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IN THE HIGH COURT OF SOUTH AFRICA

GAUTENG DIVISION, PRETORIA

 

(1) REPORTABLE: YES / NO

(2)   OF INTEREST TO OTHER JUDGES: YES/NO

(3)   REVISED.

CASE NO:35991/2016

19/11/2019

 

In the matter between:

 

DEREK PEDOE COHEN NO                                            FIRST INTERVENING PARTY/

            FIRST APPLICANT

GILDO ROBERT POLLASTRINI                                    SECOND INTERVENING PARTY/

 SECOND APPLICANT

 

In the matter between:

 

CAREL PIETER DE JAGER no                                                 FIRST PLAINTIFF

PIETER BAREND SWART NO                                                   SECOND PLAINITFF

JACOBUS THEODORUS BREEDT                                            THIRD PLAINITFF

DE JAGER NO

JOHANNES JACOBUS ERASMUS NO                                     FOURTH PLAINITFF

GERT FREDERICK SANDERS NO                                            FIFTH PLAINITFF

JOHANNES ARNOLDUS NEL NO                                             SIXTH PLAINITFF

 

And

 

ZEPHAN (PTY) LIMITED                                                            FIRST DEFENDANT

(REG NR 2003/020174/07

NICOLAS GEORGIOU NO                                                         SECOND DEFENDANT

MAUREEN LYNETTE GEORGIOU NO                                      THIRD DEFENDANT

JOE CHEMALY NO                                                                    FOURTH DEFENDANT

N GEORGIOU                                                                             FIFTH DEFENDANT

HIGHVELD SYNDICATION NO                                                 SIXTH DEFENDANT

22 LIMITED, REG NO 2005/027390/06

P/C SYNDICATION (PTY)LIMITED                                             SEVENTH DEFENDANT

REG NR 2002/000736/07

 

JUDGMENT

 

STRIJDOM AJ

 

 INTRODUCTION

[1]        This is an application by the Intervening parties for leave to intervene in and oppose, proceedings instituted by the plaintiffs in the main proceedings in which the plaintiffs seek an order for specific performance of the terms of an agreement (“the buy-back agreement”) that was entered into between the plaintiffs and the defendants during June 2009 and for payment of the amount of R24 000 000.00 plus interest and costs.

 

[2]        In terms of the buy-back agreement the defendants undertook to purchase shares at a pre-agreed repurchase price from the plaintiffs after a period of five years from the initial investment date.  The five years’ period has lapsed.  Zephan the N Georgiou Trust and Gergiou refused to perform their obligations in terms of the agreement and to pay the agreed purchase price of the shares to the plaintiffs against transfer of the said shares to them.

 

 [3]       Although the applicants filed separate applications to intervene I will deal with both applications in this judgment.

 

Factual Matrix.

[4]        The plaintiffs are shareholders in Highveld Syndication Company 22 (HS 22”)

 

[5]        The first defendant is Zephan (Pty) Ltd (“Zephan”); Zephan is the financial proposer of a section 155 scheme of arrangement (“SOA”). Zephan is one of the parties to the buy-back agreement.

 

[6]        Nicolas Georgiou is cited in his capacity as a co-trustee of the N Georgiou Trust and in his personal capacity as the second and fifth defendants.  He is the managing director of Zephan and a co-trustee of the N Georgiou  Trust.  The Trust is also a party to the buy-back agreement.

 

[7]        Georgiou is also the managing director of Orthotouch Ltd (“Orthotouch”).  Orthotouch is the proposer in terms of the Scheme of Arrangements (“SOA”). Zephan and the N Georgiou Trust and Orthotouch are at all relevant times represented by Georgiou. Orthotouch is not a party to this application.  Georgiou in his personal capacity is also one of the parties to the buy-back agreement.

