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IN THE HIGH COURT OF SOUTH AFRICA

GAUTENG DIVISION, PRETORIA

CASE N0:69483/2012

DATE: 11/10/2017

In the matter between:

RUSTENBURG PLATINUM MINES LIMITED                                                     PLAINTIFF

and

ADRIAAN IZAK ODENDAAL                                                                          DEFENDANT

JUDGMENT

RANCHODJ:

Introduction

[1] The issues in this matter are firstly, whether the defendant should be held personally liable for the debts of a liquidated close corporation called Siza Bantu Waste Management CC (Siza Bantu), in which he held a 49% member's interest on the basis that the defendant conducted the business of Siza Bantu recklessly and/or with gross negligence and secondly, whether the defendant grossly abused the juristic personality of the close corporation by using two black persons, who held 26% and 25% member's interest respectively in Siza Bantu, merely as 'fronts' for himself.

[2] The crux of the plaintiffs case is set out in paragraph 32 of the particulars of claim -

'32      At all relevant times the defendant, as managing member and/or controlling mind of the close corporation:

32.1        caused scrap metal and other recyclables to be removed from

various mines operated by the plaintiff under circumstances where the defendant knew that the close corporation was  not able  to pay the plaintiff  for the  said  scrap  metal  and  other recyclables, and/or

32.2        caused  the  close  corporation  to  conduct  business   under insolvent   circumstances, to     the    prejudice   of    the    close corporation's creditors, and/or

32.3        caused the proceeds generated through the sale of scrap metal and other recyclables to be used to finance the running expenses  of  the  (insolvent)  close  corporation,  as  opposed  to paying the plaintiff from the proceeds of said sales, and/or

32.4        was aware of the fact that the close corporation continued to trade ·under circumstances where it was unable to pay its debts, alternatively the defendant ought reasonably have been aware of the fact that the close corporation was unable to pay its debts, and/or

32.5        caused the indebtedness of the close corporation towards the plaintiff to increase to an amount of R3 913 570.96, under circumstances where he knew, or should reasonably have been aware, that the close corporation was unable to pay amounts due to the plaintiff.'

[3] The defendant denied the allegations and pleaded that he was merely an ordinary member and therefore did not bear full knowledge of the technical or detailed day to day business activities of Siza Bantu nor of its business relationship with the plaintiff. In addition, the defendant contends that the plaintiff has failed to discharge the onus upon it to prove the quantum of its claim.

[4] As will become apparent later, Siza Bantu was established as a Black Economic Empowerment (BEE) vehicle to economically empower members of the local community within the area in which the plaintiff conducted its mining operations.

[5] The plaintiff's allegations of reckless and gross negligence are based on s64 of the Close Corporations Act No. 69 of 1984 (the Act) and that of abuse of the juristic personality on s65 of the Act[1].

[6] The plaintiff is a member of the Anglo American pie group. The plaintiff was represented by Anglo American EMEA Shared services (Pty) Ltd in its dealings with third parties, in this case with Siza Bantu. The defendant pleaded that an agreement was entered into between Siza Bantu and 'APMS (Pty) Ltd'. However, it is clear from the first agreement that it was not APMS (Pty) Ltd but the plaintiff which was one of the three contracting parties.

Background facts

[7] On 30 September 2009 a tripartite agreement (the first agreement) was concluded between the plaintiff, the unincorporated joint venture between the plaintiff  and  Lexshell  36  General  Trading  (Pty)  Ltd  and  Siza     Bantu[2]

(represented by the defendant) in terms of which the latter would render waste removal services to the plaintiff for which it would be remunerated in accordance with the rates specified in annexure "B1" to the first agreement. Siza Bantu would also purchase scrap metal and other recyclable materials from the plaintiff from time to time for which it would pay the plaintiff according to prices set out in annexure "82" to the first agreement. These aspects are common cause or not in dispute.

[8] It is also common cause that, two years la er, in September 2011, the parties concluded a further written agreement (the second agreement) "novating the first agreement ill relation to the services rendered by Siza Bantu to the plaintiff''. However, the purchase and removal by Siza Bantu of scrap metal and other recyclables from the plaintiff would still be governed by the terms of the first agreement.

[9] The second agreement provided, inter alia, that the plaintiff could, at any time, set off any amount due by it to Siza Bantu against amounts owing by the latter to the plaintiff.

[10] In response to a demand[3] by plaintiff for payment of R3 100 000.00 for scrap metal and other recyclable materials Siza Bantu had purchased as from September 2011  the latter responded,[4] inter alia, as follows:

"The money created by the scrap sales was used to pay the salaries and running expenses to do the waste management on the mines. This is a company with no assets.

Attached please find the company financial statement Annexure C.

