BISSET AND OTHERS v BOLAND BANK LTD AND OTHERS 199...

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BISSET AND OTHERS v BOLAND BANK LTD AND OTHERS 1991 (4) SA 603 (D)

1991 (4) SA p603

Citation

1991 (4) SA 603 (D) Durban and Coast Local Division Booysen !ebruary 1"# 1991 A$ril %# 1991
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'ractice ( )it*dra+al and dis,issal o- $roceedin.s ( Dis,issal o- ( /e0atious $roceedin.s ( A$$lication to stri&e out $roceedin.s on basis t*at t*ey constituted an abuse o- t*e $rocess o- Court and t*ere-ore 1 ve0atious ( 'roceedin.s bein. action -or da,a.es a.ainst attorneys res$onsible -or re.istration o- bond in contravention o- $rovisions o- S*are Bloc&s Control Act 29 o- 19%0 ( 3nly in very e0ce$tional cases +ould suc* a$$lication be .ranted ( Action +*ic* is obviously unsustainable clearly ve0atious ( 4nsustainable as ,atter o- certainty and not ,erely on 5 $re$onderance o$robability ( 6n casu# validity o- re.istration o- bond in doubt ( 7o certainty t*at action unsustainable as it +ould *ave been i- bond validly re.istered ( A$$licants not *avin. s*o+n t*at action clearly unsustainable and t*ere-ore ve0atious ( A$$lication dis,issed8 S*are bloc& ( S*are bloc& co,$any ( Loan obli.ations o- ( 6ncrease o- 6 ( 9e:uire,ent o- resolution o- s*are*olders -or suc* increase ( S*are Bloc&s Control Act 29 o- 19%0# s 14(1) ( De-inition o- ;loan obli.ation; in s 1 o- Act ( Consistin. o- total a,ount o+in. by co,$any in res$ect o- loans ,ade in order to -inance ac:uisition o- i,,ovable $ro$erty and cost o- i,$rove,ents to $ro$erty ( 7ot includin. obli.ation to re$ay ,oney under condictio8
1991 (4) SA p604

H$a"not$ * Kopnota A A$$lication +as ,ade in a Local Division by t*e $artners in a -ir, o- attorneys -or an order stri&in. out an action instituted a.ainst t*e, and t*e second res$ondent by t*e -irst res$ondent (t*e ban&)8 <*e ban& clai,ed da,a.es eit*er -or breac* o- an i,$lied contractual ter, t*at t*e re.istration o- t*e bond in res$ect o- t*e $urc*ase o- $ro$erty by a s*are bloc& co,$any (t*e t*ird res$ondent) +ould be carried out +it* reasonable $ro-essional &no+led.e# care and s&ill= or alternatively -or B breac* o- duty o- care by t*e a$$licants -or *avin. re.istered t*e bond in contravention o- t*e $rovisions o- s 14(1) o- t*e S*are Bloc&s Control Act 29 o- 19%0 +*ic* $ro*ibited t*e co,$any# inter alia# increasin. its loan obli.ations unless t*at increase *ad been a$$roved by at least >2? o- t*e ,e,bers o- t*e co,$any8 <*e -ailure o- t*e a$$licants to ensure co,$liance +it* t*e $rovisions o- t*at Act *ad resulted in t*e bond bein. invalid8 <*e co,$any *ad -allen in arrears +it* t*e re$ay,ent o- t*e bond and subse:uently beca,e insolvent8 <*e ban&# so it +as alle.ed# +as# as a result o- t*e invalidity o- t*e bond# C only a concurrent creditor on li:uidation o- t*e co,$any and accordin.ly *ad su--ered da,a.es8 <*e .round on +*ic* t*e a$$licants sou.*t to *ave t*e action o- t*e ban& set aside +as t*at t*e ban& *ad already obtained @ud.,ent by de-ault on t*e invalid bond and t*ere-ore t*at t*e action by t*e ban& a.ainst t*e a$$licants +as an abuse o- t*e $rocess o- Court and t*at it +as ve0atious -or t*e ban& to $ersist +it* t*at action8 <*e li:uidators o- t*e t*ird res$ondent o$$osed t*e a$$lication to *ave t*e D $roceedin.s set aside and delivered a t*ird $arty notice clai,in. an order t*at t*e ban& +as not entitled to recover -ro, t*e co,$any ,ore t*an a s$eci-ic su, o- ,oney and t*at t*e bond did not $rovide security -or t*e ban& -or $ay,ent o,ore t*an t*at s$eci-ied su,8 <*e ban& o$$osed t*e a$$lication and lod.ed a counter(

