De Sousa and Another v Technology Corporate Management (Proprietary) Limited and Others (2010/50723) [2017] ZAGPJHC 109; [2017] 3 All SA 47 (GJ); 2017 (5) SA 577 (GJ) (31 March 2017)

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[2017] ZAGPJHC 109
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De Sousa and Another v Technology Corporate Management (Proprietary) Limited and Others (2010/50723) [2017] ZAGPJHC 109; [2017] 3 All SA 47 (GJ); 2017 (5) SA 577 (GJ) (31 March 2017)

Links to summary

IN
THE HIGH COURT OF SOUTH AFRICA
SOUTH
GAUTENG LOCAL DIVISION, JOHANNESBURG
CASE
NO: 2010/50723
DATE:
31- 3 - 2017
In the
matter between -
DE SOUSA
,
LUIS MANUEL RITO VAS
1ST PLAINTIFF
DIEZ
,
JOSE MANUEL GARCIA
2ND PLAINTIFF
and
TECHNOLOGY CORPORATE MANAGEMENT
(PROPRIETARY) LIMITED
1ST DEFENDANT
CORNELLI
,
ANDREA
2ND DEFENDANT
DA
SILVA
, TONY
3RD DEFENDANT
HASSIM
,
IQBAL
4TH DEFENDANT
CASTELLUM TRUST LIMITED
5TH DEFENDANT
JUDGMENT
BORUCHOWITZ J:
[1] This
is an action brought at the instance of two minority shareholders for
relief in terms of s 252 of the Companies Act,
No 61 of
1973, as amended (the Act).
[2] The
plaintiffs, acting jointly, seek relief in the first instance against
the first defendant, Technology Corporate Management
(Pty) Limited
(TCM), and in the alternative, against the second, third and fifth
defendants.  TCM is a nominal defendant as,
in substance, the
dispute is between the shareholders.
[3] TCM
was incorporated in 1987.  It is engaged in the sales, supply
and maintenance of computer systems, and is a distributor
of computer
hardware, software and related products, and performs value added
services.  It has several subsidiaries and is
the holder of
shares in the following companies:  TCM Management (Pty)
Limited;  TCM Software & Services (Pty)
Limited;
TCM Networks (Pty) Limited;  E-Business Infrastructure
Solutions (Pty) Limited;  Stand 226 Erand (Pty)
Limited;
Cape Gannet Properties (Pty) Limited;  TCM Small Systems (Pty)
Limited and Lechabile Holdings (Pty) Limited.
[4] The
current proportional shareholding of TCM is as follows:
4.1
The first plaintiff (De Sousa): 30%;
4.2
The second plaintiff (Diez): 7.45%;
4.3
The second defendant (Cornelli): 30%;
4.4
The third defendant (Da Silva): 7.45%;
4.5
The Hassim Family Trust (controlled by the fourth defendant, Iqbal
Hassim (Hassim): 25.1%.
[5] Each
of the shareholders (and Hassim on behalf of the Iqbal Hassim Family
Trust (the Trust)) is a director of TCM.  Its
current board of
directors consists of five shareholders and two non-shareholders.
The two non-shareholders are Mr Wayne
Impey, TCM’s Chief
Financial Officer, and Ms Ayesha Bhula.  Cornelli is the chief
executive officer of TCM.
BACKGROUND
[6] To
properly contextualise the dispute it is necessary that I refer to
certain material facts relating to the incorporation of
TCM and the
history of the relationship between De Sousa and Cornelli.
These are either common cause or incapable of
dispute, particularly
as the defendants closed their case without adducing evidence.
[7] In
mid-1980 De Sousa commenced employment at IBM as a trainee customer
engineer in field services.  Cornelli was employed
in the same
capacity by IBM at more or less the same time and they became
friends.  In 1980 until 1987, they worked closely
together as
part of the same team.  De Sousa became a technical
specialist, while Cornelli became an operations specialist.
[8] Their
friendship grew in leaps and bounds and they decided to go into
business together.  The business was initially named
“TCM
Small Systems” and later, in about August 1987, a company was
incorporated by the name of TCM Small Systems (Pty)
Limited, which
later changed its name to TCM.  Each of De Sousa and
Cornelli held 50% of the shares therein, and they
were the only
directors and employees.  At the outset the business of the
company consisted of the recycling and adapting
of down-graded
computer parts and the resale thereof.  De Sousa managed the
technical side of the business and, later, the
business accounting
systems, whereas Cornelli dealt with the management of the company
and the sales portion of the business.
The company benefited
greatly from their complementary and synergistic skills.
[9] TCM
was in substance a partnership in corporate form.  The affairs
of TCM were always conducted by means of mutual discussion
and
consensus of the principal shareholders.  As founding members,
they held equal status within the company and contributed

substantially to the running of the business.  Although De Sousa
and Cornelli had different areas of expertise,   they
were
equals in every way;  they earned equal salaries;  had
identical offices and commanded the same measure of respect
from all
employees and from each other.  De Sousa testified that at all
times their understanding was that both he and Cornelli
had the right
to participate in the running of the company.
[10] Diez
joined TCM in October 1987, when he became a director and employee in
field operations, stores and logistics.  Da Silva,
who also
became a director, joined the company in April 1989 and was employed
in sales and field work.  On 30 March 2004,
Hassim was brought
into TCM as a Black Empowerment Partner and was appointed as an
executive director of TCM with the title of
Corporate Sales
Director.  During June 2005, the Hassim Family Trust, which was
controlled by him, was made a shareholder
of TCM.
[11] A
formal shareholders’ agreement regulating the relationship
between the shareholders, was only entered into for the
first time on
29 June 2005, some eighteen years after TCM’s incorporation.
[12]
Simultaneously with the conclusion of the shareholders’
agreement, a sale of shares agreement was entered into between
Hassim
and the remaining shareholders of TCM, in terms of which Hassim
purchased 25.1% of the issued share capital of TCM from
the remaining
shareholders.  In terms of that agreement it was provided that
the purchase price was to be determined in accordance
with a formula,
and paid by the Hassim by means of an initial deposit of
R1.5 million, with the balance thereof within thirty-six months

