)

Order:

Refused application with costs.

Judges

AG van Tonder AJ

Date heard: 14/08/2020
Date available: 08/01/2021

Reasons

“[163] In view of the similarities in respect of the wording of the aforesaid acts and the wording of section 13 of the CPA act, I am of the view that the principles relating to companies, in respect of the test for it being just and equitable to place a company under liquidation or business rescue, can be applied to communal property associations as well.”

Quotations from judgment

Note: Footnotes omitted and emphasis added

[1] This is an application brought by the applicant in his capacity as a member of the first respondent for an order in the following terms:

1. Ordering that the first respondent be placed under Administration of the Director General: Land Affairs in terms of section 13(1) of the Communal Property Associations Act 28 of 1996;

. . . .

LEGISLATIVE FRAMEWORK

[140] The applicant contend that the first respondent should be placed under administration firstly, as a result of maladministration, and secondly on the basis that it would be just and equitable for it to be placed under administration.

[141] The preamble to the CPA act sets out its aims as follows:

To enable communities to form juristic persons, to be known as communal property associations in order to acquire, hold and manage property on a basis agreed to by members of a community in terms of a written constitution; and to provide for matters connected therewith.
WHEREAS it is desirable that disadvantaged communities should be able to establish appropriate legal institutions through which they may acquire, hold and manage property in common;
AND WHEREAS it is necessary to ensure that such institutions are established and managed in a manner which is non-discriminatory, equitable and democratic and that such institutions be accountable to their members;
AND WHEREAS it is necessary to ensure that members of such institutions are protected against abuse of power by other members;

[142] In the Bakgatla decision, Jafta J indicated that the CPA act is a visionary piece of legislation passed to restore the dignity of traditional communities, and proceeded to state that the Act should be interpreted as follows:

[34] It is by now trite that section 39(2) of the Constitution has introduced a new approach to the interpretation of statutes. The section obliges courts to promote “the spirit, purport and objects of the Bill of Rights” when construing legislation. This new approach has been described as “a mandatory constitutional canon of statutory interpretation. ”The duty to seek an interpretation that promotes the objects of the Bill of Rights arises even where the parties have not raised the issue because the obligation imposed by the section is, as was observed in Phumelela, mandatory.
…………
[36] Therefore in construing section 5(4) of the Act, we are obliged not only to avoid an interpretation that clashes with the Bill of Rights but also to seek a meaning of the section that promotes the rights of the Bakgatla-BaKgafela Traditional Community to restitution of land. Had the Supreme Court of Appeal borne this duty in mind, it could have attached a different meaning to the section. A meaning that would be consonant with the purpose of the Act.”

[143] Section 13 of the Communal Property Associations Act provides as follows:

13. Administration, liquidation and deregistration.—

(1) A division of the Supreme Court or a Magistrate’s Court having jurisdiction in respect of the area in which the property of the association is situated or the area in which the land which may be acquired by a provisional association is situated, may, on application made by the Director-General, an association or provisional association or any member thereof, or any other interested person, place the association or provisional association under the administration of the Director-General or grant a liquidation order in respect of an association or provisional association, where the association or provisional association, because of insolvency or maladministration or for any other cause is unwilling or unable to pay its debts or is unable to meet its obligations, or when it would otherwise be just and equitable in the circumstances.
(2) The Director-General shall, pursuant to an administration order referred to in subsection (1), have such powers to manage the affairs of the association or provisional association as the Court, subject to the provisions of this Act, may determine.
(3) The Director-General may, upon written application by an association or provisional association, cause such an association or provisional association to be deregistered, if he or she is satisfied that—
(a) a resolution in favour of deregistration was adopted at a meeting attended by a substantial number of the members of the association or provisional association;
(b) the resolution was adopted by a majority of members present or represented at the meeting; and
(c) all relevant matters which reasonably have to be addressed prior to deregistration, including the way in which the assets and liabilities of the association or provisional association will be dealt with, have been addressed.
(4) Where the Court orders the liquidation of an association or provisional association, it shall make such order as to the distribution of the assets of the association or provisional association as it deems just and equitable, having considered any recommendations which the Director-General may make in this regard.
(5) The Minister may prescribe the procedure to be followed in an application contemplated in subsection (1), and set out the powers and duties of the Director-General, the Registration Officer, the association, members and interested parties in those situations.

