Wimbledon Lodge (Pty) Ltd v Stephen Malcolm Gore NO and Others

The appellant, Wimbledon Lodge (Pty) Ltd, owned a unit in a sectional title development at Gordon's Bay controlled by the Harbour's Edge Body Corporate. The development was to operate as a hotel with rental pooling arrangements. The owner, Cuninghame, alleged that the developer, Scharrighuisen (through Casisles Coastal Property Investments CC), committed fraud by registering a sectional plan that differed materially from the plan annexed to the deeds of sale. The registered plan showed 120 sections totaling 14,420 square meters, compared to 86 sections totaling 5,886 square meters in the original plan. The additional area was achieved by appropriating common property (including restaurants, kitchens, basement parking, squash court, and service areas) and converting it into 34 additional sections, 10 registered to Casisles and 12 to Harbour's Edge Commercial Properties Holding (Pty) Ltd. Both corporations were subsequently liquidated. At a general meeting, 44 unit-holders voted in favor of the body corporate taking action against the developer's corporations, but this was defeated by votes from the two corporations (exercising voting rights based on the disputed sections) plus six other unit-holders controlled by Krecklenburg, an accountant working for Scharrighuisen. The appellant applied under section 41 of the Sectional Titles Act 95 of 1986 for appointment of a curator ad litem to the body corporate to investigate and potentially institute proceedings to rectify the situation.

• Whether an owner may apply for appointment of a curator ad litem to a body corporate under section 41 of the Sectional Titles Act where the body corporate declines to sue
• Whether votes obtained through fraud may be used to defeat a resolution to authorize litigation against the fraudster
• Whether there were prima facie grounds for proceedings by the body corporate against the developer
• Whether the body corporate suffered loss or was deprived of a benefit in respect of a matter mentioned in section 36(6) of the Act
• Whether the deeds of sale constituted a pre-incorporation contract for the benefit of the body corporate
• What constitutes 'the scheme' for purposes of section 36(6)(e) of the Act
• Whether rectification is available as a remedy in respect of a registered sectional plan

The appeal was allowed with costs including the costs of senior counsel (majority judgment). The order of the court a quo dismissing the application was set aside. A provisional curator ad litem was appointed to investigate and report back to the Cape High Court. The curator was directed to investigate grounds for proceedings to obtain registration of the disputed properties as common property and/or claim damages. Service was ordered on the Registrar of Deeds, Nedbank Limited, and the body corporate, with publication in Cape Times and Die Burger. The first and second respondents were ordered to pay costs of their opposition jointly and severally.

Votes obtained through fraudulent conduct cannot be used to defeat a resolution aimed at remedying that fraud. The fundamental principle "nemo ex suo delicto meliorem suam condicionem facere potest" applies: where a party strengthens their voting position through fraud, those votes must be disregarded when considering whether a resolution to address that fraud has been passed. Where votes procured by fraud are disregarded, a resolution must be treated as if it had been passed if it would have been passed but for those fraudulent votes. A developer of a sectional title scheme stands in a fiduciary relationship to the body corporate analogous to that of a company promoter, owing duties similar to those owed by directors. The sum of deeds of sale in a sectional title development may constitute a pre-incorporation contract partly for the benefit of the body corporate to be formed. Section 41 of the Sectional Titles Act permits an individual owner to apply for appointment of a curator ad litem where there are prima facie grounds for proceedings and the body corporate declines to institute them, even where that refusal is procured by fraudulently-obtained votes.

Schutz JA noted that it would have been wise for the trustees and/or Cuninghame to have proceeded to court before or during the meeting to obtain a determination that the votes of the liquidators should not be counted. The court suggested that once it had clarified that the resolution should be treated as having been passed, the trustees and Cuninghame might choose to dispense with the services of the curator. Schutz JA observed that the developer's position is closely analogous to that of a promoter of a company, who owes fiduciary duties to the company being formed before it is able to function for itself. The court noted that most of the rent earned by the body corporate may ultimately go to the owners, but in the meantime the body corporate collects rent and uses part of it to perform its duties of control, administration and management. The court observed that ignoring legal technicalities of how a sectional title scheme is structured, the substance is that the body corporate is little more than the aggregation of all individual owners - their good is its good, their ill is its ill. Schutz JA noted that possible difficulties may lie ahead which may be overcome or prove fatal, but it was not for the court to express opinions at that stage, and that for the respondents to succeed they would have to show there was little chance of any claim ever succeeding, which they had not done. Streicher JA in dissent observed that there are various claims a body corporate could have against a developer under a proper construction of section 36(6)(e), including for costs of correcting an incorrect sectional plan (section 14(2)) and claims under section 36(7).

This case is significant in South African sectional titles law for several reasons: (1) It established that votes obtained through fraud cannot be used to defeat resolutions aimed at remedying that fraud, applying the principle that no one may benefit from their own wrongdoing; (2) It interpreted section 41 of the Sectional Titles Act to allow individual owners to apply for a curator ad litem where the body corporate declines to take action despite apparent grounds; (3) It considered the relationship between deeds of sale, registered sectional plans, and the rights of body corporates; (4) It addressed the developer's fiduciary-like duties to the body corporate, analogizing the developer's position to that of a company promoter; (5) The case illustrates judicial approaches to remedying fraud in sectional title developments; (6) The split decision (4-1) demonstrates the complexity of determining when a body corporate has standing to sue for losses that primarily affect individual owners; and (7) It provides important guidance on the interpretation of section 36(6) of the Sectional Titles Act regarding the body corporate's capacity to sue.