from the date of signature of the agreement.  The purchase price
was subsequently determined to be an amount of R26 646 260.53.
[13] The
plaintiffs contend that although the composition of the equity in TCM
changed after Hassim acquired a 25.1% stake therein,
TCM nonetheless
still retained its original identity of a domestic company in the
nature of a partnership primarily between De Sousa
and Cornelli,
in whose day-to-day business all shareholders were entitled to be
engaged.  This is an issue with which I will
deal later in the
judgment.
[14] For
some reason, Hassim could not afford to pay the purchase
consideration in respect of the shares acquired by him.

Attempts were then made by Cornelli to assist Hassim to pay for the
shares.  These attempts gave rise to fundamental disputes

between the plaintiffs and Cornelli.
[15]
Initially, Cornelli, who is the chairman and chief executive officer
of TCM, sought to persuade the shareholders to reduce
the purchase
price of Hassim’s shares by 20% and insisted that they amend
the shareholders’ agreement, but plaintiffs
resisted Cornelli’s
compulsion to conclude the amending agreement.  In a further
endeavour to assist Hassim, it is alleged
that Cornelli purported to
procure, in contravention of s 38 of the Act, that TCM finance a
loan to the Trust and/or Hassim
to enable them to discharge the
purchase consideration in respect of the shares acquired by him.
This too was resisted by
De Sousa.  Cornelli then procured that
a number of retention agreements be concluded between TCM and
Hassim.  The plaintiffs
contend that these agreements unduly
favoured the Trust and/or Hassim’s financial position at the
expense of TCM and the
other shareholders.  Generous bonuses
were also given to Hassim.
[16] The
plaintiffs assert that because of their resistance to the attempts
made to assist Hassim to pay for his shares, Cornelli
repeatedly
criticised, belittled, humiliated and persecuted them in the presence
of other directors, shareholders and employees.
By way of
example, Cornelli reduced the office and parking space available to
De Sousa with the aim of showing public contempt
for him.
[17] The
remuneration package payable to Cornelli and other shareholders was
also a source of animosity between De Sousa and Cornelli.
It is
common cause that until October 2007 De Sousa received exactly
the same remuneration as Cornelli by way of salary, bonuses
and other
perks.  On 6 November 2007, Cornelli proposed that he be paid a
monthly salary of R125 000 and a R16 500
car allowance.
De Sousa objected to this, whereafter the bonuses payable to him
were drastically reduced.  In contrast,
substantial bonuses
directors’ emoluments and other benefits were paid to Cornelli,
Da Silva and Hassim.
[18] The
relationship between De Sousa, Diez and Cornelli worsened to the
point that on 10 May 2008, De Sousa and Diez received
emails from
Cornelli recommending that they hand in their “voluntary
resignations as executive directors and remain on the
board as
non-executive directors”.  A notice of formal suspension
of De Sousa from the employment of TCM was delivered
on 19 February
2009.
[19] In
March 2009, TCM preferred disciplinary charges against De Sousa of
gross insubordination and undermining the authority of
Cornelli,
causing an irretrievable breakdown in trust and in the working
relationship with TCM, his fellow-employees, directors
and
shareholders;  he was also accused of having poor work
performance.  These charges led to the formal dismissal of
De
Sousa as an employee of TCM.  De Sousa contends that Cornelli
acted with an ulterior motive in pursuing these charges;
that
the charges were groundless and did not merit investigation or his
dismissal.  An appeal by him against the findings
of the
disciplinary tribunal was dismissed.
[20] In
about June 2009, De Sousa referred the dispute to the Commission
for Conciliation, Mediation and Arbitration (CCMA)
alleging that he
had been unfairly dismissed.  On 30 October 2010 the Senior
Commissioner before whom the arbitration was
conducted issued an
award in which he determined that the first plaintiff had not been
unfairly dismissed.
[21] On 3
April 2009, De Sousa received confirmation that he had been
dismissed from the employ of TCM.  Following his
dismissal, De
Sousa was excluded from the day-to-day management of the affairs of
TCM and has received no salary or other financial
benefits other than
dividends.  He has been denied the usual freedoms and his access
to the company and its records has been
severely curtailed.  He
has, however, been permitted to attend board meetings and is
effectively a non-executive director.
[22] On 1
April 2009, Cornelli addressed correspondence to Diez wherein he
stated that a “non-voluntary retrenchment”
might be an
option for him.  On 17 March 2009, Cornelli sent correspondence
to Diez recommending his “voluntary resignation”.

On 30 April 2009, Cornelli addressed further correspondence to Diez
indicating that he would be subject to “forced retrenchment”.

