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Tshiki and Another v Buffalo Metro Municipality and Others (EL766/2014) [2017] ZAECELLC 6 (24 February 2017)

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IN THE HIGH COURT OF SOUTH AFRICA

(EASTERN CAPE CIRCUIT LOCAL DIVISION, EAST LONDON

CASE NO. EL 766/2014

ECD 1666/2016

In the matter between :

MPELEKI TSHIKI                                                                                                       1st Plaintiff

TSHIKI & SONS INCORPORATED                                                                           2nd Plaintiff

and

BUFFALO CITY METRO MUNICIPALITY                                                             1st Defendant

WEST RESTITUTION ASSOCIATION (PTY) LTD                                               2nd Defendant

EASTERN CAPE REGIONAL LAND CLAIMS                                                      3rd Defendant

COMMISSIONER

NATIONAL DEPARTMENT OF LAND AFFAIRS                                                  4th Defendant

JUDGMENT

NTLAMA AJ

[1] This matter deals with a dispute regarding the existence of the contract of mandate between the first Plaintiff (Mr Tshiki), the second Plaintiff (Tshiki & Sons Co.) against the Defendants (Buffalo City Municipality: first Defendant I BCM) and the West Restitution Association (Developer I WRA: second Defendant ). The purported contract relates to the registration of a township and the individual erven of the second Defendant. The most contentious issue that lies at the heart of this dispute was the existence of the contract of mandate regarding the registration of the individual erven of the beneficiaries of the second Defendant. The latter group received a settlement in respect of their claim over land transferred to them by the National Department of Land Affairs as envisaged in section 2 of the Restitution of Land Rights Act 22 of 1994 (Restitution Act). [1]   The beneficiaries then established the West Restitution Association (Pty) Ltd company which was registered in terms of section 21 of the Companies Act 61 of 1973 (old  Act).  The relationship between first Defendant and second Defendant was for first Defendant to manage and administer the funds received in order to ensure that they are solely used for the purposes of implementing the project of facilitating the transfer of the land through the registration of the township and individual erven back to original the owners: WRA/Developer. The Plaintiffs instituted a claim for damages they allegedly suffered in respect of conveyancing work done regarding the registration of individual erven because of the Defendant's termination of the agreement between them without providing reasons for such cancellation.

[2] The Plaintiffs'  case was that they, with the second plaintiff represented  by the first plaintiff concluded a contract of mandate in terms whereof they accepted to do conveyancing work and register the township and individual erven of the beneficiaries of the second Defendant. Secondly, the existence of the contract in respect of the registration of the individual erven was followed upon  the registration of the township. The mandate in relation to the individual erven, notwithstanding that it was not guaranteed, was 'qualified' by 'good performance' in respect of township registration before proceeding to the phase: registration of individual erven.  The Plaintiff s case was further that since good performance was tendered, it was  legitimately expected that they would proceed with the second phase of the contract subsequent to a letter of instruction (MT5) signed by Mr NC Mbongo on behalf of Ms Nonceba Mbali-Manjeng: Director of Planning and Economic Development of Buffalo City Municipality.   In essence, the registration of the individual erven was a continuous process following from the township registration and because it was not shown that there was not 'good performance ' regarding the performance of their mandate in the registration of the township. Further, that there was no need for the issuing of the new tender proposals regarding the individual erven because it flowed from the tender for the township registration. Thirdly, the  Defendants  terminated  the  contract  without  providing reasons and the Plaintiffs learned for the first time in the Tshiki and Others  v Buffalo City Municipality [2]judgement that, as contended by the defence in that matter, the contract was unlawful because the second Plaintiff  was deregistered and therefore could not enter into a binding legal agreement.[3] Fourthly, the Plaintiffs suffered irreparable harm and damage because of such termination since 75% of the work had already been performed. Accordingly, they suffered damages amounting to R 1 3, 833, 356- 94.

[3] On the other hand, the defence denied that there was ever a contract because at the time of the purported contract, the second Plaintiff was deregistered. Secondly, the defence further relied on the lack of authority of her officers to conclude a binding agreement on her behalf. Lastly, agreement was not reached with regard to the scope of the contract because there was no compliance with section 217(1) of the Constitution of the Republic of South Africa 1996 (Constitution).[4]

[4] At the commencement of the trial, the Defendants requested separation of issues: merits vis-a-vis damages which application the Plaintiffs opposed. After considering the submissions, I granted an order for the separation of issues. The order was to the effect that that the issues raised with regard to the existence of the contract and other ancillary issues be determined and that the question of damages stands over pending the outcome of this enquiry.  I was of the view that the determination of merits was foundational to the cause of disagreement in  this matter and its determination may save time and costs.