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a$$lication in +*ic* it sou.*t declaratory orders to t*e e--ect t*at it *ad a secured clai, -or a *i.*er a,ount in ter,s o- t*e bond and an additional concurrent clai, a.ainst t*e co,$any8 <*e a$$licants and t*e li:uidators o$$osed t*is counter(a$$lication8 E Held# t*at t*e Court *ad an in*erent $o+er to stri&e out clai,s +*ic* +ere ve0atious +*ic*# in t*is conte0t# ,eant -rivolous# i,$ro$er# instituted +it*out $ro$er .round# to serve solely as an annoyance to t*e de-endant8 Held# -urt*er# t*at t*e $o+er to stri&e out +as one +*ic* *ad to be e0ercised +it* .reat caution and only in a clear case# t*e reason bein. t*at t*e courts +ere o$en to all and it +as only in e0ce$tional circu,stances t*at t*e doors o- t*e courts +ould be closed on anyone +*o desired to $rosecute an action8 ! Held# -urt*er# t*at# +*ile an action t*at +as unsustainable +as ve0atious# t*at *ad to a$$ear as a certainty and not ,erely on a $re$onderance o- $robabilities8 Held# -urt*er# t*at# in relyin. on t*e de-ault @ud.,ent obtained by t*e ban& rat*er t*an see&in. to $rove -acts s*o+in. t*at t*e bond +as valid# t*e a$$licants *ad -ailed to s*o+ t*at t*e action a.ainst t*e, +as clearly unsustainable on t*e basis t*at t*e bond validly secured t*e loan8 1 Held# -urt*er# +it* re.ard to t*e a$$licants; contention t*at as lon. as t*e @ud.,ent stood t*e ,atter +as res judicata bet+een t*e ban& and t*e li:uidators and t*at t*e $arties +ere bound to reco.nise t*e validity o- t*e bond# t*at t*e ar.u,ent# to so,e e0tent# sou.*t to ascribe to a @ud.,ent in personam e--ects o- a @ud.,ent in rem and t*ere +as no reason +*y t*e ban& and li:uidators +ere bound to set aside t*e @ud.,ent be-ore $roceedin. on t*e assu,$tion t*at t*e bond +as invalid8 Held# accordin.ly# t*at it *ad not been s*o+n t*at t*e action a.ainst 5 t*e a$$licants +as unsustainable as a ,atter o- certainty and t*ere-ore ve0atious by virtue o- t*e earlier de-ault @ud.,ent# and t*at t*e a$$lication t*ere-ore -ell to be dis,issed8 Held# -urt*er# +it* re.ard to t*e ban&;s a$$lication -or an order in ter,s o- 4ni-or, 9ule oCourt 6(2)(g) t*at oral evidence be *eard to deter,ine +*et*er it *ad a concurrent clai, a.ainst t*e co,$any based on un@ust enric*,ent -or t*e a,ount o- its clai, +*ic* +as unsecured# t*at in ter,s o- s 14(1) o- t*e Act a resolution $assed by >2? o- t*e s*are*olders +as re:uired to increase t*e loan obli.ation o- t*e 6 co,$any# -ailin. +*ic* any act $ur$ortin. to increase suc* loan obli.ation +ould in ter,s o- s % o- t*e Act be invalid8 Held# -urt*er# t*at in ter,s o- s 1 o- t*e Act# ;loan obli.ation; ,eant t*e total a,ount o+in. by t*e co,$any e0cludin. any a,ount o+in. by t*e co,$any in res$ect o- its s*are ca$ital= t*e a..re.ate a,ounts trans-erred in ter,s o- t*e Co,$anies Act 61 o- 19>3 to t*e reserves and $rovisions o- t*e co,$any= and debts to be disc*ar.ed -ro, t*e levy -und in ter,s o- s 13(1) o- t*e Act by t*e co,$any8
1991 (4) SA p60,

B33ASE7 A Held# -urt*er# t*at to consider +*at t*e Le.islature ,eant to include +it*in t*e conce$t o;loan obli.ation;# s 1 read +it* s 13 s*ould not be considered in isolation and t*at in order to deter,ine +*et*er any $articular obli.ation -or,ed $art o- t*e co,$any;s loan obli.ation it +as necessary to *ave re.ard to t*e $ur$ose(s) o- t*e $rovisions relatin. to t*is conce$t8 Held# -urt*er# t*at t*e $ur$ose o- t*e $rovisions o- ss 14(1) and % +as $ri,arily to $rotect t*e interests o- s*are*olders in a s*are bloc& B co,$any and ;loan obli.ation; *ad been +idely de-ined in t*e Act to $revent evasion o- t*ese $rotective $rovisions8 Held# -urt*er# *o+ever# t*at it +as di--icult to esca$e t*e conclusion t*at# des$ite t*e de-inition;s +ide i,$ort# no ,ore +as ,eant t*an t*at it consisted o- t*e total a,ount o+ed by t*e co,$any in res$ect o- loans ,ade in order to -inance t*e ac:uisition o- i,,ovable $ro$erty and t*e cost o- i,$rove,ents to t*e $ro$erty8 Held# -urt*er# t*at it see,ed clear t*at t*e obli.ations -allin. +it*in t*e conce$t o- ;loan obli.ation; did not include obli.ations +*ic* +ere C not contractual so t*at t*e $ro*ibition a.ainst increasin. its loan obli.ations could not *ave been intended to a$$ly to an obli.ation to $ay da,a.es arisin. -ro, delict or un@ust enric*,ent8 Held# t*ere-ore# t*at it -ollo+ed t*at an obli.ation to re$ay ,oney under a condictio by virtue oan un@ust enric*,ent +as not $art o- t*e D loan obli.ation o- a s*are bloc& co,$any and t*at s 14(1) +as accordin.ly not a$$licable8 Held# accordin.ly# t*at t*e a$$lication -or t*e order re-errin. t*e ,atter as to +*et*er -irst res$ondent *ad a clai, and t*e a,ount t*ereo- -or t*e *earin. o- oral evidence s*ould be .ranted8

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Ca&$ In-o %ation A$$lication -or t*e stri&in. out o- certain $roceedin.s on t*e .round t*at t*ey +ere an abuse ot*e $rocess o- t*e Court and t*us ve0atious and counter(a$$lication -or a declaratory order8 <*e -acts a$$ear -ro, E t*e reasons -or @ud.,ent8 P A M Magid SC (+it* *i, G R Thatcher) -or t*e -irst and second a$$licants8 P M Meskin SC (+it* *i, J C
!

