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REPUBLIC OF SOUTH AFRICA

IN THE HIGH COURT OF SOUTH AFRICA

GAUTENG LOCAL DIVISION, JOHANNESBURG

CASE NO: 49174/2017

Not reportable

Not of interest to other judges

Revised.

4/1/18

In the matter between:

Carsten, Ann Clarissa                                                                                    First Applicant

Wesi, Maletsatsi Tsholofelo                                                                      Second Applicant

and

Kullmann, John Peter Gerald                                                                    First Respondent

Kullmann, Conrad                                                                                Second Respondent

The Standard Bank of South Africa Limited                                             Third Respondent

 

Judgment

 

Van der Linde, J:

Introduction and background

[1] This is a substantial opposed urgent application that began in December last year. After an initial appearance and the filing of affidavits all round, the application – now approaching some 600 pages – is ripe for hearing. It is for an anti-dissipation interim interdict pending an action by the two applicants against the first two respondents for return of that portion of the purchase price that the applicants had paid for the sale of shares in two companies and members’ interests in four close corporations in respect of which the beneficial interest had been wholly owned by the two Kullmann brothers, to whom I shall refer as the respondents. The main interim relief is to freeze the bank account into which the portion of the purchase price had been paid by the applicants, and further to interdict the disposal by the respondents of their personal fixed properties. The third respondent did not take part in the proceedings.

[2] I would have preferred to have had more time to provide a fully reasoned judgment, but given the urgency of the matter it is not possible to do so, and I am constrained to furnish my conclusion and the reasons for it in the form that appears from this judgment.

[3] The essential facts are not disputed on the papers. The two respondents had approached the applicants in the first half of last year and persuaded them to acquire the majority interest in a business that they two respondents were conducting through the vehicles of two companies and four close corporations. In the very next month, on 28 June 2017, a written sale agreement was concluded whereby the respondents sold to the applicants 51% of the shareholding and members’ interest in two companies and four close corporations for R5 624 356m.

[4] Of that amount some R2,2m was paid into a bank account in the first respondent’s name, made up of a payment of R1,8m in July, and R200 000 in each of August and September 2017. The applicants say that they had to borrow money, and sell a property, to be able to afford the part-payment of the purchase price. The sale agreement provided amongst other things that the relationship between the four shareholders and members would be akin to that of partners, and each shareholder and member undertook a duty of utmost good faith to the entities concerned and to one another.

[5] One of the applicants would hold 26% of the issued shares and the members’ interest, and the other 25%. The two respondents would retain 49% equity interest in the companies and the close corporations between them. The six entities were all essentially component parts of a larger enterprise, which engaged in the business of exhibition stand design, exhibition infrastructure construction, and event management.

[6] It is common cause that the business has throughout at least last year been in financial difficulties, from before the applicants’ bought into it. There is a dispute as to the extent of the financial difficulties. The applicants say that when they signed up at the end of June 2017 they knew that the turnover had dropped by a third, but they did not know the real extent of the financial problems. They signed up because they thought they could bring not only BBBEEE credentials to the business, potentially enhancing the reach for government contracts, but also their own personal intrinsic skill sets. Further, the agreement expressly alluded to contracts that the business had in hand, valued between R70m and RR90m, and this representation persuaded them to come on board.

[7] The respondents say that the applicants were made fully aware of the extent of the financial difficulties in which the business found itself, but they were nonetheless prepared to put up a purchase price of R5,6m on a completely unsecured basis. At all events, the parties are fully agreed that by now the business has all but collapsed completely in the six months since the applicants bought the controlling beneficial interest in the business.

[8] The parties are agreed too that the written sale agreement between them has been cancelled, and that this occurred in December 2017. The applicants say that they lawfully cancelled it for the respondents’ misrepresenting the existence of the contracts worth about R70m to R90m, when in truth they did not exist; the respondents say they cancelled the agreement for the failure of the applicants to keep paying the purchase price instalments of R318 695 per month.  

[9] The applicants’ cancellation is dated 12 December 2017; that of the respondents 16 December 2017. The consequence of the respondents’ cancellation is, according to the respondents themselves, restitution; they say that they are in the process of effecting the necessary changes to transfer the shares and members’ interest back to themselves.

[10]Some days before the agreement was cancelled, on 2 December 2017, the first respondent took assets out of the business for himself to the value of R4,4m. This was, so he says, to “perfect” a notarial bond registered in his favour on 23 June 2017 for his credit loan account. Nothing on the papers suggests that a prior court order was obtained. This bond had been executed shortly before the sale agreement was concluded.

