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2011
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[2011] ZAGPJHC 138
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Bhagwandas and Others v Dr Goolam Omar Inc and Another, Bhagwandas and Others v GMO Imaging (Pty) Ltd and Others (2009/7655, 09/07656) [2011] ZAGPJHC 138 (10 August 2011)
NOT REPORTABLE
SOUTH GAUTENG HIGH COURT, JOHANNESBURG
CASE NO
:
2009/7655
DATE:10/08/2011
In the matter between:
VERASH
KUMAR SHANTILAL BHAGWANDAS
...........
First
Applicant
ASHESH ISHWARLAL RANCHOD
................................
Second
Applicant
DIPESH HIMATLAL JOGI
N.O.
........................................
Third
Applicant
and
DR
GOOLAM OMAR INC
.................................................
First
Respondent
GOOLAM
MAHOMED OMAR
.........................................
Second
Respondent
CASE
NO: 09/07656
In the matter between:
VERASH KUMAR SHANTILAL BHAGWANDAS
....................
First
Applicant
MYSTIC BLUE TRADING 193 (PTY) LTD
..........................
Second
Applicant
VIRESH BHAGWANDAS (PTY)
LTD
......................................
Third
Applicant
DIPESH HIMATLAL JOGI N.O.
…........................................
Fourth
Applicant
HEMA HIMATLAL JOGI
N.O.
...................................................
Fifth
Applicant
MAYA NATHU PATEL
N.O.
....................................................
Sixth
Applicant
and
GMO IMAGING (PTY)
LTD
...................................................
First
Respondent
GMO HOLDINGS (PTY)
LTD
..........................................
Second
Respondent
GOOLAM MAHOMED
OMAR
.............................................
Third
Respondent
JUDGMENT
KATHREE-SETILOANE J:
[1] The
applicants, in two separate but related applications, seek final
orders for the winding up of GMO Imaging (Pty) Ltd (“GMO
Imaging”) and Dr Goolam Mahomed Omar Incorporated (GMO Inc”)
(“ the companies”), in terms of section 344
(h) of the
Companies Act, No.61 of 1973. (“the Act”), on the grounds
that it is just and equitable to do so, primarily,
because the
relationship between the parties has irretrievably broken down. On 30
November 2009, Claasens J granted a provisional
order for the winding
up of the companies.
[2] GMO
Imaging is inextricably linked to GMO Inc, which is a company through
which a radiology practice is conducted. GMO Inc is
a corporate
expression of a partnership of radiologists. The radiology services
at GMO Inc were rendered by radiologists Dr VKS
Bhagwandas (“Dr
Bhagwandas”), Dr AI Ranchod ( “Dr Ranchod”) Dr DH
Jogi (“Dr Jogi”), all of
whom are applicants in both
applications, and Dr M. Omar (“Dr Omar”), a respondent
in both applications. Drs Omar
and Bhagwandas were full time
professional staff in the practice, whilst Drs Ranchod and Jogi were
locums.
[3] The
applicants as well as Dr Omar have an ownership interest in the
companies. Dr Omar, who is currently in his late sixties,
founded GMO
Inc in 1994. He holds 50% of the shares in GMO Inc and 52.14% of the
shares in GMO Imaging held in the name of GMO
Holdings (Pty) Ltd (the
second respondent in the second application. He is a director of
both GMO Inc and GMO Imaging. Dr Bhagwandas
became a shareholder in
GMO Inc in 2002 at the invitation of Dr Omar. On the applicant’s
version Dr Bhagwandas holds 40%
of the shares in GMO Inc. However,
the respondents maintain that he only owns 37.86% of the shares in
GMO Inc. Dr Bhagwandas also
owns 40% of the shares in GMO Imaging
held in the name of Viresh Bhagwandas (Pty) Ltd ( the third applicant
in the second application).
He is a director of both GMO Inc and GMO
Imaging. Dr Jogi is a 5% shareholder in GMO Inc, and a 5% shareholder
in GMO Imaging,
held in the name of the Dipesh Jogi Family Trust. Dr
Ranchod also owns 5% of the total 100 shares in GMO Inc, and 5% of
the total
100 shares in GMO Imaging held in the name of Mystic Blue
Trading 193 (Pty) Ltd (the second applicant in the second
application).
[4] GMO
Imaging was formed to provide a structure to allow for certain
functions ancillary to GMO Inc to be performed by it, thereby
generating an income for GMO Imaging. GMO Imaging owns the
radiological equipment which is used by GMO Inc in return for
financial
consideration. These monies are apparently GMO Imaging’s
primary source of income. The applicant’s allege that the
business of the two companies was conducted in a manner in which GMO
Imaging was used to siphon profits from GMO Inc, thus allowing
non-radiologists, in the form of GMO Imaging and some of its
shareholders which included members of Dr Omar’s family, to
share in the profits of a radiology practice, under the guise of this
being compensation for the use of GMO Imaging’s radiological
equipment. They submit that this is in contravention of the
applicable rules of the Health Professional Council of South Africa
(“HPCSA”) and the Radiological Association of South
Africa (“RASA”) because it results in non-radiologists
sharing in the profit of radiologists. The applicants accordingly
contend that the so-called improper structure of the relationship
between GMO Inc and GMO Imaging is a further reason why it would be
just and equitable that the companies be liquidated.