ing) -or t*e t*ird a$$licant8

H M Carstens SC -or t*e -irst res$ondent and t*ird $arty8

M ! South"ood SC -or t*e t*ird res$ondent8 Cur ad# #ult8 Postea (A$ril %)8 !u"#%$nt Booysen B <*is started o-- as an a$$lication by t*ree a$$licants -or an 1 order stri&in. out an action -or da,a.es -or $ro-essional ne.li.ence instituted a.ainst t*e, and t*e second res$ondent by t*e -irst res$ondent (*ereina-ter called ;t*e ban&;) u$on t*e .round t*at it is an abuse o- t*e $rocess o- t*e Court and t*us ve0atious -or t*e ban& to $ersist +it* t*e action8 <*e a$$licants and t*e second res$ondent +ere ,e,bers o- a $artners*i$ o- attorneys at t*e relevant ti,e8 <*e da,a.es 5 +ere alle.ed to *ave been su--ered as a result o- t*eir *avin. ne.li.ently re.istered a ,ort.a.e bond over t*e $ro$erty o- Dou.+ill S*are Bloc& ('ty) Ltd (*ereina-ter called ;t*e co,$any;) +*ic* bond +as invalid in ter,s o- s 14(1) o- t*e S*are Bloc&s Control Act 29 o- 19%08 <*e co,$any +as subse:uently $laced in li:uidation and t*is co,$any (in li:uidation) is t*e t*ird res$ondent in t*ese $roceedin.s8 <*e co,$any;s 6 li:uidators (*ereina-ter called ;t*e li:uidators;) *ave not only o$$osed t*e a$$lication but *ave delivered a t*ird $arty notice in +*ic* t*ey clai, an order declarin. t*at t*e ban& is not entitled to recover -ro, t*e co,$any ,ore t*an t*e su, o- 94>0 000 and t*at t*e bond does not $rovide security to t*e ban& -or $ay,ent o- ,ore t*an 94>0 0008 <*e ban& o$$osed t*e relie1991 (4) SA p606

B33ASE7 clai,ed by a$$licants and t*e li:uidators# and lod.ed a counter(a$$lication in +*ic* it in turn see&s declaratory orders to t*e e--ect t*at it *as a secured clai, -or 9>00 106#06 in ter,s ot*e bond and a concurrent clai, -or 91 "19 "46#"9 a.ainst t*e co,$any8 <*e a$$licants and t*e li:uidators o$$ose t*e counter(a$$lication8 !inally B t*e ban& *as a$$lied in ter,s o- 9ule 6(2)(g) -or an order re-errin. t*e ,ain ,atters in dis$ute bet+een t*e ban& and t*e li:uidators -or t*e *earin. o- oral evidence and an order t*at -urt*er ar.u,ent in res$ect o- t*e ,ain a$$lication be *eard a-ter t*e *earin. o- t*e oral evidence8 <*e a$$licants *ave also ,ade a$$lication -or t*e stri&in. out o- certain alle.ations and anne0ures8
A

6t is necessary to relate t*e *istory o- t*e ,atter8 Accordin. to an C unsi.ned ,inute o- a ,eetin. o- t*e co,$any;s directors# t*ey resolved to borro+ 91 "20 000 -ro, t*e ban&8 <*e resolution +as ty$ed -or only t*e second res$ondent (one Ceun) and one Sto&es to si.n even t*ou.* one D;Abbadie +as also a$$arently a director8 6t is clear t*at t*is +as not a ,eetin. os*are*olders and t*at s*are*olders suc* as )*itta&er# D Brundyn and Assad +ere not $resent8 6t is co,,on cause bet+een t*e ban& and t*e li:uidators and it see,s $robable t*at no resolution o- s*are*olders in ter,s o- s 14(1) o- t*e Act +as $assed to increase t*e loan obli.ation o- t*e co,$any8 As at 30 A$ril 19%2# t*e co,$any did not o+e anyt*in. in res$ect o- E its s*are ca$ital or t*e a..re.ate o- a,ounts trans-erred to its reserves and $rovisions8 6t did *o+ever o+e certain a,ounts in res$ect o- debts to be disc*ar.ed -ro, its levy -und establis*ed in ter,s o- s 13 ot*e S*are Bloc&s Control Act 29 o- 19%08 6t also o+ed 93>0 000 $lus interest at a -luctuatin. rate to t*e Board o- E0ecutors in ter,s o- a ,ort.a.e bond and 9100 000 to <rust Ban& on overdra-t8
! 3n 30 A$ril 19%2# t*e ban& a.reed to lend 91 "20 000 to t*e co,$any u$on t*e security oa ,ort.a.e bond over t*e co,$any;s $ro$erty8

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3n 14 une 19%2# t*e bond +as re.istered and -ro, its $roceeds 93>0 000 +as $aid to t*e Board o- E0ecutors and 9100 000 to <rust Ban&8 A-ter 1 t*ose $ay,ents +ere ,ade# t*e co,$any +as no lon.er indebted to t*ese institutions# not even in res$ect o- interest8 <*e -ir, o- attorneys in +*ic* t*e a$$licants and second res$ondent +ere $artners attended to re.istration o- t*e bond8 3n % une 19%%# t*e ban& issued su,,ons a.ainst t*e $resent a$$licants and second res$ondent8 6n its $articulars o- clai,# it averred t*at it 5 *ad .iven an oral ,andate to t*e $artners*i$# +*ic* *ad been acce$ted# to attend to t*e re.istration o- t*e bond= t*at it +as a tacit ter, o- t*e contract or ,andate t*at it +ould be e0ecuted +it* reasonable $ro-essional &no+led.e# s&ill and care= t*at t*e ,e,bers o- t*e $artners*i$ &ne+ or s*ould *ave &no+n t*at s 14(1) o- Act 29 o- 19%0 $rovidedB
6

;A s*are bloc& co,$any s*all not increase its loan obli.ation or encu,ber any o- its assets unless t*e increase or encu,brance *as been a$$roved by a resolution o- at least >2 $er cent in nu,ber o- t*e ,e,bers o- t*e co,$any# e0cludin. -ro, suc* ,e,bers t*e s*are bloc& develo$er# *avin. t*e ri.*t to vote at t*e relevant ,eetin. and *oldin. in t*e a..re.ate at least >2 $er cent o- t*e total nu,ber o- votes o- all t*ose ,e,bers# but e0cludin. -ro, suc* nu,ber o- votes t*e votes *eld by t*e s*are bloc& develo$er; 1991 (4) SA p60.

