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[2020] ZAWCHC 74
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Marib Holdings (Pty) Ltd v Parring NO and Others (22058/2019) [2020] ZAWCHC 74 (7 August 2020)
IN
THE HIGH COURT OF SOUTH AFRICA
WESTERN
CAPE DIVISION, CAPE TOWN
REPORTABLE
Case
No: 22058/2019
In
the matter between:
MARIB
HOLDINGS (PTY)
LTD APPLICANT
and
PATRICK
ALBERT PARRING
N.O.
FIRST
RESPONDENT
ANDRE
PEPLER
N.O.
SECOND
RESPONDENT
ELIZABETH
CATHARINA PARRING N.O.
THIRD
RESPONDENT
ROBERT
GLEN PARRING
N.O.
FOURTH
RESPONDENT
MARLON
CLINTON PARRING
N.O. FIFTH
RESPONDENT
JUDGMENT DELIVERED
ON-LINE ON 7 AUGUST 2020
FRANCIS,
AJ
INTRODUCTION
[1]
Marib Holdings (Pty) Ltd (“the applicant”) operates as an
investment holding company and has applied in terms of
section 165
(3) of the Companies Act, 71 of 2008 (“the Act”) to set
aside the demand served on it by Patrick Albert
Parring N.O.
(“the first respondent”), Andre Pepler N.O. (“the
second respondent”), Elizabeth Catharina
Parring N.O. (“the
third respondent”), Robert Glen Parring N.O. (“the fourth
respondent”), and Marlon Clinton
Parring N.O. (“the fifth
respondent”), who are all cited in their capacity as trustees
for the time being of The Parring
Family Trust (“the Trust”).
For the purposes of this judgement, depending on the context, the
first respondent is referred
to as “Parring” and the
respondents are collectively referred to as the “Trust”
or the “respondents”.
[2]
This application is brought pursuant to a demand served by the Trust
in terms of section 165 (2) of the Act on the applicant
on 18
November 2019 (“the demand”). The relevant portion of the
demand reads as follows:
“
We have
instructions to demand, as we hereby do, that the (applicant)
commence legal proceedings against its directors, viz Blum
Khan,
Brian Figaji and Lionel Louw, to recover all directors remuneration
paid to them to date, which remuneration was paid contrary
to the
provisions of s66 (9) of the Act, in order to protect the legal
interests of the (applicant).”
[3]
The applicant has considered the demand, and its board of directors –
who also constitute the majority of its shareholders
– resolved
to bring this application on the grounds that the demand is
frivolous, vexatious, and without merit.
[4]
The respondents have opposed the application and have persisted with
their assertion that the payments made to the directors
were
ultra
vires
the powers of the applicant.
[5]
The applicant was represented by Mr AM Smallberger SC and Mr T
Crookes represented the respondents.
RELEVANT
FACTUAL BACKGROUND AND SUMMARY OF SUBMISSIONS
It
is common cause that:
[6]
In the beginning of 2003, the applicant, together with various other
parties, entered into a series of agreements with Entilini
Concession
(Pty) Limited (“ConcessionCo”) and Entilini Operations
(Pty) Limited (“OpsCo”) (referred to
collectively as “the
Entillini entities”).
[7]
The so-called Entilini project was conceived for the purpose of
operating a tollgate on the Chapmans Peak Drive in Cape Town.
The
applicant, together with the construction firm, Murray & Roberts
and the engineering firm, Haw & Inglis, held shares
in
ConcessionCo and OpsCo from the inception of the Entilini project
until about 2016. The applicant remains involved in the Entilini
project.
[8]
The applicant’s current directors, Lionel Louw (“Louw”),
Brian Figaji (“Figaji”), and Blumerious
Loudewyk Ezra
Khan (“Khan”), together with Parring were all directors
of the applicant when it became involved in the
Entilini project.
Parring was the applicant’s sole representative on the board of
directors of ConcessionCo and OpsCo from
the inception of the
Entilino project until March 2014 when he was removed both from the
board of the applicant and as the applicant’s
representative on
the boards of the Entilini entities.