Diez was thereafter deployed to manage TCM’s Namibia Branch.
On 2 April 2013, Diez resigned as an employee of TCM with
effect from
29 April 2013 and since that date has not received his salary and
other entitlements other than dividends.  Like
De Sousa, he has
only been permitted to attend board meetings.
THE
ISSUES
[23] The
relief sought in the particulars of claim is the following.
“
(a)
That the first defendant, alternatively, the second and third
defendants and the Trust, each in proportion to his
or its existing
shareholding in the first defendant -
(i)
purchase the shares of the plaintiffs; and
(ii)
take transfer thereof against payment to the plaintiffs of a purchase
consideration in the amount of R160
million (or such other amount as
this Court may determine as the fair value of the plaintiffs’
shares); in the case that
the second and third defendants and the
Trust are the purchasers, each in proportion to his or its aforesaid
shareholding, and
in accordance with the provisions schedule annexed
hereto marked “X”.
(b)
That the plaintiffs shall, within five days after the
payment to them in full of the purchase consideration referred
to
above, in writing notify the first defendant of their resignation as
directors of the first defendant.
(c)
That the parties shall take all steps, do all
things and sign all documents which are necessary to give effect
to
the provisions of prayers (a) and (b) hereof as expeditiously as
possible, failing which the Sheriff of this Court is hereby

authorized and directed to take such steps, do such things and/or
sign such documents on behalf of the party or parties to do so
for
such purpose.
(d)
That the Plaintiffs be granted further or alternative
relief, particularly, but not only, that, if needs be, a
referee be
appointed in terms of section 19bis of the Supreme Court Act No 59 of
1959 in order to determine the value of the plaintiffs’
shares
in the first defendant
”
.
[24]
There are principally two issues that fall to be decided.
Whether the plaintiffs are entitled to relief under s 252
of the
Act and, if so, what the appropriate consideration is that should be
paid for the plaintiffs’ shares.
[25]
Broadly stated, the plaintiffs’ case is that Cornelli, the
second defendant, acting alone, alternatively supported by
the third
and fourth defendants, has conducted himself in the manner set out in
paragraphs 12 to 18 of the particulars of claim
and thereby brought
about a state of affairs which is unfairly prejudicial and
inequitable to the plaintiffs.  Accordingly,
the plaintiffs
contend that it would be just and equitable for their shares in TCM
to be purchased by TCM, alternatively the second
and third
defendants, and the Trust, each in proportion to his or its existing
shareholding in TCM.
[26] To
facilitate a proper understanding of the issues, it is necessary to
set out the allegations made in paragraphs 12 to 18
of the
particulars of claim:
“
12.1
During or about the period November 2007 to September 2008:
12.1.1
the second defendant caused to be registered a company by the name of
TCM Printing
Solutions (Pty) Ltd (TCM Printing Solutions), whose
issued share capital was owned by each of the fourth defendant as to
25.1%
thereof, and Frank and Fabio Cornelli, the brothers of the
second defendant, each as to 37.45% thereof;
12.1.2
the second defendant wrongfully and intentionally caused the business
of the first
defendant conducted by means of its Supplies Division to
be given over to TCM Printing Solutions at no value;
12.1.3
Alternatively to paragraph 12.1.2 hereof the second defendant
procured that the
business of the first defendant’s Supplies
Division be conducted and accounted for as if it were a separate and
distinct
entity from the first defendant, and caused all income and
profits arising therefrom to accrue solely to the fourth defendant
(alternatively,
the Trust) and Frank and Fabio Cornelli.
12.1A
In the event that the facts set out in paragraph 32.2.1 are proven,
and in accordance
with the aforegoing, the business of the first
defendant’s Supplies Division has from at least September 2008
been conducted
and accounted for, and is to date conducted and
accounted for, in the aforegoing manner.
12.2
The value of the business comprising the Supplies Division of the

second defendant was at the relevant time approximately R10 million.
12.3
The second defendant accordingly wrongfully caused and continues
to
date to cause loss to the first defendant of its business conducted
under its Supplies Division and the value thereof, thereby
in turn
also jeopardising the value of the plaintiffs’ shares in the
second defendant.
13.
During or about the period November 2007 to April 2009:
13.1
the second defendant purported to compel the plaintiffs to conclude
an amending agreement in terms of which they would
receive a reduced
purchase consideration (to an extent of 20%) under the terms of the
original agreement which had been concluded
amongst the plaintiffs
and the second and third defendants, on the one hand, and the fourth
defendant, on the other, in terms of
which the Trust acquired its
25.1% shareholding in the first defendant;
13.2
as a result of the plaintiffs’ resisting the second defendant’s
compulsion as aforesaid, the second defendant:
13.2.1
repeatedly criticised, belittled, humiliated and persecuted the
plaintiffs in the
presence of the directors and shareholders, and
certain employees, thereof;
13.2.2
demanded their resignation as directors of the first defendant;
13.2.3
unfairly and unjustly reduced the office and parking space available
to the first
plaintiff with the aim of showing  public
contempt for the first plaintiff, of reducing his reducing his

contribution to the first defendant and of denigrating his status as
a founder member thereof and as a participant therein of equal
status
to the first defendant;
13.3
the second defendant purported to procure that:
13.3.1
in contravention of the provisions of section 38 of the Companies Act
No 63 of
1971 (“the Act”), the first defendant would
finance a loan to the Trust and/or the fourth defendant;  and

