Court name
High Court Main Division
Case name
Woermann v Kawana
Media neutral citation
[2020] NAHCMD 373
Case summary:

Civil procedure-Exception-To particulars of claim grounded in association agreement-Association-agreement between a member and a non-member of a close corporation-Such agreement inconsistent with the Act-Void and unenforceable-Exception upheld.

Headnote and holding:

The plaintiff and first defendant entered into an association agreement to form the third defendant, a close corporation, to invest in renewable energy. Each party was to hold 50% members’ interest in the third defendant. Only the first defendant was registered as a member of the third defendant and held the plaintiff’s members’ interest in her capacity as a nominee, the plaintiff being the beneficial owner. The amended founding statement reflecting that, was not registered. The first defendant sold 100% of the members’ interest in the third defendant to the second defendant. The Plaintiff instituted an action claiming, inter alia, that the second defendant transfer 50% of the members’ interest back to her and that her name be registered with the fourth defendant as a member of the third defendant. The defendants raised an exception to the particulars of claim. They argued that the particulars of claim lack the necessary averments to disclose a cause of action. That the plaintiff lacks locus standi to launch the action. That the association agreement is void and unenforceable because it was entered into between a registered member and a non-member of the third defendant, which is inconsistent with the provisions of the close corporation Act. The plaintiff submitted that her action is not grounded in statute, but in contract. She contends that the contract is binding between the parties and must be given effect to.

Held, that in terms of the association agreement between the plaintiff and first defendant the terms and provisions of the close corporation act were incorporated and relied upon by the parties to the association agreement.

Held further that in terms sections 12 of the Act, the names of members of a close corporation must be entered in the founding statement and registered with BIPA.

Held further that in terms of s49 (1) of the act only members of the close corporation have standing to approach the court and seek relief against oppressive or prejudicial conduct.

Held further that in terms of s 44(1) of the Act an association agreement can only be entered into between registered members of the close corporation.

Held further that the association agreement between plaintiff and first defendant is void an unenforceable.

Held further that the exception is upheld with costs.

Reportable

REPUBLIC OF NAMIBIA

HIGH COURT OF NAMIBIA MAIN DIVISION, WINDHOEK

 

Case No: HC-MD-CIV-ACT-CON-2019/04869

 

Ruling on Exception

 

In the matter between:

 

KAREN WOERMANN                                                                                          PLAINTIFF

 

and

 

ANNA CAROLINE KAWANA                                                                  1ST DEFENDANT

PATRICK KAUTA                                                                                     2ND DEFENDANT

YETU SOLAR INVESTMENTS CC                                                        3RD DEFENDANT

REGISTRAR OF COMPANIES, CLOSE CORPORATIONS,

PATENTS, TRADEMARKS AND DESIGNS C/O MINISTER OF INDUSTRILISATION, TRADE AND SME DEVELOPMENT                                                                    4TH DEFENDANT

OUYELELE ENERGY (PTY) LTD                                                          5TH DEFENDANT

HOPSOL POWER GENERATION (PTY) LTD                                     6TH DEFENDANT

 

Neutral citation:      Woermann v Kawana (HC-MD-CIV-ACT-CON-2019/04869) [2020] NAHCMD 373 (19 August 2020)

 

CORAM:        NDAUENDAPO

Heard:            22 July 2020

Delivered:     19 August 2020

 


ORDER


 

1.         The defendants’ exception is upheld.

2.         The plaintiff’s particulars of claim are set aside and plaintiff is given leave, if so advised, to file amended particulars of claim within fifteen (15) court days from the 20th of August 2020.

3.         The plaintiff is ordered to pay the costs of the defendants’ exception such costs to include costs of one instructing and one instructed counsel and such costs not to be limited to the capping in rule 32(11).

 


JUDGMENT


 

NDAUENDAPO, J

 

Introduction

 

[1]        Before me is an opposed exception raised by First, Second, Third, and Fourth defendants (‘the defendants’) to the particulars of claim of the plaintiff. (‘the plaintiff’)

 

[2]        For a better understanding of the exception, the particulars of claim are quoted verbatim:

 

‘8.        During October 2005 and at Windhoek the plaintiff and the first defendant entered into an association Agreement in respect of the third defendant. A copy of such Association Agreement is annexed and marked “A” and the terms and condition thereof are incorporated herein by reference.

