The SCA clarifies a Unit Owner’s legal standing to launch action on behalf of the Body Corporate

The question arises: Can a sectional title owner litigate in their own name for repayment to the body corporate of funds allegedly unlawfully paid from the body corporate’s bank account?

The Supreme Court of Appeal (SCA) confirms “no”.

Here is a quick look at the recent SCA judgment of Henque 1838 CC v Maxprop Holdings (Pty) Ltd and Others delivered on 12 October 2023.

This case revolved around a dispute concerning alleged misappropriation of funds in a sectional title scheme. The SCA judgment, which dismissed the appeal with costs, hinged on the issue of legal standing for a unit owner to litigate in their own name for the repayment of funds allegedly unlawfully transferred from the body corporate’s bank account.

The unit owner had launched an application in the Durban High Court, demanding the repayment of funds purportedly misappropriated by the erstwhile managing agent from the body corporate’s bank account. The unit owner sought repayment for the body corporate, not for itself, raising the question of its legal standing in the matter. The High Court dismissed the matter on the basis that the unit owner lacked the necessary standing to bring the application in its own name. The unit owner appealed the decision.

The SCA concurred with the High Court’s decision, stating that the unit owner failed to establish its direct and substantial interest in the relief claimed. The judgment notes that the claims made by the unit owner were not for payment to itself or rectification of its own financials but in respect of the body corporate. The losses were suffered by the body corporate. The court emphasised that the rights and claims invoked by the unit owner were governed by section 2(7) of the Sectional Title Schemes Management Act 8 of 2011 (“STSMA”).

In respect of any matter mentioned in section 2(7), sectional title owners must adhere to the prescribed procedures and remedies contemplated in the STSMA when asserting their rights in financial matters concerning the body corporate. The judgment serves as a precedent, clarifying the standing of individual owners in cases involving body corporate funds.

What should the unit owner have done? The unit owner should have followed the process outlined in section 9 of the STSMA.

• Served written notice on the body corporate calling on it to initiate legal proceedings within one month;
• Failing which, it could have applied to court to appoint a curator ad litem for the body corporate for the purposes of initiating and conducting proceedings on behalf of the body corporate.

JUDGMENT SUMMARISED BY

REVIEWED & EDITED BY