In view of the discussions with Mr Risinga Mahlehlo from Anglo Simela our company Siza Bantu can pay an amount of R70 000.00 (Seventeen Thousand Rand) per month. "

(The amount in numerals 'R70 000.00' differs from the amount in words 'Seventeen Thousand Rands' but nothing turned on this during the trial as it seems to have been accepted by the parties that the amount in numerals is the correct figure.) In the letter Siza Bantu admits that 'an amount' was due to the plaintiff without specifying what, in its view, is the correct amount.

[11] Plaintiff says the debt increased to R3 913 570.96 by 22 June 2012 while it owed Siza Bantu R2 524 815.96 for services rendered. The plaintiff applied set off with the result that Siza Bantu remained indebted to it for the balance of R1 388 755.00.

[12] On 10 September 2012 the plaintiff applied for and obtained a final winding up order against Siza Bantu. The application was not opposed by any of the members of Siza Bantu.

[13] Siza Bantu apparently has no assets and the plaintiff now seeks to hold the defendant liable for the debt of Siza Bantu in terms of sections 64 and 65 of the Act.

The evidence for the plaintiff

[14] Mr Thabiso Monama and Mr John Nkolobe testified for the plaintiff.

[15] Mr Monama's evidence, in  essence,  was  that  he  was  employed  by plaintiff from 2010 to 2015. He was the author of the letter of demand dated 4 May 2012 and that Siza Bantu's representatives, specifically Mr Mathes Odendaal, admitted liability and never disputed the plaintiff's claim.

[16] Mr Monama also testified that the claim amount is made up by adding the totals of the two accounts statements of R913 008.16 and R475  747.03

totalling R1 388 755.19.

[17] He further testified that the first agreement was signed on behalf of Siza Bantu by the defendant, Mr Nkolobe and Ms Molefe. The second agreement was signed by the defendant only, in his capacity as the managing member of Siza Bantu. The defendant's denial that he was the managing member flies in the face of the capacity in which he signed the second agreement.

[18] Mr Manama explained that the whole purpose for creating Siza Bantu was to comply with the laws relating to economic transformation and the enhancement of the local community where the plaintiff conducted its mining operations. Plaintiff was no longer prepared to deal with Bottlebeurs, which had until then rendered the relevant services to it, because defendant was its sole member.

[19] Mr Manama testified that Mr Mathes Odendaal had informed him  that Siza Bantu was expecting a capital injection from Anglo Zemela, which had been established  by the Anglo1American Corporation  to transform  small to medium enterprises, but it did not materialise.

[20] Mr Manama repeated that Mr Mathes Odendaal did not dispute the amount owing to the plaintiff.

[21] Mr Manama explained that the plaintiff had no contact with the other  two members of Siza Bantu, i.e. Mr Nkolobe and Ms Molefe, prior to the last meeting between Siza Bantu and the plaintiffs management when Mr Mathes Odendaal was also present. The plaintiff raised the issue of monies owing by Siza Bantu to it while Siza Bantu wanted an increase in the rates for services it rendered to plaintiff. Plaintiff&' representatives could not understand why it wanted a price increase when it should have been realising, at market related prices, a profit margin of above 50%.

[22] Mr Manama testified that Siza Bantu 'on sold'  the scrap  metal and  other recyclable materials it purchased from the plaintiff to foundries and other entities. The proceeds of the sales should have accrued to Siza Bantu. If the funds were diverted elsewhere, it would amount to fraud because Siza Bantu was the contractor who should pay plaintiff from the proceeds.

[23] Of importance is that he said Mr Nkolobe and Ms Molefe told him at the meeting that they knew nothing of the figures that Mr Mathes Odendaal presented during the discussions. All that the latter had told them was that Siza Bantu was not making money. That is when plaintiff's representatives realised that this was a case of 'fronting,' i.e. the black members of Siza Bantu were merely being used to create the impression they were deriving benefits from it and had a say in its running when in fact it was not so.

[24] Mr Manama said the letter dated 4 May 2012 was sent after the meeting was held. Paragraph 2 of Siza Bantu's letter in reply dated 19 May 2012 did not make sense as it was selling onwards at a profit. Paragraph 2 reads-

'The reason this [an amount outstanding to plaintiff] is because of the delay in the contract and the price increases that's not allowed to Siza Bantu Waste Management.'

The statement 'the delay in the contract' is an apparent reference to one of the defendant's contentions that there was a delay in the implementation of the contract relating to removal and purchase of scrap metal and other recyclables from Amandabult Mine which resulted in a reduced turnover for Siza Bantu and consequently lesser profits.

[25] In Mr Manama's opinion the financial statement attached to the letter of 19 May 2012 was fictitious. He referred as an example to payments to 'subkontrakteur's(subcontactors) which did not make sense and it seemed it was a reference to Bottlebeurs.  He said clause 37 of the first agreement and clause G.C.17 of the second agreement both provide that Siza Bantu must obtain the prior written consent of the plaintiff before it could subcontract the work. Siza Bantu did not obtain the requisite consent.