 

[8]        Klopper (“Klopper”) is the appointed business rescue practitioner for the Highveld Syndication Companies). (“HS15- HS 22”).  Klopper is also a director of Orthotouch.  Klopper represented Hs15-HS22 when the SOA was entered into and the HS investors were represented by Van Oudthoorn.

 

[9]        Pollastrini is one of the HS investors and a party to the SOA.  He is also one of the applicants in this application.

 

[10]      Cohen is also on of the applicants in this application.  Cohen is the receiver in terms of SOA (“Cohen”). Cohen is cited in a nominee officio capacity.

           

[11]      HS22 conducted the business of property syndication and during the beginning of 2009 offered subscription to shares in terms of a duly registered and issued prospectus.  The buy-back agreement formed part of the prospectus.

 

[12]      The buy –back agreement inter alia provided that Zephan, the N Georgiou Trust and Georgiou personally:

 

“1.        …jointly and severally, hereby irrevocably undertake to re purchase all of the shares sold by the First party (“HS22”) to the original purchasers of the shares, five years after the individual initial purchase dates (herein after referred to as the repurchase Date”) at R 1001.00 per shares with a share premium of R999.00 (hereinafter referred to as the repurchase Price”).

2.         Should the second Third & Fourth party, jointly and severally, fail to pay the relevant shareholders the repurchase price of the shares on the Repurchase date.:

            2.1       The shareholders may elect to either:

2.1.1   Claim the full amount of rental income received by the Second, Third & Fourth party, jointly and severally, in respect of the immovable properties owned by the First party together with mora interest at a rate of 10% per annum, on the aforesaid amount will immediately become due owing and payable by the Second, Third & Fourth Party, jointly and severally, to First Party or;

2.1.2   Claimed specific performance for the re-purchase of the shares at the Re-Purchase Price.”

            3.         …

4.         …

5.         This is the entire agreement between the parties;

6.         …

7.         No variation or consensual cancellation of this agreement shall be of any force or effect unless reduced to writing and signed by all the parties to this agreement, accompanied by a special resolution passed by 75% of the shareholders of the First Party authorizing the variation or cancellation of the agreement;

8.         …

9.         …”[1]

 

[13]      During June 2009 the plaintiffs’ made application to subscribe to 12 000 shares against payment of the amount of R12 million on the prescribed application form.  The plaintiff’s application was accepted.

 

[14]      The buy-back agreements in respect of HS 21 and HS 22 are separate and independent contracts entered into between the shareholders of HS15 to HS 22 and the defendants.  HS 22 did not incur any obligation towards shareholders in terms of the investments.  In the case of HS15 to HS20 Zephan contracted with the HS Company concerned to buy the properties back from the HS Company at a pre-agreed purchase price.[2]

 

[15]      During September 2011, HS 15 to HS 22 were placed under voluntary business rescue proceedings and a business rescue plan was adopted during December 2014.  It is alleged that due to adverse economic conditions in 2014, the terms of the business rescue plan could no longer be implemented and Orthotouch Ltd was forced to enter into a section 155 scheme of arrangement with its trade creditors and also with all of the HS15 to HS22 investors. HS investors never had any claims against Orthotouch Ltd.

 

[`16]    Orthotouch Ltd entered into a scheme of arrangement with the Hs Investors as being contingent, conditional  and subordinated creditors of Orthotouch Ltd.[3]  The scheme of arrangement was sanctioned by the court on 26 November 2014.[4]  The business rescue proceedings have however not been ended or terminated and is presently still in force.

 

[17]      On 9 December 2014.  46 individual actions were instituted against the defendants in respect of claims based on the buy-back agreements pertaining to Hs 21 to Hs22.  On  19 June 2015 summary judgment was granted in favour of all the plaintiffs against the defendants.  The judgment and orders were confirmed by the SCA on appeal on 2 December 2015 under case no 1068/2015 Zephan (Pty) Ltd and Others v De Lange [2016] JOL 37012 (SCA).  The SCA confirmed the ruling that a valid and enforceable contract had been entered into between the plaintiffs and the defendants, and also rejected the defense raised by the defendants that the business rescue plan had restricted the HS 21 and Hs 22 shareholders rights that they had prior to the adoption of the plan in favour of the  rights set out in the business rescue plan.