[144] The Minister has published regulations under the Act, in Government Notice R1908 of 22 November 1996, but the regulations do not deal with the procedures to be followed in an application under section 13(1).

[145] From the express wording of section 13(1) of the act, it is clear that an association may be placed under the administration of the Director General:

“…, where the association or provisional association, because of insolvency or maladministration or for any other cause is unwilling or unable to pay its debts or is unable to meet its obligations, or when it would otherwise be just and equitable in the circumstances.”

[146] From the act itself, it is thus clear that an association may be placed under administration or liquidated in the circumstances where:

[146.1] the association is unwilling or unable to pay its debts or is unable to meet its obligations, as a result of insolvency, or maladministration or any other cause, or
[146.1] when it would be otherwise just and equitable to do so.

[147] Maladministration in itself, is thus not an independent ground for placing a CPA under administration, as it is only relevant as a factor contributing to the association being unwilling or unable to pay its debts or unable to meet its obligations.

[148] In the present matter, there is no question that the association is able to not only pay its debts and meet its obligations, but is also in a position to pay dividends to the members of the association, more particularly to the heads of the families and the first generation descendants of the claimants.

[149] However, subject to the circumstances of the case, maladministration may very well be a factor influencing the decision as to whether it would be just and equitable to place the association under administration or not.

[150] Neither the Court, nor the parties’ counsel were able to find any judgments expressly dealing with an application in terms of Section 13(1) of the CPA Act.

[151] On the day of the hearing of the matter Adv Knoetze SC was able to refer the Court to a judgment dealing with an application in terms of Section 13 of the CPA Act.

[152] He referred to the unreported judgment of Mathebula and Others v The Nwandlamhari Communal Property Association and Others, in which Section 13 of the CPA Act was considered.

[153] In that matter similar allegations were also made in regard to problems with verifying who the legitimate beneficiaries of the association were, financial statements not being prepared, as well as gross maladministration and squandering of financial resources, etc. Despite the serious allegations Khumalo J however dismissed the application and stated as follows:

“[113] The Applicants have also accused the NCPA EC of gross violations or maladministration of the resources of the NCPA by the executive members which has resulted in the squandering of funds and as a result obliged them to take the necessary steps. The allegations have not been substantiated with any further evidence except for the distribution of the benefits that has occurred discriminatorily without any proven resolution or policy adopted by the members. The two payments as indicated happened during the period of the initial EC and the second one during the transient EC. As it is the period that elections are supposed to take place, it is not necessary that all the affairs of the NCPA be placed under administration which in any case lies with the courts located in the Mpumalanga area. If the verification process has been finalised the Director General can proceed with the arrangements for the AGM.”

[154] As also referred to in the Mathebula judgment, insofar as there are disputes of fact, the matter stands to be adjudicated on those facts set out by the applicant that are admitted by the respondent, as well as the respondent’s factual allegations (unless the respondent’s version was rejected on the papers).

[155] As set out by the Supreme Court of Appeal (as it then was) in the matter of Fakie NO v CCII Systems (Pty) Ltd in the words of Cameron JA:

“[55] That conflicting affidavits are not a suitable means for determining disputes of fact has been doctrine in this Court for more than 80 years. Yet motion proceedings are quicker and cheaper than trial proceedings, and in the interests of justice courts have been at pains not to permit unvirtuous respondents to shelter behind patently implausible affidavit versions or bald denials. More than 60 years ago, this Court determined that a judge should not allow a respondent to raise “fictitious” disputes of fact to delay the hearing of the matter or to deny the applicant its order. There had to be “a bona fide dispute of fact on a material matter”.