[26] In his view the costs for 'huur voertuie' (hired vehicles) were excessive because Siza Bantu was operating from nearby the plaintiff's mines where the scrap removals were taking place. He found it odd that no expenses are shown for the year 2011 for 'motoruitgawes' (motor disbursements) yet an amount of about R2.7 million is reflected for 2012. He concluded that the financial statement was not a true reflection of Siza Bantu's financial affairs. He could not understand why 'salarisse and lone' (salaries and wages) escalated drastically in 2012 compared to the previous year.

[27] Under cross-examination Mr Manama testified that when Siza Bantu wanted a rates increase it failed to provide a costs breakdown as it was obliged to do in terms of the two agreements. It was put to him that Siza Bantu had requested an increase in rates when the diesel price increased but did not get it. The witness responded that when the diesel price dropped Siza Bantu got the advantage of the reduced price but, he reiterated, Siza Bantu had failed to provide the costs breakdown.

[28] The thrust of the cross-examination was that Siza Bantu ran into

financial difficulties, firstly because it did not get the rates increase it had repeatedly asked for and secondly that it was also due   to the delay in the implementation of the Amandabult contract in full.

[29] It was put to the witness that the payments by Siza Bantu to Bottlebeurs were not unusual also because the former purchased scrap metal from the latter. The witness responded that this appears to be nonsensical as Siza Bantu would buy from the plaintiff and sell it to a foundry whereas if it bought from Bottlebeurs it would be at a higher price. Why buy at a higher price from Bottlebeurs if Siza Bantu was not making a profit.

[30] Mr Nkolobe testified in evidence-in-chief that he had previously been employed by Mr Mathes Odendaal from 1968 and thereafter from 2002 by the defendant, collecting scrap metal for them. In 2009 he was told by defendant of a BEE opportunity and Siza Bantu was formed. He has known Ms Molefe since 2002 when she was employed by Bottlebeurs as a weighbridge operator. He said he, together with the defendant and Ms Molefe became members of Siza Bantu and confirmed their respective member's interest as being 26%, 49% and 25% respectively. Siza Bantu operated from the same premises as Bottlebeurs. Mr Nkolobe said he was informed by defendant that the business of Siza Bantu v.ould be to obtain scrap metal from mining companies from time to time. The business commenced in 2009.

[31] Mr Nkolobe said he signed the first agreement because he was told to sign it but he was not told what it was about. All that the defendant and his father, Mr Mathes Odendaal, told him was that Siza Bantu will be doing scrap metal business. He denied knowledge of the second agreement (which had been signed only by the defendant on behalf of Siza Bantu) before it was shown to him by plaintiffs legal representatives when legal action was being taken against the defendant.

[32] Mr Nkolobe testied further that his duty was to ensure that scrap metal

was loaded onto trucks. Ms Molefe attended to weighing of the scrap. He said he did not control Siza Bantu. He confirmed the arrangements regarding the signing of cheques by the members of Siza Bantu which, as I said, is common cause. But the witness explained that both he and Ms Molefe would sign 10 blank cheques at a time in advance and the defendant would countersign them later. He did not know what the cheques were issued for. Sometimes, defendant's father (Mr Mathes Odendaal) would show him an account statement he prepared -  not a bank statement.  He and Ms  Molefe were told by Mr Mathes Odendaal of payments made but were not told of the income of Siza Bantu.

[33] Mr Nkolobe said he did not even know what defendant's salary was. From time to time he was told to sign letters without being allowed to read them. He attended meetings with Mr Mathes Odendaal with representatives of the plaintiff. He was told the meetings were for 'this and that'. He and Ms Molefe received a salary of about R10 600.00 each whereas defendant's cousin Etienne Mathee received almost R16 000.00 as a supervisor. He said he did not know who a certajn AJ Labuschagne was to whom monthly payments of about R15 000.00 were made. It was the defendant who would make decisionson payments to be made and it was defendant who would make the payments. A Tanya Mathee, a family member of the defendant helped the defendant.   He had no knowledge of the approximately  R500 000.00 paid by Siza Bantu to Bottlebeurs over a period of time. He did not know what Siza Bantu's bank account number was. He did not know exactly to whom the scrap metal bought from the plaintiff was disposed of except that he was to load it onto trucks and that it was going to the foundries. He had no knowledge of the profits of Siza Bantu. He did not even have an office at Siza Bantu - only an open place to work from. He said the defendant used 'us blacks' as window dressing for his own advantage.

[34] In about May or June 2 12 he accompanied Mr Mathes Odendaal to a meeting with the plaintiff's representatives as they wanted to know when the debt of about R3.1 million owing by Siza Bantu to plaintiff would be paid. Mathes Odendaal did most of the talking and did not discuss anything with him.