 

9.         The following were the material express, alternatively implied, in the further alternative tacit terms of such Association Agreement;

 

9.1       The plaintiff and the first defendant agreed to form and register the third defendant for purposes of investing in solar energy businesses;

 

9.2       The third defendant was to be registered on the basis that each of the plaintiff and the first defendant shall hold or be entitled to hold 50% member’s interest in and to the corporation;

 

9.3       The third defendant was registered on 6 March 2015 for this purpose and the first defendant was the only registered member of the close corporation in terms of the agreement between the plaintiff and the first defendant;

 

9.4       The first defendant holds 50% of the membership in her personal capacity and 50% of the membership in her capacity as nominee for the plaintiff;

 

9.5       The plaintiff and the first defendant have signed an amended Founding Statement (CC2) confirming the intention and agreement of the plaintiff and the first defendant;

 

9.6       ‘Member’ in terms of the Association Agreement means a person designated as a member of the corporation in its founding statement or any amended founding statement, including the plaintiff or a nominee, subject to the provisions of the close Corporations Act, 1988.

 

9.7       It is recorded that the member’s interest in the third defendant, despite the first defendant being the sole registered member, is the following:

 

            9.7.1    First defendant – 50%;

            9.7.2    Plaintiff – 50% (held by first defendant as nominee).

 

9.8       None of the members shall be entitled under any circumstances to sell, transfer or otherwise dispose of her equity without first making an offer by means of a written notice to sell her equity to the remaining member(s);

 

9.9       When any member intends to dispose of her equity, such member shall offer the equity in writing to the other member stating the price and terms of payment required by her;

 

9.10     If within 30 days after receipt of the written offer (during which period the offer shall be irrevocable), it is not accepted in writing in respect of the whole of the equity offered, the offering party may within a further period of 30 days, but not thereafter, dispose of the equity offered (but not fewer) to a third party only, at a price not lower and on terms not more favorable to such person than the price and terms at and on which the remaining members were entitled to purchase.

 

9.11     Except as provided for in the Association Agreement or in any other written agreement enforced between the members, no equity may be disposed of, alienated or offered for sale, pledged or transferred without the written consent of all members or the sanction of a resolution passed unanimously at a meeting at which all members were present or represented.’

 

[3]        On the 6 September 2017, in case No HC-MD-CIV-ACT-CON-2017/01932, the first defendant, under oath, confirmed the member’s interest between her and the plaintiff as stated in the Association Agreement. She stated the following to this Honorable Court in her affidavit:

 

‘The members’ interest in Yetu is held in equal parts by Mrs. Woernmann and I, each holding 50%. I am a director in both Ouyelele and Tulongeni. As proof of the members’ interest held by Mrs. Woermann in Yetu, I refer the Honorable Court to a copy of Yetu’s CC2 Form marked “ACK3” hereto. This form was lodged with Ms. Woermann’s legal practitioners and my legal practitioners obtained a copy form them. Obviously, lodging with the Registrar of Close Corporations was deferred, because the intention was that I would remain the nominee on behalf of Mrs. Woermann and only in the event of me disputing her member’s interest, would this form be produced by her lawyer.’

 

A copy of “ACK3” referred to in the above quoted extract of the affidavit is annexed hereto marked “B”, which is the document referred to in paragraph 7.5 above.

 

[4]        At the time when and in the matter which the above quoted affidavit of the first defendant was filed, she was represented by the second defendant, who acted as her legal practitioner of record, and who had full knowledge of the allegations contained in the affidavit by virtue of the fact that he drafted it or charged the first defendant for the perusal thereof.

 

[5]        Despite full knowledge by both the first and the second defendants that the plaintiff was the owner of 50% of the members’ interest in and to the third defendant:

 

‘12.1    The first defendant breached the Association Agreement on or about 17 October 2017 by purporting to transfer and register 80% of the members’ interest in the third defendant into the name of the second defendant. A copy of the purported amended founding statement is annexed hereto marked “C”.

 

12.2     The first defendant breached the Association Agreement on or about 25 June 2018 by purporting to transfer and register 100% of the members’ interest in the third defendant into the name of the second defendant. A copy of the purported amended founding statement is annexed hereto marked “D”.

