Badenhorst N O v Manyatta Properties Close Corporation and Others

Mr J J Badenhorst, an attorney acting as executor of the estate of Ernst Hendrik de Witt (the deceased), challenged the sale and transfer of Portion 33 of the Farm Rietfontein from Manyatta Properties Close Corporation (Manyatta) to Nikifon (Pty) Ltd. The deceased held 50 percent of Manyatta's member's interest; the other 50 percent was held by Mr Phillip de Witt. On 18 September 2014, Mr de Witt signed the deed of sale on behalf of Manyatta without obtaining the written consent of the deceased's executrix, Ms Lisa Metzer. The property was transferred to Nikifon on 24 October 2014. In March 2021, Mr Badenhorst, acting as the new executor, brought an application to set aside the sale and transfer, alleging fraud, collusion, and lack of authority. Mr Badenhorst alleged Mr de Witt, Nikifon's director Mr Richards, and the conveyancing attorneys acted fraudulently to dispose of the property below market value. The high court dismissed the application on the grounds that Mr Badenhorst lacked locus standi to pursue vindicatory relief and awarded costs de bonis propriis against him. The full court dismissed the appeal on prescription grounds but failed to address the appeal against the costs order.

• Whether the applicant had locus standi to seek vindicatory relief on behalf of Manyatta
• Whether section 50(1)(b)(i) of the Close Corporations Act provided a derivative cause of action
• Whether the sale and transfer were invalid due to lack of written consent under section 46(b)(iv) of the Close Corporations Act
• Whether section 54(2) of the Close Corporations Act protected Nikifon as a bona fide purchaser despite Mr de Witt's lack of authority
• Whether the claim was purely declaratory in nature
• Whether the claim had prescribed
• Whether the allegations of fraud were substantiated
• Whether costs de bonis propriis on an attorney and client scale were justified

1. Special leave to appeal granted only in respect of the costs orders de bonis propriis. 2. Special leave to appeal otherwise refused. 3. Costs of the special leave application to be costs in the appeal. 4. Appeal against costs orders dismissed, save for amendment to high court order. 5. The full court order set aside and substituted: the appeal dismissed with costs save for varying paragraph 2 of the high court order to read: "The applicant is ordered to pay the costs of the fourth, fifth, sixth, seventh, ninth to eleventh and fifteenth respondents on an attorney and client scale de bonis propriis." 6. The applicant ordered to pay the fourth, fifth, sixth, seventh and fifteenth respondents costs in the appeal, including costs of two counsel where employed.

Section 54(2) of the Close Corporations Act protects third parties who transact with a member of a close corporation in good faith, even where that member lacks actual authority under section 46(b)(iv), provided the third party did not have and ought not reasonably to have had knowledge of the lack of authority. A purchaser who reasonably relies on the representations of a member and on specialist conveyancing attorneys to ensure legal compliance will satisfy the requirements of section 54(2), and the close corporation will be bound by the transaction. The knowledge of conveyancing attorneys is not automatically attributed to the purchaser. Where a court invites submissions on costs and those submissions are provided but not considered, this constitutes a material irregularity violating the audi alteram partem principle.

Keightley JA observed that the conveyancing respondents had failed to carry out their statutory duties properly in not ensuring the requisite consent was obtained from the executrix before attending to the sale and transfer. The majority noted it was the professional failures of the conveyancing attorneys that resulted in the dispute about the legality of the transfer. Koen JA made more extensive obiter observations, stating that Mr de Witt's conduct in signing documents representing that he was authorized by a resolution of members when there was no such resolution was prima facie fraudulent. Koen JA further observed that the conveyancing respondents' failure to ensure proper authorization was prima facie negligent, possibly grossly negligent, and raised serious concerns about the reliability of South Africa's negative land registration system. Koen JA directed that the papers be referred to the Director of Public Prosecutions to consider whether further action should be taken against Mr de Witt. The majority also commented that motion proceedings were not the appropriate forum for serious allegations of fraud absent substantiating evidence.

This case clarifies the application of section 54(2) of the Close Corporations Act 69 of 1984, which protects bona fide third parties who transact with a member of a close corporation lacking actual authority. It establishes that where a third party has no knowledge, and ought not reasonably to have had knowledge, of a member's lack of authority to represent the close corporation, the corporation will be bound by the transaction. The judgment emphasizes that the knowledge of conveyancing attorneys cannot automatically be attributed to the purchaser, and that reasonable reliance on specialist legal advisors may satisfy the bona fide purchaser requirements. The case also addresses procedural irregularities in the handling of costs applications and appeals, affirming the importance of the audi alteram partem principle. The minority judgment raises important concerns about professional duties of conveyancers and the preparation of transfer documents, particularly regarding verification of authority under section 46(b)(iv) of the Close Corporations Act.