[5] GMO
Inc conducted its radiology practice from premises, at Lenmed Clinic,
leased by GMO Imaging from Lenmed Clinic. The applicants
allege that
although there was no sub-lease, GMO Inc occupied the leased premises
and conducted its business from here in contravention
of the
provisions of the head lease between Lenmed Clinic and GMO Imaging.
On 11 February 2009, GMO Imaging received a letter of
breach from
Lenmed Clinic placing it in breach of the lease, arising from the
sub-letting of the premises to GMO Inc, which was
prohibited in terms
of the lease. On 16 March 2009, a meeting was held between Lenmed
Clinic, Dr Omar, his son Farhad Omar ( the
practice manager), and Dr
Bhagwandas at which Lenmed Clinic raised its concerns. On 29 June
2009 a further letter was received
from Lenmed Clinic cancelling the
lease and ordering GMO Inc, which conducted the radiology practice,
to vacate. Lenmed Clinic
gave notice of termination of the lease on
30 June 2009, and the lease was terminated with effect from 31
December 2009.
[
6] Since
the granting of the provisional order on 30 November 2009, GMO
Imaging and GMO Inc have ceased to trade. The premises,
at Lenmed
Clinic, from which the radiology practice operated has been vacated
since 31 December 2009, following the cancellation
of the lease of
the premises by Lenmed Clinic. The radiologists that actively served
the practice (the applicants) have resigned
and found alternative
practice opportunities, and the staff who worked for the companies
have also resigned. This notwithstanding,
on 30 April 2010, some five
months after the grant of the provisional orders for the winding up
of the companies, and four months
after the termination of the lease
of the practice’s premises by Lenmed Clinic, and the cessation
of the radiology practice
engaged in by the companies, the
respondents brought a counter application in which they
inter
alia
seek an order:
(a)
discharging
the provisional orders for the winding up of the companies;
(b) order
ing
and directing the applicants to purchase Dr Omar’s shares in
the provisionally liquidated and non-trading companies at
fair market
value as at 1 December 2010 as if the businesses were sold between a
willing buyer and willing seller without any encumbrances
and/or
regard being had to the current dispute between the shareholders and
the respondents, and the respondents and the Lenmed
Clinic in respect
of the lease with the value of the shares to be determined on the
basis that the companies are going concerns,
and the valuer shall not
take into account the provisional liquidation orders in respect of
the companies or the cancellation of
the lease and shall not
discount the price by reason of the aforesaid; and
(c) ordering
that the purchase consideration for the shares and claims in the
respondent companies shall be determined by an expert
valuer agreed
upon between the parties within 10 days of the grant of an order and
failing such agreement, the v
aluer
shall be appointed by the president for the time being of the South
African Institute of Chartered Accountants, provided that
if so
appointed, the valuer shall be a registered chartered accountant of
not less than 15 years standing.
Irretrievable breakdown of the parties
[
7] Central
to the determination of both final winding up applications, and the
counter-application, is the question of whether sufficient
grounds
exist for the provisional order to be made final or be discharged. It
is common cause that there has been an irretrievable
breakdown in the
relationship between the parties. This commenced with the
deterioration in the relationships resulting from the
so-called N17
matter, which is the subject of a different application, in which
inter
alia
Drs Bhagwandas, Jogi and Ranchod, and Dr Omar’s son, Farhad are
involved. The N17 dispute was extremely acrimonious and led
to
increased animosity and dissension between the parties in relation to
the management and functioning of the companies. This
acrimony had
spilled over to affect the relationship of Dr Omar and Farhad, on the
one hand, with that of Drs Bhagwandas, Ranchod
and Jogi on the other.
[8] Dr Omar,
and his sons Farhad and Azim ( Azim was employed at GMO Inc as its
bookkeeper) had as a result sought to have Dr Bhagwandas
removed as
a director of the companies. They had also made numerous allegations
of fraud and misconduct against Drs Bhagwandas,
Jogi and Ranchod,
culminating in a physical altercation between Farhad and Dr Jogi that
resulted in the pressing of assault charges.
The applicants allege
that the Omar’s attempts to remove Bhagwandas as director of
GMO Inc were part of a campaign of harassment
by Dr Omar and Farhad
against Drs Bhagwandas, Ranchod and Jogi in retaliation for having
taken legal action against Farhad in the
N17 matter. The applicants,
in turn, accuse Dr Omar and Farhad, in particular, of having
committed numerous financial irregularities,
and general
mismanagement of the companies thus causing difficulties in paying
staff and creditors. In this regard, they contend
that irrespective
of the shareholding in the entities through corporate persons or
trusts, the personal relationship between the
parties, primarily as
partners in a medical practice, is what underpins the companies, and
the breakdown in the relationship between
the partners is thus fatal
to the survival and future of the companies , and hence the primary
ground for the confirmation of the
provisional liquidation orders.