[5] The facts of the present matter present a fertile ground for the determination of the legitimacy of the issues in dispute: the existence of a contract of mandate regarding the registration of individual erven. The first Plaintiff s evidence was that he is an attorney and conveyancer. He is also a director of the second Plaintiff. The first Plaintiff: Mr Tshiki, appearing on behalf of the second Plaintiff as well, testified that between February 2008 and May 20 I 0 he concluded a written and oral contract of mandate for a Restitutional Project with the Defendants for the registration of the township and individual erven. A conveyancing proposal dated 08 November 2007 (MTI ) was prepared and the terms of reference were provided (MT2). The Power of Attorney was signed by Ms Mbali-Majeng witnessed by Mr NC Mbongo and Mr D Maseko on 31 October 2008 appointing Tshiki and Sons to undertake the registration of the township at the Registrar of Deeds in King William's Town. A letter dated 09 November 2009 (MT 3) with an unsigned signature of Reverend Ngwane: Chairperson of the West Restitution Association was also sent to Tshiki and Sons accepting his proposal to render the services and awaiting for his acceptance of the appointment.  The letter (MT5) referred to above, was then sent to the Plaintiffs to commence with the individual transfers. Based on this communique, a total of 693 erven was registered and in March 2011, the Plaintiffs were as asked  to stop the work  in respect  of 905 erven  without furnishing any reasons. In pursuance of this work, evidence was placed before the Court that the registration of the individual erven was a continuous process from the township registration as proved by the invoices that were presented and paid to the Plaintiffs amounting to R3.4m. It was therefore legitimate that it progressed to the individual transfers because the Plaintiffs had an existing contract that was also evidenced by good performance in the registration of the township

[6] As stated, the Defendants denied the existence of the contract. One of the issues raised was essentially that the Plaintiffs could not lawfully perform any legal acts. The reason is that the first Plaintiff acted in his capacity as a director of the second Plaintiff. The second Plaintiff is a company that was deregistered on 3 March 2015. This issue is decisive of the matter. For purposes of convenience herein, it is important to re-examine the principles regarding the status of a deregistered company. The enquiry is of great significance for at least two purposes: first, it is foundational to the determination of the merits of the dispute herein. Secondly, the status of the second Plaintiff was highly contested by the defence. In undertaking this endeavor, the reference to 'company ' or 'close corporation' regarding 'deregistration' or 'dissolution', will be used interchangeably as section 26 of the Close Corporation Act 69 of 1984[5] read together with section 83(4) of the new Companies Act 71 of 2008[6]  (Companies Act)[7],  apply to both entities that are  dissolved  due  to  administrative  deregistration  or  liquidation. Rogers J in ABSA Bank Ltd v Companies and Intellectual Property Commission of South Africa and Others[8] had laid the framework for the interrelationship and held: 'if one examines  the provisions  of the  new  Companies  Act  and  the amended  CC Act, untrammeled by views derived from repealed legislation, there is no difficulty in concluding that s 83(4) applies as much to a company. or corporation dissolved pursuant to administrative deregistration as to one dissolved pursuant to its liquidation as a solvent company'.[9]   This is therefore,  as indicated  above, the route I am going to take is not to distinguish between the close corporation or a company for the reasons stated in that judgment.

[7] In the present matter, it was evident from the arguments placed before this Court that it raised a thorny issue of the jurisdictional identity of a deregistered company and its effects on the judicial acts that it concluded prior and during the period under which it was deregistered. The facts of this case presents another opportunity for revisiting the principles relating to the status of a deregistered company. Of particular relevance to this enquiry is whether the directors of a deregistered company can enforce a debt due in respect of the juristic acts that it performed before deregistration . The investigation touches on the crux of this case regarding the legitimacy of a claim for contractual damages in respect of conveyancing work that was performed before the company was deregistered.