[11]The applicants say that the respondents are dissipating their assets so as to avoid having to repay the part-purchase price; the respondents deny this. They say they are entitled and may yet have to dispose of their private assets (or at least encumber them) to live, given that the business has collapsed. They do not tender repayment of the part-purchase price paid by the applicants, because they say that either they have or the business has damages claims against the applicants that exceed the part-purchase price. The juristic persons that form the business are not parties to the current proceedings and there is no counter-application by the respondents personally.

[12]What is also uncontroverted is that the first respondent had cleared out the account into which the applicants had paid the R2,2m, supposedly to pay “personal expenses given that the festive season has just began. It is well known that expenses during this time of the year are substantial.”

[13]In the result the respondents between them acquired access to value of at least R6,6m during December 2017, and of this value an amount R2,2m was sourced from the sale of shares and members’ interest, which it is common cause has been cancelled. From the applicants’ replying affidavit it appears that less than half of the employees of the business have received only 505 of their December salaries. There are rumours too that they will not be receiving January 2018 salaries.

[14]The applicants apply to amend their notice of motion. Initially it was for what might be styled as doubly interim relief: first, till February 2018, and at that date then to apply for an interim interdict pending the action to be instituted. Between the first appearance in December last year and the appearance yesterday, the applicants gave notice that they wished to amend their notice of motion by asking for one interim order only, and that to pend the determination of the action for final relief.

[15]The amendment application was opposed by the respondents on the basis that the intended notice of motion was extending the relief that was claimed in the original notice of motion. In particular the original notice of motion sought a freezing of the bank account; the proposed amended notice of motion sought – since it appeared from the respondents’ answering affidavit that the bank account had been cleaned out – a tracing order as well.

[16]I have my doubts as to whether such relief, meaning a tracing order, would be competent anyway, but it is not necessary to decide the point. Since I have resolved to grant no relief in regard to the bank account, it is not necessary that that debate be entered into, and I grant the amendment sought in terms of prayers 1, and 1,1 to 1,6 of the notice of application dated 29 December 2017. The relief thus sought therein is to pend an action to be instituted by the applicants against the respondents “based on breach of agreement and/or misrepresentation or otherwise.”

[17]Finally, as already alluded to above the respondents – who on their version of the events have lawfully cancelled the agreement and are in the process of restoring the status quo ante – have resisted the natural repayment consequence of that cancellation, because they say that they have a damages claim because the applicants have breached the agreement by not sourcing the business opportunities that they had promised. That is of course not the basis on which they purported to cancel the agreement, and likewise, there is no evidence of a breach notice having been given by the respondents to the applicants on this score.

[18]But in any event the respondents do not explain, even if such promises had been made and could be elevated to contractual terms in the face of sole memorial and non-variations clauses, how such an alleged breach would have resulted in them personally having suffered damages. There is no word about the value of their investment having been affected by the alleged conduct, nor about the extent of any such result.

Some relevant legal principles

[19]Against this background one may now turn to some relevant legal principles. The first observation is that money loses its identity through commixtio when it is paid into a bank account where it becomes co-mingled with other money. One consequence of that principle is that a creditor cannot interdict the dissipation of an amount of money from a bank account on the basis of some vindicatory or ownership right to it.[1]

[20]What a creditor can do, by means of what has been called a quasi-vindicatory action, is to lay claim to money in a bank account, if the money has deliberately been kept apart from other money, and thus forms part of an identifiable fund intended for a specific purpose.[2] The creditor must of course have an underlying legal right against a debtor to whose credit the money stands, to lay claim to the money.

[21]What a creditor can also do, if it can show that its debtor is threatening to dissipate or secrete its assets to avoid having to satisfy its creditor’s judgment granted some day down the line, is to interdict such dissipation pending the determination of liability and the obtaining of the judgment. The object of such an interdict is to prevent the creditor being stuck with what would otherwise be a hollow judgment.[3]

[22]The object of the relief is not “…to improve the position of claimants in insolvency but simply to prevent injustice of a defendant placing assets which might otherwise have been available to satisfy a judgment out of the reach of the plaintiff. It does not operate as an attachment. It merely restrains the owner from dealing with assets in certain ways.”[4]

[23]Finally, and I would suggest self-evidently, if the creditor’s claim is Rx, no purpose other than abuse would be served by interdicting assets the value of which is Rx plus.

