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[2016] ZAWCHC 18
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Inhouse Venue Technical Management (Pty) Ltd and Others v Omar and Another; In re: Omar v Inhouse Venue Technical Management (Pty) Ltd and Others (13902/2015) [2016] ZAWCHC 18 (26 February 2016)
THE REPUBLIC OF SOUTH
AFRICA
IN THE HIGH COURT OF
SOUTH AFRICA
(WESTERN CAPE DIVISION,
CAPE TOWN)
Case No: 13902/2015
DATE: 26 FEBRUARY 2016
In the matter between:
INHOUSE VENUE TECHNICAL MANAGEMENT
(PTY) LTD
.................................
1st
Applicant
GEARHOUSE SOUTH AFRICA (PTY)
LTD
................................................................
2nd
Applicant
SANDRAGASEN
GOVENDER
.......................................................................................
3rd
Applicant
OFER
LAPID
......................................................................................................................
4th
Applicant
NASSER
ABBAS
.................................................................................................................
5th
Applicant
And
ASHRIF
OMAR
...............................................................................................................
1st
Respondent
STUART
HENDLER
.....................................................................................................
2nd
Respondent
In re:
ASHRIF
OMAR
........................................................................................................................
Applicant
And
INHOUSE VENUE TECHNICAL MANAGEMENT
(PTY) LTD
..............................
1st
Respondent
GEARHOUSE SOUTH AFRICA (PTY)
LTD
.............................................................
2nd
Respondent
SANDRAGASEN
GOVENDER
....................................................................................
3rd
Respondent
OFER
LAPID
..................................................................................................................
4th
Respondent
NASSER
ABBAS
.............................................................................................................
5th
Respondent
Coram: KOEN AJ
Heard: 22 February 2016
Delivered: 26 February 2016
JUDGMENT
KOEN AJ
[1] This case concerns the meaning of
an order made, on 6 February 2015, by this court in case number
14227/2014. The judgment and
order in issue have subsequently been
reported as Omar v Inhouse Venue Technical Management (Pty) Ltd and
Others
2015 (3) SA 146
(WCC). I propose, for convenience, to refer to
that case as the main case, and to refer to the parties in this
judgment as they
were referred to in the main case.
[2] Mr Omar was the applicant in the
main case. He is a minority shareholder in, and director of, Inhouse
Venue Technical Management
(Pty) Ltd (“Inhouse”). He
alleged that he was the victim of oppressive and prejudicial conduct
perpetrated by his fellow
directors and shareholders. The dispute
between him and the others had resulted in an offer to purchase his
minority shareholding
in Inhouse for R 2 million. Omar considered the
offer to be unfair. He then instituted proceedings in which he
sought, in terms
of section 163 of the Companies Act, 71 of 2008
(“the Act”), an order directing that he be fairly
compensated by the
applicants for his minority shareholding in
Inhouse.
[3] Precisely how it happened is not
entirely clear from the judgment but Omar’s claim was expanded
upon and what the court
was concerned with when the matter came to be
heard was not only a claim by Omar to an order in terms of which the
second and third
applicants were to acquire Omar’s shares in
Inhouse “for the fair market value thereof as at 27 June 2014”,
consequent
upon the application of section 163 of the Act, but also a
declaratory order that the fourth and fifth applicants had acted in
contravention of the provisions of section 75 of the Act. Section 75
of the Act has to do with the disclosure by directors of their
personal financial interests in the affairs of a company.
[4] Omar was successful on both counts.
The order made by the court in the main application read as follows:
“1. The Second and Third
Respondents (pro rata to their current shareholding in the First
Respondent) are to acquire Applicant’s
forty five percent (45%)
of the issued share capital in the First Respondent for the fair
market value thereof as at 27 June 2014.
2. A chartered accountant shall be
appointed by agreement between the parties (or failing such agreement
by the chairperson for
the time being of the South African Institute
of Chartered Accountants), to determine the fair market value of the
Applicants shareholding
in the First Respondent as a 27 June 2014 in
accordance with the procedure contemplated in clause 18 of annexure
“AO1”
to the founding affidavit herein.
3. The Fourth and Fifth Respondents are
declared to have acted in contravention of section 75 of the
Companies Act, 71 of 2008 (“the
Act”) in failing to
disclose their personal financial interests in transactions
undertaken by the First Respondent.