[9]
The departure of Parring from the boards of the applicant and the
Entillini entities was precipitated by allegations by the
applicant
that Parring had contracted through a company with which he was
associated, Exel Project Management Services (Pty) Ltd
(“Exel”),
to provide certain services to ConcessionCo. The applicant alleges
that Parring never disclosed the existence
to it of these services
and the payments being made to Exel. The applicant also alleges that
Parring had communicated directly
with Murray & Roberts and
sought to buy the latter’s shareholding in the consortium
without informing the applicant.
The applicant considered these
actions by Parring to constitute a breach of his fiduciary duties to
the applicant. The applicant
subsequently instituted legal
proceedings against both Exel and Parring for the recovery of the sum
R3 812 468, being
the amount paid to Exel. Parring has
denied the allegations levelled against him and Exel and both have
defended the legal proceedings
instituted against them.
[10]
Subsequent to Parring leaving the board of directors of the
applicant, various payments were made to the applicant’s
remaining directors - Louw, Figaji, and Khan - in the amount of
R2 078 030. These directors constitute the entire current
board of directors of the applicant, and are the holders of 65.17% of
the issued shares in the applicant. When the payments were
made to
the directors concerned, the shareholders had not adopted any special
resolution in terms of section 66(9) of the Act.
In this regard,
sections 66(8) and (9) of the Act provides that:
“
(8) Except to
the extent that the Memorandum of Incorporation of a company provides
otherwise, the company may pay remuneration
to its directors for
their service as directors, subject to subsection (9).
(9) Remuneration
contemplated in subsection (8) may be paid only in accordance with a
special resolution approved by the shareholders
within the previous
two years.
”
It
is these payments which form the basis of the demand served on the
applicant and which forms the subject matter of the current
application before this court.
SUBMISSIONS
BY THE APPLICANT
[11]
In its founding affidavit, the applicant does not dispute that
directors’ fees were paid to Louw, Figaji, and Khan. Nor
does
it dispute that such payments were not made in compliance with
section 66(9) of the Act in that no special resolution by
shareholders was passed to make these payments to the directors
concerned. Instead, the main thrust of the applicant’s
submissions
was directed at discrediting Parring (and the Trust) and
questioning the motive behind the issuing of the demand.
[12]
The following paragraphs from the applicant’s founding
affidavit, deposed to by Khan, illustrates the approach adopted
by
the applicant:
“
61.1 The demand
must be seen in the context of the background facts to which I have
alluded above, the fact of the litigation I
have described above, and
the obvious fact that there is no love lost between the present
directors of the (applicant) and Parring.
It is plain that Parring
seeks to kick up as much dust as possible in regard to the directors
of the (applicant) in order to advance
his (and the Trust’s)
personal agenda.
61.2 The demand is not
aimed at advancing the interests of the (applicant). As I have
mentioned, at the time that Parring was a
director of the (applicant)
he did not insist that a special resolution was passed in regard to
the directors’ remuneration.
His objection now, via the Trust,
is not one bona fide advanced to protect the legal interests of the
(applicant). It is also telling,
as I have mentioned above, that the
demand references events that occurred more than two years ago as a
basis for the demand.
61.3 Parring is well
aware of the work that has been performed by the directors. He
– and the Trust – have also
never complained as to the
level of directors’ fees. Rather, the Trust has stubbornly
refused to cooperate, and has tactically
employed its shareholding in
the (applicant) to ensure that no special resolution can ever be
passed. Having done so, it
now seeks to deploy the demand for
purposes wholly unrelated to protecting the legal interests of the
(applicant).
61.4
The
demand, in short, is a spiteful attempt by Parring – and the
Trust – to get back at the directors of the (applicant).
It has
nothing whatsoever to do with protecting the legal interests of the
(applicant). Rather, it is aimed at promoting
the interests of
Parring (and the Trust), which is not something which I am advised is
sanctioned by relevant section of the Act.”
