Cape Pacific Ltd v Lubner Controlling Investments (Pty) Ltd and Others

• Jurisdiction: South Africa
• Judge: Van Heerden JA, Smalberger JA, Vivier JA, F H Grosskopf JA and Van den Heever JA
• Judgment Date: 19 May 1995
• Docket Number: 9/93
• Hearing Date: 15 February 1995
• Court: Appellate Division

Smalberger JA:

This appeal sees the culmination of protracted litigation resulting from the sale in February 1979 by the first respondent to the appellant of shares and a loan account in Findon Investments (Pty) Ltd I ('Findon'). The Findon shares entitle their owner to use and occupy a flat (including garages, parking areas and servants' quarters) situated in Clifton in the Western Cape ('the Clifton flat'). The contract of sale was concluded between a certain Shapiro, on behalf of the appellant, and one Swersky representing the first respondent, which at the time was known as Rosebank Parkade (Pty) Ltd. Any reference to first respondent will J include, where appropriate, a reference to it by its former name.

Smalberger JA

A The appellant (as plaintiff) unsuccessfully sued the respondents (as first, second and third defendants) in the Cape Provincial Division in an action in which the following relief was sought:

'(a)

an order directing the second defendant to deliver the said shares and cede the said loan account to the plaintiff within a time to be fixed by the above honourable Court;

(b)

B alternative to (a) herein, an order directing second defendant to deliver to first defendant the said shares and cede the said loan account within a time to be fixed by the above honourable Court and that the first defendant then deliver the said shares and cede the said loan account to the plaintiff within a time to be fixed by the above honourable Court; C

(c)

an order directing that the third defendant procure that the second defendant deliver the said shares and cede the said loan account to the plaintiff within a time to be fixed by the above honourable Court;

(d)

D alternative relief;

(e)

that the costs of this action be borne by the third defendant on an attorney and own client basis; alternatively the second defendant, the third defendant and the first defendant jointly and severally, the one paying the others to be absolved on an attorney and own client basis.'

E The judgment of the Court a quo (Nel J) directing absolution from the instance is reported as Cape Pacific Ltd v Lubner Controlling Investments (Pty) Ltd and Others 1993 (2) SA 784 (C) ('the judgment'). In a later judgment the appellant was ordered to pay the respondents' costs (including the costs of two counsel), but excluding the costs occasioned by the calling of the witnesses Van Zyl, Miller, Stride and Behrmann. (The F respondents were in turn ordered to pay certain wasted costs but these do not feature in the present appeal.) The appellant was granted leave to appeal to this Court by the learned trial Judge; the respondents were simultaneously granted leave to cross-appeal against the order depriving them of their costs in respect of the aforementioned witnesses.

G The history of the present matter (including the relevant background facts), the detailed pleadings filed by the parties, the evidence adduced at the trial and the impressions formed by the trial Judge of the various witnesses who testified, appear from the judgment at 785G-814F. It is unnecessary to traverse these in detail. It will suffice to set out the salient facts as they emerge from the judgment and the relevant evidence.

H It appears that the third respondent ('Lubner') was (and presumably still is) an enterprising and successful businessman who conducted his business and private affairs through a number of companies collectively known as 'the Lubner group of companies' ('the Lubner group'). Various companies were also owned by four children's trusts ('the children's trusts') created by Lubner's father for the benefit of Lubner's four children. I Lubner was one of the trustees of the children's trusts. The first respondent ('LCI') was at all relevant times owned by the children's trusts via a company called Wencor (Pty) Ltd and the Gerald Lubner Family Trust (Pty) Ltd. The latter owned 100% of the shareholding in LCI. J Lubner was never a director or shareholder of either company. Nor

Smalberger JA

A was he a director of LCI, its sole director at all material times being Swersky. In 1979 Lubner owned all the issued shares in the second respondent ('GLI'). Between then and October 1988 Lubner and Swersky were the sole directors of GLI. They were then joined as directors by a certain Kathleen Smith who was employed by Lubner. In about 1985 the B Gerald Lubner Trust, a discretionary trust, acquired a small minority shareholding of 1 000 ordinary shares in GLI. The judgment (at 800) contains a diagram depicting, as at 1979, the various companies in the Lubner group (in the left-hand column) and the companies owned by the children's trust (in the right-hand column). It was conceded on behalf of C the respondents that the evidence established that prior to 1979 LCI (as owner of the Findon shares) was the vehicle through which Lubner personally enjoyed the beneficial use of the Clifton flat. It was further conceded that at all material times Lubner was and had been the 'moving spirit' behind LCI and GLI 'in the sense that he was the prime moving force'. It is also common cause that Lubner became a 'non-resident' for D exchange control purposes in about 1976 when he took up residence overseas.

