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IN THE SOUTH GAUTENG HIGH COURT OF SOUTH AFRICA

JOHANNESBURG

CASE NO: 29927/2007

DATE: 2008-04-17

REPORTABLE

(In the electronic reports only)

In the matter between

ZUREL, BRYAN MARK …..................................................First Applicant

NEUHAUS, PHILIPPE..................................................Second Applicant

and

SIKIA DIAMONDS (PTY) LIMITED................................First Respondent

DANISA EILEEN BALOYI …....................................Second Respondent

J U D G M E N T

WILLIS; J:

[1] The main application with which this matter is concerned seeks an order cancelling a sale of share agreement concluded between the parties on 28 November 2006 – and directing the respondents to transfer to each of the first and second applicants 130 fully paid up shares in Zurel Bros (Pty) Limited (‘Zurel Brothers’) and to sign all the documents necessary in respect of this court’s order. There is further ancillary relief sought relating to what should be done in the event that there is a failure to transfer the shares and sign all necessary documentation to give effect thereto. There is also an application for costs. Banisa Eileen Baloyi (‘Baloyi’) now brings an application for leave to intervene in the main application as the second respondent therein and that she be permitted to file deliver an answering affidavit resisting the relief sought in the main application. That application is opposed by the applicants in the main application.

[2] It is apparent from the above that a sale of share agreement was concluded between Bryan Zurel, (‘Zurel’) the first applicant in the main application and Phillippe Neuhaus, (‘Neuhaus’), the second applicant in the main application, on 28 November 2008. In terms of this agreement, Zurel and Neuhaus each sold to Sikia Diamonds (Pty) Limited (‘Sikia’), the first respondent in the main application, 140 ordinary fully paid up shares in Zurel Bros (Pty) Limited.) 50% of the shareholding Sikia is owned by Baloyi. The remaining 50% is owned by Kaylene Levack (‘Levack’), the third respondent in the application for leave to intervene.

[3] Until recently the directors of Sikia were Baloyi and Zurel. Baloyi has, in the meantime, resigned as a director of Sikia. Levack is currently the sole director of Sikia. In the main application, to which I have referred, Levack on behalf of Sikia had not opposed the relief sought. Baloyi alleges that the main application is a fraudulent scheme by Zurel and Levack to misappropriate Baloyi’s indirect interest in Zurel Brothers. (Sikia owned 260 of the fully paid up issued shares in the Zurel Brothers and Baloyi had 50% of the shareholding of Sikia).

[4] Not only has Baloyi made the allegation of a fraud having been perpetrated by Levack (acting in concert with Zurel and Neuhaus), but Mr Kaplan, who appears for Baloy,i has alluded to the following which, he submits, supports the fact that there may have been a fraud:

1. Levack did not confirm the contents of the answering affidavit in application for leave to intervene.

2. The applicants do not disclose when Levack allegedly “elected not to perform any further services or work for the Respondent” and whether such alleged election was made orally or in writing.

3. The applicants do not disclose when Levack’s service agreement was allegedly cancelled and whether it was cancelled orally or in writing.

4. An article which appeared in the Saturday Star on 15 December 2007 which would suggest that Sikia was a thriving business doing very well.

5. The affidavit of the Saturday Star reporter, Michael Schmidt wherein he stated that Levack had invited him to the official opening of the factory and that he first ran his story past Levack before it went to publication.

6. The statement by Khumo Mpye, Michael Judin’s professional assistant that she phoned the company on 15 January 2008 and she was advised by the receptionist, Megan Asiragadu, that Levack was Zurel Brothers’ BEE partner (Michael Judin was Baloyi’s attorney at the time).

7. Levack has not responded to a telephone call from Baloyi's financial advisor, Haroon Mahomed, and to a letter from Judin and to a telephone call from Khumo Pye Indeed, up until now she has been completely silent in the matter.

Baloyi contends that Levack has failed in her duty of being transparent and that she has something to hide.

[5] Without delving into the merits of the matter (which would be inappropriate), it seems to me obvious that Baloyi’s 50% shareholding in Sikia is worth something. If this share transaction in the main application is to proceed she will be left with nothing, pertaining to her involvement with Sikia. This to me suggests that one may smell a rat. Of course there may well be a satisfactory explanation why Zurel and Neuhaus explanation deserve to succeed in the relief which they have sought in the main application. It may be that Sikia is a shelf company, a useless, worthless entity, having no value whatsoever.

[6] Nevertheless, Mr Kaplan, as I have already indicated, argues that there are a number of facts in the background which suggest that Baloyi’s complaints may have a solid foundation. Mr Kaplan relied very strongly on the following cases: Lazarus Estates Ltd v Beasley 1956 (1) QB 702 at 712 (the judgment of Denning LJ, as he then was) – United City Merchant (Investments]) Ltd & Others v Royal Bank of Canada & Others 1982 (2) All ER 720 at 725 where Lord Diplock stated that the ‘fraud exception was an application of the doctrine that ‘fraud unravels all’”, Vereins-Und Westbank AG v Veren Investments & Others 2000 (4) SA 238 (W) at 263, Loomcraft Fabrics CC v Nedbank Ltd and Another 1996 (1) SA SA 812 (A) at 817E-H.

