Crystal Ball Properties 65 (Pty) Ltd and Others v Landsmeer Home Owners’ Association NPC and Another (GP) (unreported case no 46115/21, 18-12-2023) (Collis J)I acted for the applicants in an unreported matter of Crystal Ball Properties 65, heard in the Gauteng Division of the High Court, which concerned certain relief in terms of s 163 of the Companies Act 71 of 2008 (the Act).
The applicants who were members of the first respondent, a Homeowners Association (the HOA) had, inter alia, applied for relief in terms of s 163(2)(d) of the Act in regard to a special resolution adopted by the HOA to amend its Memorandum of Incorporation (MOI) which had the effect of exempting the developer (the second respondent) from paying levies.
The applicants submitted that the act of amending the MOI had had a result that was oppressive or unfairly prejudicial to or unfairly disregarded the interests of the applicants as envisaged in s 163(1)(a) and that the MOI should be reamended to its original form.
The facts of the matter in which Collis J presided may be summarised as follows:
The HOA was a non-profit company established for the management of a township known as Landsmeer Estate. The second respondent, the developer, had traditionally (since 2004) not contributed to the payment of levies due to a misinterpretation of the relevant provisions of the MOI.
During or about August 2020, the applicants obtained legal advice to the effect that in terms of the reported decision of the full bench of the Gauteng Division of the High Court in Heritage Hill Devco (Pty) Ltd v Heritage Hill Homeowners Association 2016 (2) SA 387 (GP), the developer is indeed liable to pay levies to the HOA.
In that matter the court held that in regard to the definition of ‘property’ in the MOI of the HOA concerned, erven in the township came into existence on the registration of the general plan in terms of s 46(1) of the Deeds Registries Act 47 of 1937, notwithstanding the fact that transfer of the individual erven may not have taken place yet.
Accordingly, as per the definition of ‘member’, the developer as owner of the erven in the township, which comprises the remaining extent was a member of the HOA and as such liable to pay levies.
In casu, the MOI contained almost identical provisions as to the definition of a ‘member’ and ‘erf in the township’. It was indeed common cause that prior to the amendment of the MOI to which I will refer to below, the developer, as member of the HOA, was obliged to pay levies to the HOA in terms of the provisions of the MOI as it read at that stage.
Having been advised that in terms of Heritage Hill the developer in casu is likewise liable to pay levies, certain owners-initiated proceedings in terms of
s 165 of the Act demanding that the HOA collect levies from the developer.
In response the HOA then convened a special general meeting and at this meeting certain amendments to the MOI were affected by the members by way of a special resolution.
The gist of the amendment and the effect thereof is in essence that the developer would be absolved from paying certain levies.
The developer together with its related company and trust enjoyed by far the majority votes and were therefor able to enforce a special resolution with their combined voting powers.
The effect of the special resolution was that, whereas the developer was obliged to pay levies to the HOA prior to the amendment, it was now absolved from paying any levies during certain period in which levies come to a total of approximately R25 million. The other members were obliged to supplement the shortfall by paying higher levies during this period.
The applicants’ case was that by enforcing their powers as majority shareholders the developer and its related entity and trust, by amending the MOI to absolve the developer from the payment of a vast sum of levies, had abused their powers as such for their own financial benefit which ultimately was to the detriment of the interests of the rest of the members.
The applicants consequently applied in terms of s 163(2)(d) for an order to regulate the company’s affairs by directing the HOA to amend its MOI on the basis that the amendment amounted to oppressive or unfairly prejudicial conduct as envisaged by that section.
The respondents’ arguments that both the applicants and respondents had accepted the fact the developer had not been paying levies until Heritage Hill came to their knowledge during 2020 was rejected by the court. The developer was obliged to pay levies and ignorance of the law was no excuse to avoid liability.
On behalf of the respondents, it was further submitted that the amendment of the MOI was not oppressive but was done simply to bring the MOI in line with what the legal position was prior to the handing down of the Heritage Hill decision which had the effect that unsold erven were ‘suddenly’ created on proclamation and the developer then became a member, liable to pay levies.