4. The aforesaid chartered accountant
is directed, in the determination of the fair market value, to take
into account the contraventions
of section 75 of the Act in respect
of purchases from related parties, rental paid to related parties and
management fees paid
by the First Respondent for the financial years
ending 30 June 2011 to date.
5. To the extent that clause 18.5 of
Annexure AO1 permits the Applicant to make representations to the
chartered accountant, the
First Respondent is directed to furnish and
make available to the Applicant, all documentation reasonably
required by him.
6. The Respondents, save for the Third
Respondent, shall pay the costs of this application jointly and
severally, the one paying
the other to be absolved.”
[5] I mention for the sake of
completeness that the costs order was subsequently amended to provide
for the payment of the costs
of two counsel where two were employed.
[6] Paragraph 4 of the order refers to
three categories of expenses incurred by Inhouse. These are rental
payable by Inhouse, purchases
from fellow subsidiary companies, and
the payment of so-called management fees. The judgment explains that
the decisions to incur
these expenses were not properly taken at
board level and that “had the decisions been taken in
accordance with proper corporate
governance while having regard to
the prescripts of section 75 and 76, the profitability of the company
may have been enhanced.”
[7] A dispute has arisen between the
parties as to how the chartered accountant appointed in terms of
paragraph 2 of the order is
to treat these three expense items in
valuing Omar’s shareholding in Inhouse. This dispute has given
rise to the present
application in which the respondents in the main
application seek a declaration that in determining the fair market
value of Omar’s
shares, and taking into account the
contraventions of section 75 of the Act, the chartered accountant is
to attribute market related
values for each of the three categories
of expense items. Omar, in turn, counterclaims for an order
declaring, inter alia, that
the chartered accountant must assume a
zero cost in respect of the three categories of expense items. Omar
bases his counterclaim
upon the fact that the court made a
declaration that section 75 of the Act had been contravened, and that
in respect of the three
categories of expense items referred to
above, this meant that the transactions in terms of which those
expenses were incurred
were legally invalid, and the expenses had
thus to be left entirely out of account. This is, essentially, where
the battle lines
are drawn.
[8] The legal principles governing the
construction of court orders have been considered in a number of
cases. In West Rand Estates
Ltd v New Zealand Insurance Co Ltd
1926
AD 173
Kotzé JA said “The Court can … declare and
interpret its own order or sentence, and likewise correct the wording
of it, by substituting more accurate or intelligent language so long
as the sense and substance of the sentence are in no way affected
by
such correction; for to interpret or correct is held not to be
equivalent to altering or amending a definitive sentence once
pronounced.”
[9] In Firestone South Africa (Pty) Ltd
v Genticuro AG
1977 (4) SA 298
(A) it was made clear that the rules
governing the construction of documents generally apply equally to
court orders. In Firestone
the principle was articulated as follows:
“Thus, as in the case of a document, the judgment or order and
the court’s
reasons for giving it must be read as a whole in
order to ascertain its intention. If, on such a reading, the meaning
of the judgment
or order is clear and unambiguous, no extrinsic fact
or evidence is admissible to contradict, vary, qualify, or supplement
it”
(at 304). Firestone was approved of subsequently in
Administrator, Cape and Another v Ntshwaqela and Others
1990 (1) SA
705
(A) where the following was said “It may be said that the
order must undoubtedly be read as part of the entire judgment and
not
as a separate document, but the court’s directions must be
found in the order and not elsewhere. If the meaning of an
order is
clear and unambiguous, it is decisive, and cannot be restricted or
extended by anything else stated in the judgment”
(at 716).
[10] In interpreting a document the
starting point, of course, is an examination of the words used in the
document. But, as was
observed in Bothma-Batho Transport (Edms) Bpk v
S Bothma & Seun Transport (Edms) Bpk
2014 (2) SA 494
(SCA) “…
the process of interpretation does not stop at a perceived literal
meaning of those words, but considers
them in the light of all
relevant and admissible context, including the circumstances in which
the document came into being”
(at paras [24] to [25]).