[13]
In its replying affidavit, the applicant changed tack somewhat by
adding a new string to its bow. It alleged for the first
time in
reply that the amounts that were paid to the directors (and in
respect of which the demand was made) were not paid as directors’
fees by the applicant. The applicant opines that it was merely a
conduit for payments from ConcessionCo and OpsCo to the directors
of
the applicant for the services that they performed, not for the
applicant, but for both ConcessionCo and OpsCo. Thus, according
to
the applicant, the fact that ConcessionCo and OpsCo made these
payments to the applicant does not mean that the funds the applicant
received constitutes part of the applicant’s profits, or could
ever have done so, given that these funds were always paid
to the
applicant for a very specific purpose and were always intended to be
paid over to the respective directors for their work
at ConcessionCo
and OpsCo.
[14]
The applicant avers that Parring (and the Trust) knew about the
conduit function performed by the applicant. This was made
clear in a
document
[1]
that was circulated
to the shareholders of the applicant (including the Trust) prior to a
shareholder meeting held in November
2017, which states
inter
alia
as
follows:
“
In order to
bring (the fees payable by ConcessionCo and OpsCo) in line with the
prescripts of the company’s act of 2008 we
brought the proposal
to the AGM but it was rejected by one large shareholder. We are
now listing the functions that were
and are being performed by the
Applicant’s directors on behalf of the Applicant as a
justification for the Directors fees
that are made available by
Entilini Concession and Operations. The Entities could have paid it
directly to us but we agreed that
it could be paid to the Applicant
and we would distribute it from there as was done in the past.”
[15]
The applicant concedes that the payments received from the Entilini
entities are reflected in the applicant’s financial
statements
as a “management fee” but avers that the description of
the payments are “unfortunate” and “confusing”
since these payments were not management fees but fees that had to be
legitimately passed on to the directors who had performed
services to
the respective Entilini entities.
[16]
In summary, then, it is the applicant’s contention that the
payments made to the directors concerned were not paid as
a
consequence of any legal obligation on the applicant’s part to
do so. Accordingly, it was not incumbent on the applicant
to
“regularise” such payments by obtaining a special
resolution in terms of section 66(9) of the Act. The applicant
was
merely acting as a conduit for payments received from OpsCo (on
behalf of both OpsCo and ConcessionCo). Because no special
resolution
was required in the circumstances, the demand of the respondents was
thus frivolous, vexatious, and without merit. There
was no “legal
interest” to be protected by the demand given that the payments
in question were not paid from the applicant’s
funds, and the
payments did not financially prejudice the applicant in any way.
Application
to strike out
[17]
As indicated, the applicant introduced a new “defence” to
the demand in its reply. The applicant explained that
the new matter
was dealt with for the first time in its replying affidavit as it had
to bring the application within 15 days
[2]
after the demand had been served and it was unable to place all the
relevant factual issues before its legal representatives at
the time.
However, during the preparation of its replying affidavit, and during
the course of consulting with its legal representatives,
it became
clear to the applicant that the directors’ fees in question
were not fees paid by the applicant. This issue was,
accordingly,
raised in the replying affidavit for the first time. The respondents
were invited to file a further affidavit dealing
with this new issue.
[18]
Not surprisingly, the respondents objected to the raising of new
matter in the reply. The respondents did not take up the invitation
to file a further affidavit but instead filed an application to
strike out all those paragraphs dealing with the new matter in
reply.
[19]
An application to strike out any matter from an affidavit is
regulated by Rule 6(15) of the Uniform Rules of Court, which reads
as
follows:
“
The court may
on application order to be struck out from the affidavit any matter
which is scandalous, vexatious or irrelevant,
with an appropriate
order as to costs, including costs as between attorney and client.
The court may not grant the application
unless it is satisfied that
the applicant will be prejudiced in his case if it be not granted.”
[20]
An applicant for the striking out of any matter from an affidavit has
to satisfy two requirements: firstly, that the matter
to be struck
out is scandalous, vexatious or irrelevant; and, secondly, the
applicant must satisfy the court that he or she will
be prejudiced if
the matter is not struck out
[3]
.
[21]
At the hearing, Mr Crookes appeared to accept that the application
was not vexatious or scandalous but argued that the new
matter was
irrelevant as, seen in the overall context of the case, the new facts
would not render the Trust’s demand “without
merit”.