The court held that the argument that the Heritage Hill decision had the effect that the developer simply ‘mutated’ into a member of the HOA whereas it was no such member before, was untenable.
The court concluded that the court in Heritage Hill made a correct pronouncement of already existing law, such law being certain provisions of the Deeds Registries Act and applied that law (which had existed for decades), to the facts of the matter, which is namely the wording of the Articles of Association which cast an obligation on the developer to pay levies.
The court then considered the purpose of s 163 of the Act of which the forerunner was s 252 of the previous Companies Act 61 of 1973 and came to the conclusion that these sections are both aimed at achieving the same result, namely to give the court a very wide power to make any order it thinks fit, in order to curtail, restrict or limit acts or omissions by a company that are unfairly prejudicial, unjust or inequitable.
In this context it has been held that the phrase, ‘the affairs of the company are being conducted’ is wide enough to cover conduct by anyone who is taking part in the conduct of the affairs of the company and would include the conduct of the developer in general meeting.
The court held that the test for the application of provisions such as s 163 of the Act is essentially one of fairness and a member will be entitled to relief where a group of shareholders use their greater voting power unfairly, thereby disabling others from enjoying fair participation in the affairs of the company.
The court held that in casu this is precisely what has transpired.
Section 163 provides the court with very wide and almost unrestricted powers to give appropriate relief.
The court examined certain decisions by the Supreme Court of Appeal and concluded that there is no onus on an applicant in terms of s 163 to establish ‘tyrannical conduct’. ‘Interests’ in the section has been held to be much wider than ‘rights’ and s 163 ought to be given a broad, rather than a narrow interpretation.
Furthermore, the focus should not be on the intention behind the conduct but rather on the conduct itself and the effect that such conduct will have on the other members of the company.
The court cautioned, however, that an amendment of a MOI in terms of s 163(2)(d) of the Act should only be ordered as a last resort. However, it concluded that the facts presented to the court support such relief.
Consequently, the court ordered the HOA in terms of s 163(2)(d) of the Act to regulate its affairs by directing it to amend its MOI by removing the offending clauses the effect of which were to absolve the developer from the payment of certain levies.
Leave to appeal, both in the court a quo as well as the Supreme Court of Appeal was subsequently refused.
Members’ interests may take precedence over majority decisions in instances where a group of members use their greater voting powers unfairly to disable other members from fair participation in the affairs of the company.
The court reaffirmed the decision in Heritage Hill where it was held that if the MOI defines a member as ‘the registered owner’ of an erf, the developer as the registered owner of the remaining extent comprising erven in the development not yet transferred, is also a member and as such liable to pay levies.
Most MOI’s which I have seen contain similar wording as to the definition of ‘member’ and ‘erf’. The decision could, therefore, have far reaching consequences for developers, especially where Homeowners Associations have been established many years ago and where the developer has never paid levies, such as in casu where the Homeowners Association was already established during 2004. In this regard it must be borne in mind that in terms of current case law such as the decision in Grancy Property Ltd and Another v Seena Marena Investment (Pty) Ltd and Others [2014] 3 All SA 123 (SCA) it was held that a claim for levies in the case of a Homeowners Association does not prescribe after the expiry of the normal prescription period of three years.
It will not help the developer to make use of his majority voting powers to procure the amendment of the MOI to exempt him from paying levies as the court may view the amendment as oppressive or unfairly prejudicial conduct and may order a reamendment of the MOI in terms of s 163(2)(d) of the Act.
In order to escape the liability to pay levies a developer must ensure that the MOI, on registration of the HOA, clearly and unambiguously stipulates that the developer will not be obliged to pay levies.
Ernst Serfontein BProc (Unisa) is a legal practitioner at EW Serfontein and Associates Incorporated in Pretoria.
This article was first published in De Rebus in 2024 (December) DR 48.