or
13.3.2
the first defendant would make a donation or disposition to the Trust
and/or the
fourth defendant,
to enable it
or him to discharge the purchase consideration in respect of the
acquisition of its shares in the first defendant and
which unduly
favoured the Trust’s and/or the fourth defendant’s
financial position at the expense of the first defendant
and the
other shareholders thereof;
13.4
the second defendant procured that a “retention”
agreement (which was a sham) be concluded between the first
defendant
and the fourth defendant which unduly favoured the Trust’s
and/or the fourth defendant’s financial
position at the expense
of the first defendant and the other shareholders thereof;
13.5
the second defendant procured that disciplinary charges be preferred
against the first plaintiff, persisted in pursuing
a disciplinary
hearing against him and in dismissing him upon his being found
“guilty” thereof, in circumstances where:
13.5.1
such charges related to the alleged conduct of the first plaintiff
which occurred
at a substantially earlier time;
13.5.2
the alleged conduct of the first plaintiff with which the charges
were concerned
did not merit investigation, scrutiny or dismissal;
13.5.3
the manner in which the disciplinary hearing was conducted was unfair
to the first
plaintiff;
13.5.4
the second defendant acted with an ulterior motive in pursing the
charges against,
and dismissing, the first plaintiff,
namely   for    the   purpose of
ridding the
business of the first plaintiff of the daily
engagement and involvement of the first plaintiff in its affairs and
of his contribution
thereto;
13.6
the second defendant drastically reduced the bonuses to which the
plaintiffs were ordinarily entitled with the ulterior
motive of
humiliating, denigrating and punishing the plaintiffs for refusing
to accede to his demands, while substantially
increasing the
bonuses and benefits (including director’s emoluments)
ordinarily paid out to other employees and/or
directors of the
company, including himself, for the purposes, inter alia, of:
13.6.1
assisting the Trust, through the fourth defendant, to pay for the
shares acquired
by it from the other shareholders a set out above;
13.6.2
enhancing and assuring the loyalty of the other recipients of the
bonuses to him
personally, such recipients including the members of
the second defendant’s family and of the families of the other
directors
and/or shareholders generally, and of those who were
employed by the first defendant specifically at the second
defendant’s
behest;
13.7
the aforesaid conduct had the result that the resources and patrimony
of the first defendant were unduly depleted at
the behest of the
second defendant for the purposes aforesaid.
14.
During or about the period 2008 to 2009:
14.1
the second defendant refused to engage in bona fide discussions or
negotiations with the aim of permitting the plaintiffs
to dispose of
their shares (whether to the other shareholders, a third party or to
the company itself) at fair value and without
resort to litigation
and other conflict;
14.2
the second defendant refused to permit the plaintiffs free and proper
access (to which, both as directors and shareholders,
they were
entitled) to financial documentation of and pertaining to the first
defendant, and impeded and frustrated such access
as they managed to
procure, such that they were prevented from arriving at a fair
assessment of the value of their shares in the
first defendant and
were accordingly unable to comply adequately or at all with the
provisions of the shareholders’ agreement
governing the
disposal of their shares.
15.
During or about the period 2008 and 2009:
15.1
the second defendant procured in the audited financial statements of
the first defendant an undervaluation of the inventory
of the first
defendant of a value of approximately R11.2 million;
15.2
such undervaluation did not reflect the true
financial position of the first respondent;
15.3
the true value of the first respondent was thereby reflected as
having been substantially reduced to its prejudice, and,
furthermore,
such undervaluation was procured by the second defendant for the
ulterior purpose of reducing the value of the plaintiffs’

shares therein.
15A
15A.1
From 2007 to date the second defendant has conducted, and continues
to conduct, the business
of the first defendant in a manner such
that:
15A.1.1
the operating profit available to the shareholders of the first
defendant after all its expenses
have   been
discharged has been, and continues to be, drastically reduced such
that the EBITDA (before dividends received)
of the first defendant
was R36 803 694 at end of the financial year of 2008 and
R20 369 999 at the end of the
financial year of 2012;  and
15A.1.2
the operating expenses of the first defendant, and especially
management fees, staff costs and director’s
emoluments, have
almost doubled since the end of the financial year of 2008 when they
amounted to R118 250 255, whereas at
the end of the financial
year of 2012 they amounted to R216 763 106; while
15A.1.3
the gross profit generated by the first defendant has climbed from
R153 878 415 at the
end of the financial year of 2008 to
R228 746 081 at the end of the financial year of 2012.
15A.2
The second defendant has intentionally, alternatively, recklessly,
failed, and continues
intentionally, alternatively, recklessly,
to  fail,   to  contain  and/or
reduce
the   total operating expenses of the first
defendant in proper proportion to its gross profit, such that:
15A.2.1
the benefits thereof may accrue to the shareholders, and to the
plaintiffs in particular, by way
of dividends;
15A.2.2
the growth and well-being of the first defendant and its ultimate
profitability to shareholders,
and to the plaintiffs in
particular, are properly ensured and protected.
16.
During the period of approximately September 2008 to the present
time, the second defendant has:
16.1
marginalised, sterilized, humiliated and denigrated the status of the
second plaintiff;
16.2
rusticated him to the first defendant’s Namibia office without
discussion and without his consent;
16.3
threatened to dismiss the second plaintiff should he not resign as a
director of the first defendant;
16.4
deprived the second plaintiff of his erstwhile duties and status
without proper cause;
16.5
generally conducted himself toward the second plaintiff with the
ulterior motive of forcing the second plaintiff to leave
the employ
of the first defendant and give up his directorship thereof and/or
his shareholding therein.
17.
Since approximately 2007 to date, the second defendant has conducted
himself and the business of the first
defendant in a manner
calculated to deny and frustrate the plaintiffs’ legitimate
expectations:
17.1
to their daily involvement and engagement in the operations of the
first defendant;
17.2
to the recognition of their status as shareholders and directors of
the first defendant;
17.3
in the case of the first plaintiff, to recognition and remuneration
appropriate to his status as:
17.3.1
a founder member of the first defendant;
17.3.2
a quasi partner in the affairs of the first defendant whose business
was at all
material times conducted as a domestic company in a manner
akin to that of a partnership;
17.3.3
a participant in and contributor to the business of the first
defendant of equal
standing to the second defendant;
17.3
to the due respect and regard of their fellow directors, shareholders
and employees of the first defendant.
18.
The second defendant has authorised and procured the use of funds
belonging to the first defendant for purposes
of discharging the
legal costs incurred in the defence of himself, the third defendant
and the Trust and/or the fourth defendant,
in application proceedings
launched by the plaintiffs, as applicants, against the defendants, as
respondents, out of this Court
under Case No 09/41464, to
the financial detriment of, and without value to, the first
defendant.
”
[27] In
paragraphs 19 to 22 the following important allegations are made.
“
19.
As a result of the conduct of the second defendant as set out in
paragraphs 12 to 18 hereof, the relationships of
trust and respect
between the plaintiffs, on the one hand, and the second and third
defendants and the Trust, on the other hand,
have broken down to such
a degree that it is no longer possible for them to co-operate
meaningfully as shareholders, directors
and/or employees of the first
defendant and jointly to conduct its business and best advance its
objectives.
20.
Within the meaning of section 252(1) of the Act, the second
defendant, therein acting alone, alternatively,
therein supported by
the third and fourth defendants, has, by conducting himself in the
manner set out in paragraphs 12 to 18 hereof,
caused and brought
about a state of affairs such that the affairs of the first defendant
have been and continue to be conducted
in a manner unfairly
prejudicial, unjust and/or inequitable to the plaintiffs as members
of the first defendant.
21.
The fair value of the plaintiffs’ shares in the first defendant
is, to the best of the knowledge and
belief of the plaintiffs,
R160 million;  alternatively, such fair value falls to be
determined by this Court.
22.
It is just and equitable in all the circumstances that this Court
make the orders set out in prayers (a) to
(e) hereinbelow.”
[28] In
their plea, the defendants deny most of the allegations made by the
plaintiffs.  In particular, they deny the allegations
made in
paragraph 12 of the particulars of claim, in respect of the Supplies
Division.  I will deal later in the judgment
with the opposing
contentions of the parties in regard to the Supplies Division.
[29] In
relation to the allegations made in paragraph 13.4 of the particulars
of claim, the defendants admit that TCM and Hassim
concluded six
retention agreements but deny that they were “a sham” and
unduly favoured Hassim and/or the Trust’s
financial position at
the expense of TCM and the remaining shareholders.
[30] They
also aver that De Sousa was guilty of gross insubordination and
undermining the authority of Cornelli, causing an irretrievable