The respondents did not address the issue of what prejudice, if any,
they would suffer if the new matter was not
struck out. Indeed, given
the respondents’ submission that the new matter would, in a
sense, make no difference, the respondents
cannot reasonably argue
that they would be prejudiced by this new matter. In the
circumstances, I dismissed the application to
strike out. However, it
is difficult to understand why the new matter was raised for the
first time in reply since the basis of
this new submission was “BK5”
which was annexed to the applicant’s founding affidavit. In
addition, as Mr Crookes
pointed out in argument, the applicant had
sufficient time between the filing of the founding affidavit (on or
about 9 December
2019) and the filing of the answering affidavit (on
or about 24 January 2020) to take proper instructions and file a
supplementary
affidavit. These factors have a bearing on the issue of
costs in relation to the application to strike out, which I will deal
with
below.
RESPONDENTS’
SUBMISSIONS
[22]
The respondents’ answering affidavit was deposed to by Parring.
His explanation with regard to the payment of directors’
fees
is set out as follows in the answering affidavit:
“
115. Since the
beginning of the concession period, directors serving on the board of
ConcessionCo were paid a directors’ fee
through the relevant
shareholding entity (initially, the applicant, or Thebe, or H&I).
116. The directors’
duties in respect of the boards of OpsCo and the applicant, however
always stood on a different footing.
From inception in 2003 through
until I was removed from those boards, the directors were
never
paid for the performance of their directors’ duties to those
two companies.
117. As the
representatives of the applicant on the board of ConcessionCo, Brian
Figaji and I were paid directors’ fees only
for those functions
– in other words, all the directors’ fees paid to me and
to Brian Figaji were from the ConcessionCo
board of directors.
Despite their role as directors of the applicant, and their
involvement in the Chapmans Peak Community
Trust (for which Lionel
Louw has always been largely responsible), neither Blum Khan nor
Lionel Louw was paid any fee.
118. This was the case
whilst we were all (me through the Trust) shareholders in the
applicant and directors (me to safeguard the
interest of the Trust)
of the applicant.
119. The effect is
that the benefits accruing to the applicant by virtue of the efforts
of its directors fed the investment company’s
bottom line, and
were available for distribution to the shareholders as dividends
(save only for the ConcessionCo fees).”
[23]
The respondents aver that once Parring was removed as a director, the
situation relating to the payment of directors’
fees changed
from one where the management fees that the applicant earned from the
services rendered by its directors to the Entillini
entities were
retained as earnings (resulting in dividends to the shareholders) to
one where those fees were disbursed as directors’
fees to the
directors concerned. The respondents illustrate these changes with
reference to the applicant’s financial statements.
For example,
in the year ending February 2013, directors’ fees were paid to
Parring in the amount of R40 351 and directors’
fees were
paid to Figaji in the sum of R48 420. In the year ending
February 2014, director’s fees were paid to Figaji
in the sum
of R48 904. However, after Parring’s removal in March
2014, directors’ fees increased significantly:
R488 000
for the year ending 2015, R528 420 for the year ending 2016,
R533 190 for the year ending 2017, and R528 420
for the
year ending 2018. Given the diversion of directors’ fees to the
directors themselves, no dividend was paid in 2015,
2016, or 2017.
According to the respondents, before Parring’s removal, a
dividend of R1 300 000 was paid to shareholders
in 2014 and
in the year before that a dividend of R700 000 was paid to
shareholders.
[24]
According to the respondents, on becoming aware of the practice of
the current directors to divert the revenue due to the applicant,
the
Trust registered an objection by way of a letter written to Louw on
14 August 2017. In this letter, the Trust called for all
payments
made to directors to be reversed and for the correct process in terms
of the Act to be followed. A reply was received
from the applicant in
which the Trust was informed
inter alia
that a shareholders’
meeting would be convened in November 2017 to discuss the issue of
directors’ fees. A shareholders
meeting was indeed subsequently
held on 18 November 2017. According to the respondents, the issue of
directors’ fees was
discussed at the meeting within the context
of non-compliance with the Act and Parring, representing the Trust,
registered his
objection against the payment of directors’
fees. The respondent, thus, denied that the demand was vexatious,
frivolous,
or without merit.
