Meridian Bay Restaurant (Pty) Ltd and Others v Mitchell NO

• Jurisdiction: South Africa
• Court: Supreme Court of Appeal
• Judge: Navsa JA, Ponnan JA and Shongwe JA
• Judgment Date: 23 March 2011
• Citation: 2011 (4) SA 1 (SCA)
• Hearing Date: 23 February 2011
• Docket Number: 686/2009
• Counsel: WG Burger SC (with JC Swanepoel) for the first appellant. AM Smalberger for the second and third appellants. S Olivier SC for the respondent.

Ponnan JA (Navsa JA and Shongwe JA concurring):

I [1] On 19 July 2000 Wimbledon Lodge (Pty) Ltd, the registered owner of unit 91 in the sectional title scheme known as Harbour's Edge (the sectional title scheme), launched an application in the Cape High Court in terms of s 41(3) of the Sectional Titles Act 95 of 1986 (the Act) for an order that a curator ad litem be appointed to the Harbour's Edge Body Corporate (the body corporate), which controls the sectional title J scheme. The case advanced in the application was that a fraud had been

Ponnan JA (Navsa JA and Shongwe JA concurring)

perpetrated on Wimbledon Lodge and the other registered owners of A units in the sectional title scheme by one Casper Scharrighuisen, who, so the accusation went, had secretly appropriated a large part of the common property of the scheme for the benefit of two corporate entities which he controlled. They are the developer of the scheme, Casisles Coastal Property Investments CC (Casisles), and Harbour's Edge B Commercial Property Holdings (Pty) Ltd (Holdings). Scharrighuisen's estate has been sequestrated and those two corporate entities wound up. Casisles was since 19 August 1994 the registered owner of Erf 4600, Gordons Bay, upon which the sectional title scheme was developed.

[2] The sectional plan was first registered on 19 September 1997. The C body corporate was constituted on 18 November 1997, when transfer of the first unit in the scheme was registered. The scheme is a mixed-use scheme comprising several residential and commercial units, but consisting mainly of units that are equipped as hotel suites to be operated as such through a rental pool agreement. Fifty-five units were sold prior to the coming into existence of the body corporate, and 46 of those sales D occurred prior to the registration of the first sectional title plan. To each of those deeds of sale was annexed a participation quota and drawings. All 55 deeds of sale concluded between Casisles and the purchasers (the purchasers) were in all material respects in identical terms. Simultaneously with those deeds of sale, each purchaser concluded a rental pool E agreement with Casisles. In terms of that agreement each purchaser undertook to make his unit available for the purposes of conducting a hotel business. Each of the rental pool agreements was also in identical terms. The deeds of sale and the rental pool agreements envisaged that a management company would lease the units from the purchasers and include them in the hotel apartment business to be conducted by it. The F purchasers would derive rental income after the deduction of operating levies imposed by the management company to cover the costs of operating the hotel business. The management company would in turn contract with a suitable expert hotel operator, who would effectively run the hotel business. G

[3] The application by Wimbledon Lodge for the appointment of the curator ad litem failed before Van Reenen J in the Cape High Court, but succeeded on appeal to this court. Both judgments are reported sub nom Wimbledon Lodge (Pty) Ltd v Gore NO and Others. [1] The facts and the history of the matter are somewhat complicated. To understand the gist H of the complaint, though, it suffices for present purposes to borrow from Schutz JA, who, in writing for the majority of this court, summarised (at para 3) the position as follows:

'The building was not intended to be occupied by the unit-holders. It was to be used as a hotel. The rentals earned were to be placed in a pool I which, after expenses had been met, was to be distributed according to individual participation quotas. According to the plan which was annexed to the deeds of sale, the common property was to include

Ponnan JA (Navsa JA and Shongwe JA concurring)

A restaurants, kitchens, a parking basement, a squash court, necessary service areas and much more. That plan showed that there would be 86 sections with a total area of 5886 square metres. It is not Wimbledon's case that a fraudulent misrepresentation was made when the sales took place, in the sense that Scharrighuisen then already intended to cheat buyers. Wimbledon's case is that the sectional title plan which B Scharrighuisen had registered in the deeds registry subsequently, without informing buyers, provided for 120 sections with a total area of 14 420 square metres. The extra area was achieved, not by enlarging the building, but by the appropriation of a large part of the common property. Of the 34 extra sections, 10 are registered in the name of Casisles and 12 in the name of Harbour's Edge. How the 12 sections C reached Harbour's Edge (these are the valuable ones) we are not told, as, despite a challenge to disclose, there came only the statement that the sections were purchased from Casisles. As the entries in the deeds registry stand those 22 sections are owned by the one or the other of the two corporations, now in liquidation, and their area has been subtracted from the common property of the other unit-holders. It is D these doings that Cuninghame [on behalf of Wimbledon Lodge] describes variously as a fraud or a theft. The exact legal categorisation hardly matters. These allegations stand essentially unchallenged.'

