Muller V Rothen Ta Sea Side Properties (I 3188-2006) 2014 NAHCMD 246 (15 August 2014)

NOT REPORTABLE

REPUBLIC OF NAMIBIA

HIGH COURT OF NAMIBIA MAIN DIVISION, WINDHOEK

JUDGMENT

Case No: I 3188/2006

In the matter between:

BERNDT MARTIN MÜLLER PLAINTIFF

and

HANS PETER ROTHEN t/a SEA SIDE PROPERTIES 1STDEFENDANT

SEA SIDE PROPERTIES INVESTMENTS CC 2NDDEFENDANT

PRICEWATERHOUSECOOPERS 3RDDEFENDANT

SEA SIDE PROPERTIES DEVELOPMENTS CC 4THDEFENDANT

LOUISE JENNIFER LE GRANGE (previously DE MELO) 5THDEFENDANT

FIRST NATIONAL BANK OF NAMIBIA 6THDEFENDANT

KINGHORN ASSOCIATES 7THDEFENDANT

REGISTRAR OF COMPANIES, CLOSE CORPORATIONS,

PATENTS, TRADE MARKS AND DESIGNS N.O. 8TH DEFENDANT

Neutral citation: Müller v Rothen ta Sea Side Properties (I 3188-2006) [2014] NAHCMD 246 (15 August 2014)

Coram:VAN NIEKERK J

Heard:7, 8, 9, 10, 11, 14, 15, 16 February 2011; 1 – 14 September 2011; 30 November; 1 – 9 December 2011; 5, 6, 7, 8, 9, 12,13, 15, 16 March 2012

Delivered:15 August 2014

______

ORDER

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The application for absolution from the instance is dismissed with costs, such costs to include the costs of one instructing and one instructed counsel.
The parties may by appointment arrange in Chambers for dates for continuation of trial.

JUDGMENT

VAN NIEKERK J:

[1] This is an application for absolution from the instance brought by the first, second and fourth defendants after the plaintiff closed his case. Whenever I refer to these three defendants jointly I shall refer to them as ‘the defendants’.

[2] The test to be applied in applications of this kind is well known. In Bidoli v Ellistron t/a Ellistron Truck & Plant 2002 NR 451 (HC) it was set out as follows (at 453D-F):

‘In Claude Neon Lights (SA) Ltd v Daniel 1976 (4) SA 403 (A) the Court of Appeal held that when absolution from the instance is sought at the end of the plaintiff's case, the test to be applied is not whether the evidence led by the plaintiff established what would finally be required to be established, but whether there is evidence upon which a Court, applying its mind reasonably to such evidence, could or might (not should or ought to) find for the plaintiff.

The phrase 'applying its mind reasonably' requires the Court not to consider the evidence in vacuo but to consider the admissible evidence in relation to the pleadings and in relation to the requirements of the law applicable to the particular case.’

(Approved in Kaese v Schacht and Another 2010 (1) NR 199 (SC) at 205C-E).

[3] Although I bear this test in mind, I wish to state at the outset that the matters raised by the defendants in the application are essentially questions of law which were to some extent raised in the amended plea, as counsel for the defendants indeed submitted. Counsel for the plaintiff attacked the application on a wide front, including dealing in some respects extensively with the evidence and issues of onus. In my view a resolution of the points of law taken by the defendants will suffice to decide the application. I therefore do not think that it is necessary to deal with all the other arguments raised on behalf of the plaintiff.

[4] In the action instituted by the plaintiff he relies on an agreement between himself and the first defendant which is set out in summary in the heading of paragraph 4 of the particulars or claim as being ‘the agreement concluded between the plaintiff and the first defendant regarding the plaintiff acquiring a 50% member’s interest in the second defendant and for the members to proceed, through the second defendant, to undertake a sectional title property development on Erf 60, Swakopmund’ (hereinafter referred to as ‘the main agreement’).