[25]
The applicant further addressed the delay in furnishing the demand,
explaining that they only became aware of the requirement
of a
special resolution before the shareholders meeting in July 2017.
Parring also explained that part of the delay in furnishing
the
demand was due to attempts to settle the litigation on the basis that
if the Trust’s shares had been bought out by the
applicant, the
Trust would have no further interest in the applicant pursuing its
interest, and if the Trust became the sole shareholder,
no derivative
claim would be necessary for the litigation to commence.
ANALYSIS
AND EVALAUTION
[26]
Section 165 of the Act revokes the common-law derivative action of a
person other than the company to bring legal proceedings
on behalf of
the company and replaces the common law with the statutory provisions
contained in section 165.
[27]
Section 165(2) of the Act provides that a range of persons and
entities, including a shareholder, may serve a demand upon a
company
to commence or continue legal proceedings, or take related steps, to
protect the legal interests of the company. In terms
of section
165(3) of the Act, a company that is served with a demand may apply
within 15 business days to a court to set aside
the demand only on
the grounds that it is frivolous, vexatious, or without merit.
[28]
A demand under section 165(2) of the Act is a procedural precursor to
the possible institution, by the person serving the demand,
of a
derivative action in the name and on behalf of a company. The
“action” in question is the commencement or continuation
of legal proceedings, or taking related steps, to protect the legal
interests of the company. The Act does not define the term
“legal
interests” but it would not be out of place to define this term
widely in view of the stipulation in the Act
that its provisions must
be interpreted and applied in a manner that gives effect to the
purposes of the statute
[4]
. The
purpose of the Act are set out in section 7 and includes encouraging
high standards of corporate governance
[5]
,
balancing the rights and obligations of shareholders and directors
within companies
[6]
, and
encouraging the efficient and responsible management of companies
[7]
.
[29]
If the demand is not set aside by the court, the company is obliged
in terms of section 165(4) of the Act to appoint an independent
and
impartial person or committee to investigate the demand and report to
the board
inter
alia
on
facts and circumstances that may give rise to a cause of action
contemplated in the demand, and whether it appears to be in
the best
interests of the company to pursue any such cause of action. If the
company does not take these steps, or declines to
comply with the
demand, the person making the demand may then seek the court’s
leave to bring or continue proceedings in
the name and on behalf of
the company
[8]
.
[30]
A company may request the court to set aside a demand if the company
can show that the demand is frivolous, vexatious or without
merit;
these are the only grounds on which a court may close the door on a
demander. The courts have over time had cause to reflect
on the
meaning of “frivolous” and “vexatious” in a
legal sense. “Frivolous” usually refers
to the
contemptuous attitude adopted by a litigant and the use of
intemperate language during proceedings
[9]
or gross impertinence
[10]
.
“Vexatious” may refer to proceedings instituted by a
litigant which is designed to frustrate and harass a defendant
[11]
or proceedings instituted to cause annoyance to a defendant
[12]
.
In
LF
Boshoff Investments v Cape Town Municipality
[13]
Corbett J (as he then was) described proceedings which are frivolous
and/ or vexatious as proceedings which are “
obviously
unsustainable and this must appear as a matter of certainty and not
merely on a preponderance of probabilities
”,
a sentiment echoed by Holmes JA in
African
Farms and Townships Ltd v Cape Town Municipality
[14]
.
[31] In the case of
Amdocs
SA Joint Enterprise (Pty) Ltd v Kwezi Technologies (Pty) Ltd
[15]
,
GS Myburgh AJ had occasion to consider the yard stick that one is to
use to determine whether a demand in terms of section 165(3)
of the
Act falls to be regarded as “frivolous, vexatious or without
merit”. After surveying the relevant case law dealing
with the
meaning of these words (including some of the cases referred to in
paragraph [30] above), the learned judge concluded
that:
“
Given the
meanings which our courts have attributed to the words ‘frivolous’
and ‘vexatious’, I think that
to seek to draw any
distinction may well amount to an exercise in splitting hairs. In my
view, the words should be given their
ordinary meaning. The result,
as I see it, is that an applicant for relief in terms of section
165(3) is entitled to succeed if
he is able to demonstrate that the
demand is without merit in the sense that it cannot succeed”.