 

[18]      In SB Noormahomed v Zephan and others.  (NGHC case no 201726036.) dated 28 April 2018 the defendants relied on the terms of the scheme of agreements in defense of a claim based on the buy-back agreement.  The court ruled that “This situation is no different to that found in the De Lange matter”) and refused the application for the rescission of the judgment that was granted by default against the respondents.

 

The application of Pollastrini

[19]      Pollastrini claims to have  locus standi to bring this application in his capacity as shareholder of HS 19, HS 20 and HS 22 and has, in that capacity, “a direct and material interest in the outcome of proceedings alternatively,  I am entitled to be joined as a matter of convenience and in the interest of justice on the basis that the claims of the plaintiffs has been compromised by the scheme of arrangement to which the plaintiffs and I are parties[5] and also that “it detrimentally affects our rights in terms of the scheme of arrangement.”[6]

 

[20]      The defendants rely in the main proceedings on the provisions of the scheme of arrangement and maintain that any rights which the plaintiffs might have had in terms of the buy-back agreement have been novated in terms of the scheme of arrangement.  This is basically also the defense put forward and relied on by Pollastrini and which he intends to raise in the main action.

 

[21]      The plaintiffs claim against the respondents is for performance in terms of the buy-back agreement and not for the repayment by Orthotouch of the capital invested.  If the defendants are ordered to perform in terms of the buy-back agreement, they would merely step into the plaintiffs’ shoes and will become entitled to the benefits in terms of the Scheme of arrangement.

 

[22]      Pollastrini’s direct and substantial interest in the main proceedings are stated to be that the plaintiffs by instituting  the claim against the defendants “are attempting to accelerate their claims, which will result in the very disaster of the scheme of arrangement was to prevent and most likely collapse the arrangement under circumstances where  the plaintiffs are preferred above all other Investors.[7]

 

[23]      In my view the abovementioned statements are indicative of a mere financial interest as opposed to a direct and substantial interest in the outcome of the main proceedings.

 

[24]      The parties to the buy-back agreement are the plaintiffs and the defendants .  The parties to the scheme of arrangement are Orthotouch Ltd, the HS companies 15 to 22 as creditors and the HS Investors and Zephan as financial proposer.  Insofar as it is alleged that Zephan is a party to the scheme of arrangement, Zephan is already represented in the main action.

 

[25]      Pollastrini did not challenge a number of serious allegations made and facts set out by the plaintiffs in their answering affidavit where, they dealt with the merits of the defenses relied on by Pollastrini and the defendants.  The Plaintiffs made the following allegations and statements of facts inter alia;

 

25.1    that Pollastrini relies on a prima facie unlawful and invalid arrangement in order to bestow him with locus standi to bring this application.[8]

25.2    that the applicant, as shareholder of HS 22 had no claim in terms of his investment against HS 22.  The applicant however has a claim against the defendants for specific performance of the terms of the buy-back agreement.  The applicant therefore did not possess of any claim or rights against HS 22 that he was able to cede to Orthotouch.[9]

25.3    that even though the nature of the investment had been varied or reconstructed (in terms whereof HS22 became obliged to pay interest to the plaintiffs as contemplated by the BR Plan), such variation or reconstruction did not affect the buy-back agreement.  HS 22 merely incurred an obligation to pay interest to the plaintiffs.[10]

25.4    that if the defendants performed their obligations in terms of the buy-back agreement, they would become the owners of the shares and subject to the scheme of arrangement entitled to the benefits in terms thereof.[11]

25.5    that the plaintiffs are not creditors of and had no claim against Orthotouch Ltd that could have been compromised in terms of the scheme of arrangement.[12]