[8] The point of departure in this case is to lay a brief background regarding the principles that regulate deregistered companies and/or corporations. Broadly, the general principle as envisaged in law and the jurisprudence that emanates from the courts regarding a deregistered company is that the latter loses its legal status as of the date of the removal from the companies register. Its legal status as envisaged in section 19 of the Companies Act as at the date of inception continue to exist until its name is removed from the register of companies. [10] Its removal entail that it can no longer operate in its name, as it does not have the legal and contractual capacity to enter into any binding transactions because it is not recognized as a legal person. [11] It has therefore ceased to exist and all its assets will accrue to the state as bona vacantia. The essence of this principle was endorsed by Binns-Ward J G. Walker Engineering CC t/a Atlantic Steam Services v First Garment Rental (Pty) Ltd[12] when the judge held that: 'the effect of the deregistration of a company is that all its property, including any claims ... it might have against third parties, thereupon vest in the state as bona vacantia. Thus, without any need for an act of cession or anything of the like, the state has the rights, should it so decide, to prosecute the action against the defendant',[13] (my emphasis). This means that the creditors of a deregistered company or the debts owed to it will no longer be enforceable because it does not have legal personality. [14] As further expressed in the ABSA judgement, it 'can neither nor action taken against it during the period of dissolution be of any effect and validity or life breathed into such conduct or action by making of the order'.[15]   The only remedial right of recourse that creditors might have against the company is to establish whether it had assets before deregistration. This is also not an automatic exercise because creditors need to comply with the requirements as provided for in section 83(4) of the Companies Act.> [16] This provision requires an application to be made by any interested person or member of the company to court for the declaration of such deregistration as void . Section 83(4) also broadens the scope of jurisdiction of enforcement for 'anyone' making the application for the declaration and as well captured by Khumalo J in Morgenrood v Companies and Intellectual Property Commission and Others[17] judgement 'to put forward  reasonable  and sound  reasons before the court could declare a validly effected process ineffectual' .[18] In essence, the creditor has to 'lay a proper legal basis and not a fictitious situation that may warrant a declaration '.[19]

[9] The enforcement of section 83(4) means that debts owed by the company were not extinguished but are held by the State as bona vacantia and therefore not directly enforceable until the court grants a void declaration. At the same time, the court is required not only to grant a declaration but also to ensure that such order is just and equitable.[20] The essence of the principle bona vacantia was evident in the ABSA judgement when Rogers J declared the deregistration of the company (Voigro) void because it had assets before it was deregistered. The juristic acts that it concluded during the period of deregistration was further declared invalid because its assets belonged to the State as bona vacantia and not the company.[21] The void declaration meant that proceedings may be taken against the company as if it was never deregistered. In essence, section 83(4) provides a foundation for the right of recourse for or against the company.

[10] Thus, the status of a deregistered corporation is distinct when it was reinstated and restored to its original position as a legitimate entity as if it was never deregistered. Section 82(4) of the Companies Act provides for the reinstatement of the company as it reads as follows: 'if the Commission deregisters a company as contemplated in subsection (3), any interested person may apply in the prescribed manner and form to the Commission, to reinstate the registration  of the company'. In the wake of the judgment in Kadoma Trading (Pty) Ltd v Noble Crest CC,[22] the restoration of the identity of the company include its corporate activities as the Court held: '... a corporation is deemed to have continued in its existence as from the date of its deregistration as if it were not deregistered, is deemed to have been in existence with legal personality and is capable of performing juristic acts including entering into valid contracts'[23] (my emphasis). The effect of restoration on the jurisdictional status of a company with its corporate activities was endorsed in Newlands Surgical Clinic v Peninsula Eye Clinic.[24] The Court reasoned that: reinstatement would hardly serve any practical purpose if it did not at least have the effect of retrospectively re-vesting the company with title to its property. Even after reinstatement, a company will still be deprived of its property and the whole reason for its continued existence. Its formerly secured creditors would remain unsecured. It will become no more than a name on the company register,[25] (my emphasis). The judgment entails the complete restoration of the corporate identity of the company in terms thereof of section 82(4) of the Companies Act.[26]  The Court further reasoned that the 'non-validation of the activities of the company whilst under siege can be devastating to parties who were unaware of the deregistration bears an inherent risk and has the potential to prejudice third parties and therefore its reinstatement cannot be interpreted to exclude the retrospective validation of its activities' .[27]

[11] The significance of these judgments entail that the company is not only restored with its mere identity but with its contractual and legal capacity as if it was never deregistered. It is therefore, evident, in the light of this development, that the judiciary has given meaning to the effect of reinstatement of deregistered companies. The activities of a company, which were incurred before and during deregistration are validated retrospectively. It is therefore trite that the legal status of a reinstated deregistered company is no longer an issue in South African law. Both the legislature and the Courts have given meaning and substance to the effect of deregistration.

[12] This brings me to the crux of the case before me on the status of second Plaintiff, which would pave the way for the determination of whether a binding contract existed between the parties. With regard to the general principles highlighted above and in the light of the evidence presented herein, the status of second Plaintiff was highly contested and placed in issue by the Defendants.   It was argued that they were not bound by the purported agreement because at the time the second Plaintiff received the 'instructing letter' (MT5), it  was deregistered, (my emphasis). The time became the major factor in advancing an argument for the determination of the existence of a valid contract between the parties regard ing the individual erven.