Unclean Hands
[
9] However,
in an effort to avoid the confirmation of the provisional liquidation
orders, the respondents contend that the applicants
have come to
court with “unclean hands” as the confirmation of the
provisional liquidation orders are sought with an
ulterior or
improper motive. They allege that the winding up applications are
part of a scheme to obtain control of GMO Inc, by
setting up a
competing business, and the applicants have acted in breach of their
fiduciary duties in doing so. Significantly,
the respondents allege
that subsequent to the grant of the provisional liquidation order,
the applicants opened a new competing
practice next door to GMO Inc’s
premises, at Lenmed Clinic, under the name and style of Ranchod &
Jogi Inc (“R&J
Inc”). The establishment of this new
practice, they contend, had been planned and orchestrated months
prior to the set down
of the provisional liquidation applications.
They allege further that Drs Bhagwandas, Ranchod and Jogi had
contrived to bring about
a situation where Dr Omar could no longer
function in GMO Inc, and in so doing created a deadlock so as to
establish grounds for
the winding up of GMO Inc and GMO Imaging.
[10] Having
regard to the evidence presented in this application, I am not
persuaded by the respondents’ argument that Drs
Bhagwandas,
Jogi and Ranchod had concocted a scheme to bring about the demise of
GMO Inc so as to establish a competitor to the
companies. As
indicated earlier, the irretrievable breakdown in the relationship of
the parties has its genesis in a dispute,
which had arisen between
certain of the parties in this application in relation to a company
by the name of the N17 Imaging (Pty)
Ltd, in which Drs Bhagwandas,
Ranchod and Jogi and Farhad Omar, in particular, came into conflict
with each other. The acrimony
generated by those proceedings, which
is evidenced by the laying of criminal charges of assault by Farhad
against Dr Jogi negatively
affected the parties working relationship
in the companies and was the cause of the ultimate collapse of the
effective management
and administration of the companies .
[11] This
then resulted in a letter being sent in June 2008, on behalf of Dr
Omar, calling on Dr Bhagwandas to resign as a director
of the
companies. The letter precipitated the launching of these
applications. The applications to wind up the companies were launched
in February 2009, following the failure of attempts to arrange a
buy-out of the parties’ respective interests in the companies
amicably. The applicants tendered to sell their interests in the
companies to the respondents, but the tender was rejected. The
respondents filed their answering affidavits in April 2009. The
stance adopted by the respondents, in this affidavit, only served
to
aggravate and elevate the acrimony between the parties due to the
allegations made therein, and quite expectedly, the companies’
management, administration and functioning began to suffer
irreparable damage. Meetings between the members failed to consider
the business on the agenda and resulted in deadlock and conflict. In
fact, it is clear from the evidence that the breakdown in
the
governance of the companies as a result of the deteriorating
relationships between the parties was already evident in the last
quarter of 2008.
[12] During
the course of the second half of 2009, it became clear that the
companies would be unable to survive much longer due
to the deadlock.
The aging equipment, adverse effect on staff morale and consequent
loss of confidence from referring practitioners
─ the companies
primary source of income-generating work ─ further exacerbated
the situation. On 25 June 2009, Dr
Omar and his son Farhad abandoned
the practice, by absenting themselves. In fact, Dr Omar made himself
unavailable to render any
professional work to the companies. Within
days of the Omar’s abandoning the practice, and on 29 June
2009, Lenmed Clinic
gave notice of termination of the lease (the
lease was recorded as terminating on 31 December 2009), having
already placed GMO
Imaging in breach of the lease in February 2009.
The cancellation of the lease by Lenmed Clinic sounded the death
knell for the
companies, severely jeopardising their future operation
and continuation. I am unable to place much weight on Dr Omar’s
allegations
that “[d]uring the entire period that the
application[s] for liquidation were being defended, the operation of
[the companies]
were continuing” and that he “was under
the impression that the practice of GMO Inc was continuing during
September,
October and November 2009”, as the evidence
demonstrates that he never visited the practice subsequent to his
abandonment
of it on 25 June 2009. Nor did he play a constructive
part in the operation of the practice since that date.
[1
3] In
October 2009, Drs Ranchod and Jogi resigned as locums, and started
making arrangements to set up a new radiology practice
under the name
and style of R&J Inc. At the end of October 2009, they informed
the staff at GMO Inc that they were setting
up a new practice, and
extended an offer of employment to them. The staff of GMO Inc then
resigned in November 2009, and the provisional
winding up order was
granted soon thereafter on 30 November 2009.There is no merit in the
contention that the majority of staff
at GMO Inc were coerced into
resigning from GMO Inc and joining R&J Inc. The evidence clearly
demonstrates that the GMO Inc
staff resigned on becoming aware of the
new practice that was to be opened by Drs Ranchod and Jogi. This was
completely understandable,
and expected, as it was futile for the
staff to remain in a practice that was fraught with dissension and
conflict amongst its
protagonists, as a result of which two of the
locums had resigned, the founding director and practice manager had
abandoned ship,
and the lease had been cancelled.