[5] The allegations regarding this agreement are set out as follows in the particulars of claim:

‘4.1On or approximately 12 February 2002, and at Swakopmund, the Plaintiff and the First Defendant concluded a verbal agreement, the terms and conditions of which were as follows:

4.1.1The First Defendant (who at that stage held the full 100% member’s interest in .....the Second Defendant), agreed to sell 50% of such members’ interest to the Plaintiff;

4.1.2The purchase price for this 50% members’ interest was initially agreed to be N$350 000.00 ..... but was later by agreement reduced to N$300 000.00.

4.1.3The purchase price was to be payable as follows:

(a)Plaintiff would finance the purchase of a Pajero motor vehicle at an amount of N$169 101.00 for and on behalf of the First Defendant;

(b)Plaintiff would pay First Defendant an amount of N$31 000.00 once the conditions to the agreement referred to in paragraph 4.1.8 hereunder were met;

(c) Plaintiff would pay the balance of N$150 000.00 (later by agreement reduced to N$100 000.00) into the bank account of .... the Second Defendant, which deposit would be entered into the financial records of such close corporation as a member’s loan for First Defendant to the Second Defendant. Such member’s loan would not be repayable to the First Defendant until the proposed property development that was going to be conducted through the Second Defendant had been completed and all other obligations of the Second Defendant had been met.

4.1.4The aforesaid payment of N$350 000.00 (later reduced to N$300 000) was agreed to include the First Defendant’s estate agent commission for ten units sold in the proposed sectional title development;

4.1.5The parties would discuss the mandates to sell the units in the proposed sectional title development from time to time;

4.1.6It was agreed that the members of the close corporation were bound to at all times act in the interest of the close corporation, above that of their personal interest and that the profitability of the close corporation and the conclusion of the proposed property development will always remain the priority;

4.1.7It was agreed that both members would be obliged to invest funds in their loan accounts with the Second Defendant as required and maintain them at equal level for the proposed sectional title property development to proceed successfully.

4.1.8The parties furthermore agreed to the following conditions to the agreement:

(a)The agreement to purchase Erf 60 ...... had to be concluded and signed by not later than 15 April 2002;

(b)The documents to transfer the 50% member’s interest in ...... Second Defendant to ...... Plaintiff had to be completed and signed;

(c)A bank account as agreed between the parties had to be opened in the name of ...... [Second Defendant]. It was agreed that both members were required to co-sing all cheques and/or other instruments/documents/instructions relating to this bank account and to authorise any bank transactions.

(d)No funds payable would be subject to “roukoop”.(sic)

4.1.9On 12 February 2002 the Plaintiff recorded the terms of the agreement in writing in a letter to the First Defendant, setting out such terms and conditions of the verbal agreement. A copy of such letter is annexed hereto marked Annexure “A”.

4.1.10On or about 12 February 2002 the parties amended their verbal agreement as set out above by reducing the agree purchase price from N$350 000.00 to N$300 000.00. The parties agreed that the Plaintiff would still proceed to deposit N$150 000-.00 as set out in paragraph 4.1.3(c) above into the bank account of ...... [the Second Defendant], but that such moneys would now be allocated to the Plaintiff’s loanaccount in an amount of N$50 000.00 and to the First Defendant’s loan account in the amount of N$100 000.00.

4.1.11The Plaintiff, on 12 February 2002, recorded in writing these agreed amendments to the original agreement by way of a letter addressed to the First Defendant, a copy of which is annexed hereto marked Annexure “B”.

4.1.12First Defendant countersigned Annexure “B” hereto as proof of his acceptance of the correctness of the content thereof.

4.1.13On 13 February 2002 the First Defendant confirmed to the Plaintiff in writing the correctness of the terms and conditions of the verbal agreement, as set out in the Plaintiff’s two aforesaid letters. A copy of such confirming letter by the First Defendant is annexed hereto marked Annexure “C”.

4.1.14The references to “Sea Side Properties CC” in Plaintiff’s aforesaid letter were in error and were meant and understood by both parties to be a reference to ...... [the Second Defendant].

4.1.15In the conclusion of all the aforesaid agreements the Plaintiff and the First Defendant acted personally.

4.2The main purpose of the Plaintiff acquiring the aforesaid 50% member’s interest in Second Defendant was to enable the parties to, through Second Defendant, undertake a sectional title property development on Erf 60, Swakopmund and to share the nett profits made on such development in equal shares.’