[35] Mr Nkolobe repeated under cross-examination that he did sign the first agreement but did not know what it was about. He was merely told to sign it. He did not know who the 'Grobler' is who signed the agreement on behalf of the plaintiff. Defendant and his father told him that Siza Bantu was engaged in scrap metal business.

[36] He had also never previously seen the letter of demand by plaintiff dated 4 May 2012. He did sign the reply dated 10 May 2012 but was only verbally informed by Tanja Mathee and Mathes Odendaal that it was about the amount owing to plaintiff. He would simply sign letters of Siza Bantu and was convinced that defendant wrote the letters. He knew nothing of the expenses listed in the financial statements.

[37] Mr Nkolobe said he did not know of the 'ledevergoeding' (members' compensation or reimbursement) of R219 293.00 nor did he, as a member, receive any. He only received his monthly wages of about R10 500.00. He had no idea what salary Mr Mathes Odendaal and the defendant were paid by Siza Bantu.

[38] He denied that Siza Bantu had any sub-contractors nor did he sign any sub-contracts on its behalf. As far as he was concerned it was the defendant who was controlling Siza Bantu.

[39] Under further cross-examination Mr Nkolobe said his position at Siza Bantu was no more than that of a labourer and that he knew nothing of its financial side nor did he know who its accounting officer was. The defendant was not at the premises of Siza Bantu most of the time and had left his father (Mr Mathes Odendaal) in charge.

[40] There is the one instance where it was put to Mr Nkolobe that after receiving the letter of demand dated 4 May 2012 Mr Mathes Odendaal first had a meeting  with  him,  Ms Molefe,  Dan  Mathee and  others and only thereafter prepared the reply.  He said he could not recall the meeting   and when the question was repeated, simply did not answer.

The evidence for the defendant and the common cause facts

[41] Although defendant denies any detailed knowledge of the day to day running of Siza Bantu he pleaded -

'21.  The defendant further pleads that following the said conclusion of the agreements pleaded by the plaintiff and the subsequent delivery of services by the close corporation the close corporation as managed by other members and/or employees that the defendant himself inter alia:

21.1   Acted on the promise of funds made available by Anglo Simela

to the close corporation in the form of a loan in order to limit expenses (but was none forthcoming (sic));

21.2.1 Acted on the promise and understanding with Anglo Simela and the plaintiff that a combined contract with Amandabult Mine and Union Mine and not only Union Mine would ensure profitability for the close corporation (the combined contract was only fully effective in January 2012 after it only partially commenced in November 2011);

21.2.2  Had soaring expenses due to the plaintiff's unreasonable waste of time before finalising and entering into the combined contract as described whereas the close corporation was made to understand that same would be effected within a short period of time after the commencement of the first agreement in 2009;

21.3.1 Made several requests regarding amendment in the prices on scrap metal and other products as well as increases in payment for services due to the fluctuation in certain expenses due to external reasons (it was a condition of the agreements between the parties that amendments in prices and payments for services would be effected after requests made by the close corporation);

21.3.3 Specifically made inter alia (and as far as the defendant is liable to determine given that he was at no stage the managing member or controlling mind of the close corporation) on the following dates written requests for increases in prices and payments alternatively informed the plaintiff of the financial loss for the corporation caused by the plaintiff's reluctance to correctly comply with the agreements between the parties in the further alternative informed the plaintiff of the financial situation of the close corporation in the further alternative corresponded with the plaintiff regarding the services provided by the defendant to the plaintiff in relation to the financial position of the close corporation . . . .'

[42] This, in my view, indicates that the defendant had access to the documents and had knowledge of the affairs of Siza Bantu to a considerable extent even though he denies it.

[43] The defendant also said that it was the failure to adjust the rates upwards for the services Siza Bantu rendered to plaintiff as well as the increase in the cost of diesel that caused it to lose profitability and ultimately led to its insolvency whereas the payments by Siza Bantu to Bottlebeurs were normal costs for rental, leasing, maintenance and other expenses. Further, that it was the plaintiff that caused the financial problems of Siza Bantu  and not any reckless or negligent management of the close corporation. But, on the other hand, he disavows knowledge of the management of Siza Bantu.

[44] In a request for further particulars for trial the plaintiff asked the defendant to name the members of Siza Bantu who were responsible for its day to day operation. The defendant replied that it was Mr Nkolobe. Asked to name the employees of Siza Bantu who were responsible for its day to day operation the defendant replied it was Mr Mathes Odendaal. It is apparent from the evidence, especially of the plaintiff's witnesses, that de facto, the day to day operations of Siza Bantulwere run by Mr Mathes Odendaal (the father of the defendant.) Mathes Odendaal was, no doubt, placed at Siza Bantu to represent the interests of the defendant and to, inter alia, implement and give effect to the mechanisms created to channel funds from the close corporation to Goudveld Bottelbeurs en Afvalmetaal Handelaar CC ("Bottelbeurs") of which the defendant was the sole member.