[14] There
was, in my view, a clear recognition, by the staff, that it was
just a matter of time before the staff and the patients
would become
victims of the internecine strife in the practice ─ which in
all likelihood was soon to be provisionally liquidated
. In any
event, I see nothing wrong with inducing staff to join a new
company, provided the motive is to benefit from their service,
and
not to cripple or eliminate the business competitor (
Atlas
Organic Fertilizers (Pty) Ltd v Pikkewyn Ghwano (Pty) Ltd and Others
1981
(2) SA 173
(T)). I therefore find no basis on the papers to make a
finding that Drs Ranchod and Jogi had coerced the staff of GMO Inc to
leave
the practice with the motive to destroy the practice.
[15
]
Therefore, and in so far as it is alleged that Drs Ranchod, Jogi and
Bhagwandas have breached their fiduciary duties, I am of
the view
that Drs Ranchod and Jogi do not owe a fiduciary duty to the
companies as neither of them are directors. As shareholders,
they do
not owe a fiduciary duty to the companies. As young professionals, it
was not unreasonable or inappropriate, for that matter,
for them to
free themselves from the affairs of the companies, which were by that
stage plagued by animosity, deadlock, and the
lack of a cohesive,
functional and effective administration and management. It was
equally reasonable and appropriate for them
to have sought to ensure
their continued professional development and survival by setting up
another practice at Lenmed Clinic.
[1
6] Likewise,
Dr Bhagwandas cannot be accused of breaching his fiduciary duties. He
is not a member of R&J Inc but is merely
an employee. He
continued his employment and execution of his management and
administration duties for the companies until his
resignation,
effective 31 December 2009. Unlike Mr Omar, he attended at the
companies’ premises until his resignation. He
then took up
employment with R&J Inc since it was pointless to persist in
effectively unpaid employment for the companies.
I am also of the
view that there is no cogency in the respondents’ contention
that R&J Inc is in unlawful competition
with the companies, and
in breach of a purported exclusivity arrangement contained in the
lease with Lenmed Clinic. The lease was
cancelled with effect from 31
December 2009, notice having been given on 29 June 2009. As contended
for by the applicants, the
lawful cancellation of the lease renders
its provisions inoperative and of no continuing legal force and
effect. It is therefore
difficult to see how R&J can be in
unlawful competition with the companies, since they no longer have
any contractual entitlement
or exclusivity to the premises located at
Lenmed Clinic. As contended, correctly so, by the applicants, the
lease was, in any event
concluded with GMO Imaging, and GMO Inc had
no legal right to occupy the premises in the first place.
[1
7] Dr
Omar, however, disputes that the lease was breached and that Lenmed
Clinic was entitled to terminate it. In addition, Dr Omar
contends
that the failure to exercise the option to renew the lease was
brought about by the applicants. Although the applicants
deny any
such wrongdoing, the respondents have failed to adduce evidence to
the contrary. Nor have they, for that matter, pursued
the dispute
relating to the termination of the lease with Lenmed Clinic, the
landlord. It accordingly serves little purpose for
the respondents at
this stage of the proceedings, and when there is little hope of
restoration of the companies, having regard
to the irretrievable
breakdown in the relationship of the parties, to dispute that the
lease was breached and was unlawfully terminated.
[18
] The
respondents also contend that the applicants caused the freezing of
the companies’ bank accounts, and filed a “self
serving”
complaint to the HPCSA regarding the relationship between the
companies in order to attempt to justify their winding
up. With
respect to the freezing of the companies’ bank accounts, that
step was taken by the companies’ bank in an
effort to create a
mechanism to address conflicting instructions from the parties with
respect to the handling of the funds of
the companies, and not by the
applicants. The accounts are strictly speaking not frozen, and
continue to be used to make payments
to creditors of the companies as
needed. I also see no basis, on the papers, for the contention that
the complaint filed with HPCSA
was “self-serving” or
improper. To the extent that the applicants were of the view that the
structure of the companies
contravened the applicable professional
regulations governing the conduct of a radiology practice, they were
entitled to file a
complaint with the HPCSA, in an effort to put
right the affairs and structure of the companies. In fact as a
director of both companies,
Dr Bhagwandas was under a fiduciary
duty to lodge a complaint with the HPCSA once he became aware that
the structure of the companies
was in contravention of the applicable
professional regulations governing the conduct of the practice.