[24]Since the relief sought is interim, the appropriate endeavour is to weigh the strength of the applicants’ case against the balance of convenience. The stronger the former, the weaker the latter may be; and the other way around.[5]

[25]The case that needs to be weighed here is the applicants’ asserted entitlement to be repaid the part-purchase price, and the question is whether the applicants have shown that they have a clear right, although open to some doubt, that in the action they will succeed in recovering the R2,2m that they have paid to the respondents. Further, in order to succeed in obtaining the interdict they seek, the question is whether the applicants have made out a case that the respondents are dissipating their assets thereby intending to procure the result of a hollow judgment. Some authorities have set a lower bar in this latter regard; if the effect of the respondents’ conduct would be a hollow judgment, that would of itself be sufficient.[6]

[26]It is necessary to say something about the issue of probabilities in motion proceedings. It is sometimes said that motion proceedings are not there to decide probabilities. But the correct position is surely more nuanced. The then Appellate Division has often held that probabilities may be decided in motion proceedings.[7] Also, courts reject unmeritorious versions on affidavit, refusing to be held hostage to versions on oath that, comfortable in the knowledge that they will not have to be cross-examined, defies credulity.[8]

Discussion and conclusion

[27]The first issue is that of urgency. The respondents say that the applicants have known since August or September 2017 about the expected shortfalls in December 2017; they could have acted then. The difficulty, for the respondents’ argument to be good, is that the applicants would have had to have appreciated then already, that the respondents would clean out the R2,2m account supposedly to disburse on festive season commitments.

[28]Unfortunately that occurrence only came to light in the answering affidavit. The applicants’ case in the founding papers could therefore not rely on that occurrence, and instead relied on the inference that if the respondents were capable of dissipating the business assets to suit themselves, they would equally have little compunction to do exactly the same with their personal assets.

[29]But if truth be told, it was in fact the cleaning out of the R2,2m account that was the straw that broke the camel’s back. That showed that the respondents were prepared, knowing that they owed the applicants the money, to secrete the funds and to attempt to cloak their actions by means of a cock and bull story of festive season commitments. It follows that in my view the application was legitimately launched as one of urgency.

[30]The next issue is whether the applicants have established a prima facie right, although open to some doubt. I have already alluded to the fact that on either version, the applicants are entitled to have their money back. But says the respondents, the applicants have pegged their case on misrepresentation, and absent a case of fraud, the no misrepresentation clause in the agreement bowls them out.

[31]I am not convinced that this is correct. On the authority of Sager Motors (Pvt) Ltd v Patel,[9] a litigant is entitled to adopt, perhaps only in the alternative, the case of the opposition if it believes it can show an entitlement to relief on that basis. And here, as I have pointed out, the relief is sought pending an action which it is anticipated may be based on rather as yet undefined causes of action. One such cause of action could be the respondents’ own version of the events, namely a cancellation by them for the applicants’ repudiation. A prima facie right, although open to some doubt, to recover the R2,2m has on this basis accordingly been shown.

[32]I should add that if it were necessary, I would have concluded that the applicants have shown a prima facie right – although open to some doubt - to have cancelled the agreement for misrepresentation. Here I accept the applicants’ argument that, the respondents having been challenged to prove the existence of the contracts worth R70m to R90m, one would have expected to see the contracts annexed to the answering affidavits.  

[33]Have the applicants shown that the respondents are dissipating or secreting their personal assets so as to render the applicants’ claim hollow? Or have they at least shown that the respondents have embarked on conduct that is calculated to produce that result?

[34]The applicants present no evidence in their founding affidavit that the respondents have actually dissipated their own assets so as to render powerless a judgment that may be given in their favour for the return of the part-purchase price. Their case there is that the respondents are dissipating the assets of the businesses, and are ensuring that their own loan accounts are repaid. Based on this precedent, the respondents are likely – say the applicants - to dissipate their own assets too, given their conduct in relation to the business's assets.

[35]Interestingly enough, en passant, the sale of shares and members' interests did not include also, as is customary, the aliquot portion of the sellers' loan accounts against the entities concerned. This strategy enabled them, the respondents, to register a notarial bond over the movable assets of the business, thereby securing for themselves a potentially preferential position in the event of the subsequent winding up of the businesses.