In February 1979, through the introduction of an estate agent, one Hirschson, negotiations commenced between Shapiro and Swersky in regard to the purchase of the Findon shares. The appellant claimed that a sale eventuated on 22 February 1979; this was denied by LCI. The upshot was E that action was instituted by the appellant against LCI for delivery of the Findon shares ('the original action'). Judgment in favour of the appellant was granted in the Cape Provincial Division (Friedman J) on 4 August 1987; LCI's subsequent appeal to the Appellate Division was dismissed on 20 March 1989. In the meantime it transpired that in the F second half of 1979 the Findon shares had purportedly been sold by LCI to GLI. This first came to the appellant's knowledge when Swersky, on 2 June 1980, filed an affidavit in opposition to an unsuccessful application by the appellant for the delivery by LCI of the Findon shares. In his affidavit Swersky drew the Court's attention 'to the fact that on 30 December 1979 and consonant with the reorganisation of the affairs of G Lubner in certain of the companies wherein he was interested' the Findon shares were 'transferred' to GLI. In para 9 of its plea in the original action (dated 2 July 1982) LCI stated:

'The shareholding in and claims on loan account against Findon Investments (Pty) Ltd, previously held by defendant [LCI], were on or H about 30 December 1979 transferred to a company known as Gerald Lubner Investments (Pty) Ltd [GLI].'

LCI did not in its plea specifically claim that it was unable, because of impossibility of performance or otherwise, to deliver the Findon shares to the appellant. The appellant did not at any stage seek to join GLI in the original action.

I LCI failed to deliver the Findon shares to the appellant pursuant to this Court's judgment on 20 March 1989. The appellant then brought an application against, inter alia, the three respondents to have them declared in contempt of court for failing to do so. The application was dismissed. On 4 August 1989 the appellant instituted the present action seeking the relief set out earlier. The respondents pleaded, inter alia, J that

Smalberger JA

A the Findon shares had been transferred by LCI to GLI in December 1979; that LCI had called upon GLI to deliver the shares; that GLI had declined to do so; and that LCI was accordingly unable to comply with the order against it.

On the assumption that GLI took delivery of the Findon shares from LCI B with knowledge of the appellant's rights to the shares, it was open to appellant, when it came to its notice that the Findon shares had been transferred to GLI, to join GLI in the original action and claim delivery of the shares from it on the basis of the so-called 'doctrine of notice' (McGregor v Jordaan and Another 1921 CPD 301 at 308; Tiger-Eye Investments (Pty) Ltd and Another v Riverview Diamond Fields (Pty) Ltd 1971 (1) SA 351 (C) at 358F-H). The appellant did not avail itself of the opportunity to C do so. It is common cause that any action it might have had against GLI on that score has since become prescribed. The consequence this may hold for the appellant will be considered later.

The only cause of action ultimately relied upon by the appellant was that pleaded in para 12.2 of its amended particulars of claim - which is quoted in full in the judgment at 787D-G. What is alleged in essence is that D Lubner, with knowledge of the appellant's rights, and in fraud of such rights, and with a view to procuring for himself the continued utilisation of the Clifton flat, caused the Findon shares to be transferred from LCI to GLI; that the Court was accordingly entitled, with due regard to all the relevant circumstances, to disregard the separate corporate personalities of LCI and GLI in order to give effect to the judgment in E the original action for delivery of the Findon shares to the appellant (what is commonly referred to as 'lifting' or 'piercing' the corporate veil).

After a comprehensive review of the evidence the trial Judge made the following factual findings: F

(1)

that Lubner, although only one of the trustees of the children's trusts, had complete control over the affairs of LCI (at 814G);

(2)

that until 1985 Lubner was the sole shareholder of GLI and there was no evidence to suggest that he did not also effectively G control all the affairs of GLI before or after that date (at 814I);

(3)

that the evidence established that the Findon shares had been transferred by LCI to GLI on the instructions of Lubner in an...