breakdown in trust in the working relationship with TCM, his fellow
employees, directors and shareholders.  These allegations
formed
the subject-matter of a disciplinary hearing pursuant whereto De
Sousa was found guilty and dismissed from the employ of
TCM.  In
the replication, De Sousa denies these allegations.
[31]
Prior to the trial, it was agreed and ordered under Rule 33(4) that
the allegations made in paragraph 21 of the particulars
of claim,
read with paragraph 15 of the plea, stand over for later
adjudication.  These allegations relate to the determination
of
value of the plaintiffs’ shares.
RELEVANT
LEGAL PRINCIPLES
[32]
Section s 252 of the Act[1] provides, in relevant part, as
follows:
“
252.
Member’s remedy in case of oppressive or unfairly prejudicial
conduct
(1)
Any member of a company who complains that any particular act or
omission of a company is unfairly prejudicial, unjust or inequitable,

or that the affairs of the company are being conducted in a manner
unfairly prejudicial, unjust or inequitable to him or to some
part of
the members of the company, may, subject to the provisions of
subsection (2) make an application to the Court for an order
under
this section.
(2)
...
(3)
If on any such application it appears to the Court that the
particular act or omission is unfairly prejudicial,
unjust or
inequitable, or that the company’s affairs are being conducted
as aforesaid and if the Court considers it just
and equitable, the
Court may, with a view to bringing to an end the matters complained
of, make such order as it thinks fit, whether
for regulating the
future conduct of the company’s affairs or for the purchase of
the shares of any  members of the
company by other members
thereof or by the company and, in the case of a purchase by the
company, for the reduction accordingly
of the company’s
capital, or otherwise.
(4)
...”
[33] The
section and its counterpart in other jurisdictions has been subjected
to considerable analysis and interpretation.
The position in
English law is particularly instructive as the oppression remedy
provided in terms similar to s 252 of the
Act.[2]
[34]
Section 252 provides a member,[3] or part of the members of a
company, with the means of obtaining relief from unfairly
prejudicial,
unjust or inequitable acts or omissions of the company
or conduct of its affairs.  The emphasis is upon the unfairness
of
the conduct complained of.  A member seeking relief must show
that the conduct is “unfairly prejudicial, unjust or
inequitable”
to that member or to some part of the members.
The conduct must not only be prejudicial, but unfairly so.[4]
Fairness
is thus the criterion by which a court must
decide whether it has jurisdiction to grant relief.
[35] The
test of unfair prejudice is an objective one.  Our courts have
generally followed what is referred to as the “reasonable

