The Wilds Home Owners Association v Van Eeden
| Jurisdiction | South Africa |
| Judge | Murphy J |
| Judgment Date | 25 May 2011 |
| Docket Number | 53643/09 |
| Court | North Gauteng High Court, Pretoria |
Murphy J:
This matter concerns a long enduring, acrimonious dispute between a significant number of members of the Wilds Home Owners Association, the "HOA" (incorporated under section 21 of the Companies Act 61 of 1973 - "the Act"), and those who control the company.
The Wilds is a residential estate in the east of Pretoria in the Township of Pretoriuspark Extensions 13, 14, 15, 17, 18, 19 and 20, Gauteng. The main object of the HOA, according to clause 3 of the Memorandum of Association, is to promote, advance and profit the communal interests of members of the association being persons who are registered owners of an erf and/or sectional title unit in the township. In promoting such communal services the HOA is required to provide and maintain essential and community services, amenities and activities within the township administered by the company.
The sixth applicant, PJ van Vuuren Beleggings (Pty) Ltd, is the developer ("the developer") of the Wilds Estate and is defined as such in Article 2 of
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the Articles of Association of the HOA. The estate is being developed in phases. Development commenced almost 10 years ago with the first residential transfers occurring in May 2003. As at June 2010, phase 1, which covers approximately 36% of the estate, had been partially developed. The development cost of the first phase was approximately R750 million. The estimated development cost of the second phase will amount to about R1,7 billion. Persons who buy property in the estate automatically become members of the HOA and are accordingly bound by the Articles of Association, as provided in the title conditions of their transfer deeds. The developer is the registered owner of 215 units/erven in phase 1 and the registered owner of all the land in phase 2 consisting of approximately 1700 units yet to be proclaimed. Phase 2 will be developed in accordance with the need for new residential properties in the market.
The Articles of Association are structured in a manner ensuring that the developer is able to exercise complete control over the HOA for the foreseeable future, at least until the development is finished. In particular, Article 10.1 of the Articles gives the developer the right to elect the majority of the board of directors, and Article 23.1.4 bestows upon it a veto right in respect of any resolution taken at a general meeting. The developer justifies these clauses on the basis of the extent of the capital it has invested and its entitlement to manage the fruits of that investment.
The dispute ranges over a number of issues, relating to questions of governance; financial oversight; the amendment of the Articles in order to
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diminish the entrenched position of the developer; the imposition of certain special levies; alleged financial irregularities; the manipulation of members' voting rights; the need for a forensic audit; the costs of establishing the gardens of the estate and the liability therefor; the appointment of the management agent of the company; and the removal of certain directors. As already said, the dispute has been on the go for a number of years and has now reached gargantuan proportions. There have been three applications to court and a stalled arbitration process. The papers filed in the present application contain no less than 10 sets of affidavits in addition to other affidavits from earlier proceedings, together accounting for a record of almost 2500 pages. The heads of argument run to just about 300 pages.
The first application was brought by the first respondent in the present proceedings, FJ van Eeden (at various times a director of the HOA), in December 2008, who took up the cudgels on behalf of some of the inhabitants aggrieved by the developer setting off the capital costs of landscaping against levies owed by it to the HOA and the non-disclosure of that in the financial statements. The quarrel about this issue has been the source of all the disagreements that followed. The relief sought in the first application was the setting aside of various decisions taken by the directors and at general meetings during 2007, the removal of the directors appointed by the developer, and an investigation into the HOA's financial statements for 2007 and 2008. The application was settled between the parties and an order was issued by Bertelsmann J on 27
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August 2009 staying the proceedings and referring them to arbitration in terms of Article 41 of the Articles.
The second application was brought by the HOA, the developer, and the four directors of the HOA elected by the developer. It sought, on an urgent basis, an interdict restraining the respondents from convening and holding an extraordinary general meeting ("EGM") of the HOA on 14 September 2009. The first to tenth respondents are all members of the HOA, while the eleventh is the management agent, the twelfth was the previous auditor and the thirteenth the company at whose premises the meeting was scheduled to be held. The first to seventh respondents ("the respondents") opposed the urgent application but also launched a counter-application relying on section 252 of the Act to claim far-reaching relief including a forensic audit, amendments to the Articles of Association, the declaration of various decisions of the board and general meeting invalid, the convening of a special general meeting for the election of a new board and certain consequential relief. After argument (and negotiations between the parties) on 11 September 2009, Sapire AJ issued an order agreed to by the parties, in which both the urgent and counter applications were postponed and directing that an EGM be held on 28 October 2009. The meeting of 28 October 2009 was duly convened but achieved little towards resolving the disputes. The respondents filed an amended notice of motion on 9 May 2010 supplemented by a supplementary founding affidavit seeking further relief on an urgent basis. The amended counter-application was set down as a special motion
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before me on 22 March 2011. The applicants no longer seek an urgent interdict, the need for such relief having been overtaken by events. The respondents filed a second amended notice of motion on 15 February 2011 in which the relief sought has been added to.
The respondents are in actual fact the "applicants" in the counter- application. However, like the parties, I will refer to them as the respondents; and to the HOA (the first applicant), the developer (the sixth applicant) and the developer appointed directors, collectively as the applicants.
The only question remaining in respect of the urgent application is the issue of costs, which the order of Sapire AJ left over for determination. Hence, it is only the relief in the amended counter-application that must be fully considered and determined. I will give fuller details of the nature of the relief sought later.
The Articles of Association
The decision-making structures and processes established by the Articles of Association ("the Articles") of the HOA have been the subject of much contention, and are at the centre of the relief sought by the respondents. It is necessary to examine the most relevant provisions before discussing the history and ambit of the present litigation.
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The company was incorporated on 14 March 2003. The Articles reflect that the development of the Wilds Estate is a development in progress. Hence, Article 2 defines the "development plan" to mean the provisional lay-out plan relative to the identified property which will eventually fall in the security township to be known as "The Wilds". It furthermore defines "the development period" to be "that period from the establishment of the association until the developer or its successors in title has sold the last erf on the land or has notified the association that it has ceased development". The "development" itself is defined as the residential development on the land and the marketing thereof. The "development scheme" is defined as the scheme for the development of the land which may include any subdivision thereof by the developer in erven, group housing developments, cluster developments and any other scheme of the land or subdivision thereof including development schemes as defined in the Sectional Titles Act.
Article 3 governs membership of the HOA. Membership is limited to the developer in its capacity as such, and any person who is, in terms of the Deeds Registries Act, reflected in the records of the deeds office as the registered owner of any erf, unit or an undivided share in any erf or unit in the scheme. An "erf" is defined as any erven on the land upon which may be erected any sectional title unit or group housing unit or dwelling unit capable of registration in the Deeds Registry. A "unit" is defined as any group housing unit, sectional title unit or a dwelling unit for a single family situated on a residential erf which may be registered in the office of the
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Registrar of Deeds. Where a unit or erf is jointly owned, all the owners of the unit or erf are deemed to be one member of the association in terms of Article 3.3. Article 4.6 provides that a registered owner of an erf or unit may not resign as a member of the association.
Article 4.4, read with the definition of "developer's rights" in Article 2, provides that for the duration of the development period, the developer shall have the right to complete the development scheme and to promote and market it, including the right to construct additional units, buildings and other structures and to determine who shall have any right to or interest in any part of the scheme and to determine the nature of such rights. Moreover, Article 5.1 restricts the...
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