[13] With reference to the case at hand, the defence contended that the second Plaintiff was not a legal person at the time of the conclusion of the purported contract. The evidence was placed before the Court that showed that the second Plaintiff was deregistered and that continues to be the position.   A  Certificate issued by the Commissioner of Companies and Intellectual Property Commission was placed before the Court. [28] The Certificate indicates that the second Plaintiff with Registration Number: 1995/060092/21 has since 1 November 2009 not complied with the requirements relating to the submission of Annual Returns. Its status, according to the Certificate, remained unknown until the final deregistration by the Commissioner on 3 March 2015 for non-submission of Annual Returns as envisaged in section 82(3) of the Companies Act. The deregistration was also confirmed , on my enquiry, by Mr Tshiki (first Plaintiff) in a letter dated 9 February 2017.   The first Plaintiff has not, as of date of deregistration made  use of the available recourse in terms of sections 82(4) or000000"> 83(4) of the Act for the reinstatement of the second Plaintiff. The second Plaintiff remains, once again, as of date of hearing this application, a non-existing entity.

[14] Accordingly, for purposes of this judgement, considering the legal and factual position regarding the status of the second Plaintiff, 1 do not see any reason to address the question as to whether the performance of conveyancing work regarding the transfers of individual erven was based on a legitimate contract of mandate or any of the other issues raised by the parties.

[15] Accordingly, I come at the conclusion that the first Plaintiff does not have capacity to act on behalf of a non-existing entity (second Plaintiff) and recover a debt which may be found to be owing to the second Plaintiff. Further, the second Plaintiff does not have legal capacity to recover debts that were owing to it prior to its deregistration, in the absence of an order as envisaged in section 83(4) of the Companies Act.>

[16] For these reasons, I dismiss the action with costs.



____________________

N NTLAM A

 

ACTING JUDGE OF THE HIGH COURT

 



Counsel for the Plaintiff:                Mr M Tshiki

Instructed by:                                Tshiki & Sons Incorporated

                                                             Flat No. 78 Fursternburg Terrace

                                                             Drake Road

                                                             Nahoon

                                                             EAST LONDON



Counsel for the Defendant:            Ad v. J Swartbooi

Instructed by:                                 Messrs Makhanya  Inc.

                                                             2nd Floor, Werners Build ing

                                                             Argyle Street

                                                             EAST LONDON



Heard  on:                                 14 December 2016

 

Judgment del ivered:                24 February 2017



[1] The section reads as follows:

(1)           A person shall be entitled to restitution of a right in land if:

(a)           he or she is a person dispossessed of a right in land after 19 June 1913 as a result of past racially discriminatory laws or practices ; or

(b)           it is a deceased estate dispossessed of a right in land after 19 June 1913 as a result of past racially discriminatory laws or practices; or

(c)           he or she is the direct descendant of a person  referred to in paragraph  (a) who has died without lodging a claim and has no ascendant who:

(i)            is a direct descendant of a person referred to in paragraph (a); and

(ii)           has lodged a claim for the restitution of a right in land; or

(d)           it is a community or part of a community dispossessed of a right in land after 19 June 1913 as a result of past racially discriminatory laws or practices; and

(e)           the claim for such restitution is lodged not later than 31 December 1998.

[2] Case No: EL 1687/2011.

[3] Tshiki at paras I 4-15.

[4] The section reads as follows: 'when an organ of state in the national, provincial or local sphere of government, or any other institution identified in national legislation, contracts for goods or services, it must do so in accordance with a system which is  fair, equitable, transparent, competitive and cost-effective'.

[5] The section reads as follows:

(1) If the Registrar has reasonable cause to believe that a corporation is not carrying on business or is not in operation, he shall serve on the corporation at its postal address a letter by registered post in which the corporation is notified thereof and informed that if he is not within 60 days from the date of his letter informed in writing that the corporation is carrying on business or is in operation, the corporation will, unless good cause is shown to the contrary, be deregistered.

(2) After the expiration of the period of 60 days mentioned in a letter referred to in subsection (1), or upon receipt from the corporation of a written statement signed by or on behalf of every member to the effect that the corporation has ceased to carry on business and has no assets or liabilities, the Registrar may, unless good cause to the contrary has been shown by the corporation, deregister that corporation.

(3) Where a corporation has been deregistered, the Registrar shall give notice to that effect in the Gazette, and the date of the publication of such notice shall be deemed to be the date of deregistration.