[16]
The
learned judge goes on to state as follows:
“
It seems to me
that the correct approach is to consider the gravamen and thrust of
the demand and to ask whether, on the available
evidence, a company
might conceivably succeed in their envisaged action/s. I specifically
say “might conceivably” for
it seems to me that issues of
probability cannot properly be taken into account at this stage. The
threshold which a complainant
has to cross is a low one.
Conversely, the onus and burden of persuasion which an applicant for
relief in terms of section
165(3) bears is a rather heavy one”.
[17]
[32]
In
Lewis
Group Ltd v Woollam
[18]
,
Binns-Ward J expressed some reservation with regard to the view
expressed by GS Myburgh AJ in
Amdocs
that
the onus on the company is a “heavy” one and instead
remarked that the nature of the onus is that which ordinarily
applies
in civil litigation: the company must prove on a balance of
probabilities that the demand is frivolous, vexatious, or without
merit. According to Binns-Ward J
[19]
,
“
(
h)eaviness
does not enter the equation: there is no presumption in favour of the
complainant that its demand is not frivolous, vexatious,
or without
merit, anymore than there is one in favour of the company that it is
.
The statutory provisions do not give rise to any inherent
probabilities one way or the other
”.
With
respect, while it is correct that the nature of the onus is that
which ordinarily applies in civil litigation, it cannot be
doubted
that the evidentiary burden placed on a company is not an easy one to
discharge given the narrow basis on which a demand
may be challenged.
[33]
Whilst section 65 of the Act does not expressly prescribe the
requirements the demand must meet, the person making the demand
must
make out the basis of a cognisable claim
[20]
.
What is apparent from the wording of section 165(3) of the Act is
that the company bears the onus to show on a balance of probabilities
that the demand is completely lacking in merit, contemplating an
action that cannot succeed. To this extent, the court’s
function is a limited one and it is certainly not called upon to
adjudicate the merits of the demand but merely to ascertain whether
there is a serious issue that merits investigation.
[34]
In this matter, it is common cause that the current directors
received payments in the form of directors’ fees and that
no
special resolution was passed to sanction these payments. The main
area of dispute between the parties is the source of these
payments
and how these payments ought to be characterised. According to the
applicant, these payments were for services rendered
by its directors
to entities other than the applicant and the applicant was merely a
conduit for the payments to be made to the
directors concerned. As
such, the payment made to the directors ought not to be characterised
as revenue accruing to the applicant.
On the other hand, the
respondent has averred that the payments to the directors were in
fact management fees which the applicant
earned from the services
performed by the directors to the Entilini entities and that the
revenue earned ought to be retained by
the applicant either as
earnings and/or disbursed as dividends.
[35]
On the evidence available, and having considered the arguments of
counsel, I am of the view that the applicant has not proved
on a
balance of probabilities that the demand is frivolous, vexatious, or
without merit. I say so for the following reasons:
[35.1] Even if Parring’s
motive was improper and he had an axe to grind with the applicant due
to the litigation instituted
by the applicant against him, it cannot
be legitimately concluded that the demand
per
se
is
vexatious, frivolous, or improper. As Ndlovu J remarked in
Mouritzen
v Greystone Enterprises (Pty) Ltd and another
[21]
,
“
there
is no requirement in law that the directors of a company need to be
friends or even to be (on) talking terms.
”
In any event, all the complaints levelled against Parring are
directed against him in his personal capacity and not in his
representative capacity as a trustee of the Trust. Indeed, the Trust
is not a party to the litigation initiated by the applicant
against
Parring. In the applicant’s founding affidavit, the Trust
appears to have been tagged on as an incidental adjunct
to Parring
without any explanation.
[35.2] The directors of
the applicant appeared to have been alive to the fact that the fees
they were being paid fell to be classified
as remuneration paid to
them by the applicant. This certainly was the position of the
applicant in its founding affidavit. The
issue of directors’
fees was also the subject of a vote at a shareholders meeting held in
July 2017 where the Trust voted
against the resolution. Again, in
November 2017, the issue of directors’ fees was placed on the
agenda and was discussed
at length at the shareholders meeting.