25.6    that the scheme of arrangement entered into between Orthotouch and his creditors cannot affect the buy-back agreement or the enforceability thereof.[13]

25.7    that despite the purported restructuring of the nature of the shares the shares remain HS 22 shares held by the plaintiffs which the defendants contracted to purchase and that the nature of the shares and\or the value of the shares at the end of the investments period are irrelevant.[14]

25.8    that it is clear that the applicants’ reliance on the business rescue proceedings and\or scheme of arrangement is an ill-fated attempt to release Zephan, Gergiou and the Trust from their respective obligations and guarantees in terms of the buy-back agreement.[15]

 

[26]      It was submitted by counsel for the plaintiffs that Pollastrini failure to reply to the allegations made by the plaintiffs should be regarded as a concession of the correctness of such allegations.

 

[27]      In the circumstances Pollastrini’s failure to answer such factual allegations entitles the court to draw an adverse conclusion and also draw the inference that Pollastrini was unable to controvert the plaintiffs’ allegations.[16]

 

Section 155 of the Companies Act 71/2008.

[28]      it is common cause that the HS Syndication Companies were (and still are) under business rescue proceedings when the scheme of arrangement was purportedly entered into.  Business rescue proceedings come to an end in the manners provided for in section 132 (2) and 141(2) of the Companies Act.  No steps to end the business rescue proceedings have been taken.  The business rescue plan is therefore still binding and effective between the HS Companies and the HS Investors, and the terms thereof could not have been restructured as contemplated by the scheme of arrangement without any formal meetings being called with creditors and shareholders whose rights may be affected.[17]

 

[29]      The HS Syndication Companies and HS Investors, could not have entered into the scheme of arrangement, as it would entail the HS Companies and HS Investors are subject to the terms of the business rescue proceedings and that of the scheme of arrangements.  Pollastrini in my view therefore rely on a prima facie illegal and unenforceable agreement.

 

The none variation clause.

[30]      The effect of clause 7 of the buy-back agreement is to prohibit any variations of the buy-back agreement, except by a variation in writing signed by all the parties and accompanied by the said special resolution authorizing the variation or cancellation of the agreement.  No such written cancellation/variation agreement was entered into by the shareholders HS 22 and the defendants.[18]

 

[31]      The business rescue plan and\or scheme of arrangement ignores the provisions of the non-variation clause of the buy-back agreement.

 

[32]      The contentions on behalf of Pollastrini that the scheme of arrangement substituted the rights of shareholders in HS 22 with the rights contained in the scheme of arrangement amounts to a defense of waiver.

 

[33]      Pollastrini fails to state that when the alleged waiver took place that it was done by him  and the  rest of the HS22 investors (including the Plaintiffs) with the full knowledge of the right which they allegedly decided to abandon i.e the right to enforce performance by the defendants of their obligations in terms of the buy-back agreement.[19]

 

Novation.

[34]      Pollastrini contends that the plaintiffs are precluded from enforcing any rights in terms of the buy-back agreement which pre-dated the scheme of arrangement due to those rights being statutorily novated.

 

[35]      There must be a clear , ‘cogent’ and unequivocal intention that a novation was intended.  There is a presumption against novation and clear and cogent proof of such novation is required.  Nowhere in the clauses relied upon by Pollastrini is reference made to the buy-back agreements or of claims in respect thereof.

 

Applicable Principles Re Intervention.

[36]      A party seeking to intervene must bring itself within the ambit of Rule 12 of the High Court Rules.  In Bitcon v City Council of Johannesburg and Arrenow Behrmen E Co (1931 WLD 273) it was decided as follows:

 

“It  is a  matter entirely within the discretion of the Court to allow a party to intervene provided the intervening party can show that he is especially concerned in the issue and that the matter is of  common interest to himself and the party he desires to join and that the issues are the same.”

