Body Corporate of Greenwood Scheme v 75/2 Sandown (Pty) Ltd and Others

• Jurisdiction: South Africa

Body Corporate of Greenwood Scheme v 75/2 Sandown (Pty) Ltd and Others
1999 (3) SA 480 (W)

1999 (3) SA p480

Citation	1999 (3) SA 480 (W)
Case No	5678/98
Court	Witwatersrand Local Division
Judge	Wepener AJ
Heard	October 29, 1998
Judgment	November 30, 1998
Counsel	S Symon for the plaintiff; SS Cohen for the defendants

Flynote : Sleutelwoorde

Sectional title — Body corporate — Locus standi of — Capacity to institute action — Body corporate duly constituted in terms of s 36(1) of Sectional Titles Act 95 of 1986 instituting action C for damages suffered in respect of repairs and renovations to common property — Defendants taking exception to particulars of claim on basis of their not disclosing cause of action — Defendants alleging that provisions of s 36 rendering body corporate incapable of instituting action — Institution of action therefore allegedly ultra D vires powers of body corporate — Provisions of s 36 limiting actions against developer by providing such actions not to be instituted without special resolution — Not precluding proper and appropriate claims to be made by body corporate — Body corporate having capacity to institute action and its conduct in doing so intra vires — Exception dismissed.

Company — Directors and officers — Director — Liability for debts of E company — Companies Act 61 of 1973, s 424(1) — Body corporate duly constituted in terms of s 36(1) of Sectional Titles Act 95 of 1986 instituting action for damages suffered in respect of repairs and renovations to common property — Defendant sole director of developer of scheme — Defendant taking exception to particulars of claim on the basis F of their not disclosing cause of action — Defendant alleging that liability as contemplated by s 424 not extending to him but section enacted to hold liable those who managed affairs of company in reckless manner as regards its creditors — Whether plaintiff to show that defendant carrying on business and incurring debts on behalf of company when no reasonable prospect existing of them receiving payment when G due — Section not limited in application to embracing solely financial affairs — Director acting recklessly can be held liable even where company still in sound financial position — Liability in s 424 complimentary to defendant's common-law liability based on same facts as those alleged by plaintiff — Section simplifying evidential requirements of delictual claim — Use of word 'creditor' in s 424 H not to be construed narrowly so as to exclude plaintiff who was creditor with defined damages claim — No bar against plaintiff instituting action based on s 424 against director — If facts alleged by plaintiff proved at trial, valid cause of action would have been established — Exception dismissed. I

Headnote : Kopnota

The plaintiff was the body corporate of a sectional title scheme duly constituted in terms of s 36(1) of the Sectional Titles Act 95 of 1986 (the Act) and duly responsible for the control, administration and management of the common property pertaining to the scheme. The first defendant, of which the third defendant was the sole director, was the developer of the scheme while the second defendant was the architect who had rendered professional J

1999 (3) SA p481

services in connection with the scheme. A The plaintiff instituted action for damages allegedly suffered in respect of repairs and renovations to the common property, alleging that, in the planning and erection of the buildings on the land where the scheme was situated, the first and second defendants had known or ought reasonably to have known that, in the event of the building activities not being carried out in a proper and workmanlike manner using the appropriate materials, the common property would suffer from B defects manifesting themselves over a period of time. In the light of this, it was alleged further that there existed a duty of care on the first and second defendants to execute their activities in a proper and workmanlike manner with the appropriate materials, which duty of care had been breached by the first and second defendants. The plaintiff finally alleged that the third defendant had knowingly been a party to C the first defendant performing the building activities in a reckless manner and consequentially should be declared personally liable to the plaintiff for the indebtedness of the first defendant to the plaintiff as contemplated by s 424 of the Companies Act 61 of 1973 (the Companies Act).

The second and third defendants filed exceptions to the plaintiff's particulars of claim on the basis that the particulars of claim did not D disclose a cause of action against them as the plaintiff was incapable, in terms of s 36(6) of the Act, of suing them and the institution of action had accordingly been ultra vires the powers of the plaintiff in terms of the Act. The third defendant had further taken exception on the basis that the particulars of claim did not disclose a cause of action as the liability contemplated by s 424 of the Companies Act did not extend to him in the circumstances as set out by E the plaintiff. The third defendant submitted that s 424 of the Companies Act had been enacted to render persons liable who in effect managed the affairs of a company in a reckless manner as regards its creditors. The plaintiff therefore had to show, so it was argued, that the third defendant had carried on the business and incurred debts on behalf of the first defendant when there had been no reasonable prospect of the creditors receiving payment when due. The plaintiff F argued in response that the carrying on of business was not necessarily synonymous with actively carrying on trade, a course of conduct or dealing, but that the words also covered a single isolated transaction or act.

Held, that the provisions of s 36 of the Act evidenced an intention by the Legislature to limit actions against the G developer by providing that such actions could not be instituted without a special resolution. This ensured collective decision making and consensus of more than a majority of members and did not preclude proper and appropriate claims being made by a body corporate against those who had caused it harm. The plaintiff had accordingly had the capacity to institute action against the second and third defendants and its conduct in doing so had been intra vires. (At 485I - 486B.) H

Held, further, that s 424 of the Companies Act was not limited in its application to embracing solely the financial affairs of a company as contended for by the third defendant. The reference to the business of a company which was being carried on recklessly had a wider connotation. It was also clear that a director could be held liable in terms of the section even in instances where the company was still in a I sound financial position and still carrying on business. Even if it was therefore not necessary to wind up the company or to place it under judicial management, the persons referred to in s 424 were still liable in terms of the section if they had acted recklessly. (At 487B - C, G and H - I.)

Held, further, that the reference to liability in s 424 of the Companies Act was complimentary to the third defendant's common-law liability which would J

1999 (3) SA p482

have been based on the same facts as A those alleged by the plaintiff to prove its claim under the section. The purpose of s 424(1) was to supplement the common law and to simplify the evidential requirements of a delictual claim which might be difficult if not impossible to prove. In the present matter the plaintiff had made the necessary allegations that the business of the first defendant had been carried on recklessly, that the third B defendant had knowingly been a party to this and that there had been debts due to the plaintiff. (At 488H/I - J and 489B - C.)

Held, further, that, having regard to s 346 of the Companies Act, a creditor included a contingent or prospective creditor and in the circumstances the use of the word 'creditor' in s 424 should not be construed narrowly in order to exclude a creditor with a C defined damages claim, as the plaintiff was in this matter. There was consequently no bar against the plaintiff instituting action based on s 424 of the Companies Act against a director of the first defendant in order to obtain relief in terms of the section. (At 489E - F/G.)

Held, accordingly, that s 424 of the Companies Act did not have the limited meaning contended for by the third defendant and, if the facts alleged in the particulars of claim were proved at the trial, D a valid cause of action would have been established. (At 489G - G/H.) All exceptions raised by the second and third defendants dismissed.

Cases Considered

Annotations

Reported cases

Bowman NO v Sacks and Others E 1986 (4) SA 459 (W): dicta at 462H and 463C applied

Food & Nutritional Products (Pty) Ltd v Neumann 1986 (3) SA 464 (W): dictum at 476D applied

Frame Textile Corporation Ltd and Others v Ciskei Peoples Development Bank Ltd and Another 1995 (2) SA 177 (Ck): followed

Gillis-Mason Construction Co (Pty) Ltd v F Overvaal Crushers (Pty) Ltd 1971 (1)...