Leleu N.O and Another v Numacon (Pty) Limited and Others (19065/2024) [2025] ZAWCHC 192 (5 May 2025)

Case Note

Herwig Tillo Cornelius Leleu N.O. & Marleen Augusta Marie Leleu N.O., in their capacities as co‑trustees of the HTC Leleu Family Trust T2711/03, versus NUMACON (PTY) LIMITED and other respondents. The case was heard in the High Court of South Africa (Western Cape Division, Cape Town), Case No.: 19065/2024, with the judgment delivered on 05 May 2025.

Reportability

This case is reportable because it involves a significant dispute over the valuation of a shareholding under a settlement agreement. The dispute centers on whether the appointed valuer was authorized to apply certain discounts beyond a minority discount. Its interpretation of contractual clauses and the use of valuation expertise directly impact how fair value is determined in shareholder disputes. The case is significant as it addresses critical issues about the limits of expert mandates and the precise construction of settlement agreements in complex commercial arrangements.

Cases Cited

No specific reported cases were cited by name in the judgment. The focus was primarily on the contractual terms of the settlement agreement and the valuation report, rather than on precedent case law.

Legislation Cited

The judgment made reference to section 163 of the Companies Act, Act 71 of 2008, which was relevant to the background litigation that led to the settlement agreement. This reference underpins the legal framework governing the compulsory buyout of an interest and the subsequent valuation dispute.

Rules of Court Cited

The judgment did not explicitly cite any specific rules of court. The discussion remained focused on the interpretation of contractual provisions and the expert’s discretionary mandate in the valuation process.

HEADNOTE

Summary

In this contested application, the applicants seek clarity regarding the valuation of their shareholding as established under a settlement agreement. The central point of dispute is whether the valuer’s report correctly applied only the minority discount or whether the additional portfolio valuation discount and marketability discount were improperly included. The applicants challenge the valuation by contending that these two extra discounts fall outside the agreed terms of the settlement agreement.

The court examined the valuer’s mandate as provided by the settlement agreement and considered the ambiguity regarding the term “fair value.” The judgment highlighted that while the agreement clearly intended for a minority discount, it did not expressly provide for any other discounts. Consequently, the valuer’s decision to potentially include other discounts was viewed with skepticism, leading to an alternative determination as to the proper valuation approach.

Emphasis was placed on the discretion granted to the valuer and whether his actions exceeded that scope. The judgment carefully balanced the contractual rights of the parties and emphasized the limits of expert valuation when the contractual framework is silent on key discount types, noting that any further discount beyond the minority discount should properly fall to an arbitrator’s review.

Key Issues

The principal issues addressed were whether the valuation report should only consider a minority discount or include two additional discounts, namely the portfolio valuation discount and the marketability discount. The court had to decide if the valuer had exceeded his mandate by incorporating the extra discounts. Another important issue was the interpretation of the settlement agreement and the resulting implications for the fair value determination of the Trust’s shareholding.

Held

The court held that if the valuation report improperly included the additional discounts, it should be disregarded for those portions when determining the fair value. The judgment indicated that, on a strict reading of the settlement agreement, only the minority discount was supported by the agreement. Consequently, the determination that the valuer applied the portfolio valuation discount and the marketability discount would be set aside, and any value derived from these further discounts should be treated as non-binding. The decision further affirmed that any matter of discount application beyond the minority discount is a subject properly reserved for arbitration.

THE FACTS

The dispute arises from a settlement agreement intended to resolve a previous litigation concerning the compulsory buyout of a 10.02 percent interest in a company. Central to this agreement was the appointment of an independent valuer whose task was to determine the fair value of the shareholding. The settlement agreement provided that the valuer’s mandate included incorporating a minority discount, without expressly permitting any other discounts.

The valuer’s report, prepared on 18 April 2023, stated that his mandate was to assess the fair value “subject to the determination of the Residual Dispute.” Although he clarified that the agreement was silent on discounts other than the minority discount, he recorded that the possibility of other discounts was not outright excluded. This ambiguity led the applicants to challenge the inclusion of the so‐called additional discounts in his valuation.