 

13.       The first and second defendants, with full knowledge of the plaintiff’s ownership in and to 50% of the members’ interest in the third defendant, acted intentionally, recklessly, deliberately and without her permission in transferring the plaintiff’s 50% members’ interest to the second defendant contrary to the express agreement between the plaintiff and the first defendant.

 

14.       The transfer of the plaintiff’s 50% members’ interest in and to the third defendant was done in the absence of any intention of the plaintiff for the transfer to be so effected. The said transfer was accordingly tainted to the extent that both the real and the underlying agreement were defective.

 

15.       In the premises the plaintiff is entitled to an order in the following terms:

 

15.1     That the 50% member’s interest previously owned by the plaintiff be delivered to the plaintiff by the second defendant, alternatively that the founding statement of the third defendant be rectified to reflect the plaintiff as, at least, a 50% member of the third defendant, being the 50% as reflected in annexure “B”, but that such registration of her 50% member’s interest be reflected to be registered in the plaintiff’s name, (in as far as necessary the plaintiff accepts the first defendant’s repudiation of the first defendant’s obligations to retain 50% of the member’s interest in her own name as nominee);

 

15.2     That the second defendant be ordered to transfer the 50% members’ interest previously owned by the first defendant (and now purportedly registered in second defendant’s name) to the plaintiff against payment of the amount or value paid by first defendant to the second defendant for such 50% member’s interest, should plaintiff elect to purchase the said 50% of the members’ interest from the second defendant once the purchase price thereof has been disclosed to the plaintiff.  The basis for this latter relief is that, had the first defendant complied with her obligations towards the plaintiff as contained in the Association Agreement and particularly the obligations set out in clauses 17 and 18 thereof, the plaintiff is entitled to consider purchasing the first defendant’s member’s interest once the amount second defendant paid to first defendant for her 50% member’s interest is known to the plaintiff, and the plaintiff elects to purchase the member’s interest.’

 

16.       The plaintiff is also entitled to all income earned by her 50% member’s interest (of which she was the owner) during the period such interest was registered in the first and /or second defendants’ names, and the plaintiff is further entitled to full disclosure of such income earned, a debatement of account and payment to her of the amount found to be due following such debatement.

 

17.       Despite the fact that the transactions to in paragraphs 12.1 and 12.2 above are nullities, the second defendant remains in possession of the member’s interest in the third defendant through the incorrect registration of such member’s interest, as currently reflected in annexure “D” hereto. Nevertheless, plaintiff remains the owner of at least 50% of the 100% member’s interest currently in possession of the second defendant.’

 

Plaintiff’s prayers

[6]        1.         An order that the second defendant immediately delivers 50% of the           member’s interest currently in his name to plaintiff.

 

            2.         An order directing the fourth defendant to register plaintiff as 50%    member of the third defendant;

 

3.         an order directing the first and second defendants disclose in writing, the amount paid by second defendant to first defendant for the latter’s 50% member’s interest, and granting leave to plaintiff to exercise her right to purchase first defendant’s members interest in accordance with the provisions of the Association Agreement at the same price as paid by second defendant to first defendant.

 

4.         Insofar as it may be necessary an order directing the first and/or second defendant as well as fourth defendant to take such steps as are required to reflect the plaintiff as the registered member of the third defendant as the court may find the plaintiff is entitled to, and in the event of first or second defendant refusing to do so, authorizing the deputy sheriff for the district of Windhoek to sign such necessary transfer documents/amended founding statements.

 

5.         An order directing that the first and second defendants produce all documents reflecting the income earned from the plaintiff’s 50% member’s interest during the period such interest was registered in the first and/or second defendant’s names.

 

6.         Debatememt of the account.

 

7.         Payment of the amount found to be due to the plaintiff following such debatement of account, together with interest a tempore morae.

 

Defendants’ exception

[7]        The grounds upon which the defendants advance their exceptions are the following: (the defendants emphasize that the grounds of exceptions below should be read together; the failures discussed under each ground of exception are not, and should not be construed as, any admission regarding the correctness of, or the proper pleading of, any other elements of the particular causes of action):

 

‘1.        The plaintiff’s claim against the defendants, at paragraph 8 of the particulars of claim, is framed in contract. As a result, plaintiff relies on an Association Agreement and incorporates the terms and conditions thereof by reference to support her claim.