 

[37]      Rule 12 Provides: “Any person entitled to join as a plaintiff or liable to be joint as a defendant in any action may, on notice to all parties at any stage of the proceedings apply for leave to intervene as a  plaintiff or a defendant.”

 

[38]      In my view the applicant failed to satisfy this court that (1) he has a direct and substantial interest in the subject matter of the litigation and (ii) the application is made seriously and is not frivolous and that the allegations made by the applicant constitute a prima facie case or defence.

 

[39]      In the result the application of the first applicant is dismissed with costs.

 

The Application of Cohen.

[40]      The background facts in the application of Pollastrini are also relevant and applicable  in the application of Cohen.

 

[41]      Cohen claims to be the duly court appointed receiver in terms of the scheme of arrangement with the express and implied authority as determined by the terms of the SOA and therefore has a material interest in the outcome of the main action.  Cohen states that in terms of the SOA that he has been granted the power to inter alia do all things necessary to procure the due implementation of the SOA and to enforce compliance with any obligations thereunder by Zephan, to dispute any claim by any HS Investor and to protect the integrity of the SOA.  Further that he is not a mere administrator of the SOA without executory functions.

 

[42]      It is specifically recorded in the SOA that Cohen merely undertook to act as Receiver under the Arrangement. [20]

 

[43]      Section 155 of the Companies Act, 2008 Act 71 of 2008) does not provide for the appointment of a person in the capacity as receiver.  Neither the insolvency Act nor the Companies Act confer any such power on the court to appoint any one to such a position. (“Receiver” is a position that was created by SOA”).

 

[44]      Cohen is also not in the position of a curator ad litem who could litigate on behalf of one or all the parties to the SOA having conflicting interests in the same subject matter.

 

[45]      It was submitted by counsel for the respondents (Plaintiffs) that Cohen’s claim to intervene in the proceedings to ensure the further implementation and integrity of the scheme of arrangement does not constitute a legal interest in the proceedings which could be prejudicially be affected by the outcome of the main action.  It was further submitted that if judgment is granted against Zephan, Cohens’ rights set out in the scheme of arrangement would still be intact and not be prejudicially affected in any which way.  It merely entails a change of ownership.

 

[46]      It is clear that Cohens interest is merely a commercial or financial interest.

 

[47]      Cohen is merely an employee of Orthotouch.  The parties to the SOA are the Highveld Syndication Companies and Orthotouch.

 

[48]      The factual situation is that the Hs Companies are presently under both business rescue proceedings and under a SOA which is legally untenable.

 

[49]      It is specifically recorded in the definition of “Trade creditors” in the SOA that HS investors are specifically excluded as creditors of Orthotouch and further that “…HS investors are not and never have been direct creditors or, shareholders of the investors in the company (Orthotouch)…”

 

[50]      In my view the SOA was not validly entered into between the parties thereto and therefore has no legal efficacy, standing or effect. Cohen could not have attained any rights in terms of the SOA.

 

[51]      Cohen fails to disclose a cause of action.  It is not clear what action Cohen can take against Zephan for failing to make payments to Orthotouch or if Orthotouch refuses to pay the monies over to the HS Companies.  There also exists no right that Cohen is entitled to enforce against the plaintiffs.  He is not able to contribute in any way to the adjudication of the main action.

 

[52]      I am of the view that Cohen has no locus standi to bring the application to intervene.

 

[53]      In the result the application of Cohen to intervene is dismissed with costs.

 

 

JJ STRIJDOM

ACTING JUDGE OF THE HIGH COURT

 

 

 

Matter heard on:                          22 October 2019

Judgment delivered:                   19 November 2019

Counsel for Applicants               ADV Boonzaaier

Attorneys for Applicants:           Leonard Attorneys

Counsel for Plainitffs:                 ADV    L Bolt                                    

Attorneys for Plaintiffs:              Le grange Attorneys,  Pta

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