Plaintiff's
Claims
The
plaintiff in this matter, Sammy's Group (Pvt) Ltd t/a Kings Auction is a
registered company carrying on the business of auctioneers at Stand 1396
Bulawayo. The plaintiff alleges, in its declaration, that it entered into a
lease agreement with the second defendant (Nuglo Investments (Pvt( Ltd) in
terms of which the second defendant let ...
Plaintiff's
Claims
The
plaintiff in this matter, Sammy's Group (Pvt) Ltd t/a Kings Auction is a
registered company carrying on the business of auctioneers at Stand 1396
Bulawayo. The plaintiff alleges, in its declaration, that it entered into a
lease agreement with the second defendant (Nuglo Investments (Pvt( Ltd) in
terms of which the second defendant let to the plaintiff certain premises known
as Stand 1396, Bulawayo Township, held by the second defendant under Deed of
Transfer number 1686/53, also known as Kings Auction Centre. The plaintiff
further alleges that sometime on or about 30th June 2006, the second
defendant, represented by one of its Directors and shareholder, the late Graham
Leonard Elston (DR810/08) in his lifetime, entered into a verbal agreement with
the plaintiff, represented by one of its Directors, Irene King, in terms of
which the second defendant granted the plaintiff, as a sitting tenant, a right
of first refusal in respect of the immovable property known as Stand 1396
Bulawayo Township, held by the second defendant under Deed of Transfer number
1686/53, should the property be put up for sale. The plaintiff contended,
further, that as consideration for the right of first refusal it was agreed
that the plaintiff would, at its own cost, undertake all necessary repairs and
maintenance of the immovable property in the second defendant's stead, and pay
instalments towards the eventual purchase of the property. The plaintiff
further averred that following the conclusion of the right of first refusal
agreement the parties got to a point where they negotiated and agreed a
purchase price of ZW$5 billion (five billion Zimbabwe dollars). Before the
parties finalised the sale transaction, the plaintiff avers that the
representative of the second defendant, the late Graham Leonard Elston,
suffered a tragedy in that his wife Elana Elston, who was the other Director
and shareholder of the second defendant, died on the 8th October
2006. The plaintiff avers that this further delayed the finalisation of
the sale transaction between the second defendant and the plaintiff in terms of
the right of first refusal. Whilst the late Graham Elston was still mourning
his wife's death, he suffered yet another mishap in that he was burnt in a fire
and was hospitalised for several months. He subsequently died on 3rd
July 2008 before the conclusion of the sale transaction pursuant to the right
of first refusal. After the death of Elana Elston and Graham Leonard
Elston, who were the two Directors and shareholders of the second defendant, the
plaintiff continued in occupation of the immovable property at Stand 1396,
Bulawayo, Township, as tenants.
The
plaintiff contends, in the declaration, that on or about 15th and 21st
April 2010, the first defendant, in his capacity as the Executor of the estates
of Elana Elston and Graham Leonard Elston, entered into a written agreement of
sale of shares in terms of which all the issued shares in the second defendant
were sold to the third defendant. The sale of shares agreement had the
effect of disposing of the immovable property known as Stand 1396, Bulawayo
Township, held by the defendant under Deed of Transfer number 1686/53, to the third
defendant, in breach of the right of first refusal granted by the second defendant
to the plaintiff, so the plaintiff argued. The plaintiff alleged that by purchasing
all the issued shares in the second defendant, the thid defendant effectively
acquired ownership of the immovable property as the said property was the sole
major asset of the second defendant. The plaintiff contended that as the
sale of shares agreement was in violation of the right of first refusal granted
by the second defendant to the plaintiff, it was invalid and of no force and
effect whatsoever and should be so declared and cancelled. It is the plaintiff's
assertion that the sale of shares agreement, which had the effect of disposing
of the sole asset of the second defendant or disposing of the entire
undertaking of the second defendant, was entered into without compliance with
the provisions of section 183 of the Companies Act [Chapter 24:03] and the sale
was therefore invalid and of no force and effect.