[6] It is common cause that the plaintiff indeed acquired a 50% member’s interest in the second defendant and that the amended founding statement was registered on 21 June 2002.

[7] During 2002 the plaintiff and his wife were engaged in divorce proceedings. Although he had sufficient funds to pay any claims which she might institute against him, the plaintiff feared that his wife and/or her lawyer, motivated by spite and/or over zealousness would seek to lay claim to and/or attach his member’s interest in the second defendant and derail the continuation of the property development. In order to protect his investment, the second defendant itself and the first defendant’s investment in the project,the plaintiff at the end of 2002 entered into an agreement with the fifth defendant, with whom he was at the time involved in a love relationship, to transfer his 50% member’s interest in the second defendant at no consideration to the fifth defendant to hold in a nominal capacity while he retained the beneficial ownership of the member’s interest. The agreement was that the fifth defendant would, upon demand, transfer the member’s interest back to the plaintiff. The fifth defendant’s holding of the member’s interest was intended to be merely of temporary duration until there was no longer any danger of the plaintiff’s member’s interest being attached.

[8] The plaintiff’s case is that he fully informed the first defendant of the nature of and the reasons for his agreement with the fifth defendant; that the first defendant consented thereto; that the first defendant consented to the transfer of the plaintiff’s 50% member’s interest to the fifth defendant and signedthe amended founding statement, which was registered on 29 November 2002.

[9] At a later stage the plaintiff took steps to re-register the member’s interest in his name. He and the fifth defendant signed documents to effect this registration and the documents were forwarded to the first defendant to sign as well, whereafter the amended founding statement was supposed to be registered. This never occurred. At a later stage the fifth defendant discovered that she was still registered as a 50% member in the second defendant. At about this time the first defendant contacted her and fraudulently, according to the plaintiff, persuaded her to sign documentation which resulted therein that the 50% membership registered in her name was registered in his name and not in that of the plaintiff.

[10] As I have stated before, the defendants’ argument on absolution is a legal one and, in summary, it is this. The rights and obligations of the plaintiff and the first defendant are governed by close corporations law. By virtue of the provisions of the Close Corporations Act, 1988 (Act 26 of 1988) (‘the CCA’), the plaintiff ceased to be a member of the second defendant when he voluntarily disposed of his member’s interest to the fifth defendant. Therefore the main agreement on which the whole of the plaintiff’s case is based, ceased to exist by virtue of the provisions of section 44(3)(c) of the CCA. Moreover, he was not entitled to participate in the management of the second defendant any longer as he was no longer a member. In order to have the member’s interest held by the fifth defendant transferred back to the plaintiff, the consent of the first defendant is needed. There is no provision under the CCA whereby the plaintiff may seek to compel the first defendant to provide such consent as the plaintiff is no longer a member. The plaintiff is therefore not the rightful holder of the 50% membership interest and not entitled to the relief claimed in claim 1. As all the other relief sought is dependent on being successful in respect of claim 1, absolution should be granted.

[11] I now turn to consider the defendants’ arguments in more detail. Mr Oosthuizen, who appears with Mr van Zylfor the defendants,submitted that the rights and obligations of the parties are to be determined by reference to the law applicable to close corporations. In this regard they rely on the case of Hughes v Ridley 2010 (1) SA 381 (KZP), a matter which was decided upon exception. In that matter the plaintiff alleged, inter alia as follows: that he and the first defendant had concluded an oral or tacit agreement to operate a transport business for profit in equal shares; that the plaintiff’s principal contribution to the contemplated transport business was a close corporation of which he was the sole member; that the close corporation possessed certain assets, including goodwill contacts, equipment and staff;that the first defendant would contribute working capital and finance to the contemplated business;that the plaintiff would be employed by the business as its operations manager, with the first defendant as its administration and financial manager; that the contemplated business, which was alleged to be a ‘partnership’ would be operated in the form of a limited liability company (the second defendant); upon dissolution of the partnership the plaintiff and the first defendant would be obliged to account to each other in ‘respect of the financial value of the partnership transport business, whether it was in the form of a company or any other form’; that the first defendant acted in material breach of the agreement by causing the company to dismiss the plaintiff; that these actions constituted a repudiation of the alleged agreement and that the existing partnership terminated.