B33ASE7
A and t*at it -ollo+ed t*at t*e $artners*i$ +as contractually bound to ta&e all reasonable ste$s to ensure t*at s 14(1) *ad been co,$lied +it* be-ore re.istration o- t*e bond and $ay,ent o91 "20 0008

6t averred in t*e alternative t*at t*e $artners*i$ o+ed it a duty o- care to ta&e suc* ste$s= t*at it *ad breac*ed t*e contract or duty o- care= t*at t*e bond +as invalid by virtue o- s 14(1) read +it* s %(1)(d) B and +*ic* $rovides as -ollo+sB
;(d) Any act o- a s*are bloc& co,$any in e0cess o- its ca$acity or $o+ers s*all be voidB 'rovided t*at ( (i) in t*e case o- any suc* void act# t*e $erson +*o $er-or,ed or is $ur$orted to *ave $er-or,ed t*at act on be*al- o- t*e C co,$any# s*all be $ersonally liable to any t*ird $arty +*o +as $re@udiced by reason o- t*e -act t*at no obli.ation resulted -or t*e co,$any -ro, t*at act and +*o in relation to t*e $er-or,ance o- t*at act acted in .ood -ait* and reasonably= and t*e $rovisions o- s "4% o- t*e Co,$anies Act s*all mutatis mutandis a$$ly in res$ect o- any @udicial $roceedin.s or D clai, arisin. out o- any suc* act a.ainst t*e $erson +*o $er-or,ed or $ur$orted to *ave $er-or,ed t*at act on be*al- o- t*e co,$any;=

(ii)

t*at t*e co,$any -ell in arrears +it* its $ay,ents under t*e bond= t*at 91 %23 10>#19 +as on 6 Day 19%% due and $ayable under t*e bond= t*at t*at a,ount continued to bear interest at t*e rate o- "0? $er annu,= E t*at t*e co,$any +as insolvent and unable to re$ay t*e loan in -ull= t*at t*e ban& as a concurrent creditor +ould not recover ,ore t*an 40 cents in t*e rand on li:uidation o- t*e co,$any= and t*at t*e ban& *ad accordin.ly su--ered da,a.es in an a,ount o- 9%%9 %64#"08 3n "6 une 19%%# t*e ban& issued su,,ons a.ainst t*e co,$any and t*e second res$ondent (Ceun) as surety -or t*e co,$any8 6ts ,ain clai, -or ! 91 919 32"#32 +as based on t*e contention t*at t*e bond +as valid8 6n t*e alternative it +as contended t*at t*e ban& +as entitled to recover 91 "20 000 -ro, t*e co,$any by virtue o- t*e un@usti-ied enric*,ent o- t*e co,$any8 A -urt*er alternative clai, +as based on t*e contention t*at t*e bond +as# by virtue o- s 14(>) o- t*e Act# valid in res$ect o- 1 an a,ount e:uivalent to t*e total o- t*e indebtedness to <rust Ban& and t*e Board o- E0ecutors +it* interest8 3n 11 and 1" uly 19%% t*e a$$licants in t*ese $roceedin.s all delivered e0ce$tions to t*e $articulars o- clai, in t*e action a.ainst t*e,8 <*e -irst e0ce$tion +as based on t*e non(@oinder o- t*e co,$any= t*e 5 second on a contention t*at t*e bond +as not invalid= t*e t*ird on t*e contention t*at t*e co,$any did not assert and +as in any event esto$$ed -ro, assertin. t*at t*e bond +as invalid= t*e -ourt* on t*e contention t*at an action in delict did not subsist in t*e alle.ed circu,stances= t*e -i-t* on t*e contention t*at only t*e $artner acce$tin. t*e ,andate could be liable in delict= and t*e si0t* on t*e contention t*at no da,a.e *ad been su--ered until t*e co,$any *ad been e0cussed and a 6 balance re,ained due8 3n 6 Se$te,ber 19%% t*e ban& sou.*t and obtained de-ault @ud.,ent a.ainst t*e co,$any

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on its ,ain clai,# ie u$on t*e basis t*at t*e bond +as valid8 ud.,ent +as .ranted -or $ay,ent o- t*e -ull a,ount o- 91 919 32"#32 and an order declarin. t*e $ro$erty e0ecutable +as also .ranted8
1991 (4) SA p60/

B33ASE7
A 4$on beco,in. a+are o- t*is @ud.,ent# t*e a$$licants; attorneys# by letter dated 12 Se$te,ber 19%%# in-or,ed t*e ban&;s attorneys t*at t*e a$$licants contended t*at t*e ban&;s action a.ainst t*e, +as ve0atious and s*ould be +it*dra+n= t*at t*eir costs s*ould be $aid on t*e attorney and client scale and t*reatened u$on -ailure to do so to a$$ly to stri&e out t*e ban&;s action a.ainst t*e,8 B