The
plaintiff avers, therefore, that the agreement between the second defendant and
the plaintiff, in terms of which the plaintiff was granted the right of first
refusal, is binding on both parties and prays for a declaratory order that the
plaintiff has a right of first refusal upon the disposal of the immovable
property known as Stand 1396, Bulawayo Township. The plaintiff also seeks a
declaratory order that the agreement of sale of shares of Nuglo Investments
(Pvt) Ltd entered into by the first defendant and the third defendant, on
the 1st and 21st April 2010, is in breach of the plaintiff's
right of first refusal and therefore invalid and must be cancelled. The plaintiff
prays for an order directing the second defendant to sell the immovable
property in question to the plaintiff in terms of the right of first refusal.
The basis of the Exception
The
first and second defendants filed an Exception and Special Plea in response to
the plaintiff's claims. The defendants submit that the plaintiff's claim
is bad at law and discloses no cause of action and is also contradictory, vague
and embarrassing. They argue that the plaintiff, in its declaration, as
amplified by the Further Particulars, admits that what was sold to the third defendant
by the first defendant were shares in the second defendant. It follows, so
the defendants argue, that since the property is owned by the second defendant,
and has been so owned since 1953, upon the death of Graham Leonard Elston and
Elana Elston, the property remained in the name of the second defendant and
could not fall into either estates. The defendants argue that effectively
what could only be sold was, in fact, the shares in the second defendant.
In
not so many words, what the defendants are asserting is the principle that
shares are an incorporeal movable asset and do not amount to the equivalent of
the immovable property owned by the company being sold or disposed of.
It
seems to me that the correct legal position is that since the immovable
property remains in the name of the second defendant, it follows that the
immovable property has not been disposed of and the plaintiff's claim is
therefore bad in law and discloses no cause of action. The definition of “share”
in the Companies Act [Chapter 24:03] makes it quite clear that a share is not
immovable property. “Share” is defined in the Companies Act [Chapter
24:03] as follows:-
“Means as share in the share
capital of a company and includes stock, except where a distinction between
stock and shares is expressed or implied.”
In
both papers under case no. HC2734/10 and HC2104/10, the plaintiff alleges that
it entered into a lease agreement with the second defendant which subsequently
granted it the right of first refusal.
Herein
lies the problem.
The
lease agreement referred to was, in fact, between the plaintiff and Auction
Centre (Pvt) Ltd. At no stage did the plaintiff deal with the late Graham
Leonard Elston in his capacity as representing the second defendant. Indeed,
from the papers, it is clear that the plaintiff was not even aware of the
existence of the second defendant until after the death of Graham Leonard
Elston. It follows, therefore, that if at all Graham Leonard Elston gave a
right of first refusal, he did so either in his personal capacity or as an
officer of Auction Centre (Pvt) Ltd, in which case such right was of no force
and effect as neither Graham Leonard Elston nor Auction Centre had the mandate
to grant a right over the property which they did not own. The fact that Graham
Leonard Elston may have thought that he owned the property in his personal
capacity, or through Auction Centre (Pvt) Ltd, does not assist the plaintiff as
the court must look at the facts and the circumstances surrounding the
transaction. See Felistano Khumalo v Lizzie Mandeya and
Bulawayo City Council 2008 (2) ZLR 203 (S) where MALABA JA held
that even when the parties purported to be selling each other immovable
property when in fact they were selling each other rights in the property the
court had to look beyond that as agreeing with the parties could accord no
legal effect at all to a nullity.
The
defendants further contend that the plaintiff's claim for the right of first
refusal is vague and embarrassing and contradictory, more particularly in that
it is unclear when such right was accorded to the plaintiff.
In
any event, as a company can only act through the medium of a resolution made in
terms of the Companies Act [Chapter 24:03], the alleged right of first refusal
cannot therefore be sustainable in the absence of such resolution or
irrefutable proof that the late Graham Leonard Elston was acting on behalf of
and on the authority of the second defendant and not in his personal
capacity. There is no dispute that when the late Graham Leonard Elston
signed the lease agreement he signed it on behalf of Auction Centre (Pvt)
Ltd. The reason for this could be that he thought (mistakenly though) that
he could enter into the lease agreement in his personal capacity or on behalf
of Auction Centre (Pvt) Ltd.
As
it turned out, the property belonged to the second defendant - which was not a
party to the lease agreement.
