Mitchell and Another v Hodes and Others NNO

• Jurisdiction: South Africa
• Judge: Traverso AJP and Van Heerden J
• Judgment Date: 13 December 2002
• Citation: 2003 (1) SACR 524 (C)
• Docket Number: 3584/2002
• Hearing Date: 12 September 2002
• Counsel: S F Burger SC (with J C Butler and E Fagan) for the applicants. No appearance for the first respondent. J J Gauntlett SC (with G W Woodland and B J Manca) for the second and third respondents.
• Court: Cape Provincial Division

Van Heerden J:

Introduction G

This is an application for an order in, inter alia, the following terms:

'2.

Reviewing and setting aside the ruling, alternatively the refusal to make a ruling, by the first respondent on Friday, 31 May 2002 in the s 417 commission of enquiry into the affairs of LeisureNet Ltd (in liquidation). H

3.

Declaring the first respondent's ruling, alternatively his refusal to make a ruling as sought, on Friday 31 May 2002, to be inconsistent with the provisions of s 35 of the Constitution of the Republic of South Africa Act 108 of 1996.

4.1

Directing that no examination of the applicants in terms of the provisions of s 417 of the Companies Act 61 of 1973 shall take place I in respect of any matter that has a bearing on the criminal charges against them, or which might have a bearing on the criminal charges as amended and amplified in due course, pending the finalisation of the pending criminal proceedings against them. J

Van Heerden J

4.2

Alternatively to para 4.1 above, remitting the matter to the A first respondent for reconsideration of the applicants' application by him.

5.

Directing such persons as may oppose this application to pay the costs thereof.'

The events which gave rise to this application were, briefly, as follows: B

LeisureNet Ltd (in liquidation) (LeisureNet) was placed under a provisional winding-up order by this Court on 7 October 2000, which order was made final on 30 November 2000. LeisureNet was wound up on the basis that it was unable to pay its debts within the meaning of s 344(f), read together with s 345(1), of the Companies Act 61 of 1973, as amended (the Companies Act). Also on C 30 November 2000, this Court granted an application made by the second and third respondents (then the joint provisional liquidators of LeisureNet) for the appointment of a commission of enquiry in terms of ss 417 and 418 of the Companies Act to enquire into the trade, dealings, affairs and property of LeisureNet (the D commission). In terms of s 418(1) of the Companies Act, the first respondent, a practising senior advocate of the Cape Bar, was appointed by the Court as commissioner (the commissioner). On 23 March 2001 the second and third respondents were appointed the joint final liquidators of LeisureNet (the LeisureNet liquidators). The commission commenced its work on 1 June 2001, and by 28 June 2002, it E had heard the evidence of 21 witnesses over 49 days.

The first and second applicants (Mitchell and Gardener, respectively) were the founders of the Health and Racquet Club business which was subsequently taken over and conducted by LeisureNet. They were at all material times the joint chief executive officers of LeisureNet, only resigning from their positions as such in August 2000, shortly before F the liquidation of the said company. Pursuant to summonses issued by the commissioner, both Mitchell and Gardener testified before the commission on 8 February 2002 and again appeared before the commission on 13 March 2002. On both such occasions, they had been ordered, in terms of the relevant summonses, to produce to the G commission certain documents relating to, inter alia, offshore entities known as Clockwork Ltd (Clockwork), Moreland Overseas Ltd (Moreland), Ajax Way Investments Ltd (Ajax Way) and Kinsman Consultancy Ltd (Kinsman). It would appear that the first two companies were created for the benefit of Mitchell and his family, and the last H two for the benefit of Gardener and his family. (Mitchell and Gardener deny, however, that they are 'the corporate controllers' of these companies.) All four companies are registered in the British Virgin Islands and are administered by the Insinger de Beaufort Trust (Jersey) Ltd registered in Jersey (the Insinger Trust). Mitchell and Gardener I denied having in their possession any documentation relating to these British Virgin Island companies (the BVI companies), and the commissioner was informed that they were unable to procure any such documentation from the Insinger Trust themselves.

On Saturday, 30 March 2002, Mitchell and Gardener were arrested by representatives of the Directorate of Special Operations ('the Scorpions'), J

Van Heerden J

and appeared in court on Wednesday, 2 April 2002. A According to the 'draft charge-sheet', they face the following charges:

• Count 1:	fraud;
• Count 2:	fraud, alternatively theft;
• Count 3:	contravention of s 234 of the Companies Act; [1]
• Count 4:	fraud, alternatively a contravention of s 104 of the Income Tax Act 58 of 1962;
• Count 5:	(only in respect of Gardener) fraud, alternatively a contravention of s 59 of the Value-Added Tax Act 89 of 1991.