By letter dated 6 3ctober 19%% t*e ban&;s attorneys re$lied t*at t*eir client +as not $re$ared to +it*dra+ t*e action until suc* ti,e as t*e action a.ainst t*e co,$any *ad been ;-inalised; and su..ested t*at t*e action a.ainst a$$licants be *eld ;in abeyance;8 A$$licants did not a.ree +it* t*is su..estion and launc*ed t*ese $roceedin.s on 19 A$ril 19%98 C As 6 *ave ,entioned earlier# t*e a$$lication +as not only o$$osed but *as .iven rise to o$$osed t*ird $arty $roceedin.s# a counter(a$$lication and a -urt*er a$$lication in ter,s o9ule 6(2)(g)8 <*e Court *as an in*erent $o+er to stri&e out clai,s +*ic* are ve0atious8 ($estern Assurance Co # Cald"ell%s Trustee 191% AD "6" at D ">1= A&rican 'arms and To"nships (td # Cape To"n Municipalit)1963 (") SA 222 (A) at 262D8) /e0atious in t*is conte0t ,eans ;-rivolous# i,$ro$er# instituted +it*out su--icient .round# to serve solely as an annoyance to t*e de-endant;8 ('isheries !e#elopment Corporation o& SA (td # Jorgensen and E Another* 'isheries !e#elopment Corporation o& SA (td # A$J +n#estments (Pt)) (td and ,thers19>9 (3) SA 1331 ())8) <*is $o+er to stri&e out is one +*ic* ,ust be e0ercised +it* very .reat caution# and only in a clear case8 <*e reason is t*at t*e courts o- la+ are o$en to all# and it is only in very e0ce$tional circu,stances ! t*at t*e doors +ill be closed u$on anyone +*o desires to $rosecute an action8 ($estern Assurance Co case supra at ">3= 'isheries !e#elopment case supra at 133%18) )*ilst an action +*ic* is obviously unsustainable is ve0atious# t*is ,ust a$$ear as a certainty and not ,erely on a $re$onderance o- $robability8 (Ra#den # -eeten 1932 C'D "69 at ">6= -urnham # 'akheer 193% 7'D 63= A&rican 'arms case supra at 262D(E8) 1 <*e ban&;s action a.ainst t*e a$$licants +ould be obviously unsustainable as a ,atter ocertainty i- t*e bond *ad been validly re.istered8 6t is# *o+ever# co,,on cause bet+een t*e ban& and t*e li:uidators# in t*ese $roceedin.s t*at t*e bond +as invalid or ine--ective beyond t*e e0istin. loan obli.ation8 Alt*ou.* t*ey di--er as 5 to t*e e0tent o- t*e loan obli.ation# t*ey are ad idem t*at anyt*in. o+ed beyond t*e e0istin. obli.ation +ould be unsecured8 Alt*ou.* it +ould be o$en to t*e a$$licants to see& to $rove -acts in t*e action a.ainst t*e, s*o+in. t*at t*e bond +as valid# t*ey *ave not sou.*t to do so in t*ese $roceedin.s8 <*ey *ave ,erely relied on t*e de-ault @ud.,ent obtained by t*e ban&8 6t -ollo+s t*at it *as not been s*o+n in t*ese 6 $roceedin.s t*at t*e action a.ainst a$$licants is unsustainable on t*e basis t*at t*e bond validly secures t*e loan8 But# say t*e a$$licants# as lon. as t*e @ud.,ent stands# it is res judicata bet+een t*e ban& and t*e li:uidators# +*o are bound to reco.nise its validity# and even i- bot* $arties no+ reco.nise t*at t*e bond +as invalid
1991 (4) SA p609

B33ASE7
A t*ey are $recluded -ro, $roceedin. to $rove and ad,it t*e ban&;s clai, on t*e basis o- suc* invalidity unless and until t*e @ud.,ent *as been set aside8

6t see,s to ,e t*at t*is ar.u,ent to so,e e0tent see&s to ascribe to a @ud.,ent in personam t*e e--ect o- a @ud.,ent in rem8 6 -ail to understand +*y t*e ban& and t*e li:uidators are bound to set aside t*e B @ud.,ent be-ore $roceedin. u$on t*e assu,$tion t*at t*e bond is

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invalid as security beyond t*e relevant e0istin. loan obli.ation8 Res judicata in re.ard to clai,s in personam is a-ter all a de-ence and *as to be raised by +ay o- $lea or re$lication by one ot*e $arties8 (-laikie.Johnstone # P Hollings"orth (Pt)) (td and ,thers19>4 (3) SA 39" (D) at 3928)
C

6t is not available to t*ird $arties +*o are not $rivy to eit*er o- t*e $arties8

6t see,s to ,e t*at i-# as see,s t*e case# t*e ban& and t*e li:uidators are ad idem# t*ey +ould be entitled to $rove and ad,it t*e ban&;s clai, u$on t*e basis o- t*eir understandin. as to t*e invalidity o- t*e bond +it*out .oin. to t*e trouble and e0$ense o- settin. aside D t*e @ud.,ent8 6t +ould# o- course# not $reclude t*e a$$licants -ro, contendin. in t*e action t*at t*e bond +as valid accordin. to its tenor but t*ey could *ardly $lead res judicata in t*is res$ect as t*ey +ere not $arties to t*e $roceedin.s in +*ic* de-ault @ud.,ent *ad been .ranted8 6t -ollo+s -ro, +*at 6 *ave said t*at it *as not been s*o+n t*at t*e E action a.ainst t*e a$$licants is ve0atious by reason o- bein. obviously unsustainable by virtue o- t*e earlier de-ault @ud.,ent8 <*e ban& *as in ter,s o- 9ule 6(2)(g) a$$lied -or an order t*at oral evidence be *eard in order to deter,ine +*et*er t*e ban& *as a concurrent clai, a.ainst t*e co,$any -or t*e a,ount o- its clai, +*ic* ! is unsecured and# i- so# to deter,ine t*e a,ount o- t*e clai,8 6n t*is re.ard its contentions are t*at i- t*e increase in t*e loan obli.ation +as null and void# t*en it is entitled to reclai, t*e unsecured $ortion o- t*e ,oneys actually advanced by +ay ocondictio and by virtue o- t*e resultant un@ust enric*,ent8 Counsel -or t*e li:uidators sub,itted t*at 6 s*ould dis,iss t*is .round t*at a condictio +as not available in t*ese circu,stances8
1