[4] DR Mitchell, the present respondent and a practising advocate at the Cape bar, was accordingly appointed to act as curator ad litem to the E body corporate in terms of s 41(3) of the Act with, inter alia, the power to:

1.

Conduct an investigation into the grounds and desirability of the institution of proceedings on behalf of the third respondent in order to:

1.1

F Take such steps as are necessary to obtain registration of the immovable property listed in the schedule annexed to this order as common property of the Harbour's Edge Sectional Title Scheme; and/or

1.2

claim such damages as may be legally recoverable as a result of the alleged misconduct of the developer and any of its successors G in title as set out in the affidavits filed of record on behalf of the applicant.

2.

Report the results of his investigation and his recommendations to the Cape High Court on the return day.

H [5] Pursuant to his appointment, the curator ad litem caused summons to be issued against various defendants, including the liquidators of Casisles and Holdings. The curator sought, inter alia, an order that certain disputed sections in the sectional title scheme revert to the body corporate as common property, and consequently that the sectional title plan and deeds be rectified accordingly. The claim succeeded before Uijs AJ I in the Cape High Court. With the leave of the learned judge three of the 11 defendants appeal to this court. They are Meridian Bay Restaurant (Pty) Ltd (Meridian Bay), the first appellant; BOE Bank Ltd, the second appellant; and Nedbank Ltd, the third appellant.

[6] Meridian Bay is the registered owner of sections 1 (basement parking), J 7 and 120 (conference rooms), and 21 (a hotel suite (formerly

Ponnan JA (Navsa JA and Shongwe JA concurring)

hotel kitchen)), which were transferred to it during December 2000. The A pleaded case against Meridian Bay is that after the proceedings had been instituted by Wimbledon Lodge for the appointment of the curator ad litem, Holdings, represented by its liquidators, disposed of sections 7, 21 and 120 in the sectional title scheme to Meridian Bay, and section 1 to Berties Mooring Investments (Pty) Ltd (Berties Mooring) (the B disputed sections). Berties Moorings, in turn, disposed of and transferred that section to Meridian Bay.

[7] The pleaded case against the banks (the second and third appellants) is that the one or the other is the registered holder of two mortgage bonds registered in its favour by Meridian Bay. The first, in an amount C of R4,5 million, was registered over sections 7, 21 and 120 on 13 December 2000, and the second, in the amount of R7,1 million, over sections 7, 21 and 120 on 5 December 2002. In his heads of argument counsel for the banks makes plain:

'As far as the question of who the relevant bondholder may be is D concerned, it is submitted that nothing turns on this. Neither the second nor the third appellants intend taking the point that the judgment of the court a quo was granted against the incorrect banking entity.'

Moreover, counsel for the banks accepts that 'the success or failure of the E banks in this appeal depends on the success or failure of [Meridian Bay]'.

[8] The particulars of claim further allege that:

'23.

At the time that each disposal aforementioned took place the entity acquiring the section had knowledge of the pending proceedings F and took transfer of the sections knowing that proceedings to recover the sections as common property might be instituted on behalf of the body corporate by a curator ad litem.

24.

In the premises the transferees acquired, and can assert, no greater right to the sections than Holdings had at the time of its disposal of the sections and to assert such greater right would constitute a species of fraud upon the plaintiff. G

25.

The mortgage bonds registered in favour of the Bank referred to in para 3(b) above were registered on 13 December 2000 and 5 December 2002 at which date both the mortgagor and the Bank had knowledge of the pending proceedings referred to in paragraph 22 above and registered the mortgage bonds in the knowledge that:

(a)

proceedings to recover sections 1, 7, 21 and 120 as common H property might be instituted on behalf of the body corporate by a curator ad litem;

(b)

if such proceedings were successful, the said sections would not constitute security for the debts of the mortgagor referred to in the said mortgage bonds.'

[9] To complete the narrative: Prior to the institution of the proceedings I the subject of the present appeal, the liquidators of...