 

2.         The Close Corporations Act, 1988 (“the Act”), describes, amongst others, an Association Agreement, such as that relied on by Plaintiff, in relation to the Third Defendant, Plaintiff and First Defendant, as an agreement which has been entered into in terms of section 44 by the members of the Third Defendant.

 

3.         The Act, amongst others, further describes a member in relation to Third Defendant, as a person designated as such in the founding statement registered in accordance with sections 12, 13 and 15 of the Act.

 

4.         Member’s interest or interest in relation to a member of Third Defendant, in the Act, means the interest of the member in the Third Defendant expressed (as a percentage in accordance with section 12(1)(e)) in the founding statement of the Third Defendant.

 

5.         At paragraphs 9.6 and 9.7 of the particulars of claim the Plaintiff asserts to be a beneficial owner in Third Defendant, through the attached Association Agreement. The Act only recognizes registered members of Third Defendant to conclude an Association Agreement. The Act makes no provision for an Association Agreement (between nonregistered members) as pleaded by the plaintiff. The Plaintiff’s claim as currently framed and pleaded in contract, is in breach of the Act as the attached Association Agreement is void.

 

6.         The Plaintiff’s particulars of claim, for all the above reasons, fails to disclose a proper cause of action.

 

7.         Alternatively, even if the Honorable Court accepts that First Defendant was a nominee of Plaintiff, our law does not recognize the Plaintiff’s standing in law to sue.

 

8.         At paragraph 15.1 of the particulars of claim, plaintiff seeks rectification and transfer of fifty percent members’ interest in Third Defendant. At paragraphs 13 and 14 of the particulars of claim, Plaintiff pleads that she had no intention to transfer fifty percent of her member’s interest in Third Defendant. At paragraph 14 Plaintiff pleads that the transfer was tainted to the extent that both the real and the underlying agreement were defective.

 

9.         For reasons advanced above, the Plaintiff has no recognizable member’s interest in Third Defendant through the Act. Consequently, Plaintiff is not a party to both the real (Amended Founding Statement) and the underlying (Sale of Shares Agreement) agreements and, therefore, has no standing in law to sue and demand rectification.

 

10.       Alternatively, even if the Honorable Court accepts that Plaintiff has a right to sue for rectification, which is denied. Our law accepts the abstract system of transfer and looks at the intention of the contracting parties, First and Second Defendants. Absent and allegation or averment in the particulars of claim that the real and underlying agreement between the First and Second Defendants is tainted by fraud or was entered into in fraudem legis, rectification is unavailable in contract to Plaintiff (a non-contracting party).’

 

Submissions by defendants

 

[8]        The defendants submit that the plaintiff lacks legal standing to sue on the basis that the plaintiff in the Particulars of Claim stated that:

 

1.         The third defendant was registered on 6 March 2015 for this purpose and the first defendant was the only registered member of the close corporation in terms of the agreement between the plaintiff and the first defendant;

 

2.         The first defendant holds 50% of the membership in her personal capacity and 50% of the membership in her capacity as nominee of the plaintiff; and that she is a beneficial owner of 50% member’s interest in Third Defendant, because of First Defendant being her nominee through the Association Agreement, attached as annexure A.

 

[9]        The terms of the Association Agreement have been incorporated by reference. As such, the Plaintiffs claim is based on contract providing that ‘The parties have signed an Amended Founding Statement (CC2) to be held in trust confirming their intention and agreement.’ The defendants state that the close corporation Act No. 26 of 1988 (“the Act”) defines A “Member” in relation to a corporation, means a person qualified for membership of a corporation in terms of section 29 and designated as a member in a founding statement of the corporation…’

 

[10]      Counsel further submitted that in terms of s12 of the Act, a corporation shall draw up a founding statement in the prescribed form which shall contain, amongst others, the following information:

 

‘(d) The full name, residential address and identity number of each member or, if he or she has no such number, the date of his or her birth;

(e) The size, expressed as a percentage, of each member’s interest in the corporation;

(f) Particulars of the contribution of each member to the corporation in accordance with section 24(1), including-

            (i) Any amounts of money; and

            (ii) a description, and statement of the fair value, of any property (whether corporeal or incorporeal) or any service referred to in section 24(1). In terms of s12(2) the founding statement shall be signed by every person who is to become a member of the corporation upon its registration and each such person shall sign the founding statement in the presence of at least one witness who shall attest the signature and state his or her residential, business and postal address. If there is any change to the particulars stated in the founding statement, then an amended founding statement must be filed with the Registrar.’