The
defendants aver that they are embarrassed in that whilst alleging a right of
first refusal, the plaintiff, in the same breath, suggested that an agreement
was subsequently concluded with the late Graham Leonard Elston. The defendants
say they are embarrassed because on the one hand the plaintiff alleges it has a
right of first refusal, which it was never given an opportunity to exercise,
whilst in the same breath it alleges that as a result of the right of first
refusal, an agreement of sale was concluded. The plaintiff argues that the
purported agreement of sale was never finalised adding confusion to the whole
case.
I
am of the firm view that the plaintiff's submission, in paragraph 14 of its
declaration, is vague and embarrassing and bad in law as it is not correct to
say the sale of shares in the company amounted to the sale of the immovable property.
The confusion of the plaintiff alleging a right of first refusal and the
existence of contract was compounded not only by its admission that a
final agreement was not reached but by the fact that the alleged terms of
either the right of first refusal or the agreement are vague and unclear.
The
averments by the plaintiff do not therefore disclose or establish a cause of
action. See the case of Nestoros v Innscor Africa Ltd
2007 (2) ZLR 267.
Whether the Defendants have established that plaintiff's
claims are excepiable
I
am satisfied that the plaintiff's claims are vague and embarrassing and do not
disclose a cause of action for these reasons:
(1)
There is no evidence that the plaintiff and second defendant entered into a
lease agreement in respect of Stand 1396 Bulawayo Township.
(2)
There is no evidence to support the assertion that at the time Auction Centre
(Pvt) Ltd entered into a lease agreement with the plaintiff the late Graham
Leonard Elston was mandated to represent the seond defendant.
(3)
There is no legal basis for asserting that the sale of shares in the second defendant
amounted to the sale of the immovable property in dispute.
(4)
The plaintiff did not lay any solid and firm legal basis for the so-called
right of first refusal either against the second defendant or the late Graham
Leonard Elston.
(5)
The plaintiff's claims are contradictory in that on the one hand they claim
that an agreement of sale was concluded and a price was agreed for the property
and in the very same breath they aver that at the time of the late Graham
Leonard Elston's death the transaction had not been finalised.
(6)
The defects in the plaintiff's claims, as particularized in the Declaration,
cannot be cured by an amendment.
Counsel
for the plaintiff argued that even if an exception is upheld this does not mean
that automatically the plaintiff's claim should be dismissed. She
contended that as a matter of practice the plaintiff should be given leave to
amend the offending pleadings within a specified time. Counsel for the
plaintiff referred me to the cases of Adler v Elliot 1988
(2) ZLR 283 and Auridiam Zimbabwe (Pvt) Ltd vs Modus
Publications (Pvt) Ltd 1993 (2) ZLR 359.
In the
case of Adler v Elliot 1988 (2) ZLR 283…,
GUBBAY JA …, stated as follows:-
“A
claim should not be dismissed on an exception where it is possible that the
party affected may be able to allege further facts that would disclose a cause
of action.”…,.
Counsel
for the defendants argued that it is not desirable in this case to order the plaintiff
to amend their claim as it is incurably bad at law.
I
tend to agree with counsel for the defendants that the general practice of
affording the plaintiff the opportunity to amend their claims should not apply
in this case. The plaintiff's claims are not only vague and embarrassing
and contradictory. The claims are bad at law and are so incurably bad that
it would, in my view, be undesirable to grant the plaintiff the leave to amend
its declaration within a stipulated period. HERBSTEIN and VAN WINSEN in Civil
Practice of the High Courts of South Africa 5th Edition
(Vol 1)…, summarise the position as follows:-
“The aim of the exception
procedure is thus to avoid the leading of unnecessary evidence and to dispose
of a case, in whole or in part, in an expeditious and cost–effective
manner. Thus, pleadings whose contents are so vague and it is impossible
to determine the nature of the claim or the defence and pleadings which are bad
in law in that their contents do not support a discernible and legally
recognised cause of action or defence are struck out.”
In the
result, I would accordingly make the following order:
(1) The
first and second defendants' exception and special plea be and are hereby
upheld.
(2)
The plaintiff's claims are dismissed with costs.