[36]Turning then to the respondents’ conduct, two features stand out. The first is the wholly unmeritorious basis for resisting the repayment of the part-purchase price, given that cancellation of the agreement and consequential restitution are common cause. It will be remembered that the respondents say that they have a damages claim against the applicants. But it has been illustrated that there can be no substance, not on these papers, in that contention.

[37]The respondents also say in the alternative that the business has a damages claim against the applicants. But that has nothing whatever to do with the respondent’s obligation to repay the part-purchase price; after all, the respondents themselves have – on their version – cancelled the agreement.

[38]Rather, the inference to be drawn from this conduct is that the respondents are simply resisting the repayment because they want to use the money themselves, and they want to avoid the applicants laying their hands on the R2,2m. The respondents are quite prepared to give the applicants the run-around; that inference is established by the lie they tell about the festive season commitments.

[39]And that takes one to the second feature. The respondents do not have a clear alternative source of income. At least, none has been disclosed. For this reason too they would not willingly part with money to which they do not have a legitimate entitlement. The retransfer of the shares and members’ interest is cold comfort to the respondents, to their knowledge, the businesses having collapsed.

[40]The answering affidavits have therefor provided firm evidence that the applicants' suspicions were well-founded. If firm proof was lacking in the founding affidavits that the respondents are intend on dissipating or at least secreting their personal assets to the detriment of the applicants, this unlikely story provides it.

[41]A consideration that weighs heavily with me is the proximity in time between the applicants’ R2,2m investment and the respondents’ conduct in securing for themselves some R6,6m in tangible value, particularly given two aspects: first, the clear absence of any legal basis, on these papers, for their instance that they were entitled to spend the R2,2m and not return it forthwith to the applicants; and second, the dishonest explanation for what they did with the R2,2m. In my view therefore, a case has been made out for relief, and I next turn to consider its appropriate reach.

[42]The account is empty, and so no point will be served in freezing it. I am not persuaded, despite counsel at the Bar both being convinced to the contrary, that a tracing order can be given in the present circumstances. The money in the account has not been illustrated to have been separately earmarked for the applicants. One must therefore accept that co-mingling would have occurred the moment the R2,2m landed in the account. No quasi-vindicatory claim would have availed the applicants.

[43]The fixed property that was sold during the course of last year cannot be regarded as being part of dissipation action, because at that stage the applicants' claim had not yet arisen. But the respondents have other fixed property which they say they may have to turn into money to sustain them, given the collapse of the business. The respondents’ conduct thus far does not provide any comfort that they will not dispose of their houses to make ends meet; to the contrary, they have themselves said that they might just do that.

[44]In these circumstances it seems to me that an appropriate and proportionate restraint should be issued against the respondents' disposing of or encumbering fixed properties that they still own and have not yet sold. These are identified in the answering affidavit.

[45]Yet it is not necessary to restrain the disposal of property representing value greater than the applicants’ claim. Equally, one should bear in mind that estimates of fixed property values may not actually come to be realised. Having regard to these considerations, and the values referred to in the respondents’ heads of argument,[10] I have resolved to make an order in the terms set out below.

[46]Accordingly the following order issues:

[A] Pending the determination of an action to be instituted within thirty days by the applicants against the first and second respondents for repayment of the part-purchase price of R2,2m plus interest, the following interim interdict issues:

(a) The first respondent is restrained from disposing or in any way encumbering the following immovable property: 25a Tenth Avenue, Parktown North, Johannesburg, Gauteng; and

(b) The second respondent is restrained from disposing or in any way encumbering the following immovable property: 119 Begonia Road, Kyalami Agricultural Holdings, Midrand, Gauteng.

[B] Save as appears from the next paragraph, the first and second respondents are directed to pay the costs of this application, including all reserved costs, jointly and severally.

[C] The applicants are directed to pay the costs of the application to amend the notice of motion, jointly and severally.

 

WHG van der Linde

Judge, High Court

Johannesburg

 

For the applicants: Adv. E. Mandowa

Instructed by: Poswa Inc. Attorneys

1^st Floor, Block A

Sandton Close 2

Cnr. 5^th Street and Norwich Close

Sandton

Tel: 011 783 8877

Ref: Mr Shaviv Singh/MAT10036

For the first and second respondents: Adv. D. Block

Instructed by: KG Tserkezis Inc

37 Old Kilcullen Road

Bryanston

Tel: 011 886 0000

Ref: Mr D Tserkezis/sr/KG/KULLMANN

Date argued: 3 January, 2018.

Date of judgment: 4 January, 2018.

 

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