[45] It became evident that because the defendant alleged that he had limited involvement in the dealings of Siza Bantu, his evidence-in-chief was limited and he presented a vague and general version.

[46] The defendant did not provide detailed evidence-in-chief in respect of a

number of relevant issues, inter alia, the role of Mathes Odendaal, contracts between Siza Bantu and Bottelbeurs, decisions regarding payments to, inter alia, Bottelbeurs and so on. These aspects required clarification. Supposedly, "contracts" were concluded by Siza Bantu with an entity (Bottelbeurs) of which he is the sole membe.r Substantial sums of money flowed from the former to the latter in circumstances were Siza Bantu was running at a substantial loss.

[47] The  defendant  was  not a good  witness and he,  specifically,   had difficulties explaining a number of aspects when challenged under cross examination. He could not satisfactorily explain the expenses listed in   the management statement[5]. He could, specifically, not explain why, exactly, the amount of R2 700 000.00 was introduced for so-called motor vehicle expenses and how it was made up, especially the diesel expenses and maintenance of Bottelbeurs' trucks.

[48] The defendant also could not explain why his signature was required on all cheques, despite the fact that he held only 49 percent of the members' interest in Siza Bantu.

[49] Significantly, the defendant denied that John Nkolobe and Naomi Molefe signed blank cheques in advance and that he, later, countersigned said cheques.   When it was put to him that John Nkolobe's evidence in this regard was not challenged he denied this and contended that it was, in fact, challenged  (though not directly.)   He apparently  adjusted his  version after hearing the evidence of the preceding witnesses which probably explains why the version was not put to Mr Nkolobe.

[50] Mr Mathes Odendaal's evidence-in-chief (he testified for the defendant) was, mainly, aimed at justifying the expenses incurred on behalf of Siza Bantu and to endeavour to demonstrate that its financial difficulties arose as a result of the partial implementation of the Second Agreement and the unwillingness of the Plaintiff to agree to an increase in the removal rates paid to Siza Bantu.

[51] Mr Mathes Odendaal admitted that he prepared the various correspondence[6]  addressed to the Plaintiff. The letter dated 16 March 2010 was "initiated" by him.   However, the letter, like the majority of the   letters, reflects the name "R J Nkolobe" (being Mr Nkolobe) as the signatory. Under cross-examination he conceded that he, in fact, prepared the letter of 16 March 2010, not just merely initiated" it. He could not provide an explanation as to why he prepared letters and sent them out under the name of John Nkolobe. He repeatedly gave the rehearsed response that the letters were "discussed" with John Nkolobe and Naomi Molefe. In addition to the fact that this version was not put to Mr Nkolobe under cross examination, the allegation that letters were "discussed" with John Nkolobe and Naomi Molefe does not justify the fact that letters not written by Nkolobe were sent out under his name.

[52] It is clear that by putting the name of Mr Nkolobe as signatory when, in fact, the letters were prepared by him, Mr Mathes Odendaal made misrepresentations to the Plaintiff as to who the author of the letters was. It was represented to the Plaintiff that one of the black members was the author of the letters when, in fact, it was himself. This is particularly significant in the context that Siza Bantu was a "BEE entity" and John Nkolobe and Naomi Molefe together held 51 percent of the members' interest in it.

[53] Mr Nkolobe's evidence that he was not involved in the conclusion of any contracts between Siza Bantu and Bottelbeurs was not challenged under cross-examination.

[54] In his evidence-in-chief Mathes Odendaal testified in vague terms as to "arrangement"s etc.  in respect  of  the vehicles. Under   cross-examination, when asked about the- contracts, he testified in vague and general terms that the contracts were "discussed" with John Nkolobe and Naomi Molefe and that they orally agreed to the terms. The Defendant testified on these aspects in the same vague manner. This version was not put to Mr Nkolobe under cross-examination. Mathes Odendaal could, further, not provide any detail in respect of any of the alleged contracts. He could also not satisfactorily explain how the expenses paid to, specifically, Botteleurs were made up. This is curious, if one considers the Qetailed knowledge he professed to have in respect of Siza Bantu's finances. It is also evident from the letters prepared by Mathes Odendaal that he had intimate knowledge of the financial position of Siza Bantu and, he testified that he kept the Defendant informed of it.