 

[11]      Counsel argued that an amended founding statement held in trust as agreed between the plaintiff and first defendant, unless filed and registered in terms of s12 is unenforceable in law against the second defendant.

 

[12]      Counsel further argued that the admission by the plaintiff that she is not a registered member of the third defendant is fatal to her case because (a) that is in breach of section 12 of the Act and the definition of the Act and (b) the plaintiff seeks to enforce a void contract.

 

[13]      Counsel further argued that ‘constrained by the above, the plaintiff pleads that the first defendant is her nominee and therefore she is the beneficial owner of 50% member’s interest in third defendant by virtue of the purported association agreement.’

Relying on the South African court of appeal judgment in Smith and others v Investec Bank[1], where the court held that:

 

‘Consequently only a registered member has locus standi to approach the court in terms of section 252 and not the person who owns the ultimate economic interest in shares registered in somebody else’s name. A person whose name is not registered in the register of members has no right to participate as an applicant in section 252 proceedings.’

 

Counsel submitted that the above ratio is cogent, persuasive and applies with equal force to nominees (if the Act indeed allows for nominee membership) in a close corporation. Consequently, the plaintiff has no locus standi to institute the claim against the defendants. Counsel further argued that where the issue of standing is raised, a lack of standing on the part of a party, if upheld would finally resolve the issue.

 

[14]      On the first exception, counsel submitted that the plaintiff’s claim is premised on a void association agreement. In terms of s 44 (1) of the Act, an association agreement can only be entered between registered members of a close corporation. A registered member is a member whose particulars have been entered in the founding statement or amended founding statement and such founding statement have been registered.

 

[15]      The plaintiff is not a registered member of the third defendant and therefore the association agreement is void and unenforceable. The second exception is ‘a failure to plead mistake or fraudulent misrepresentation.’ Counsel argued that plaintiff seeks rectification and transfer of 50% members’ interest in third defendant. At paragraphs 13 and 14 of the particulars of claim, plaintiff pleads that she had no intention to transfer 50% of her member’s interest in third defendant. At paragraph 14 plaintiff pleads that the transfer was tainted to the extent that both the real and the underlying agreement were defective. Counsel argued that the plaintiff is not a party to the underlying agreement she seeks to rectify and for that reason, a claim for rectification is not available to her.

 

Submissions by plaintiff

 

[16]      Counsel submitted that the plaintiff’s claim is not grounded in statute. The plaintiff’s locus standi is therefore not determined with reference to the Act whereby the defendants allege that the plaintiff lacks locus standi. The plaintiff’s locus standi is determined with reference to the common law in light of her particulars of claim.

 

[17]      Counsel further argued that the court is not dealing with an illegal or unenforceable contract. A valid and binding inter parties written agreement was concluded between the plaintiff and the first defendant, regardless of what label is given to the said agreement. One should look at the contents of an agreement to determine its nature, it is not the heading or label name of an agreement that determines its nature. These terms define and qualify the rights and obligations a contract creates. It therefore matters not that the agreement is labelled an ‘association agreement.’ Counsel relied on the case of Francis v Sharp and Others[2] where first and second defendant were bound to exercise their rights and powers as members as directed by and in the interest of the plaintiff as beneficial owner, and the nature of the rights and obligations of the plaintiff as nominator and the first and second defendants as nominees inter se would be governed by the contract or relationship between them.

 

[18]      Counsel argued that the agreement gave rise to certain rights and obligations for the parties thereto, which rights included rights to the plaintiff, and which rights the plaintiff seeks to enforce by virtue of her claim. The plaintiff is the beneficial owner of the 50% of the members’ interest held by the first defendant in her capacity as nominee of the plaintiff. Counsel argues that ownership of members’ interest does not depend upon registration.

