Philani-Ma-Afrika & Others v W M Mailula & Others

Philani-Ma-Afrika was a section 21 company incorporated in 1996 to serve as a corporate vehicle through which the National Housing Board, through the Gauteng Provincial Housing Board, subsidised and assisted underprivileged people collectively to acquire Angus Mansions for their own occupation. The company acquired Angus Mansions in 1997. Its memorandum of association restricted membership to residents earning less than R1500 per month and required at least 75% of adult members to meet this threshold. Only members could be directors, and at least seven directors were required. Over time, the company's administration and record-keeping fell into disarray. The register of members was never updated, leaving only five registered members (down from eight original subscribers). On 7 August 2006, a deed of sale was signed purporting to sell Angus Mansions to Mr Mailula for R3.5 million. A Mr Mkhumbuzi signed the deed purportedly on behalf of Philani by virtue of a power of attorney, but no valid power of attorney existed. The only document Mkhumbuzi could have relied on was an incoherent document dated 12 April 2006 signed by Solly Madisha. The property was transferred to Mr Mailula under Deed of Transfer T033425/07. Mr Mailula then obtained a mortgage bond from the Trust for Urban Housing Finance and brought an eviction application against 67 named occupiers plus other unlawful occupiers. Philani brought an application to set aside the sale and transfer.

• Whether the sale and transfer of Angus Mansions to Mr Mailula was validly authorised by Philani
• Whether Mr Mkhumbuzi had valid authority to sign the deed of sale on behalf of Philani
• Whether the purported directors who allegedly authorised the sale were validly appointed as directors given they were not registered members
• Whether the par delictum rule precluded Philani from obtaining relief
• Whether an execution order putting an eviction order into operation pending appeal is appealable

The appeal was allowed with costs including those occasioned by the employment of two counsel. In case 2008/14341 (the Philani application): (1) The sale of erf No 4562 Johannesburg situated at 268 Jeppe Street, Johannesburg was set aside; (2) The Registrar of Deeds was ordered to cancel Deed of Transfer no T033425/07; (3) It was declared that the property is owned by Philani; (4) The First and Second Respondents were ordered to pay Philani's costs. In case 2008/4453 (the eviction application): The application was dismissed with costs.

The binding legal principles established are: (1) A sale of company property is invalid where the person purporting to act on behalf of the company lacks proper authorization, particularly where purported directors were never validly appointed because they were not members as required by the company's articles; (2) Directors who number fewer than the minimum required by the articles have no power to do anything other than call a general meeting to elect additional directors; (3) In determining whether a judgment is appealable, what is of paramount importance is the interests of justice, not technical considerations; (4) Execution orders putting eviction orders into operation pending appeal are appealable where the interests of justice require it; (5) The par delictum rule does not apply where a company cannot properly be regarded as complicit in fraud perpetrated against it, particularly where corporate governance has broken down.

The court made several non-binding observations: (1) The documentation purporting to authorise the sale was described as 'a sham' by counsel for Mr Mailula, a characterization the court appeared to accept; (2) There were strong reasons to suspect that certain documents (particularly the 'Madisha document') might be forgeries, though the court found it unnecessary to make definitive findings on authenticity; (3) The court declined to order a broad investigation into inner city housing management generally, as requested by counsel for Mr Mailula, noting this was 'far beyond the legal issues we are required to address'; (4) The court noted that Mr Mailula's request for a reference to evidence under rule 6(5)(g) or a reference to trial was made far too late, as he had been content to have the case dealt with on the papers in the court below; (5) The court observed that the administration and record-keeping of section 21 housing companies can fall into disarray, creating governance challenges.

This case is significant for several reasons: (1) It demonstrates the court's willingness to protect housing assets held by section 21 companies for the benefit of underprivileged communities, even where the company's corporate governance has broken down; (2) It confirms that strict compliance with company law requirements (particularly regarding valid appointment of directors and proper authorization of major transactions) is required for the sale of company property; (3) It clarifies that execution orders putting eviction orders into operation pending appeal are appealable in the interests of justice, following the principles in S v Western Areas and Khumalo v Holomisa; (4) It illustrates the court's approach to dealing with fraudulent or irregular property transactions affecting social housing; (5) It shows the limitations of the par delictum rule in circumstances where a company itself cannot properly be regarded as complicit in fraud perpetrated against it.