[55] According to Mr Mathes Odendaal the financial decisions relating to Siza Bantu were, inter alia, made by Mr Nkolobe, who authorised and instructed that payments be effected. This evidence was challenged under cross-examination in that the version was never put to John Nkolobe; that Mr Nkolobe testified that he never saw the bank statements of Siza Bantu and neither was this challenged. It is highly improbable that Nkolobe would have instructed that payments be made if he had no knowledge of the creditors or whether there was money in the bank to pay creditors. Also, the Defendant always had to counter-sign cheques. Mr Nkolobe and Ms Molefe could not have effected any cheque payments themselves.

[56] It is significant that, despite his knowledge about the financial position of Siza Bantu, Mathes Odendaal's evidence was vague regarding money owing to the Plaintiff, specifically the claim amount. In evidence-in-chief he admitted that he prepared the letter of 10 May 2012, written in response to the letter of demand of 4 May 2012. When asked whether the amount of R3 100 000.00 was due as at 10 May 2012, he said "no". He, however, omitted to testify what amount was in fact, owing. This omission is significant as it is stated in the first paragraph of the letter of 10 May 2012 that 'an amount' was owing to the Plaintiff. This letter was prepared by him. Under cross­ examination he was asked about the amount that was outstanding as at 1O May 2012. He testified that he did not know, as reconciliation was required. The same answer was given regarding the claim amount due as at June 2012. However, nowhere in the extensive correspondence prepared by Mathes Odendaal is any mention made that reconciliation was required. It was also not put to the Plaintiff's witnesses under cross-examination that reconciliation was, at any time, requested. This was, specifically, not put to Mr Manama. If reconciliation was, in fact, requested this would have been put to Manama, raised in correspondence or referred to in the pleadings.

[57] It was also put to Mr Mathes Odendaal under cross-examination that he conveniently cannot put a figure to the amount that was owing to the plaintiff.    He  was  referred  to  plaintiff's  two  statements[7]  which,  together, comprise the claim amount. He was asked whether he disputed the entries on the statements. His response was that he did not have knowledge of it. He was referred to the first entry[8] being the cheque payment of R443 052.45.  It had been put to the Plaintiff's witnesses under cross-examination that this was made by Siza Bantu and accounts for one of the cheque payments that appear in Siza Bantu's bank statements. Ex·facie the pleadings and Mathes Odendaal's evidence, the Defendant has no knowledge relating to the day to today dealings of Siza Bantu. In all probability it was only Mathes Odendaal that could have given the payment instruction. But he, however, denied that he gave the instruction and stated that it can be "inferred" from the bank statement that the cheque in question is the one reflected on paginated page 236 of trial bundle 1. This is not what was put to the plaintiff's witnesses. Mathes Odendaal was, clearly, not truthful in this regard.  It is evident that he has knowledge of the items listed in the statements and that he gave instructions to the Defendant's legal representatives in this regard. He intentionally avoided the issue in order not to concede the inevitable, namely that the Plaintiff's quantum is as claimed. When asked to do so under cross-examination he could not point to any items on the statements that were specifically disputed. He made the vague allegation that there were payments made that are not reflected in the statements. He could, however, not point to any such payments and no payments were identified under re-examination.

[58] Mr Mathes Odendaal was not a good witness. He was evasive in his answers to questions put to him under cross-examination and testified to versions not put to the plaintiffs witnesses.

[59] In his heads of argument plaintiffs counsel set out the common cause facts as well as a summary of the evidence given by the witnesses. Defendant's counsel did not take issue with either of them. Defendant's counsel also did not take issue with the submission made by the plaintiffs counsel regarding the quality of the evidence of the defendant's witnesses or their  credibility.    It  accordingly  appears  that  these  facts  are  conceded  by defendant.

[60] The agreements relied on by the plaintiff as well as their terms are not disputed and are common cause. Siza Bantu was established as a Black Economic Empowerment (BEE) vehicle and it was a requirement that its black members had to own the controlling members' interest in it. Ms Naomi Molefe and Mr John Nkolobe held 26% and 25% members' interest in Siza   Bantu respectively while the defendant held 49%.

[61] Strictu sensu the defendant could not have taken any decisions relating to Siza Bantu without Mr Nkolobe and Ms Molefe (or at least one of them) agreeing thereto. This includes, inter alia, the appointment of employees and consultants and the conclusion of contracts.

[62] Although the letter dated 10 May 2012 is signed by Mr Nkolobe, Ms Molefe and one E.D. Mathee, it is common cause that the author of the letter was Mr Mathes Odendaal. Also, all letters sent to the plaintiff on behalf of Siza Bantu were prepared by Mathes Odendaal despite the fact that the majority of the letters reflected the signatory as being Mr Nkolobe. The impression created was that one of the black members of Siza Bantu prepared those letters when it was not, in fact, the case.