a$$lication u$on t*e si,$le

6t +as sub,itted t*at t*e de-inition o- ;loan obli.ation; in t*e Act included all ,oney o+ed by a s*are bloc& co,$any= not @ust loan liabilities= t*at it t*us included a liability to re$ay ,oney under a 5 condictio and t*at t*e Court +ill not en-orce t*e condictio because by so doin. it +ill brin. about t*e very situation $ro*ibited by t*e Act8 6n ter,s o- s 1# ;loan obli.ation; in relation to a s*are bloc& co,$any ,eans t*e total a,ount o+in. -ro, ti,e to ti,e by t*e co,$any# e0cludin. any a,ount o+in. by t*e co,$any in res$ect o- (a) its s*are ca$ital= (/) t*e a..re.ate o- t*e a,ounts trans-erred in ter,s o- t*e 6 Co,$anies Act to t*e reserves and $rovisions o- t*e co,$any= and (c) any debt to be disc*ar.ed -ro, ,oneys in t*e levy -und establis*ed in ter,s o- s 13 by t*e co,$any8 6n ter,s o- s 13(1)#
;(a) s*are bloc& co,$any s*all in res$ect o- t*e s*are bloc& sc*e,e it o$erates establis* and ,aintain a levy -und su--icient# in t*e o$inion o- its directors# -or t*e 1991 (4) SA p610

B33ASE7
A

re$air# u$&ee$# control# ,ana.e,ent and ad,inistration o- t*e co,$any and o- t*e i,,ovable $ro$erty in res$ect o- +*ic* it o$erates t*e s*are bloc& sc*e,e# -or t*e $ay,ent o- rates and ta0es and ot*er local aut*ority c*ar.es on t*e said i,,ovable $ro$erty# any c*ar.es -or t*e su$$ly o- electric current# .as# +ater# -uel and sanitary and any ot*er services to t*e said i,,ovable $ro$erty# and services re:uired by t*e co,$any# -or t*e coverin. o- any losses su--ered by t*e co,$any# -or t*e B $ay,ent o- any $re,iu,s o- insurance and o- all e0$enses incurred or to be incurred to e--ect t*e o$enin. under s 2 o- t*e Sectional <itles Act o- a sectional title re.ister in relation to t*e said i,,ovable $ro$erty# and -or t*e disc*ar.e o- any ot*er obli.ation o- t*e co,$any;8

6n order to deter,ine +*at t*e Le.islature ,eant to include +it*in t*e C conce$t o- ;loan obli.ation;# one can and s*ould not consider t*e de-inition in s 1 read +it* t*e descri$tion o- t*e levy -und in s 13(1) in isolation8 <o do so by .ivin. a literal inter$retation to t*ese $rovisions ,i.*t lead to t*e conclusion t*at a s*are bloc& co,$any can never *ave a loan obli.ation as it consists o- t*e total a,ount o+in. by t*e co,$any e0cludin. ;any a,ount; o+ed in res$ect o;any obli.ation o- t*e co,$any;8 <*is $roble, *as $ro,$ted t*e learned aut*ors /an der D Der+e and Butler Sectional Titles0 Share -locks and Time.Sharing to state at 4"3 t*at t*e +ords ;any ot*er obli.ation; in s 13(1) cannot bear t*eir literal ,eanin.# ,ore es$ecially in vie+ o- t*e de-inition o- loan obli.ation +*ic* is de-ined as ;t*e total a,ount o+in. by t*e co,$any e0cludin.# inter alia# debts to be disc*ar.ed -ro, t*e levy E -und; and to say at 4"2B

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;Because o- uncertainty as to t*e e0act e0tent o- debts $ayable -ro, t*e levy -und 8 8 8 t*e $recise sco$e o- t*e de-inition o- loan obli.ation is also unclear8;

6n order to deter,ine +*et*er any $articular obli.ation -or,s $art o- a co,$any;s loan obli.ation# it is necessary to *ave re.ard to t*e ! $ur$ose or $ur$oses o- t*e $rovisions relatin. to t*is conce$t8 <*is can be deter,ined -ro, an analysis and e0a,ination o- t*ose $rovisions in t*e conte0t o- t*e ot*er $rovisions o- t*e Act8 <*e ,ain ob@ect and business o- any s*are bloc& co,$any is ;to o$erate a s*are bloc& sc*e,e in res$ect o- i,,ovable $ro$erty o+ned or leased by 1 it; (s >(1))8 )*ere it o+ns t*e i,,ovable $ro$erty it *as usually borro+ed an a,ount -ro, a -inancial institution or t*e develo$er to -inance t*e costs o- ac:uirin. t*e land and buildin.8 <*e loan or loans are usually secured by ,ort.a.e bond8 6t ,i.*t be t*at ,ore t*an one -inancial institution ,i.*t lend ,oneys -or t*is $ur$ose and t*at -irst and second ,ort.a.e bonds are re.istered8
5 6- one +ere to s$ea& o- t*e loan obli.ation o- a s*are bloc& co,$any +it*out ;bene-it; ot*e de-inition in s 1# one +ould nor,ally be re-errin. to t*e total a,ount o- t*e above,entioned loans +*ic* t*e co,$any is obli.ed to re$ay8