This means that an uncreditworthy denial, or a palpably implausible version, can be rejected out of hand, without recourse to oral evidence. In Plascon-Evans Paints Ltd v Van Riebeeck Paints (Pty) Ltd, this Court extended the ambit of uncreditworthy denials. They now encompassed not merely those that fail to raise a real, genuine or bona fide dispute of fact, but also allegations or denials that are so far-fetched or clearly untenable that the court is justified in rejecting them merely on the papers.

[56] Practice in this regard has become considerably more robust, and rightly so. If it were otherwise, most of the busy motion courts in the country might cease functioning. But the limits remain, and however robust a court may be inclined to be, a respondent’s version can be rejected in motion proceedings only if it is “fictitious” or so far-fetched and clearly untenable that it can confidently be said, on the papers alone, that it is demonstrably and clearly unworthy of credence.”

[156] The remaining question is whether it would be just and equitable to place the first respondent under administration, and if so, what powers should be granted in such an order.

[157] Adv Knoetze SC argued that the liquidation of a CPA in terms of section 13(1) of the CPA act corresponds with the process whereby a company is liquidated in terms of the provisions of chapter XIV of the Companies Act 61 of 1973. He also submitted that the placing of a CPA under administration corresponds with the placing of a company under business rescue in terms of Chapter 6 of the Companies Act, 71 of 2008.

[158] He also submitted that cognisance should be taken of section 81 of the Companies Act, 71 of 2008, in respect of liquidating a company on the basis that it is just and equitable to do so, in the event of the company being able to pay its debts.

[159] I find this argument very persuasive.

[160] Section 344 of the Companies Act, 61 of 1973 provides as follows:

“344. Circumstances in which company may be wound up by Court.—
A company may be wound up by the Court if— ……
(h) it appears to the Court that it is just and equitable that the company should be wound up.”

[161] Section 81 of the Companies Act, 71 of 2008 also provides as follows:

“81. Winding-up of solvent companies by court order.—
(1) A court may order a solvent company to be wound up if—
………
(c) one or more of the company’s creditors have applied to the court for an order to wind up the company on the grounds that—
(i) ……; or
(ii) it is otherwise just and equitable for the company to be wound up;
(d) the company, one or more directors or one or more shareholders have applied to the court for an order to wind up the company on the grounds that— (ii) ……; or
(iii) it is otherwise just and equitable for the company to be wound up;”

[162] In respect of business rescue proceedings, section 131 of the Companies Act, 71 of 2008 also provides as follows:

“131. Court order to begin business rescue proceedings.—
(1) Unless a company has adopted a resolution contemplated in section 129, an affected person may apply to a court at any time for an order placing the company under supervision and commencing business rescue proceedings.
………
(4) After considering an application in terms of subsection (1), the court may—
(a) make an order placing the company under supervision and commencing business rescue proceedings, if the court is satisfied that— (ii) …….; or
(iii) it is otherwise just and equitable to do so for financial reasons, and there is a reasonable prospect for rescuing the company; or
(b) dismissing the application, together with any further necessary and appropriate order, including an order placing the company under liquidation.”

[163] In view of the similarities in respect of the wording of the aforesaid acts and the wording of section 13 of the CPA act, I am of the view that the principles relating to companies, in respect of the test for it being just and equitable to place a company under liquidation or business rescue, can be applied to communal property associations as well.

[164] In the matter of Erasmus v Pentamed , Nestadt J (as he then was) gave a detailed analysis of the meaning and ambit of “just and equitable” as used in section 344(h) of the Companies Act, 61 of 1973 and its predecessor, as follows:

“The meaning and ambit of ‘just and equitable’ as used in s 344 (h) and its predecessor, s 111 (g) of the 1926 Companies Act (an expression, incidentally, also appearing in s 97 (1), 252 (3) and 427 (1) of the present Act), has been considered in many cases; and the same applies in respect of the corresponding sections of the various successive English Companies Acts. Not surprisingly our Courts have drawn guidance from English decisions in this regard. The main principles which emerge are, so it seems to me, the following:

(i) ‘Just and equitable’, unlike the preceding subparagraphs of s 344 postulates not facts, but only a broad conclusion of law, justice and equity (per TROLLIP J, as he then was, in Moosa NO v Mavjee Bhawan (Pty) Ltd and Another 1967 (3) SA 131 (T) at 136H; see, too, Henochsberg on The Companies Act 3rd ed at 598 – 9). It is not to be interpreted so as to only include matters ejusdem generis the other grounds specified in s 344 (Emphy’s case at 365H; Henochsberg at 600). It is to be contrasted with an application under s 252 in which regard oppression has to be shown (Aspek Pipe Co case supra at 526 – 527).