[19] It is
alleged by the respondents that R& J Inc commenced its operations
by making use of the radiology equipment belonging
to GMO Imaging at
no cost to themselves, and without obtaining the prior consent of the
liquidators. They further allege that R&J
Inc currently makes use
of the MRI scanner at a nominal rental. I am of the view that there
is no merit in the respondents’
allegations that the applicants
have improperly used the companies’ equipment, as the evidence
demonstrates that arrangements
have been made with the provisional
liquidators for the payment of rental or usage fees for certain
equipment. As submitted by
Mr Bam SC, the precise calculation of the
extent of any usage and attendant fees likely will form part of a
final accounting and
reconciliation by the liquidators. Dr Omar’s
attempts to cast this as wrongful and unlawful conduct by the
applicants is
thus rejected.
[20] Similarly,
Dr Omar’s contention that the applicants have misappropriated
confidential trade information belonging to
GMO Inc such as its data
base, customer lists, service supply agreements with certain
hospitals, and referral lists of certain
doctors in order to
“springboard” and carry on the new practice, is rejected
as the respondents have presented no evidence
of misuse of this
information. The respondents furthermore submit that the
“substratum” of GMO Inc’s practice
and GMO Imaging
has in effect been hijacked and is now being conducted by the
applicants under the guise of a new practice. This
conduct, they
argue, amounts to the stripping of the goodwill, assets and income of
the companies for the applicants own benefit.
In response, the
applicants contend that Dr Omar has manufactured an exorbitant and
artificial value for the goodwill of the
companies, when the only
possible source of any goodwill in the companies ─ the
professional services rendered by the radiologists
who participated
in the practise ─ has been extinguished by the operation of
the provisional orders of liquidation and subsequent
events which
include the cancellation of the lease, the cessation of the practice,
and the resignation of the staff and the professionals
in the
companies. Accordingly, I am of the view that whilst historically
there may have been goodwill in the companies, this has
dissipated
since the granting of the provisional orders of liquidation.
[
21] Significantly,
in addition to alleging that Drs Bhagwandas, Jogi and Ranchod have
shown improper motive by bringing about the
demise of the company and
setting up a radiology practice in direct competition with GMO Inc,
they allege that the applicants have
acted unreasonably in seeking to
have the companies wound up instead of pursuing alternative remedies.
As indicated earlier in
this judgment, they seek an order, in terms
of the counter application, that the applicants be compelled to
purchase Dr Omar’s
shares at a fair value to be determined by
an independent third party. The respondents contend, in this regard,
that the applicants
did not make reasonable endeavours to pursue an
alternative remedy as contemplated in section 347(2) of the Companies
Act 61 0f
1973. They allege that on 26 January 2009 the applicants’
attorney addressed a letter to the respondents’ erstwhile
attorney in which it gave the following undertaking:
“
We
confirm that we will take instructions from our respective clients in
relation to the possibility of a non-litigious split (premised
upon a
buy-out of shares in GMO Inc and GMO Imaging at a value to be
determined
by
an independent expert). We will then revert to each other in due
course. In the interim, and until further notice, no steps of
a legal
or litigious nature will be taken.”
However, they contend that on 20 February 2009, notwithstanding this
undertaking, the applicants launched the winding up application,
having declined to further engage the second respondent on a proposed
buy-out of shares in the companies.
[
22] I
remain unconvinced by the respondents’ contention that the
applicants had declined to engage the respondents on the
buy-out of
Mr Omar’s shares in the companies prior to the launch of the
winding up application. The efforts to negotiate
a buy-out of the
parties’ respective interests in the companies most certainly
pre-dated the launch of the winding up application.
Prior to
launching the main applications, the applicants sought to avoid
litigation by
inter
alia
proposing that GMO Inc and GMO Inc be valued, and that the applicants
buy out Dr Omar and the other shareholders that hold shares
in the
companies, for a fair and reasonable price.
[23] However,
Dr Omar unreasonably rejected these attempts to resolve the impasse
between the parties while the companies were
still commercially
viable entities. This much is evident from the following events. At
a shareholders’ meeting on 8 October
2008, a proposal that the
companies be voluntarily wound-up was defeated by Dr Omar’s
vote against the proposed resolution.
Thereafter, in early November
2008, discussions aimed at an amicable and equitable parting of ways
were held, which initially
canvassed both the possibility of the
applicants buying out Dr Omar’s shares in the companies, and
vice
versa
.
This proposal resulted in Dr Omar proposing that the applicants buy
out his shares, to which the applicants agreed in principle.
Shortly
thereafter, however, Dr Omar changed his mind and indicated that he
wished to be afforded the opportunity to find a suitable
purchaser
for the entire shareholding of the two companies and, unrealistically
so, indicated that he thought that R21 million
would be a fair price
for his shares in the two companies. On 12 November 2008, the
applicants addressed a letter to Dr Omar
inter
alia
seeking Dr Omar’s agreement in principle that the applicants
buy out his shares at a fair value to be determined by an expert
from
one of the “big four” accounting firms, which they viewed
as a fair and objective manner of valuing a business.