[63] In the same letter Siza Bantu admits owing 'an amount' to the plaintiff but none of the defendant's witnesses testified as to what the amount was at 10 May 2012 or as at June 2012. Instead, it placed on record in the letter that it utilised the money generated through the sale of the scrap metal and other recyclable materials to finance its running expenses. Siza Bantu also admitted that it was unable to pay the amounts due to the plaintiff because of cash flow constraints  and  that it is in a  position  to  pay  only  R70 000.00 per month

towards the indebtedness. It also stated that it had no assets. In none of the letters sent to the plaintiff on behalf of Siza Bantu is the claim amount disputed, nor is it alleged that a lesser amount is due to the plaintiff. In his plea the defendant does not pertinently deny the amount claimed. He merely says it is 'noted'.

[64] It is common cause that the signatories to Siza Bantu's cheque account were the defendant, Mr Nkolobe and Ms Molefe. The co-signatory to either Nkolobe's or Molefe's signature in all instances had to be the defendant.  In other words, although Nkolobe and Molefe held the   majority members' interest in Siza Bantu they could not issue any cheques without the defendant's signature.  The latter effectively controlled all cheque payments.

[65] The income statement for Siza Bantu for the financial year end 28 February 2012 reflects substantial expenses for, inter alia, rent, leasing of motor vehicles, motor vehicle expenses, salaries and sub-contractors. Siza Bantu paid R122 807.00 rent to Bottlebeurs for 2012 but no rental expense is reflected for 2011 nor is there any written lease agreement between the parties. While truck leasing expenses are reflected for both 2011 (R1 939,040.00)  and  2012  (R2 318 468.00)  financial  years,  no motor vehicle

expenses are reflected for 2011 whereas R2 708 924.00 are shown for 2012. Effectively, ex facie the income statement approximately RS 000 000.00 flowed from Siza Bantu to Bottlebeurs in the 2012 financial year. It is common cause, in fact, defendant testified as much, that no written contracts were concluded between Siza Bantu and Bottlebeurs nor any source documents produced by the defendant for these expenses and sales.

[66] I have no reason to reject Mr Nkolobe's evidence that he was not involved in the management of1 Siza Bantu. He was a credible witness and withstood lengthy cross-examination. The contention that John Nkolobe, as member, attended to the management of Siza Bantu is, on the probabilities, rejected. According to his evidence, which I accept, he is a labourer who has no management or financial experience.

[67] Bottelbeurs benefitted from contracts concluded with Siza Bantu and the Defendant was the only member of the latter who controlled the flow of money from it to, inter alia, Bottelbeurs and benefitted financially from "agreements" between Siza Bantu and Bottelbeurs.

Applicable legal principles including those regarding personal liability

[68] It is evident that no bona fide dispute  subsists  in respect  of the  Plaintiff s claim amount.

[69] The burden of proof on any particular issue is a matter of substantive law and is determined by the pleadings. This is fixed at the commencement of the trial and must be distinguished from the purely evidential burden of combatting the opponent's evidence. As soon as the evidence casts on a litigant the risk of failure the burden arises and this may shift in the course of the trial as the risk shifts from the one party to the other[9]

[70] It is improbable. that, despite what he professes, the defendant has no knowledge of the amount owing to the Plaintiff. It is also evident that the defendant was kept informed of the financial position of Siza Bantu by Mathes Odendaal. In my view it is clear Mathes Odendaal represented the interests of the defendant in the management of the affairs of Siza Bantu to the exclusion of John Nkolobe and Naomi Molefe.

[71] If a party who has peculiar knowledge of a fact fails to adduce evidence in this regard, in other words to transmit his or her knowledge to the court, the inference which is the least favourable to the party's case may be drawn from the proven facts[10]

[72] The Plaintiff relies on the provisions of section 64 to establish personal liability on the part of the defendant for the money owing to the plaintiff by Siza Bantu and section 65 of the Act for gross abuse of the corporate personality.

[73] The purpose of Section 64 of the Act is to protect creditors against instances where the business of a close corporation is carried on recklessly, with gross negligence or with intent to defraud any person or for any fraudulent purpose. If the business of a close corporation is carried on in this manner every person who is knowingly a party to it shall be guilty of an offence[11] .

[74] In casu, Siza Bantu was represented as being a BEE entity, with the majority members' interest held by the black members. The Plaintiff contracted with Siza Bantu on this basis. It is, however, clear, that the black members had no control (or in fact any say) in the day to day operations of Siza Bantu.

[75] The only member of Siza Bantu that had any say in the business was the defendant. Despite the fad that the day to day business of Siza Bantu was attended to by Mathes Odendaal, the latter could only have been appointed as such by the defendant. Mathes Odendaal was not appointed by John Nkolobe and N omi Molefe. The only member of Siza Bantu who could have instructed any employee or 'consultant' on how to deal with the funds of Siza Bantu is the defendant. All cheques had to be signed by the defendant and substantial amounts of money were paid by Siza Bantu to Bottelbeurs, of which the defendant is the sole member. It is clear from the evidence that the only member of Siza Bantu that could have 'agreed' to the 'arrangements' with Bottelbeurs is the Defendant.