(ii) It affords the Court a wide judicial discretion in the exercise whereof, however, certain other sections of the Act must be taken account of. They are:

(a) Section 347 (2) (broadly similar to the old s 117 (2)) which provides, in effect, that, if some other remedy is available to the applicant and he is acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy, the application may be refused. Section 252 (corresponding to s 111 bis of the 1926 Act) provides such an alternative remedy. The onus of proving its availability and the applicant’s unreasonableness as aforesaid lies on the person opposing the winding-up order (Moosa’s case supra; Henochsberg at 614).
(b) In terms of s 354 (2) (the successor to the old s 120) regard is to be had, in relation to applications to windup generally, inter alia, to the wishes of the majority of shareholders (Moosa’s case supra at 149A; Henochsberg (op cit at 624)).

(iii) The sub-section is applicable to a variety of situations. In what follows attention is restricted to those cases where a winding-up of a solvent company at the instance of a member is sought.

(iv) As TROLLIP J, dealing with this sort of case, further pointed out in Moosa’s case at 137A, the Courts have in the course of time evolved certain general principles which are useful as guides in particular cases for, and provide examples of, the exercise of the discretion referred to. On the other hand the tendency to create categories or headings under which cases must be brought if the ‘just and equitable’ principle is to apply, is wrong; the generality of those words is not to be thus reduced (Ebrahimi v Westbourne Galleries Ltd 1973 AC 360 (HL) at 374 – 5; Re A and BC Chewing Gum Ltd (1975) 1 All ER 1017 (CA) at 1027; Emphy’s case at 367C – D).

(v) One class of case, probably the most important and certainly the most relevant, applies to what have been termed small, domestic, private companies.

(a) It occurs where there is a breach of some basic, material obligation existing between the members which renders it just and equitable, judged according to broad common-sense considerations, that the company be wound-up.

The rule is based on the fact that ‘a limited company is more than a mere legal entity, with a personality in law of its own; that there is room in company law for recognition of the fact that behind it, or amongst it, there are individuals, with rights, expectations and obligations inter se which are not necessarily submerged in the company structure’ (per Lord WILBERFORCE in the Westbourne Galleries case at 379B – C).

(b) Very often (perhaps usually) the source of the obligation is the existence between members of what has loosely, though inaccurately (the Westbourne Galleries case at 380A – B) been called a quasi partnership in this sense that prior to the formation of the company there was a pre-existing partnership, the obligations of which it is reasonable to suppose continue to underly the new company structure (the Westbourne Galleries case at 379 – 80).

This, however, is not a requirement and I do not read Moosa’s case or Emphy’s case as holding otherwise. It is not necessary, as I understand the authorities, and more particularly the Westbourne Galleries case especially at 379G – 380B, that the shareholders of the company in question be, in substance, partners. They were not in the A and BC Chewing Gum case, yet an obligation not to exclude the applicant from the management of the company was held to exist and, it having been breached, it was held just and equitable to wind-up the company. The obligation can, in the words of TROLLIP J in Moosa’s case at 137H, arise from any ‘arrangement (whether) express tacit or implied’ between the members.

(c) The breach may take the form, inter alia, of conduct which destroys or, possibly, seriously impairs the personal relationship of confidence, friendly co-operation or trust which it was agreed or contemplated would exist between members regarding the running of the company’s affairs.

Hereunder would fall the two principles, respectively emanating from Loch v John Blackwood Ltd 1924 AC 783 (PC) and In re Yenidje Tobacco Co Ltd (1916) 2 Ch 426 (CA) and referred to in Moosas’s case at 137.