[2
4] Dr
Omar’s responded in a letter dated 17 November 2008. His
response was so absurd as to lead to the interference that
it was not
written in good faith. Dr Omar i
nter
alia
purported to record an “agreement” that, in the event of
him buying the applicants’ shares, Dr Bhagwandas would
become
indentured labour for the practice for a period of five years.
Understandably so, Dr Bhagwandas contends that he would never
have
willingly agreed to such a proposal, not least because of the
breakdown in the relationship between himself and Dr Omar. In
addition, he says, agreeing to such a proposal would effectively
leave him to maintain the practice without Dr Omar’s input
(as
was the case), but without sharing the profits – something that
would never have been within his contemplation. Dr Omar
furthermore
purported to record an “agreement” that, in the event of
him introducing a purchaser for the entire shareholding
of the
companies, he would be entitled to retain any amount received above
R30 million. The applicants contend that there was no
such agreement,
and there is no reasonable possibility of the business being valued
at anything close to R30 million, let alone
a purchaser being found
who is willing to pay this amount. Dr Omar also insisted upon the
applicants furnishing “guarantees”
for R15 million to be
“lodged” with him as a precursor to any valuation being
undertaken, when there was no basis for
the furnishing of such
guarantees.
[25
] Dr
Omar also wished to retain the right, after a valuation had been
obtained, to decide at his sole discretion whether he would
purchase
the applicants’ shares or
vice
versa.
The
applicants, nevertheless, persisted in their attempt to achieve a
non-contentious split from Dr Omar by addressing a letter,
dated 21
November 2008, to Dr Omar, in which they attempted to reason with Dr
Omar in relation to his proposal. Amongst other things,
the
applicants attempted to convince him that it would be preferable and
fair to determine, at the outset, who will buy out whom.
It was
argued that, in light of the long careers still ahead of the
applicant’s, as well as the fact that Dr Omar had indicated
to
them on several occasions that he wished to retire shortly (he is in
his late sixties), the most sensible and practical course
would be
for the applicants to buy his shares. The applicants indicated their
agreement with his suggestion that the appointed
valuator be someone
with expertise in the industry.
[2
6] However,
Dr Omar’s reply, dated 1 December 2008, made it clear to the
applicants that Dr Omar had no desire to settle the
dispute on
equitable terms. He persisted in his contention that Dr Bhagwandas
had agreed to be employed by him for a period of
five years after any
buy- out. He also continued to insist upon the furnishing of
“guarantees”, even though ostensibly
he had not yet
decided whom he would prefer to be the seller and whom the purchaser
in the transaction. I am of the view that this
letter unequivocally
demonstrated an unwillingness on the part of Dr Omar to resolve the
dispute on amicable and equitable terms.
[27
]
Dr Omar and Farhad subsequently terminated their attorney Eliott’s
mandate, and retained the services of Duncan Okes Inc.
On 25 January
2009, the applicants’ attorney received a letter from Duncan
Okes Inc. Significantly, the letter acknowledged
that “…the
shareholding relationship is at an end…”, but did not
propose any mechanism by which a split
may be achieved. Indeed, it
accused the applicants of acting in bad faith for having attempted to
achieve a non-litigious parting
of ways in the terms outlined above.
[2
8] The
applicants argue that had their efforts at negotiating a buyout been
successful, the deleterious effects on the business
of the
irretrievable breakdown in the relationship between the parties could
have been avoided. They are now adamant, however,
that a buy-out is
simply no longer a viable, just or equitable alternative to the final
winding up of the companies in view of
the current circumstances of
the parties and the companies. GMO Inc currently has no premises
from which to operate; and there
are neither professional nor
administrative or clerical staff available to generate fees or run a
radiology practice. GMO Imaging
basically exists on the back of
labour performed by the radiologists in GMO Inc. Hence, the income
stream on which GMO Imaging
depends is entirely reliant on the
sustainability of GMO Inc. The breakdown in the relationship between
the parties in GMO Inc,
and its subsequent termination has
effectively put an end to GMO Imaging’s existence as well.
The buy-out counter-application
[2
9] The
relief sought by the respondents in the buy-out counter-application
is legally novel , and unprecedented. Whilst such relief
may be
sought under section 252 of the Act where a member of a company is
able to demonstrate that the affairs of the company are
being
conducted in an unfairly prejudicial, unjust or inequitable manner in
relation to that member, there is no precedent for
the grant of such
relief in a section 344(h) winding up application. The relief
sought in the counter-application, moreover,
in my view, seeks to
ignore the facts and the circumstances before the Court, replacing
them with several layers of fiction which
I deal with below.