[12] The plaintiff first sought unsuccessfully to have the company wound up. In the decided case he claimed pursuant to the alleged partnership that he is entitled to claim a statement of account and debatement thereof from the first defendant and also certain other relief from the other defendants. The defendants excepted to the particulars of claim on the basis that they are bad in law and lack averments which are necessary to sustain the plaintiff’s cause of action. The principal contention was that the allegations made by the plaintiff state that the contemplated business would be a limited liability company and that it was clear from the particulars of claim that the business is that of the second defendant. Therefore the alleged contributions were to be made to the second defendant and not to any partnership.

[13] The court analyzed the legal differences between a company and a partnership and then stated as follows (the passage on which the defendants rely) at 386G-387B:

‘[23] If two persons agree that they wish to form a company, that each is to become a shareholder, each is to make a separate specific contribution to the company and the company is to carry on a business, that agreement is, in my view, not consistent with a partnership. The formation of a limited liability company presupposes an agreement by the individuals concerned to submit to the articles of association of such limited liability company. If they so wish, they may conclude a shareholders' agreement which will regulate their relationship inter se. Thus, viewing the above definition of partnership and also the specific principles of company law, it is not two individuals carrying on a business jointly and for profit. What we find is rather a company which is wholly separate from the individuals who operate it, which carries on the business, owns the assets, incurs liabilities to its creditors, makes profits or losses and is able to declare such profits as dividends to be distributed to its shareholders. Thus, it is company law which regulates and determines the respective rights and obligations.

[24] In my view this is what occurred herein, given a simple interpretation of the particulars of claim. The plaintiff and first respondent agreed that they would form a company. The company would carry on the transport business. It was obviously contemplated that from the moment of its formation shares would be issued. The applicant and the first respondent would then become members of the company and their rights and obligations inter se would be submerged within the company structure.

[25] It would follow therefore that the rights and obligations of shareholders inter se would principally be governed by the articles of association or a shareholders' agreement where such has been concluded. Any breach would give rise to remedies in the company law context.’

[14] The court eventually found that the plaintiff had ‘not succeeded in alleging that a partnership agreement properly so called came into being’ and that the allegations in the particulars of claim were ‘consistent with an intention to form a company and that company was to carry on business as an independent and separate entity.’ The court therefore upheld the exception.

[15] Mr Nel, who appears on behalf of the plaintiff, sought to distinguish Hughes v Ridleyfrom the present case on various grounds. As I understand it, the main purpose of doing so, is to persuade the Court that the main agreement between the plaintiff and the first defendant is in the nature of a partnership of a joint venture. I do not think that it is necessary to come to any conclusion on this aspect at this stage. Indeed, Mr Oosthuizen submitted that it does not matter, because, if one has regard to the purpose of the main agreement as pleaded and confirmed by the plaintiff in evidence, it was not the plaintiff and the first defendant who carried on business jointly for profit, but the second defendant. I agree with this submission.

[16] However, I do not think that it can be ignored that the plaintiff and the first defendant had agreed, according to the plaintiff, that they would be sharing the profits as members equally. In any event, unless there is an association agreement to the contrary, the basis on which any payments by a close corporation are made to members by reason only of their membership shall be in proportion to their respective interests in the corporation (section 46(f), read with section 51(1)).

[17] Counsel for the defendants next referred to the definitions of the expressions “member”, “founding statement” and “registered” in the CCA. They read as follows:

‘ "member" in relation to a corporation, means a person qualified for membership of a corporation in terms of section 29 and designated as a member in a founding statement of the corporation, including, subject to the provisions of this Act, a trustee, administrator, executor or curator, or other legal representative, referred to in paragraph (c) of subsection (2) of section 29, in respect of any such person who is insolvent, deceased, mentally disordered or otherwise incapable or incompetent to manage his affairs, but excluding any such person who has in terms of this Act ceased to be a member;’ [emphasis supplied]