Bothma-Batho referred with approval to Society of Lloyd’s v
Robinson
[1999] 1 All ER (Comm) 545
at 551 where the principle was
described as follows: “Loyalty to the text of a commercial
contract, instrument or document
read in its contextual setting is
the paramount principle of interpretation. But in the process of
interpreting the meaning of
the language of a commercial document the
court ought generally to favour a commercially sensible construction.
The reason for
this approach is that a commercial construction is
likely to give effect to the intention of the parties. Words ought
therefore
to be interpreted in the way in which the reasonable person
would construe them. And the reasonable commercial person can safely
be assumed to be unimpressed with technical interpretations and undue
emphasis on niceties of language.” Whilst Society of
Lloyd’s
was concerned with the interpretation of a commercial document and
not a court order I see no reason why the same
principles would not
apply to a court order governing a commercial transaction. One does
not apply different rules to different
kinds of documents in order to
interpret them.
[11] The most recent judgment on the
question is Novartis SA v Maphil Trading
2016 (1) SA 518
(SCA).
Novartis, referring to KPMG Chartered Accountants (SA) v Securefin
Ltd and Another
2009 (4) SA 399
(SCA), and Natal Joint Municipal
Pension Fund v Endumeni Municipality
2012 (4) SA 593
(SCA), reaffirms
that context is everything.
[12] Finally, in interpreting the order
I am bound to accept it and, the judgment which explains it, at face
value. I am not at
liberty to enquire into whether or not the issues
before the court were correctly formulated or the facts before it
correctly recorded.
With these principles in mind it is necessary to
turn to the present case.
[13] What, then, is the context in
which the judgment and order were handed down? In the main
application the court was concerned,
firstly, with the consideration
of a claim under section 163 of the Act. In paragraph [50] of the
judgment it had this to say:
“As the preamble to sec 163 (2)
suggests, the court has a wide power to make both interim and final
orders which it considers
fit in the circumstances. The orders set
out in sec 163(2) (a) to (l) are but some of the suggested options
available to a court.
In the ultimate draft order put up by [Omar],
the court is asked to direct [the second and third respondents in the
main application]
to acquire Omar’s shares for their fair
market value as at 27 June 2014 which coincides with the time of
Omar’s suspension.”
[14] The court then observed that “To
calculate that value the court is asked to sanction the appointment
of a chartered accountant
to fulfil the function contemplated in
clause 18 of the shareholders agreement”. Having said this the
court observed “Omar
asks that when the calculation is made,
the accountant should make an appropriate adjustment in his favour
due to the fact that
[certain of the respondents in the main
application] have allegedly acted in contravention of sec 75 of the
Act. I shall deal more
fully with sec 75 below, but pause to mention
that the rationale behind this claim is that their repeated
contraventions of that
section have had a deleterious effect on
Inhouse’s profitability, and hence the value of its shares.”
[15] In its judgment the court then
dealt with advice which Omar had received to the effect that the
expense items would have to
be reversed as a consequence of the
invalidity of the transactions pursuant to which they were incurred.
The court quoted from
Omar’s founding affidavit in the main
application in which he said “Nevertheless, my complaints will
be satisfactorily
addressed were the court to order the deemed
reversal of the transactions so that all amounts paid by [Inhouse]
pursuant to these
transactions would again reflect as monies to the
credit of [Inhouse]. These amounts which have been deemed to be
reversed would
then be taken into account in the determination of the
value of my shareholding in order that my shareholding is given its
true
value.” It will not go unnoticed that Omar’s initial
suggestion that the costs be adjusted, developed into a suggestion
that they be left entirely out of account.
[16] Having observed that Omar had not
originally sought any relief pertaining to contraventions of section
75 of the Act and that
his approach had been to call for a debatement
of account and an adjustment to be made in respect of “irregular
and unilaterally
imposed business expenses for the aforesaid period
in respect of, but not limited to, lease payments, group charges and
transactions
with related persons” the court went on to
consider section 75 of the Act. It ultimately found that Mr Omar had
made a case
for a declaration of invalidity in regard to
“transactions involving” the three controversial
categories of expense
items.