 

[19]      Counsel contends that the plaintiff being the beneficial holder and owner of the relevant members’ interest, has a personal right to obtain transfer of the said members interest in her own name. Furthermore, the plaintiff is the owner of the relevant members’ interest currently in the second defendant’s possession, which members’ interest the plaintiff seeks delivery of. On the alleged failure to plead mistake or fraudulent misrepresentation, counsel submitted that if an exception is taken to particular sections of the particulars of claim which are not self–contained and which do not amount in themselves to a separate claim and on the basis of the principles enumerated in Andima[3] matter, the exception cannot be upheld. In any event, the first defendant could not have effected that 50% members’ interest to the second defendant and the second defendant on the other hand was aware of that. What the plaintiff seeks is for the public document to record that she is the registered member of the relevant members’ interest as opposed to rectification.

 

Discussion

The applicable legal principles

[20]      In terms of Rule 57 of the Rules of the High Court, an exception may be raised where a pleading is; (a) vague and embarrassing (b) the pleading lacks averments which are necessary to sustain an action or defense.

 

[21]      In terms of Rule 45 (5) every pleading ‘must contain a clear and concise statement of the material facts on which the pleader relies for his or her claim.’ It is generally accepted that the plaintiff’s particulars of claim must disclose a cause of action. In McKenzie[4]  the court defined a cause of action as follows:

 

‘Every fact which it would be necessary for the plaintiff to prove, if traversed, in order to support his right to judgment. It does not comprise every piece of evidence which is necessary to prove each fact, but every fact which is necessary to be proved.’

 

[22]      The phrase cause of action’ was also considered in Evins v Shield Insurance Co Ltd[5] (1980 (2) SA 814 (A) and the court said: ‘is ordinarily used to describe the factual basis, the set of materials facts, that begets the plaintiff’s legal right of action.’ Counsel for the defendants correctly submitted that the concept cause of action’ consists of two parts: Firstly, it must set out what the legal claim is and secondly; it must be clear what the facts are that are pleaded in support of the legal claim. Both must be present contemporaneously. The absence of one necessarily means the pleading discloses no cause of action.

 

[23]      In Van Straten NO[6] the Supreme Court said:

 

‘Where an exception is taken on the grounds that no cause of action is disclosed or is sustainable on the particulars of claim, two aspects are to be emphasized. Firstly, for the purpose of deciding the exception, the facts as alleged in the plaintiff’s pleadings are taken as correct. In the second place, it is incumbent upon an excipient to persuade this court that upon every interpretation which the pleading can reasonably bear, no cause of action is disclosed. Stated otherwise, only if no possible evidence led on the pleadings can disclose a  cause of action, will the particulars of claim be found to be excipiable.’

 

[24]      It is common cause that the plaintiff and the first defendant entered into an association agreement in October 2015.The purpose was to register a close corporation, the third defendant (Yetu Solar Investment CC) with the aim of investing in solar energy business. The third defendant was registered on the basis that each of them shall hold or be entitled to hold a 50% member’s interest in the third defendant. The first defendant was the sole registered member of the third defendant and she held 50% of the membership in her personal capacity and 50% of the membership in her capacity as nominee for the plaintiff. The parties signed an Amended Founding Statement to be held in trust confirming their intention. The amended founding statement was not registered in terms of the Act.

 

[25]      In Smyth supra, the South African Supreme Court of Appeal was called upon to determine whether the remedy provided by s252 of the Companies Act 61 of 1973 is available to beneficial owners of shares in a company who elected to hold their shares through nominees. The court held that for a person to be a member of a company, the name of that person must be entered in the register of the members of the company. A company should concern itself only with the registered owners of the shares. The company recognizes only its registered shareholders.

 

[26]      The court further held that, thus the remedy provided for by s252 was clearly only for members, so the appellants could not use this remedy, nor could they be joined as co-applicants in the matter. If the appellants wanted to use the remedy in s252 they could just terminate the nomination and procure that their names be entered into the register of members.

 

[27]      Counsel for the defendants argued that the ratio in Smyth is cogent, persuasive and applies with equal force to nominees in a close corporation. The plaintiff argued that the remedy she seeks is based on the contract. That contractual relationship between the plaintiff and the first defendant is governed by the association agreement.