bystander test”.  This was articulated by Nourse J in
R A Noble & Sons (Clothing) Limited [1983] BCLC
273 at
290-291.
“
The
test of unfairness must, I think, be an objective, not subjective,
one.  In other words, it is not necessary for the petitioner
to
show that the persons who have had de facto control of the company
have acted as they did in the conscious knowledge that this
was
unfair to the petitioner or that they were acting in bad faith; the
test … is whether a reasonable bystander observing
the
consequences of their conduct, would regard it as having unfairly
prejudiced the petitioner’s interests.”
[36]
Fairness is an elastic concept.  What is fair or unfair will
depend upon the context in which it is being used.
In O’Neill
In Re a company (No 00709 of 1992) O’Neill and another v
Phillips and others [1999] 2 All ER 961
at 966H-967E),
Lord Hoffmann put it thus:
“
Although
fairness is a notion which can be applied to all kinds of activities,
its content will depend on the context in which it
is being used.
Conduct which is perfectly fair between competing businessmen will
not be fair between members of the family.
In some sports it
may require, at best, observance of the rules, in others (‘it’s
not cricket’) it may be unfair
in some circumstances to take
advantage of them.  All is said to be fair in love and war.
So the context and background
are very important.
In
the case of s 459, the background has the following two
features.  First, a company is an association of persons for
an
economic purpose, usually entered into with legal advice and some
degree of formality.  The terms of the association are
contained
in the articles of association and sometimes in collateral agreements
between the shareholders.  Thus the manner
in which the affairs
of the company may be conducted is closely regulated by rules to
which the shareholders have agreed.
Secondly, the company has
developed seamlessly from the law of partnership, which was treated
by equity, like the Roman societas,
as a contract of good faith.
One of the traditional roles of equity, as a separate jurisdiction,
was to restrain the exercise
of strict legal rights in certain
relationships in which it was considered that this would be contrary
to good faith.  These
principles have, with appropriate
modification, been carried over into company law.
The
first of these two features leads to the conclusion that a member of
a company will not ordinarily be entitled to complain of
unfairness
unless there has been some breach of the terms on which he agreed
that the affairs of the company should be conducted.
But the
second leads to the conclusion that there will be cases in which
equitable considerations make it unfair for those conducting
the
affairs of the company to rely upon their strict legal powers.
Thus unfairness may consist in a breach of the rules or
in using the
rules in a manner which equity would regard as contrary to good
faith”
[37] What
is evident from the above-quoted passage in O’Neill is that the
notion of unfairness transcends the strict legal
rights of the
shareholders;  there may be cases where it would be unfair for
the majority to exercise or take advantage of
their legal rights or
powers under the Articles of Association or agreements between the
them.
[38] The
Court’s jurisdiction to make an order does not arise until the
statutory criteria have been satisfied.  The
plaintiff (or
applicant) bears the onus of satisfying the Court that the particular
act or omission has been committed, or that
the affairs of the
company are being conducted in the manner he alleges;  and that
such act or omission or conduct of the
company’s affairs is
unfairly prejudicial, unjust or inequitable to him or to some part of
the members of the company (Bader
& another v Weston and another
1967 (1) SA 134
(C) at 139F-G);  Aspek Pipe Co (Pty) Ltd v
Mauerberger
1968 (1) SA 517
(C) at 525;  Louw v Nel
2011 (2) SA
172
(SCA) para [23];  see also Blackman et al, Commentary
on the Companies Act (Vol 2) p 9-44).
[39] The
following has been recognised as unfairly prejudicial conduct
entitling a shareholder to relief:  Where there is an
unfair
abuse of power and an impairment in the probity with which the
company’s affairs are being conducted;  where
the majority
voting power has been abused or unfairly used to the prejudice of
shareholders;  and where the majority shareholders
use their
greater voting power in a manner which does not enable the minority
to enjoy a fair participation in the affairs of the
company (Elder v
Elder & Watson Limited
(1952) SC 49
at 55 and 60;  Aspek
Pipe at 528D-H;  Donaldson Investments (Pty) Ltd and others
v Anglo-Transvaal Colliers Limited:
SA Mutual Life Assurance Society
and another intervening
1979 (3) SA 713
(W);  Elgindata Limited
[1991] BCLC 959
at 984 and 1004).
[40] Lack
of probity or fair dealing was described by Lord Cooper in Elder
v Elder & Watson Ltd (at p 55),
as -
“
a
visible departure from the standards of fair dealing and a violation
of the conditions of fair play on which every shareholder
who
entrusts his money to a company is entitled to rely”.
[41] In
Aspek Pipe (at 528E-H), Tebbutt AJ highlighted the distinction
between the remedy of winding-up and the relief afforded
by s 111bis
of Act 46 of 1926 (the predecessor of s 252) in these terms:
“…
Lack of confidence or harmony, as I
have said, may justify the granting of the former;  [a
winding-up order] only lack of confidence
or harmony rested upon lack
of probity or on unfair dealing or conduct will justify the latter
[relief in terms of s 111bis].
Secondly, it is necessary
to establish such lack of probity or fair dealing or ‘violation
of the conditions of fair play’.
It is essential not to
confuse the rights which the majority shareholders undoubtedly have
to manage the affairs of the company
and to determine its policy with
lack of probity and unfair dealing in the affairs of the company.
Anyone who becomes a minority
shareholder in a company does so with
the obvious knowledge that where his point of view conflicts with
that of the majority, the
latter’s will is likely to prevail.
He invests his money in a company on that premise and cannot be heard
to complain
if the affairs of the company are not conducted as he
desires.  He is, however, entitled to complain if the majority
voting
power is being abused or unfairly used to his prejudice as a
shareholder.  The circumstances must warrant an inference that
‘
there
has been, at least, an unfair abuse of powers and impairment of
confidence in the probity with which the company’s affairs
are
being conducted as distinguished from mere resentment on the part of
the minority at being outvoted on some issue of domestic
policy’(See
Re Harmer, supra at pp 699, 706)”[5]
(My
comments in parenthesis)
[42] And,
in Donaldson, Preiss stated (at 722E-G):
“
It
seems to me that the new wording of s 252 means, at least, what
was set out in some of the cases dealing with the old s 111bis,

where the requirement was placed at the less stringent level.  In
my view, the applicants must establish a lack of probity
or fair
dealing, or a visible departure from the standards of fair dealing,
or a violation of the conditions of fair play on which
every
shareholder is entitled to rely.  Couched in another form;
I agree that the applicants must establish that the
majority
shareholders are using their greater voting power in a manner which
does not enable the minority to enjoy a fair participation
in the
affairs of a company.  The emphasis is upon the unfairness of
the conduct complained of.  It must be conduct which
departs
from the accepted standards of fair play, or which amounts to an
unfair discrimination against the minority.”
[43]
Conduct which adversely affects or is detrimental to the financial
interests of a member is justiciable under the section.
Thus
relief may be claimed where it can be shown that the value of a
member’s shareholding in a company has been seriously