Mitchell had been summoned to testify before the commission during the week commencing 27 May 2002, and Gardener during the C week commencing 3 June 2002. During the course of Mitchell's examination on 27 May 2002, counsel appearing for Mitchell and Gardener raised an objection to the line of examination being pursued and thereafter sought a ruling from the commissioner in terms identical to those of prayer 4.1 of the notice of motion in the present proceedings, as set out above. The commissioner declined to make the D ruling sought and the applicants now seek to have that decision reviewed. The commissioner abides the decision of the Court, while the LeisureNet liquidators oppose the application.

Background E

Many of the facts set out below are common cause, while others appear from the applicants' allegations, as set out in their founding and replying papers before the Court and in the various annexures thereto. To the extent that I have incorporated facts derived from allegations F made by the LeisureNet liquidators in their answering affidavits and in the annexures thereto, I have indicated the points of factual dispute between the parties, to the extent necessary for the purposes of the present proceedings.

LeisureNet is a public company registered in South Africa. Prior to its liquidation, it was listed in the Hotels and Leisure sector of the JSE Securities Exchange (JSE). It owned, inter alia, the G Health and Racquet Club business which operated 85 health clubs in South Africa. It also held 57,8% of the ordinary issued share capital in Healthland International Ltd (Healthland International), a company registered in Malta, which company was in turn the holding company of LeisureNet's offshore operations. At the time of LeisureNet's H provisional liquidation, Healthland International had 17 subsidiaries throughout Europe and Australia, which subsidiaries owned 22 operating health clubs, with a further 17 health clubs under development in the United Kingdom, Spain, Germany, Austria and Australia.

LeisureNet's offshore expansion commenced in approximately 1997. In I 1998, Healthland Holdings Ltd (Healthland Holdings) and Healthland J

Van Heerden J

Management Ltd (Healthland Management), both registered in Malta, were A established as wholly-owned subsidiaries of Healthland International. Healthland Holdings was the holding company of Healthland Europe Ltd (formerly known as LeisureNet International Ltd - LeisureNet International). Prior to 1 May 1999, LeisureNet International held a 50% interest in Healthland Germany B Ltd. This company in turn had a wholly-owned subsidiary, Healthland Germany GmbH, which operated the health clubs in Germany and Austria. The managing director of Healthland Germany GmbH was one Johan (Hans) Eduard Moser (Moser). The other 50% of the shares in Healthland Germany Ltd were held by Dalmore Ltd (Dalmore), a company registered C (in 1985) in Jersey in the Channel Islands and administered by Ernst & Young Trust Co (Jersey) Ltd (now known as the Royal Bank of Canada Trust Co (International) Ltd). The registered shareholders of Dalmore are Cacique Investments Ltd, Damor Investments Ltd and Paternoster Nominees Ltd, all with the same registered office address as Dalmore. The shareholders of these companies are not known to the LeisureNet D liquidators.

Although this is not entirely clear from the papers before this Court, it appears to have been generally believed by the LeisureNet board of directors that Dalmore was the chosen 'corporate vehicle' of Moser. In addition to Moser, a German citizen, who had at one time E lived in South Africa, Dalmore was represented by a Cape Town attorney (and erstwhile director of LeisureNet) by the name of Joubert Rabie (Rabie). Rabie is apparently a long-time friend and business associate of Mitchell, Gardener and Moser. According to one of the (three) versions advanced by Rabie in his evidence before the commission in F this regard, Mitchell and Gardener were each the beneficial owners of 20% of the shares in Dalmore, although this has been denied by Mitchell and Gardener, both of whom assert that they never held any interest in Dalmore. Furthermore, according to Rabie's testimony before the commission, he (Rabie) is effectively the beneficial owner of 15% of the shares of Dalmore, while Moser is effectively the G beneficial owner of 45% of such shares.

On 16 April 1999, Dalmore sold its 50% shareholding in Healthland Germany to LeisureNet International for a price of DM10 million, with effect from 1 May 1999, in terms of a sale of shares agreement concluded (on the former date) between Dalmore, Moser, Healthland Germany, LeisureNet International and LeisureNet. Rabie, H acting under a power of attorney, signed the sale of shares agreement on behalf of Dalmore and Moser, while Gardener signed the agreement on behalf of LeisureNet and its subsidiaries. The LeisureNet board of directors purported to ratify this transaction on 26 May 1999.

According to the LeisureNet liquidators, the acquisition by Leisure- I Net...