<*e s*are*olders o- an ordinary co,$any *ave little i- any duties en-orceable by t*e co,$any8 S*are*olders o- a s*are bloc& co,$any are 6 *o+ever in a di--erent $osition8 <*ey are in ter,s o- t*e Act obli.ed to contribute to t*e co,$any;s loan obli.ation (s 14(") and (3)) and its levy -und (s 13("))8 6t -ollo+s t*at it is o- i,$ortance to a $ros$ective $urc*aser os*ares in a s*are bloc& co,$any to &no+ +*at t*e loan obli.ation o- t*e co,$any is and in $articular +*at contribution +ill be re:uired -ro, *i,8 <o $rotect t*e interests o- $ros$ective $urc*asers# t*e Act re:uires t*at a
1991 (4) SA p611

B33ASE7
A contract -or t*e ac:uisition o- a s*are in a s*are bloc& co,$any s*all be in +ritin. and si.ned by t*e $arties or t*eir re$resentatives actin. on t*eir +ritten aut*ority# -ailin. +*ic* t*e contract s*all be o- no -orce and e--ect (s 16) and t*at t*e contract s*all state t*e ,atters re:uired by Sc*edule "# +*ic* include t*ose stated in clause 10# na,elyB B

;10(a) <*e total a,ount o- t*e co,$any;s loan obli.ation# as re-lected in its -inancial state,ents at t*e end ot*e accountin. $eriod conte,$lated in s 12(2)(/) and ended not ,ore t*an nine ,ont*s be-ore t*e date o- t*e contract8

(/) <*e a,ount and ter,s o- rede,$tion o- any loan co,$rised in t*e co,$any;s loan obli.ation +*ic*# at t*e date conte,$lated in sub$ara (a)# ,ay be redee,ed ot*er+ise t*an in accordance +it* a resolution conte,$lated in s 14(1) or u$on li:uidation o- t*e co,$any8 C (c) <*e annual rate o- t*e interest $ayable in res$ect o- any suc* loan8 (d) 6- t*e seller is a ,e,ber o- t*e co,$any# t*e ri.*ts in relation to t*e loan obli.ation o- t*e co,$any ceded by *i, to t*e $urc*aser8 (e) <*e balance o- t*e a,ount +*ic* t*e $urc*aser is obli.ed to $ay to t*e co,$any in relation to its loan obli.ation8 (&) 6nso-ar as t*e seller is a+are# a state,ent in relation to any D resolution +*ic* ,ay *ave been $assed by t*e ,e,bers o- t*e co,$any to increase its loan obli.ation8;

<o $rotect t*e interests o- s*are*olders in a s*are bloc&# it is -urt*er $rovided t*at t*e co,$any s*all not increase its loan obli.ation unless it *as been a$$roved by a resolution in ter,s o- s 14(1)= t*at any act o- a s*are bloc& co,$any in e0cess o- its ca$acity or $o+ers E s*all be void (s (%))= t*at all s*are*olders; contributions to t*e loan obli.ation s*all be de$osited in a se$arate trust account or entrusted to a $ractitioner or estate a.ent (s 12(1))= t*at suc* ,oneys s*all be a$$lied -or t*e sole $ur$ose o- t*e rede,$tion o- t*e co,$any;s loan obli.ation= t*at suc* ,oneys ,ay not be attac*ed by virtue o- any +rit ! o- e0ecution (s 12(4)) and t*at t*ey s*all u$on a $ro$er basis be $aid to *i, i- t*e co,$any is +ound u$8 6t see,s clear t*at ;loan obli.ation; *as been +idely de-ined in t*e Act to $revent evasion ot*ese $rotective $rovisions8 6t is di--icult# t*ou.*# to esca$e t*e conclusion t*at# des$ite t*e +ide i,$ort o- t*e de-inition# no ,ore is ,eant t*an t*at it consists o- t*e total a,ount 1 o+ed by t*e co,$any in res$ect o- loans ,ade in order to -inance t*e ac:uisition o- t*e i,,ovable

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$ro$erty and t*e costs o- i,$rove,ents to t*e $ro$erty8 6t see,s clear to ,e t*at t*e obli.ations -allin. +it*in t*e conce$t ;loan obli.ations; as de-ined in t*e Act do not include obli.ations +*ic* are not contractual8 <*e $ro*ibition a.ainst increasin. its loan obli.ation could surely not be intended to a$$ly to 5 an obli.ation to $ay da,a.es arisin. -ro, delict or an obli.ation to restore t*at by +*ic* t*e co,$any *as been un@ustly enric*ed8 As to t*e -or,er# t*e notion t*at liability in delict re:uires a resolution in ter,s o- s 14(1) is obviously absurd8 As to t*e latter# no s*are*older could be $re@udiced by re$ay,ent o- ,oneys by +*ic* t*e co,$any *as been un@ustly enric*ed8 6t is not an 6 eventuality a.ainst +*ic* t*e Le.islature could $ossibly *ave intended to $rotect t*e s*are*older8 6t -ollo+s t*at in ,y vie+ an obli.ation to re$ay ,oney under a condictio by virtue o- un@ust enric*,ent is not $art o- t*e loan obli.ation o- a s*are bloc& co,$any8 Section 14(1) o- t*e Act is t*us not a$$licable to suc* an obli.ation8 6t -ollo+s t*at s*are bloc& co,$anies do not di--er -ro,
1991 (4) SA p610