[7] Although a cautious approach is necessary when there is an application for leave to intervener predicated upon an allegation of fraud perpetrated against the applicant for intervention (see Gates v Gates 1939 AD 150 at 155), the crux of the cases upon which he relied is that the courts will not countenance their process to be used by a dishonest person to carry out a fraud. This is precisely the situation on which Baloyi relies.

[8] Mr Joseph, who appears for the first and second respondents in this application for leave to intervene, has relied very strongly on the well- known case of Francis George Family Trust v South African Reserve Bank [1992] ZASCA 50; 1992 (3) SA 91 (A) AB as well as Foss v Harbottle [1843] EngR 478; (1843) 67 ER 189, which judgment was referred to by Blieden J in Letseng Diamonds Limited v JCI Limited and Others 2007 (5) SA 564 (W).

[9] Mr Joseph also relied on the proposition that person cannot, as a general rule, bring an action against another] to recover damages on behalf of a third person. The third person is the proper plaintiff because that said person is the person injured. This was confirmed by Blieden J in the Letseng Diamonds case. Blieden J referred to Foss v Harbottle.

[10] Mr Joseph relied powerfully upon the following which was said by Hoexter JA in the Hill Family Trust case (at 102F):

"The critical question in the present case is whether the attachment by the Reserve Bank of the assets of Fenix represents an invasion of the legal rights of the Hill FT That question must be answered in the negative. The notion of a company as a distinct legal personality is no mere technicality: ‘It is a matter of substance; property vested in the company is not and cannot be regarded as vested in all or any of its members.’”

[12] Mr Joseph submitted that the critical question in this case is whether the application by the applicant in the main application affected any legal right of Baloyi? He submitted that the answer must be in the negative and relied on the trite principle that ordinarily a shareholder in a company has no locus standi to intervene in transactions that have entered into by that company with others.

[13] Of course, I accept this as a generally correct proposition of law. The question in this case is, however, if a fraud was perpetrated upon Baloyi, does she have a legal right to intervene, in order to ensure that this fraud is not carried to completion? The answer to that question has to be affirmative.

[14] The principles with regard to an application to leave to intervene are simple. Of course, it is not sufficient for applicant to state that he or she had an interest in the action of the application. He or she must make such allegations as to show he or she had a prima facie case, and that his or her application is seriously made – that the allegations are not frivolous. See Elliott v Bax: In Re Bax v African Life Assurance Society 1923 WLD 228 at 231, which has been followed in numerous cases in both this division and others.. In Erasmus Superior Court Practice, in the commentary on Rule 12, the following is said –

"At the stage of an application for leave to intervene the court need not be overly concerned with the intrinsic merits of the dispute which can be fully canvassed in the main proceedings: it is sufficient for the party seeking leave to intervene to rely on allegations which, if they can be proved as a main action, will entitle him or her to succeed."

See, for example, Ex parte Moosa: In re Hassim v Harrop-Allin 1974 (4) SA 412 (T) at 416F.

[15] Baloyi has made allegations of fraud. These cannot at this stage be dismissed on any basis whatsoever. Of course, it may well be that ultimately her allegations of fraud are baseless. Nevertheless, I cannot disregard these allegations or make a determination as to their veracity at this stage. Accordingly Baloyi is entitled to intervene.

[16] In the notice of motion relating to Baloyi's application to intervene an order for costs were sought against the respondents who opposed the application. Zurel and Neuhaus have done so. Mr Kaplan, wisely, did not pursue this aspect. He conceded that the appropriate order would be that the cost of this application be reserved for determination on the main application. I agree.

[17] The notice of motion relating to the application for relief provides for an order that Baloyi is to deliver an answering affidavit to the main application within ten days of the order granting leave to intervene. This presents no problem to any of the parties if the intervention is to be allowed.

[18] Accordingly, the following orders are made:

1. An order is made in terms of Prayer 1 including 1.1 and 1.2 of the notice of motion dated 25 January 2008.

2. The cost of the application for relief to intervene are reserved for determination in the main application.

Counsel for Baloyi (the applicant in the application for leave to intervene): Adv. J L Kaplan

Attorneys for Baloyi (the applicant in the application for leave to intervene Goldman Judin Inc

Counsel for Zurel and Neuhaus (the first and second respondents in the application for leave to intervene and first and second applicants in the main application): Adv S.L. Joseph SC

Attorneys for Zurel and Neuhaus (the first and second respondents in the application for leave to intervene and first and second applicants in the main application): Mervyn Joel Smith

Date of hearing: 17^th April, 2008

Date of judgment: 17^th April, 2008

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