Although there is some dispute between the parties on exactly what
transpired at the November
2017 meeting, it is not disputed that the
issue of directors’ fees was discussed within the context of
non-compliance with
section 66(8) of the Act. Indeed, repeated
reference was made during this meeting to the Act and the need for a
resolution to regularise
the payment of directors’ fees. If the
fees paid to the directors did not fall under the definition of
“directors’
remuneration” for the purposes of
section 66 of the Act, why was it considered necessary to regularise
the payment of these
fees?
[35.3] During this
hearing, counsel for the applicant was asked why the applicant was
being used as a conduit to pay the fees earned
by directors in the
Entilini entities and why these entities did not simply pay the
directors directly. The answer provided was
that although this
arrangement was not ideal, this is the way that it was done
historically. The same answer was provided in response
to a query
relating to the terms of the contractual relationship between the
Entillini companies and the applicant which obliged
the applicant to
be used as a conduit. Unfortunately for the applicant, this type of
response does not engender much confidence
in its case. This is
particularly so given the fact that in all the annual financial
statements for the relevant years, it is recorded
that the applicant
received “revenue in respect of the rendering of services”
or “service revenue” and
“management fees”,
and also records the payment of “employee costs” or
“directors remuneration”.
No explanation could be
furnished by the applicant why all the financial statements referred
to the payment of directors’
remuneration and why the payments
received from the Entilini entities were recorded as “revenue”.
Certainly, on the
face of it, it appears from the annual financial
statements that the applicant earned a fee from the Entilini
entities, and that
this fee is reflected as revenue and not as funds
received on behalf of some other persons. All these annual financial
statements
were signed by the current directors of the applicant.
[35.4] In an e-mail from
Figaji to the directors dated 23 September 2014, he makes reference
to “services to be delivered
by (the applicant)” and then
states that the remuneration for these services must be split between
Figaji, Louw and Khan
and that the applicant must remunerate these
members accordingly. Again, the indication is that it is the
applicant who was providing
the services (
albeit
through its
directors) and was being paid therefor by the Entilini entities.
[35.5] In December 2014,
an instruction was given by Louw, as the applicant’s Secretary,
to the accountants of the applicant
to pay the directors directly and
to pay over the tax (PAYE) to SARS. If the Entilini entities were the
source of the payments
to be made directly to the directors, surely
these entities, and not the applicant, would have been obliged to
withhold PAYE and
pay it over to SARS?
[36]
The Applicant raised a further contention in its heads of argument
that was not apparent from the papers. Essentially, the
applicant
argued that the demand would be vexatious if the Trust had an
alternative remedy that vested in it directly. This contention
was
not advanced by any of the applicant’s deponents and the
applicant’s heads of argument does not identify the alternative
remedy that would be available to the respondents, either jointly or
severally. The applicant sought to rely on
Mbethe
v United Manganese of Kalahari (Pty) Limited
[22]
,
a case in which a demander made an application for leave to sue in
terms of section 165(5) of the Act. The appeal court found
that there
were alternative remedies available to the demander in terms of
sections 20 and 163 of the Act and held that it would
be contrary to
the best interests of the company for the company to be forced to
take steps when those self-same steps could be
taken by the demander
eo
nomine
[23]
.
As Mr Crookes argued, in the matter at hand, the nature of the
Trust’s demand is such that the claim is not one that the
Trust
can pursue
eo
nominee
.
In the circumstances, there are no alternative means for the
respondents to obtain the same relief, as was the case in
Mbethe
.
[37]
In light of the foregoing, it certainly appears to me that the
respondents have a cognisable claim; there is a serious question
to
be answered and it cannot be said that the demand is without
substance or is meritless. Remuneration paid to directors without
the
requisite special resolution would be
ultra vires
the powers
of the applicant. The fact that payments may have been made
unlawfully is, in my view, within the ambit of what may be
considered
to be a “legal interest” of the applicant. After all, the
applicant has a duty to observe high standards
of corporate
governance and complying with the Act is one of the interests the
applicant would be obliged to protect. Indeed, the
directors of the
applicant have a fiduciary duty to ensure that the applicant complies
with its statutory obligations.