[
30]
The first of these fictions is apparent from prayers 5 and 6 of the
notice of motion in buy-out counter-application, in terms
of which
the respondents seek a “fair market value” for Dr Omar’s
interest in the companies. Given the termination
of the lease for the
premises by Lenmed Clinic, and the resultant termination of the
business of the practice, there is no going
concern extant and
available for purchase. It therefore follows that a fair market
value of an interest in a non-trading provisionally-liquidated
company without premises, staff or a professional source of business
or fee earners is unlikely to be very high. Such value would
be the
realisable value of the companies’ radiology equipment, and the
cash in the bank, less extant liabilities ─
or those likely to
be realised through liquidation. Accordingly, and in order to
circumvent this problem, the respondents ask this
Court to create a
fiction and value the businesses on the basis of a fantasy –
namely, as if the businesses were sold between
a willing buyer and
willing seller without encumbrances and/or regard being had to the
current dispute between the applicants
and the respondents, and the
respondents and Lenmed Clinic in respect of the lease, with the value
of the shares determined on
the basis that the companies are going
concerns and the liquidator should not take into account the
provisional liquidation orders
or the cancellation of the lease.
[31] The
buy- out application seeks resolution of the terms of a buy-out on
the willing buyer and willing seller principle when
the evidence
clearly demonstrates that the applicants are not willing buyers, and
in fact oppose being forced to purchase a business
of little value
for an inflated sum. This buy-out counter-application, in my view,
ought to be dismissed on the mere fact that
a buy-out was proposed by
the applicants, at a time when the companies were still viable
concerns, but was unreasonably rejected
by Dr Omar. The relief sought
in the buy-out application, moreover, ignores the fact that the
companies’ creditors will
suffer prejudice. It is important to
recognise, in this regard, that the companies are not without
encumbrances, given that they
have debts owing to creditors, which a
final liquidation would more effectively address and resolve. I
cannot be expected to simply
ignore these important considerations.
[
32]
The respondents are in effect calling upon this Court, in the buy-out
counter application, to endorse a fiction by ignoring
the
consequences of the current dispute, the provisional liquidation
order, the cancellation of the lease by Lenmed Clinic, and
by
treating the companies as if they remain going concerns. A buy-out is
simply no longer a viable option given the cancellation
of the lease
by Lenmed Clinic of the premises from which the practice operated.
This has the inevitable and unavoidable consequence
that the practice
has ceased to exist, and there is therefore no business to purchase
in resolution of this dispute. In view of
the uncertainties,
conjecture and imprecision that is likely to follow from the
respondents proposed fictional approach to the
valuation of the
companies, the grant of the relief sought in the buy-out
counter-application is clearly inappropriate.
[33] The grant
of such relief is also pointless, having regard, in particular, to
the fact that there is a feasible alternative
available, which is
grounded in settled law and reality ─ not fantasy or fiction.
This would involve the sale of assets by
the court appointed
liquidators and division of all proceeds between the parties,
following the discharge of the companies’
obligations. In
short, I am of the view that the buy-out proposed in the
counter-application is legally and factually unsustainable,
and the
time for a buy-out of the companies has long passed. I am similarly
of the view that the applicants had made good faith
endeavours to
resolve the problems experienced by the companies prior to launching
the winding up applications. The conduct of
Dr Omar, in these
endeavours, however, speak for itself. It was he who prevented a
sensible and reasonable solution to the dispute.
In fact, he
categorically stated, in the answering affidavits in both
applications, that “in any event I do not wish to sell”
and “Bhagwandas, Jogi and Ranchod do not have the funds to
purchase my shares” thus rejecting the proposed buy-out
of his
interests in the companies by the applicants. Dr Omar, now
conveniently seeks to undo the damage of his rejection by creating
a
legally impermissible fiction in order to punish the applicants for
his rash and unreasonable conduct.
[34
] Basically,
the essence of the buy-out application is to compensate the Dr Omar
for damages and loss which he perceives to have
occurred to him
personally. This, in my view, is tantamount to seeking punitive
relief in the form of punitive damages against
the applicants. This
is simply not countenanced by our law. Even in circumstances relating
to infringement of constitutionally
guaranteed rights, our courts
have declined to allow such damages. Awarding damages in terms of
section 252 of the Act is also
legally novel, and the power to do so
is not evident from the wording of the section. Whilst it may be
appropriate, under section
347(1)A of the Act, for a court to award
damages where it is satisfied that an application for the winding up
is an abuse of the
court’s procedure or is malicious or
vexatious, I am of the view no such case has been made out by the
respondents.
[
35] A
further material factor that the buy-out counter application seems to
ignore is that the applicants were entitled to act as
they did
seeking the provisional liquidation of the companies, and securing
their professional livelihoods with alternative employment.
They are
each young professionals with decades of fee-generating practice
ahead of them, and should not be held hostage by the
paralysis of the
companies as a result of, first, the irretrievable breakdown in the
relationship between the parties and, second,
the operation of the
provisional orders.
[36
] Accordingly,
I am of the view the most appropriate, just and equitable resolution
to this dispute, for all the parties involved,
is to realise the
companies’ value by the liquidator and distribute any proceeds
to the parties, thus ensuring a final and
certain end to their
entanglement. Accordingly, the final liquidation of the companies
would be the most just and equitable outcome
to these proceedings.