diminished or jeopardised by reason of unfair, unjust or inequitable
conduct on the part of those who have control of the company.
In Re
Elgindata (at 984) Warner J observed:
“
[a]
petitioner under the section will generally succeed ‘if he can
show’  … that the value of his shareholding
in the
company has been seriously diminished or at least seriously
jeopardised by reason of a course of conduct on the part of
those
persons who have had de facto control of the company, which has been
unfair [to him].’
Warner J
continued at 1004g:
“…
By
its very nature the misapplication of a company’s assets by
those in control of its affairs for their own benefit or for
the
benefit of their family and friends, is unfairly prejudicial to the
interests of minority shareholders.”
[44] A
form of unfair prejudice which is of particular relevance in the
instant case arises where a minority shareholder who has
a right or
legitimate expectation to participate in the management of the
company is excluded from so doing by the majority without
a
reasonable offer or arrangement being made to enable the excluded
shareholder to dispose of his shares.  The prejudicial
inequity
or unfairness lies not in the legally justifiable exclusion of the
affected member from the company’s management,
but in the
effect of the exclusion on such member if a reasonable basis is not
offered for a withdrawal of his or her capital.[6]
It was
emphasized in O’Neill (at 974-975) that “it will almost
always be unfair for a minority shareholder to
be excluded without an
offer to buy his shares or to make some other fair arrangement”.
[45] In
O’Neill (at 972g-h), Lord Hoffmann also referred to an
earlier judgment which he had delivered in the Chancery
Division, Re
a Company (No 0668 34 of 1988), ex p Kremer
[1989]
BCLC 365
(ChD) at 36, in which the following was stated:
“ …
if
a breakdown in relations has caused the majority to remove a
shareholder from participation in the management, it is usually
a
waste of time to try to investigate who caused the breakdown.
Such breakdowns often occur (as in this case) without either
side
having done anything seriously wrong or unfair.  It is not fair
to the excluded member, who will usually have lost his
employment, to
keep his assets locked in the company. ...”
[46] The
following dictum in Kremer was referred to with approval in
Bayly v Knowles
2010 (4) SA 438
(SCA) para [23]:
“…
This is an ordinary case of breakdown
of confidence between the parties.  In such circumstances,
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.  In
such a case, s 459
was not intended to enable the Court to
preside over a protracted and expensive contest of virtue between the
shareholders and
award the company to the winner.”
[47] The
right of a shareholder to manage the affairs of a company is usually
derived from the articles of association or agreements
between the
shareholders, but the relationship between a company’s members
may give rise to a legitimate expectation to participate
in the
company’s management.  This usually occurs in the case of
a small domestic company or what is termed a ‘quasi-partnership’

company (see Erasmus v Pentamed Investments (Pty) Ltd
1982 (1) SA 178
(W) at 182A-E;  Ebrahimi v Westourne Galleries Limited [1973]
AC 360;  Re Postgate & Denby (Agencies) Limited
[1987] BCLC
8
at 14a-f; Re Elgindata supra at 985; and the Australian decision in
Fexuto (Pty) Limited v Bosnjak Holdings (Pty) Limited
[1998] NSWSC 413
;
(1998) 28
ACSR 688
SC (NSW)).
[48] The
following statement in O’Neill (at 970D-F) is relevant to the
question of legitimate expectations of a shareholder.
“
In
Re Saul D Harrison & Sons plc [1995] 1 BCLC 14 at
19, I used the term ‘legitimate expectation’,
borrowed
from public law, as a label for the ‘correlative right’
to which a relationship between company members may
give rise in a
case when, on equitable principles, it would be regarded as unfair
for a majority to exercise a power conferred
upon them by the
articles to the prejudice of another member.  I gave as an
example the standard case in which   shareholders
have
entered into association upon the understanding that each of them who
has ventured his capital will also participate in the
management of
the company.  In such a case, it will usually be considered
unjust, inequitable or unfair for a majority to
use their voting
power to exclude a member from participation in the management
without giving him the opportunity to remove his
capital upon
reasonable terms.  The aggrieved member could be said to have
had a ‘legitimate expectation’ that
he would be able to
participate in the management or withdraw from the company.”
[49]
Although s 252 should be given a beneficial construction, our
courts will be slow to interfere in the management of companies.

In judging the conduct of the majority, regard must be had to the
principle that by becoming a shareholder in a company a person

undertakes by his contract to be bound by the decisions of the
majority of shareholders if those decisions are arrived at in
accordance
with the law, even where they adversely affect his rights
as a shareholder or prejudice his interests  (Sammel v President

Brand Gold Mining Co Ltd
1969 (3) SA 629
(AD) at 678;  Garden
Province supra at 533-535; Apek Pipe at 528, and Donaldson at
720).
[50] The
loss of confidence in the manner in which the company’s affairs
are conducted or resentment at being outvoted or
mere dissatisfaction
with or disapproval of the conduct of the companies affairs, whether
on grounds relating to policy or to efficiency,
however well-founded,
will not of themselves constitute prejudice, injustice or inequity
within the meaning of the section (Garden
Province supra at 535;
Re Five Minute Car Wash Service Ltd
(1966) 1 All ER 242
(Ch) at
246-247;  Re Postgate & Denby (Agencies) Ltd (1987) BCLC 8
(Ch);  Carlisle v Adcorp Holdings Limited
2000 CLR 261
(W) at
264;  Re Elgindata supra).
[51]
Where there is disagreement about whether a particular managerial
decision is commercially sound, not only will the courts
not
intervene, but there can also be no unfairness to the applicant
where, or simply because, those in control of the company’s