The applicants argued that their understanding of the settlement agreement was that only a minority discount was applicable. They contended that any determination to apply a portfolio valuation discount and a marketability discount was beyond the valuer’s agreed mandate. This dispute has broader implications for how expert valuations are interpreted in the context of contractual settlements.

THE ISSUES

The court had to decide on a number of legal questions. One key issue was the proper interpretation of the settlement agreement—specifically, whether its language permitted the valuer to consider discounts other than the minority discount. The court also needed to determine if the valuer had exceeded his powers by applying additional discounts that were not clearly authorized by the agreement.

Another issue was the distinction between fair value and fair market value, as raised by the applicants, which has significant implications in valuation disputes involving companies and trust interests. The court was therefore tasked with reconciling the expert’s professional judgment with the strict terms of the contractual settlement on valuation.

Finally, the overall fairness and reasonableness of the valuation report came under scrutiny, particularly regarding whether the additional discounts, if applied, resulted in a patently inequitable outcome for the parties involved.

ANALYSIS

In its reasoning, the court undertook a close examination of the language of the settlement agreement and the expert’s mandate. The analysis emphasized that the contract unequivocally provided for a minority discount on the shareholding valuation while remaining silent on the imposition of any further discounts. A careful consideration of the contractual clauses led the court to conclude that the implied authority to include additional discounts was both questionable and unsupported by the agreement’s express terms.

The court observed that the valuer, in exercising his discretion, had not clarified or sought further instructions regarding the applicability of the extra discounts as provided by clause 3.3.3 of the agreement. This omission served to weaken the argument that the additional discounts were intended by the parties. The judgment noted that the experts’ discretion must be exercised within the boundaries set by the contractual terms, and any deviation from that bounded expertise could compromise the fairness of the valuation.

Furthermore, the court underscored the necessity for clarity in complex commercial settlements and expert valuations. It stressed that when the language of a settlement is ambiguous or silent on specific aspects, such matters should be conclusively determined by arbitration rather than by unilateral expert judgment. This principle aims to protect the interests of both parties and ensure that expert valuations conform to the agreed legal framework.

REMEDY

The remedy granted by the court was twofold. First, it declared that if the valuer’s report held that the portfolio valuation discount and the marketability discount were applicable, that portion of his finding should be disregarded in determining the fair value of the Trust’s shareholding. In effect, only the minority discount was to be applied as per the clear terms of the settlement agreement.

Second, the court ordered that the respondents, being the second to twenty-second parties to the settlement, make payment to the Trust in the sum of R11,136,219, along with mora interest calculated from the valuation date of 18 April 2023. This remedy sought to rectify any inequitable valuation that could have arisen from the improper application of additional discounts and ensure that the contractual rights of the Trust were fully upheld.

The order reinforces the principle that expert valuations must adhere strictly to their mandates and that any deviation should have clear, supporting contractual authority. It also emphasizes the court’s role in maintaining the integrity of agreed settlements in the realm of commercial disputes.

LEGAL PRINCIPLES

The key legal principles established in this case include the strict interpretation of contractual agreements in relation to expert mandates. The judgment affirmed that a valuer must operate within the clear confines of his appointment, whereby any deviation or unapproved application of additional discounts falls outside his authority. Contractual certainty is paramount, and any ambiguities regarding discount calculations should be referred to arbitration rather than being determined unilaterally.

Another core principle is the distinction between fair value and fair market value. The court reiterated that while fair market value might encompass adjustments for factors such as marketability and control, the contractual term “fair value” in this instance was not intended to admit such discounts beyond the minority discount. Expert discretion in financial valuations is not absolute and must align with the precise language of the agreement.

Finally, the judgment highlights the importance of clear and unambiguous terms in settlement agreements, especially in contexts involving complex financial and valuation disputes. This ensures that expert reports reflect the true intent of the parties, providing a reliable basis for resolving disputes without resulting in an inequitable outcome.