 

[28]      Counsel for the plaintiff further submitted that the plaintiff’s claim is not grounded in statute. The plaintiff’s claim locus standi is therefore not determined with reference to the Act whereby the defendants allege that the plaintiff lacks locus standi. The plaintiff’s locus standi is determined with reference to the common law in light of her particulars of claim. Counsel argued that a valid and binding inter parties written agreement was concluded between the plaintiff and the first defendant, regardless of what label is given to the said agreement, one should turn to the contents of an agreement to determine its nature, it is not the heading or label or name of an agreement that determines its nature The subject matter of a contract is contained in the terms of the contract. It therefore matters not that the agreement is labelled an ‘association agreement.’

 

[29]      ‘Counsel submitted that:

 

‘Whereas the plaintiff’s claim is not based on, or founded on, her capacity as a registered member as envisaged in the Act, it is irrelevant that the plaintiff is not a registered member of the third defendant as envisaged in the Act. For the same reason, Smyth does not assist the defendants in their exception.’

 

I disagree. The remedy provided for in s 252 of the Companies Act 61 of 1973, that the appellants relied on the Smyth is identical to the one provided for in s49 (1) of the Close Corporation Act. The provisions of s49 (1) are couched in the following terms:

 

‘49(1) Any member of the corporation who alleges that any particular act or omission of the corporation or of one or more other members is unfairly prejudicial, unjust or inequitable to him, or to some members including him, or that the affairs of the corporation are being conducted in a manner unfairly prejudicial, unjust or inequitable to him, or to some members including him, may make an application to a Court for an order under this section.’

 

The court in Smyth saw that remedy as only available to registered members of the company and by parity of reasoning that should also apply in the case of a close corporation. In Smyth the court said nonregistered members do not have locus standi to approach the court and to seek the remedy provided for in s 252 of the Companies Act. In this matter the plaintiff and the first defendant have incorporated the terms and conditions of the Close Corporation Act in their association agreement. The plaintiff is not a registered member of the third defendant and on the basis of the Smyth judgment she would not have locus standi to seek the relief she is seeking.

 

[30]      Counsel for the plaintiff argued that her claim is not grounded in statute and therefore the close corporation Act does not apply. Counsel contends that the fact that the agreement between the plaintiff and first defendant is styled ‘association agreement’ is irrelevant, one must look at the nature of the agreement. Counsel further argued that:

 

‘Notwithstanding the aforesaid submission and without derogating therefrom, counsel contends that section 44(1) provides that the members may at any time enter into an association agreement. Firstly, section 44(1) will, in any event, only find application if and when there is more than one member as envisaged in the Act, being a registered member. In the matter currently before Court, there was, at the relevant time, only one member as envisaged in the Act, being a registered member. As a result, and insofar as the relationship and agreement between the plaintiff and the first defendant was concerned at the time, the written agreement relied upon by the plaintiff may not have been an association agreement as envisaged in the Act regardless of what it was named or labelled by the parties thereto at the time. That does however not result in the said agreement being void, it remains a valid and binding agreement as far as the relationship between the plaintiff and the first defendant is concerned and the matters regulated thereby.’

 

[31]      That submission is wrong. The plaintiff and first defendant entered into an association agreement and have incorporated the terms and provisions of the close corporation Act in their association agreement. I say so for the following reasons: Firstly, the agreement entered into between the plaintiff and first defendant is styled ‘Association Agreement’. It is further recorded that ‘The parties have agreed to record the terms of their agreement in this association agreement.’

 

[32]      In terms of the Association Agreement certain terms and provisions of the Act (The Close Corporation Act, 1988) are incorporated and relied upon. That is evident from the following: In the Interpretation clause (2) of the association agreement, the following definitions are provided; Clause 1.2.2 ‘the Act’ means the Close Corporations Act, 1988. Clause 1. 2. 7 ‘member’ means a person designated as a member of the corporation in its founding statement, including, subject to the provisions of the Act, Woermann or a nominee. Clause 1. 2. 12 ‘Expressions defined in the Act shall have the meanings so defined.’ (My emphasis) Clause 2. 4

 

If any provision in a definition is a substantive provision imposing rights or obligations on any party notwithstanding that it is only in the definition clause, effect shall be given to it as if it were a substantive provision in the body of the agreement’. (My emphasis)

 

[33]      The agreement between plaintiff and first defendant (Annexure “A”) is an ‘association agreement’ as per the definition of the Act. The Act defines an ‘association agreement’ in relation to any corporation or the members thereof, means and (sic) association agreement which has been entered into in terms of section 44 by the members of the corporation, including any such agreement which has been altered or added to as contemplated in subsection (3) of section 49, or an agreement which has replaced it as contemplated in that subsection.