Mere dissatisfaction at being outvoted on the business affairs of the company would, however, normally not suffice, at least in the absence of fraud (Loch’s case at 788 – 9; Taylor v Welkom Theatres (Pty) Ltd and Others 1954 (3) SA 339 (O) at 351D – G).

The Court must guard against allowing s 344 (h) to become a launching platform, at the instance of minority shareholders, for the unwarranted interference in the internal management of a company acting within its powers (Taylor’s case at 352B – D; Hart’s case at 467D – E).

(d) Such conduct may be constituted by, eg, constant quarrelling between the shareholders (Yenidje Tobacco’s case); adultery by one director with the other’s wife (Lawrence v Lawrich Motors (Pty) Ltd 1948 (2) SA 1029 (W); a lack of probity, or unfair or ‘burdensome, harsh and wrongful’ conduct by controlling shareholders in managing the company (Moosa’s case at 137G; Hart’s case at 467C – D). In relation to ‘partnership companies’ the general rule is that a winding-up may be ordered if such facts are shown as would justify a dissolution of the partnership between them (Westbourne Galleries case at 375C – D; Emphy’s case at 366A). It has been applied, not only in the cases just mentioned, but in many others, some of which are referred to in Taylor’s case at 346 fin – 349D. (See too Marshall v Marshall (Pty) Ltd and Others 1954 (3) SA 571 (N)).

(e) (i) ……….

(vii) Thirdly, where, whatever the size of the company, its substratum has ceased to exist in the sense that the principal or main or specific object or distinct purpose for which the company was formed or which constitutes the foundation of the company can no longer be carried out at all or fully, or that such main purpose has failed altogether (per HORWITZ J in Taylor’s case at 350C; see, too, Re Baku Consolidated Oil Fields Ltd (1944) 1 All ER 24 (Ch).

(viii) An applicant who relies on the just and equitable provision must not have been wrongfully responsible for the situation which has arisen (Emphy’s case at 368 fin).” (Emphasis added)

[165] In Apco Africa , Ponnan JA phrased the first principle guiding a court to exercise its discretion as follows:

“[19] There are two distinct principles that guide a court in exercising its discretion to wind up a domestic company which is in the nature of a partnership.

The first, enunciated in Loch v John Blackwood (supra) (at 788), is that it may be just and equitable for a company to be wound up where there is a justifiable lack of confidence in the conduct and management of the company’s affairs grounded on conduct of the directors, not in regard to their private life or affairs, but in regard to the company’s business. That lack of confidence is not justifiable if it springs merely from dissatisfaction at being out-voted on the business affairs or on what is called the domestic policy of the company, but is justifiable if in addition there is a lack of probity in the director’s conduct of those affairs.”

[166] In the matter of Knipe v Kameelhoek , Daffue J, relied on the judgment in Rand Air (Pty) Ltd v Rasy Bester Investments (Pty) Ltd 1985 (2) SA 345 (W) at 350C-H and went on to indicate that:

“[24] A domestic company or quasi-partnership, or a company akin to partnership may be liquidated due to a complete breakdown in the relationship, of reasonableness, good faith, trust, honesty and mutual confidence which should exist between the directors and/or shareholders thereof.”

CONCLUSION

[167] By applying the aforesaid principles to the facts of the matter, the court has to decide whether it would be just and equitable to place the association under the administration of the Director General: Land Affairs in terms of section 13(1) of the CPA Act.

[168] For purposes of deciding this matter, I will adjudicate the matter on the basis that the applicant is not precluded from proceeding with his application in terms section 13(1), without having first exhausted the remedies contained in section 10(2) to 10(5) or section 11(6) and 11(7) of the CPA Act, without reaching a decision thereon or making a finding to that effect.

[169] In view of the fact the current executive committee was elected during October 2018, the allegations and complaints levelled against the previous executive committees, prior to October 2018, can in my view not be relied upon as a basis to place the first respondent
under administration as a result of the conduct of its current executive committee.

. . . .

Court summary