[17] The court, then, went on to say
the following: “The extent to which such a declarator finds
application is another question
altogether. While the decisions [of
certain respondents in the main case] to ratchet up the so-called
‘Group charges’
and rentals were not properly taken at
board level, it does not follow that Inhouse is totally exempt from
any disbursements in
that regard. To be sure, the company would, of
necessity, have incurred reasonable expenditure on that score. It is
conceivable,
however, that had the decisions been taken in accordance
with proper corporate governance while having regard to the
prescripts
of sections 75 and 76, the profitability of the company
may have been enhanced.”
[18] Immediately thereafter the court
said: “Improved profitability does not, in my view, however
necessarily mean an enhanced
share price: this would depend on the
method adopted by the person valuing the shares. And, establishing
what reasonable or market
related expenses would have been, is
manifestly not an exercise which this court could or would want to
undertake.”
[19] And finally, in explanation of the
order it was about to make, the Court said: “In an attempt to
overcome this hurdle
[Omar’s counsel] proposed a mechanism cast
in the broadest of terms so as to enable the person charged with
determining the
value of Omar’s shareholding to have regard to
the consequences of the alleged breaches of section 75.” The
Court observed,
further, as follows: “Whether this is a
workable option at the end of the day remains to be seen, but I am
not persuaded
that it is entirely impracticable… the parties
will have to utilise their best endeavours to give effect to it”.
[20] I have attempted to extract the
relevant passages from the judgment in the main application to give
context to the dispute
and the judgment and order which resolved it.
In the light of these is it possible to resolve the dispute between
the parties as
to the meaning of the order?
[21] The starting point is the language
used in the order. What the court ordered was that the chartered
accountant must “in
the determination of the fair market value,
take into account the contraventions of section 75” of the Act.
The court found
that the contraventions meant that the transactions
underlying the incurring of the expenses in question were invalid.
But does
this mean that the court meant that the accountant leave
those expenses entirely out of account? Or does it simply give the
accountant
a basis to reassess the expenses incurred by Inhouse and,
if he finds them to be unreasonable, substitute the actual expenses
with
reasonable and market related expenses so as to arrive at a fair
market value for Omar’s shares?
[22] What is clear in the judgment is
that the court said, after making the declaratory order in relation
to the section 75 contraventions,
that “it does not follow that
Inhouse is totally exempt from any disbursements in that regard. To
be sure, the company would,
of necessity, have incurred reasonable
expenditure on that score”. Moreover, it is also clear from the
judgment that the
court envisaged a mechanism involving the parties’
participation in the valuation exercise to be undertaken by the
chartered
accountant. They would be nothing to discuss if the effect
of the declaration of invalidity in regard to the section 75
transactions
meant simply that the expense items in question were to
be entirely excluded.
[23] Moreover, it must be remembered
that the court was cognisant of the advice that Omar had received to
the effect that the expenses
had to be left out of account. It went
on, however, to hold that Inhouse was not exempt from paying
anything. In my view, it cannot
be implied that the court intended
that, as a necessary consequence of the order, those expenses be
reversed in their entirety.
If any implications are to be drawn it
can only be that the court did not consider that Omar was right, when
he suggested that
the expenses be reversed. As I see it the relevance
of the declaration of invalidity was that it provided a basis for the
costs
to be adjusted to market related values, so that a true and
fair value of the shares could be calculated.
[24] One must also bear in mind that
the court was concerned with the granting of relief from oppressive
or unfairly prejudicial
conduct under section 163 of the Act. The
section affords a remedy to a shareholder or director who is found to
have been oppressed
or to the victim of unfairly prejudicial conduct.
To be oppressed is by definition unfair (see Visser Sitrus (Pty) Ltd
v Goede
Hoop Sitrus (Pty) Ltd and Others
2014 (5) SA 179
(WCC) at
para [55]). The same cannot be said of other conduct which might
result in prejudice. For such conduct to form the basis
of a claim
under section 163 it must be found to be unfair. Unfairness is the
golden thread which runs through the section. And,
to use the words
of Lord Hoffmann in Re: a Company (no. 006834 of 1988), Ex parte
Krema
[1989] BCLC 365
(Ch D) “… fairness requires that
the minority shareholder should not have to maintain his investment
in a company
managed by the majority with whom he has fallen out. But
the unfairness disappears if the minority shareholder is offered a
fair
price for his shares.” Bayly v Knowles
2010 (4) SA 548
(SCA) referred with approval to Lord Hoffman’s statement.