 

[34]      The Act defines a ‘member’ in relation to a corporation, means a person qualified for membership of a corporation in terms of section 29 and designated as a member in a founding statement of the corporation. The Act defines a ‘founding statement’ in relation to a corporation, means the founding statement of the corporation referred to in section 12 which has been registered in terms of section 13, and also any amended founding statement in respect of that corporation registered in terms of section (15) (1) or (2). (My emphasis)

 

[35]      The plaintiff admits that she is not a registered member of the third respondent. The founding statement in which her name appears and is kept in trust is not registered in terms of section13 of the Act. The act recognizes only registered members of the third respondent to enter into an association agreement. That is evident from section 44(1) of the Act. The provisions of s44 (1) are couched in the following terms. Section 44(1):

 

‘The members of a corporation having two or more members may at any time enter into a written association agreement signed by or on behalf of each member, which regulates:

(a) any matter which in terms of this Act may be set out or agreed upon in an association agreement;

            and (b) any other matter relating to the internal relationship between the members, or the members and corporation, in a manner not inconsistent with the provisions of this act.’

 

The purported association agreement between the plaintiff and first defendant is inconsistent with sections 44(1), 12 and 29 the Act as it purports to regulate the relationship between a registered member and a non-registered member. Consequently, it is void and unenforceable.

 

[36]      In the light of the conclusion I reached, it is not necessary to deal with the other alternative grounds of exceptions because you cannot rectify an agreement which is void abinitio. In any event, the plaintiff is not party to the agreement sought to be rectified. The particulars of claim, therefore, do not contain the averments necessary to sustain a cause of action.

 

[37]      In Group Five Building Ltd[7] the court held that:

 

‘As far as I am aware, in cases where an exception has successfully been taken to a plaintiff’s initial pleading, whether it be a declaration or the further particulars of a combined summons, on the ground that it does not disclose a cause of action, the invariable practice of our Courts has been to order that the pleading be set aside and that the plaintiff be given leave, if so advised, to file an amended pleading within a certain period of time.’

 

I agree with the dictum expressed above, as the correct approach to be followed.

 

[38]      For all those above mentioned reasons, I make the following order:

 

Order

1.         The defendants’ exception is upheld.

2.         The plaintiff’s particulars of claim are set aside and plaintiff is given leave, if so advised, to file amended particulars of claim within fifteen (15) court days from the 20th of August 2020.

3.         The plaintiff is ordered to pay the costs of the defendants’ exception such costs to include cost of one instructing and one instructed counsel and such costs not to be limited to the capping in rule 32(11).

 

 

 

______________________

G N NDAUENDAPO

Judge

 

 

APPEARANCES:

 

FOR THE PLAINTIFF:        L Karsten,

Of Louis Karsten, Legal Practitioners.

                                             Windhoek

 

FOR THE DEFENDANTS:   M Kuzeeko

Dr Weder, Kauta & Hoveka Inc.

Windhoek

                                                                       

 

 

 


[1] Smith and others v Investec Bank Ltd and Another 2018(1) SA 494 (SCA).

[2] Francis v Sharp and Others 2004 (3) SA 230 at 238D.

[3]  Minister of Industrialisation, Trade and SME Development and Others v Andima and Others 202(1) NR 292 (HC) at para 29.

[4] McKenzie v Farmer’s Co-operative Meat Industries Ltd 1922 AD 16 at 22.

[5] 1980(2) SA 814 (A).

[6] Van Straten NO and Another v Namibia Financial Institutions and Another 2016(3) NR 747(SC).

[7] Group Five Building Ltd v Government of RSA 1993 (2) SA at 593 at p 602 C.