(4) The deregistration of a corporation shall not affect any liability of a member of the corporation to the corporation or to any other person, and such liability may be enforced as if the corporation were not deregistered.

[6] Section 83(4) of the Companies Act reads as follows:

At any time after a company has been dissolved:

(a)           the liquidator of the company, or other person with an interest in the company, may apply to a court for an order declaring the dissolution to have been void, or any other order that is just and equitable in the circumstances; and

(b) if the court declares the dissolution to have been void, any proceedings may be taken against the company as might have been taken if the company had not been dissolved.

Schedule 3 of Close Corporations  on deregistration  in the Companies  Act of 2008 reads as follows:

26  Sections 81(1)(/), 81(3), 82(3) to (4), and 83 of the Companies Act, each read with the changes required by the context, apply with respect to the deregistration of a corporation, but a reference in any of those provisions to a company must be regarded as a reference to a corporation for the purposes of this Act".

[7] Came into force on 11 May 2011 .

[8] [2013] 3 All SA 34 (WCC).

[9] ABSA at para 43. The judge went on to hold that : '...but crucially s 26 of the CC Act (as amended), by making ss 82(3) and 83 applicable to close corporations, also renders s 83 applicable to a close corporation deregistered pursuant to s 82(3) of the new Companies Act. Section 26 of the new CC Act could only sensibly have made s 83 applicable on the premise that s 83 applies to a close corporation dissolved by deregistration in terms of s 82(3), at para 46.

[10] See section 19(1)(a).

[11] The company might be deregistered by the Companies Commission in terms of section 82 in the following circumstances:

(1)      When the affairs of a company have been completely wound up, and a court order of final liquidation has been made, the Master must promptly file a certificate to that effect, together with a copy of the court order.

(2)      Upon receiving a certificate in terms of subsection (1), the Commission must:

(a)          record the dissolution of the company in the prescribed manner; and

(b)         remove the company's name from the companies register.

(3)     In addition to the duty to deregister a company contemplated in subsection (2)(b), the Commission may otherwise remove a company from the companies register only if:

(a)          the company:

(i)   has failed to file an annual return in terms of section 33 for two or more years in succession; and

(ii) on demand by the Commission , has failed to:

(aa)  give  satisfactory  reasons  for the  failure  to  file  the  required  annual returns; or

(bb)  show satisfactory cause for the company to remain registered; or

(b)        the Commission:

(i)   has determined in the prescribed manner that the company appears to have been inactive for at least seven years, and no person  has demonstrated a reasonable interest i n, or reason for, it's continued existence; or

(ii)  has received a request in the prescribed manner and form and has determined that the company:

(aa)  has ceased to carry on business ; and

(bb)  has no assets or, because of the inadequacy of its assets, there is no reasonable probability of the company being liquidated.

[12] 2011 (5) SA 14 (WCC).

[13] Walker at para 6, footnotes omitted.

[14] Barclays National Bank Ltd v Traub; Barclays National Bank Ltd v Kalk 1981 (4) SA (W) at 2950, quoted in Pama P 'Debt collecting against a deregistered close corporation or company' (2013) De Rebus 150. Available from http://www.saflii.org/za/joumals/DEREBUS/2013/ 150.html, accessed 2 February 2017.

[15] Rogers J in Absa para 61 .

[16] See (note 3) above.

[17]  [2015] ZAGPHC 294.

[18] Khumalo J in Morgenrood at para 20.

[19] Khumalo J in Morgenrood at para 21.

[20] ABSA at para 48 in line with the requisites of section 172( 1)(b) of the Constitution.

[21] ABSA at paras 57-62. This was the approach of the Court in Morgenrood as it was proved that the directors had since 2008, after the deregistration of the company, conducted themselves with impunity and breached their fiduciary duties to the prejudice of their creditors, at paras 29-31.

[22] [2013] 3 All SA 126 (SCA).

[23] Kadoma at para 19. The essence of this judgment  captures the content of section 73(6) of Act 61 of 1973 which reads as follows:

(a)         The Court may, on application by any interested person or the Registrar, if it is satisfied that a company was at the time of its deregistration carrying on business or was in operation, or otherwise that it is just that the registration of the company be restored, make an order that the said registration be restored accordingly, and thereupon the company shall be deemed to have continued in existence as if it had not been deregistered.

(b)         Any such order may contain such directions and make such provision  as to the Court seems just for placing the company and all other persons in the position , as nearly as may be, as if the company had not been deregistered.

[24]  [0860/2014)(2015] ZASCA 25.

[25] Newlands at para 24.

[26] Newlands at para 25.

[27] Newlands at para 26.

[28] Dated 5 December 2016 at l 9h08.