[76] Mr Nkolobe's evidence was not challenged in respect of the level of his involvement in the business of Siza Bantu.  He did not even have access to the bank account of Siza Bantu. Hence, the defendant's allegation in the plea, as read with his reply to the plaintiffs request for further particulars that it was Mr Nkolobe who was responsible for the day to day operation of Siza Bantu falls to be rejected and is, in fact disingenuous.

[77] The management of close corporations is provided for in s46 of  the

Act[12]. I accept Mr Nkolobe's evidence that neither he nor Ms Molefe had any

say in the day to day running of the business. There is no evidence that any association agreement was concluded between the members as provided for in the Act.

[78] Section 46(b) further provides that unless the Act    or an association

agreement provides otherwise all members of a close corporation have equal rights in regard to the management of its business and s46(c) stipulates that differences   between   members' as  to  matters   connected   with  a   close corporation's business should be decided by majority vote. In casu, it appears that the only member who made any decisions in respect of the business of Siza Bantu was the defendant. Mathes Odendaal was not a member and must have been appointed by a member, and acted as instructed by the member, in this case by the defendant.

[79] Insofar as it was represented that Siza Bantu was a BEE close corporation, this, in the light of the evidence, constituted a fraudulent misrepresentation. It was, no doubt, set up for a fraudulent purpose. This is, inter alia, underscored by the fact that Mathes Odendaal sent correspondence to the plaintiff under the name of John Nkolobe, the very person who the defendant alleges controlled the day to day business of Siza Bantu.

[80] It is evident from the management statements that substantial sums of money were paid from Siza Bantu to Bottelbeurs. The defendant signed the financial statement and knew what the financial position of Siza Bantu was. It is, further, evident from the correspondence prepared under the hand of Mathes Odendaal that Siza Bantu could not meet its obligations for a substantial period of time. It is significant to note that it is conceded in the letter of 10 May 2012 that Siza Bantu was compelled to use the proceeds from the sale of the scrap metal to pay its running expenses. It seems to me that the defendant orchestrated a scenario where through 'arrangements' with Siza Bantu, the latter paid substantial sums of money to Bottelbeurs, under circumstances where the former was running at a loss and had no assets. The only entity that profited from the agreements with the Plaintiff is Bottelbeurs of which, as I said, the defendant is the sole member. The black members did not receive any benefits from the agreements (except their monthly wages).

[81] The intention of s64 of the Act is to protect creditors against the prejudice they may suffer as a result of the business of a corporation being carried on in the manner contemplated in the section[13].

[82] As far as s65 of the Act is concerned, the intention is to empower the court to make the envisaged declaration if it finds that either, in the first case, the incorporation of the corporation or, in the second case, conduct by it or on its behalf or the use of the close corporation constitutes abuse. In relation to the first case, the intention clearly seems to be that the court should focus on the motive or purpose for which the corporation was formed.

[83] It is clear that Siza Bantu was never intended to function genuinely as a close corporation hence there is abuse of the corporate personality. The use of Mr Nkolobe and Ms Molefe as the holders, together, of a majority members' interest in Siza Bantu was nothing other than what is known as 'fronting'. This is in the form of the introduction of a spurious scheme that purports to introduce black shareholders (sometimes a domestic worker or a gardener or labourer) without assigning any benefits to them. It is a means to circumvent the intention of the Broad-Based Black Economic Empowerment Act1  [14].

[84] The powers under s65 of the Act are wider than those under s64(1), in that it applies to the act of incorporation of an entity as well as to the conduct of the business operations of the corporation.

[85] The contracts were awarded to Siza Bantu as a BEE entity, but the only entity that ultimately benefitted was Bottelbeurs, leaving the former as an empty shell with all the debt.

[86] I make the following order:

1.           Siza Bantu CC (in liquidation) is in respect Waste Management of the obligations towards the plaintiff not to be regarded as a close corporation, but as a venture of the defendant personally; and

1.1      The defendant is declared to be personally liable to the plaintiff for payment of the amount of R1 388 755.00;

2.           Judgment is granted in favour of the plaintiff for R1 388 755.00;

3.           Interest at the rate of 15.5% per annum a tempore morae to date of payment;

4.           Costs of suit.

____________________

RANCHOD J

JUDGE OF THE HIGH COURT

Appearances:

Counsel on behalf of Plaintiff                       : Adv. D Prinsloo

Instructed by                                               : Hogan Lovells Inc.

Counsel on behalf of Defendant                  : Adv J.H Wildenboer

Instructed by                                                : SJ Roux Incorporated

Date heard                                                  : 14 February 2017

Date delivered                                             :  11 October 2017

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