Mitchell's Plain Town Centre Merchants Association v McLeod and Another

• Jurisdiction: South Africa
• Judge: van Heerden JA, Vivier JA, Nienaber JA, Marais JA and Scott JA
• Judgment Date: 31 May 1996
• Citation: 1996 (4) SA 159 (A)
• Docket Number: 552/94
• Hearing Date: 24 May 1996
• Counsel: W R E Duminy SC (with him L A Rose Innes) for the appellant. S Mohamed (with him M R Khan (attorney)) for the first and second respondents.
• Court: Appellate Division

Nienaber JA:

The appellant is described in its constitution as 'a voluntary association known as the Mitchell's Plain Town Centre Merchants Association - the "association" being a non-profit making body with perpetual succession and with the capacity to sue C or be sued in its own name'. It instituted action in the Cape Provincial Division against three defendants jointly and severally. I shall refer to the appellant as the plaintiff and to the two respondents and the third defendant (who is no longer a party to the proceedings) collectively as 'the defendants'.

D The defendants were members of the plaintiff's executive committee. The plaintiff's complaint, as related in its particulars of claim, was that they engineered for themselves, at the expense of the plaintiff, an undisclosed profit of some R2,5 million, in breach of the duty they owed the plaintiff and its members to act in good faith, honestly, in the best interests of the plaintiff and its members and in the furtherance of E the plaintiff's objects. They did so, so it is alleged, by first acquiring and then selling at a profit, through the medium of a close corporation of which they were the sole members, a property which they were meant to acquire for the plaintiff. The plaintiff's claim was for the payment of damages in the sum of R2,5 million with interest. The first defendant excepted to the plaintiff's particulars of claim on a number of grounds. The F second and third defendants followed suit. Then there were three further developments. The first was that the third defendant withdrew his exception. The second was that the plaintiff and the remaining two defendants somewhat unorthodoxly agreed that the plaintiff would make certain further factual admissions which were to be treated as if they appeared as averments in the particulars of claim. The third G development was that the first and second defendants filed a 'consolidated notice of exception as amended' on the ground that the plaintiff's particulars of claim 'lack averments which are necessary to sustain its action'. Four separate exceptions are identified, to all of which I shall in due course refer.

H The first of the exceptions was upheld by Hodes AJ. The following order was made:

'The result is that first and second defendants' exception is upheld and the particulars of plaintiff's claim are struck out. Plaintiff is given leave to amend its particulars of claim within 20 days of this judgment, failing which plaintiff's claim will be dismissed with costs.' I

The issue of costs, to which I shall later refer, stood over for further argument. With the leave of the Court a quo the plaintiff now appeals to this Court against the whole of its judgment, including the order as to the costs.

The paragraphs in the plaintiff's particulars of claim which are relevant to a J consideration of the exceptions are the following:

Nienaber JA

'6

A The defendants were at all material times members of the executive committee of the plaintiff.

7. 7.1

The first and second defendants have at all times been members of Mofal Property Developers CC (the close corporation), each having a one-third member's interest in the close corporation. B

7.2

The third defendant was, until his resignation on 10 August 1992, a member of the close corporation with a one-third member's interest therein.

8.

At all material times the defendants:

8.1

were under a duty to act in good faith towards the plaintiff and its C members;

8.2

owed a duty of care towards the plaintiff and its members;

8.3

were under a duty to act honestly towards the plaintiff and its members;

8.4

were under a duty to act in the best interests of the plaintiff and its members; D

8.5

were under a duty to further the objects of the plaintiff.

9.

During or about 1989 and at Cape Town, alternatively Mitchell's Plain, the plaintiff and the Department of Local Government, Housing and Agriculture: House of Representatives ("the department") concluded an E oral agreement ("the agreement"), the express, alternatively tacit, terms whereof were as follows:

9.1

certain immovable property, being erf 28098, Mitchell's Plain, would be subdivided in the manner depicted on the diagram, annexure "PPC2" hereto;

9.2

F the department undertook to sell certain immovable property, being erf 47935, Mitchell's Plain, and measuring 2 843 square metres, as depicted on annexure "PPC2"' hereto, (herein referred to as "the property") to the plaintiff;

9.3

the plaintiff would develop and use the property in a manner which G would benefit small business entrepreneurs and its members;

9.4

the property would in due course be transferred to the plaintiff and registered in its name.