Such an outcome would accurately, justly and equitably address the
actual circumstances that the parties
find themselves in as a result
of the breakdown in their relationship and, as a consequence, the
demise of the companies. In the
premises I am of the view that given
the current state of the companies it would not be appropriate for
this court to grant the
relief sought in the buy-out
counter-application. A buy-out is no longer a viable, just or
equitable alternative to the final
winding up of the companies. In
the circumstances, I am satisfied that no other remedy is available
to the applicants, and they
have not acted unreasonably in seeking
to have the companies wound up instead of pursuing a buy-out of the
companies. The buy-out
counter-application accordingly falls to be
dismissed, with costs.
[3
7] I
am of the view that the applicants have satisfied this Court, on a
balance of probabilities, that it is just and equitable
for it to
grant a final order for the winding up of the companies as the
relationship between the parties have irretrievably broken
down. This
has resulted in the deadlocked administration of the companies,
continuous quarrelling, heightened animosity, and the
absence of any
hope of restoration of the companies to a functional state of
affairs, which are common cause. These circumstances
have been
further exacerbated by the cancellation of the lease of the
companies’ premises by Lenmed Clinic, and the consequent
fatal
impact of this on the companies’ prospects of future business
and income generation, which are again common cause facts.
[3
8] The
respondent have submitted in somewhat vague and generalised terms
that the affidavits filed by the parties are extremely
voluminous
and give rise to various disputes of fact. They have, however, failed
to set out with any specificity what the nature
of these disputes
are. Not surprisingly therefore, the applicants have submitted that
there are no material disputes of fact, and
that on the
Plascon-Evans
test
the applicants are entitled to the relief sought. Having considered
the submissions of both the applicants and the respondents,
I am of
the view that there are indeed no bona fide disputes of fact on the
papers, and to the extent that they may have been disputes
relating
to the shareholding of the applicants and their
locus
standi
to bring the winding up applications, this has been conceded by the
respondents.
[39] I am
therefore of the view that the common cause facts, and in particular
those relating to the irretrievable breakdown of
the parties, warrant
the granting of the relief sought in the two winding up applications.
The applicants cannot reasonably be
expected to continue their
association with Dr Omar, in view of the manifest ill will and
mistrust which currently exists between
the parties. The generation
of income by GMO Inc, and the resultant income of GMO Imaging is
dependant on the labour of the medical
professionals that work in GMO
Inc. The relationship of these professionals is therefore crucial to
the success of the entities.
Their breakdown has, however, now
rendered the companies non-functional and unsustainable with no hope
of being resuscitated. Accordingly,
on the common cause facts there
is no business to be carried on, the lease has come to an end, the
staff and professional radiologists
have resigned, the relationship
between the parties has irretrievably broken down – and the
partners are unable to work with
one another or deal with one another
and there is no hope for reconciliation between them.
[40] In the
circumstances, I am of the view that it is just and equitable for the
companies to be finally wound up. Having regard
to the conclusion
which I have arrived at, there is no need to make a determination on
whether it would, in addition, be just and
equitable for the
companies to be wound up on the grounds of the so-called improper
relationship between GMO Inc and GMO Imaging.
[41] I am
satisfied that the applicants have complied with the requirements of
section 346(4A) of the Act, and that they have complied
with the
notice requirements prescribed in the provisional winding up order.
In the result
I make the following order in respect to the GMO Inc application
under case no. 09/07655:
(a)
winding
up of GMO Inc in the hands of the Master
(b)
the
costs of this application be costs in the winding up, which costs
shall include the costs of three counsel.
(c) the second
respondent is ordered to pay the reserved costs
of 28 July 2009, 23 February 2010, 10 May 2010 and 12 October 2010.
In the result I make the following order in respect of the GMO
Imaging application under case no. 09/07656:
winding up of GMO Imaging in the hands of the Master
the costs of
this application be costs in the winding up, which costs shall
include the costs of three counsel.
the second
and third respondents are ordered to pay the reserved costs
of
14 April 2009, 23 February 2010, 10 May 2010 and 12 October 2010.
The
counter-application
is dismissed with costs, including the costs of three counsel.
F.KATHREE-SETILOANE
JUDGE OF
THE SOUTH GAUTENG HIGH COURT, JOHANNESBURG
COUNSEL FOR
THE APPLICANTS:
.................
MR
BAM SC
…
.............................................................................
MF
WELZ
…
.............................................................................
MM
LE ROUX
ATTORNEYS FOR THE APPLICANTS:
.............
WERKSMANS
INC
COUNSEL FOR
THE RESPONDENTS:
….......
MR
R.D LEVINE SC
…..............................................................................
MR
S KUNY
ATTORNEYS FOR THE RESPONDENTS:
........
DAVID
KAHN & ASSOCIATES
DATE OF JUDGMENT:
........
10 AUGUST 2011
DATE OF
HEARING:
............
8
FEBRUARY 2011