[25] It was argued on behalf of Omar
that fairness required that the respondents be visited with a
consequence in view of the contraventions
of section 75 which were
found to have taken place. That consequence, so the argument went,
was that the expenses would be left
entirely out of account in
calculating the value of the shares. Thus the profitability of
Inhouse would be enhanced with the result
that it was more likely
that its shares would be accorded a higher value. I do not think that
there is merit in this argument.
There is nothing in section 163, or
in any case to which I was referred, which indicates that it is
permissible for a court, when
exercising the wide equitable
jurisdiction conferred upon it by the provisions of section 163, to
impose a penalty or sanction
upon a party found to be guilty of
oppressive or unfairly prejudicial conduct. The purpose of section
163 is to provide redress
when unfairness between directors or
shareholders is found to exist. Furthermore, had the court intended
to punish the wrongdoers
by directing that the expense items referred
to be excluded from account in calculating the value of the shares
then it would of
necessity have had to find that the expenses had
been unfairly inflated. It expressly refrained from making such a
finding. The
unfairness which forms the basis of the exercise by it
of its powers under section 163 was located in the fact that the
relevant
expenses were not approved of or discussed at board level,
not in the fact that the expenses had been artificially manipulated
so as to impoverish Inhouse.
[26] In my view, when consideration is
given to the order and judgment which explains it, the primary
consideration in granting
Omar the relief he claimed was to ensure
that he obtained a fair market related value for his shares. The
value of Inhouse would
be contrived if expenses incurred in
purchasing goods and services were left out of account in the
calculation, but the advantage
it had obtained by receiving those
goods and services remained in account. That would not be fair or
commercially sensible, and
cannot be what the court intended.
[27] I think that it is clear from the
order read with the judgment of the court that it intended that the
chartered accountant,
in calculating the value for Omar’s
shares, was to attribute a market related value to the expense items
in question. He
would obviously substitute the expenses in question
only if he were satisfied that they were not market related. And to
assist
him in coming to this decision the parties were entitled to
participate in the process in the manner contemplated in their
shareholders
agreement which was incorporated by reference in the
order. In my view, on this interpretation, it cannot be argued that
the order
does not provide for a sensible, practical and fair
resolution to the dispute which forms the subject matter of the main
application.
[28] In the circumstances I am
satisfied that the respondents are entitled to an order that upon a
proper interpretation of the
order of his Lordship Mr Justice Gamble,
as read with the judgment of the learned judge, the chartered
accountant, being the second
respondent in this application, in
determining the fair market value of Omar’s shares and taking
into account the contraventions
of section 75 of the Act is to
attribute, where necessary, market related values for all related
party transactions. Conversely,
I am satisfied that the counter
application must be dismissed.
[29] As to costs I see no reason why
they should not follow the result. I also see no reason why the cost
of two counsel should
not be allowed.
[30] As regards the order sought I have
taken the liberty of rephrasing what was sought in the notice of
motion slightly so as to
make it quite clear what I have found the
order in the main case to mean. I do not think that in so doing I
have changed the meaning
of what was sought in the notice of motion.
[31] In the order I intend to make, for
clarity, I shall revert to referring the parties in the manner in
which they are referred
in this application. I therefore make the
following order:
A. Upon a proper interpretation of the
Order of his Lordship Mr Justice Gamble made in case number
14227/2014 on 6 February 2015,
as read with the judgment of the
Learned Judge in that matter, it is declared that the chartered
accountant appointed in terms
of paragraph 2 of the order must, in
his determination of the fair market value of the first respondent’s
shares in the first
applicant as at 27 June 2014 take into account
the contraventions of section 75 of the Act in respect of purchases
from related
parties, rental paid to related parties and management
fees paid by the respondent for the financial years ending 30 June
2011
to date and attribute, where necessary, market related values
for all the aforesaid related party transactions.
B. The first respondent’s counter
application is dismissed.
C. The first respondent shall pay the
costs of this application and of the counter application. Such costs
include the costs of
two counsel where two have been employed.
KOEN AJ
APPEARANCES
For the Applicant: Mr A Subel SC
Mr J Meiring
Instructed by: Smith Tabata Buchanan
Boyes
For the Respondents:Mr M Fitzgerald SC
Instructed by: Cliffe Dekkker Hofmeyr