B33ASE7
A ordinary co,$anies in t*is re.ard and t*us +*ere t*e co,$any and anot*er $arty *ave $er-or,ed under a void contract# t*ey +ill be able to recover t*eir $er-or,ances +it* an action based on un@ust enric*,ent8 (Crispette 1 Cand) Co (td # Michaelis 2, and Michaelis 2,194% (1) SA 404 ()) at B 40%(9= A/rahamse # Connock%s Pension 'und1963 (") SA >6 ()) at %0D= 3an der Mer"e and -utler (op cit at 36")8)

Dr Meskin and Dr Magid sub,itted t*at 6 s*ould dis,iss t*e counter(a$$lications as t*ey +ere not relevant to t*e a$$lication ,ade by t*e a$$licants8 Dr Meskin $ointed out t*at t*e ban& and t*e li:uidators ou.*t to *ave raised t*ese ,atters under t*e $rovisions o- s 42 o- t*e 6nsolvency Act and not to *ave burdened t*ese $roceedin.s +it* C t*ese dis$utes8 <*ere is ,uc* to be said -or t*is ar.u,ent and it is one +*ic* +ill no doubt *ave a bearin. on t*e costs o- t*ese $roceedin.s8 Dr Meskin *as $ointed out t*at s 42(3) o- t*e 6nsolvency Act $rovides t*e ,ac*inery -or t*e trustee or li:uidator to dis$ute a clai, and -or t*e Daster to con-ir,# reduce or disallo+ t*e clai, a-ter *avin. a--orded D t*e clai,ant an o$$ortunity to substantiate *is clai,8 5e $ointed out -urt*er t*at in ter,s o- t*e $roviso to s 42(3) a clai,ant is not debarred -ro, establis*in. *is clai, by an action at la+8 6n t*e circu,stances o- t*is case# t*ou.*# t*e ban& *as already establis*ed its clai, by an action at la+ and it -ollo+s# Dr Meskin E su/mitted0 that the issues "ere res judicata bet+een t*e ban& and t*e li:uidators8 As 6 *ave said earlier t*ou.*# res judicata is a de-ence +*ic* *as to be $leaded and i- it +ere not $leaded by t*e ban& in $roceedin.s conte,$lated in ter,s o- t*e $roviso to s 42(3) t*e Court +ould# des$ite t*e earlier @ud.,ent# decide t*e ,atter u$on t*e -acts $laced be-ore it8 <*is does not ,ean# *o+ever# t*at t*e -act t*at t*e $rocedure $rovided -or in s 42 *as not been -ollo+ed is irrelevant to t*ese $roceedin.s8 <*e ban& and t*e li:uidators are a-ter all as&in. t*is Court to ,a&e declaratory orders +*ic* are not to be *ad ,erely -or t*e as&in.8 6t see,s to ,e# t*ou.*# t*at it is i,$ortant t*at t*e issues s*ould be deter,ined and t*at# as t*e $arties *ave been $ut to considerable 1 e0$ense# it +ould be undesirable to re-use to decide t*e issues and to leave t*e ban& and t*e li:uidators to $ursue t*eir re,edies in ter,s o- s 428
!

As 6 understood counsel# t*ey +ere a.reed t*at i- 6 s*ould arrive at t*e conclusions t*at 6 *ave# 6 s*ould .rant an order substantially in 5 ter,s o- t*e order $rayed in t*e ban&;s a$$lication -or oral evidence to be *eard8 <*ey +ere not ad idem in res$ect o- t*e costs o- t*ese $roceedin.s8 6t see,s to ,e t*at t*e decision relatin. to t*e costs o- t*ese $roceedin.s s*ould be ,ade once t*e issues re-erred -or t*e *earin. o- oral evidence *ave been decided and t*at t*ey ou.*t at t*is sta.e to be reserved8 6t is orderedB
6

181

t*at u$on a date or dates set by t*e 9e.istrar o- t*is Court# oral evidence be *eard to deter,ine t*e -ollo+in.B 18181 +*et*er t*e -irst res$ondent *as a concurrent clai, a.ainst t*ird res$ondent in e0cess o- its secured clai, in ter,s o- ,ort.a.e bond B811"%3E%2= and

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1818"

i- so# +*at t*e a,ount o- suc* concurrent clai, is8

1991 (4) SA p613

B33ASE7
A

18" t*at t*e oral evidence s*all consist o- t*e evidence o- any $ersons +*o, t*e $arties ,ay +is* to call as +itnesses= t*at t*e $rovisions o- 9ules 32# 36# 3># 3% and 39 s*all a$$ly to t*e oral evidence $roceedin.s= t*at ar.u,ent on t*e ,ain a$$lication# t*e t*ird res$ondent;s B t*ird $arty notice and -irst res$ondent;s counter(a$$lication and t*e costs o- all t*e $roceedin.s be *eard i,,ediately a-ter t*e oral evidence *as been *eard= t*at t*e costs o- t*e *earin. be-ore ,e be reserved -or t*e decision o- t*e Court *earin. t*e oral evidence8

183 184

182

!irst and Second A$$licants; AttorneysB !en)s Reit48 <*ird A$$licant;s C AttorneysB !it4 +nc8 !irst 9es$ondent;s and <*ird 'arty;s AttorneysB Strauss !al)8 <*ird 9es$ondent;s AttorneysB A P Austen Smith 1 Co# 'ieter,aritFbur.= 3an ,nselen0 Coppen 1 ,%Connell# Durban8

2005 Juta and Company, Ltd.

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