[38]
In the circumstances, I am of the view that the applicant has failed
to discharge the onus of proving that the demand is frivolous,
vexatious, or without merit.
COSTS
[39]
There are two issues of costs that have arisen in this matter.
Firstly, the costs of the application to strike out and, secondly,
the costs in respect of the application brought by the applicant to
set aside the demand (“the main application”).
[40]
In relation to the application to strike out, I found in favour of
the applicant and dismissed the application. This application
was
argued by both counsel within the context of their submissions in
respect of the main application, and comparatively little
time was
devoted to argument in respect of the application to strike out. In
addition, although the new matter introduced by the
applicant in its
replying affidavit was relevant and not prejudicial to the
respondent, it appears that the factual basis for the
new matter was
in the possession of the applicant when it drafted its founding
affidavit. Given the limited time spent on the application
and the
circumstances surrounding the introduction of the new matter in the
replying affidavit, I am of the view that it would
be just and
equitable if each party bear its own costs with regard to the
application to strike out.
[41]
In so far as the costs of the main application are concerned, the
applicant expressed the view that if it was unsuccessful,
it would be
premature for the court to make a costs order at this stage of the
proceedings and that the costs should be reserved
pending the outcome
of the report of the investigator. If proceedings were instituted for
recovery of the directors’ fees,
the court hearing that matter
could determine the costs of this application as well. If a claim is
not instituted, either party
could approach the court for an order in
relation to the costs of the main application.
[42]
I disagree with the argument advanced by the applicant. In my view,
the main application is a discrete application and, as
Mr Crookes
correctly pointed out, there might not be any further litigation on
the claim reflected in the demand. The investigation
might uncover
new facts that show the applicant has no claim, or the applicant
might sue, without compulsion, to recover the directors’
fees
following the investigation, or the directors might reach a
settlement with the applicant. The question of the costs in this
matter should, therefore, not be dictated by the future conduct of
the parties or by the result of any subsequent legal action;
this
court is perhaps in the best position to determine the issue of the
costs of this application.
ORDER
[43]
In the circumstances, I make the following order:
[43.1] The application to
strike out is dismissed, with each party to bear their own costs.
[43.2] The application to
set aside the demand served on the applicant on 18 November 2019 in
terms of
section 165(2)
of the
Companies Act 71 of 2008
, is dismissed
and the applicant is directed to pay the costs of the application.
__________________________
FRANCIS,
AJ
[1]
Attached as “BK5” to the applicant’s affidavit.
[2]
s165(3)
of the Act.
[3]
See,
Beinash
v Wixley
1997(3) SA 721 (SCA) at 733A-B.
[4]
Section 5 of the Act.
[5]
Section 7(b)(iii) of the Act.
[6]
Section 7(i) of the Act.
[7]
Section 7(j) of the Act.
[8]
s165(5) of the Act.
[9]
Caluza
v Minister of Justice
1969 1 SA 251
(N)
.
[10]
Van
Eck Bros v Van der Merwe
1940 CPD 357
.
[11]
Hyman v
Clulee
1935 TPD 176
.
[12]
Fisheries
Development Corporation of SA Ltd v Jorgensen and Another
1979
3 SA 1331
(W)
.
[13]
1969 (2) SA 256
(C) at 275C.
[14]
1963 (2) SA 555
(A) at 565D-E.
[15]
2014 (5) SA 532 (GJ).
[16]
Amdocs
SA Joint Enterprise (Pty) Ltd
,
at p
ara
[14].
[17]
Para [17].
[18]
2017 (2) SA 547
(WCC).
[19]
Lewis
Group Ltd
,
a
t
para [55].
[20]
See,
Lewis
Group Ltd,
at
para [56].
[21]
[2012] 3 All SA 343
(KZD) at para [60].
[22]
2017 (6) SA 409 (SCA).
[23]
Mbethe,
at para [33].