10.

The agreement was confirmed in writing by the department in an undated memorandum addressed by the department to the plaintiff, a copy whereof H is annexed hereto marked "PPC3" (the diagram therein referred to being annexure "PPC2" hereto).

11.

The defendants were at all material times aware of the agreement and its terms.

12. 12.1

During 1992, but on a date unknown to the plaintiff, the defendants I caused the close corporation to purchase the property from the department for a purchase price of R1 million.

12.2

On 6 October 1992 the property was transferred to the close corporation and registered in its name.

13.

J During 1992, but on a date unknown to the plaintiff, the defendants caused the close corporation to sell the property to

Nienaber JA

A Hilmor Property Developers (Pty) Ltd ("Hilmor") for a purchase price of R3,5 million.

13.2

Hilmor has paid for the aforesaid purchase price.

13.3

On 10 November 1992 the property was transferred to Hilmor and registered in its name.

14.

As a consequence of the aforesaid purchase and sale of the property the B defendants, by virtue of their interests in the close corporation, benefited to the extent of the sum of R2,5 million.

15.

The aforesaid conduct of the defendants was wrongful and unlawful and in breach of one or more or all of the defendants' duties set forth in para 8 above.

16.

C Had it not been for the defendants' aforesaid conduct the plaintiff would have purchased the property from the department for a purchase price of R1 million.

17.

The plaintiff has as a consequence sustained damages in the sum of R2,5 million.'

One of the further facts agreed to by the parties was: D

'Plaintiff at all material times, ie from its inception in 1980 up to the present date had and still has more than twenty (20) members;'

The first exception is formulated in the following terms:

'1 (a)

On a proper construction of plaintiff's constitution plaintiff is an association E formed for the purpose of carrying on business that has for its object the acquisition of gain by plaintiff and/or the individual members of plaintiff;

(b)

plaintiff was formed in 1980, ie after 31 December 1939;

(c)

plaintiff has, and has at all times had, more than 20 persons as its members;

(d)

F in the premises plaintiff is forbidden by s 30(1) of the Companies Act 61 of 1973 and thus has no legal existence and cannot have any members recognised in law;

(e)

in any event, further, in terms of s 31 of the Companies Act plaintiff does not possess corporate personality inasmuch as plaintiff has not been G registered as a company under the said Act, nor was it formed in pursuance of letters patent or a Royal Charter;

(f)

plaintiff accordingly has no locus standi to sue defendants.'

The sections referred to read as follows:

'30(1) No company, association, syndicate or partnership consisting of more H than twenty persons shall be permitted or formed in the Republic for the purpose of carrying on any business that has for its object the acquisition of gain by the company, association, syndicate or partnership, or by the individual members thereof, unless it is registered as a company under this Act, or is formed in pursuance of some other law or was before the thirty-first day of May, 1962, formed in pursuance of Letters Patent or Royal Charter.

I (2) . . . .

31. No association of persons formed after the thirty-first day of December, 1939, for the purpose of carrying on any business that has for its object the acquisition of gain by the association or by the individual members thereof, shall be a body corporate, unless it is registered as a company under this Act or is formed in pursuance of some other law or was before the thirty-first day J of May, 1962, formed in pursuance of Letters Patent or Royal Charter.'

Nienaber JA

A I shall henceforth refer to the purpose referred to in the phrase 'formed . . . for the purpose of carrying on any business that has for its object the acquisition of gain by the . . . association . . . or by the individual members thereof', which is common to both sections, as 'the critical purpose'.

B Leaving aside exceptions and exemptions and dealing only with the formation of the association, the two sections can be synthesised as follows:

(1) if the membership of the association exceeds 20, the association must be registered as a company if it is formed for the critical purpose, failing which it will C have no locus standi in judicio; if its membership is less than 20, it is not illegal if it is formed for the critical purpose and is to operate as, say, a partnership;

(2) whatever its membership, if the association is formed for the critical purpose it must be registered as a company in order to enjoy corporate personality; if it is D not formed for the critical purpose it may yet enjoy corporate personality if it possesses the characteristics of a universitas, ie if it is to operate as an...