affairs take a different view from his on the matter.  Even a
commercially unreasonable approach to the making of profits
will not
justify intervention In the absence of any suggestion of wilful
mismanagement or of any impropriety in the conduct of
the company’s
affairs.
[52] The
fact that a shareholder may be to blame for the unsatisfactory
relationship between the shareholders is not a reason to
deny him
relief under s 252.  It is not a requirement of the section
that a party seeking relief come to court with “clean
hands”.
In general, the issue of fault does not negate the right to relief
under s 252 (In re London School of
Electronics Limited [1986]
Ch 211 at 221-222 and Grace v Biagioli and others [2006] BCC 85
at para 77) and McMillan v
Pott paras [40] and [41]).  But
such conduct may be material in a number of ways.  First, it may
render the conduct
of the majority, even if it is prejudicial, not to
be considered unfair.  Second, it may affect the relief which
the court
may seem fit to grant (see In re London School of
Electronics Limited 222A-C).
[53] In
applying s 252, it is important to bear in mind that the section
only comes into operation when a shareholder is affected
in his
capacity as a member by the company’s actions.  The acts
of individual members are not necessarily acts of the
company.
It is a question of fact in each case whether the conduct of a member
is part of the conduct of the affairs of the
company (see Astec (BSR)
plc
(1998) 2 BCLC 556
at 585A-I).  The requirement of prejudice
means that the conduct must be shown to have caused the member harm
in a commercial
and not in a merely emotional sense (see Re Unisoft
Group Limited (No 3)
(1994) 1 BCLC 609).
[54]
During his final address senior counsel for the defendants revisited
several arguments that had been raised and rejected in
the abortive
application to separate a question of law in the form of an
exception.  One such submission was that conduct
that causes
prejudice to all members of the company or impacts upon the company
and only indirectly or derivatively on the members,
is not
justiciable under the section.  It would be a work of
supererogation to repeat my reasons for rejecting that submission
as
these are fully set out in De Sousa v Technology Corporate Management
2016 (6) SA 518
(GLD) paras [36] to [45].
[55] To
determine whether conduct is unfairly prejudicial the Court is not
required to consider each complaint in isolation.
What matters
is the cumulative effect of the complaints (see De Sousa paras [29]
to [35] and cases there cited).  The test
for determining
whether conduct is unfair or not requires a balancing all the
interests involved in the light of the history and
structure of the
company and in terms of the policies underlying s 252 and the
Act;  the duties of directors;  the
rights and duties of a
majority shareholder in relation to a minority shareholder, and the
agreements or understanding outside
the articles which may give rise
to legitimate expectations (see Blackman et al, “Commentary on
the Companies Act”
(Vol 2) at at 9-26 and cases there
cited).  The effect of the challenged conduct is the real issue,
and depending on
the circumstances of each case, the motive for the
conduct may also be relevant (Aspek Pipe at 529D;  Donaldson
Investments
(Pty) Ltd and others v Anglo-Transvaal Collieries Limited
and others
1983 (3) SA 96
(A) at 111g (per Galgut AJA).
[56]
Subsection 252(3) confers a wide discretion on the Court to do what
is considered fair and equitable in all the circumstances
of the
case, to put right and cure the unfair prejudice which a shareholder
has suffered (Bader and another v Weston & another
1967 (1) SA
134
at 147;  Louw v Nel
2011 (2) SA 172
(SCA) para [21]).
As to the nature of the discretion, see Blackman supra at 9-45 to
9-50;  “Henochsberg on the
Companies Act”, ‘Chapter
IX Remedies of Members’:  Relief from Oppression at 484 to
484(2)).  Subsection
252(3) of the Act provides that if it
appears to the Court that the particular act or omission is unfairly
prejudicial, unjust
or inequitable to a member or some part of the
members or that the company’s affairs have been conducted in
such manner, -
“…
the
Court may, with a view to bringing to an end the matters complained
of, make such order as it thinks fit, whether for regulating
the
future conduct of the company’s affairs or for the purchase of
the shares of any members of the company by other members
thereof or
by the company and, in the case of a purchase by the company, for the
reduction accordingly of the company’s capital,
or otherwise.”
[57]
During argument senior counsel for the defendants fastened onto the
wording of the following phrase used in the subsection:
“…
the Court may, with a view to bringing to an end the matters
complained of, make such order as it thinks fit, …”.

Based thereon, he submitted that for purposes of an action in terms
of s 252 it is necessary that the state of affairs complained
of
be “on-going”.  With respect, this contention misses
the point - even if a particular aspect of conduct is
discontinued,
the prejudicial effect of such conduct may continue.  This is
particularly evident in the present case where
the plaintiffs have
been excluded from  participating in the conduct of TCM’s
business in circumstances where it is
alleged that its affairs have
been conducted inappropriately.  The fact that TCM may have
discontinued the conduct complained
of does not detract from the fact
that the environment is one in which the plaintiffs are required to
remain as passive shareholders
notwithstanding that the conduct has
occurred.  This state of affairs is unfairly prejudicial to
them.
[58] In
determining the nature of the relief to be granted, the Court must
consider what order is appropriate at the time of the
hearing and not
what would have been appropriate at the date of the presentation of
the application or institution of action (see
Blackman et al, 9-46
and the reference therein to Re Hailey Group Ltd
[1993] BCLC 459
at
473).
PROTRACTED
NATURE OF THE LITIGATION
[59]
Before embarking on an analysis of the evidence, it is necessary to
say something about the manner in which the trial was conducted.

This will place in proper context the reasons why certain procedural
rulings were made in order to curtail the duration of the
trial.
What I will say also has a bearing on the reasons advanced by the
defendants for the closure of their case without
adducing evidence.
[60]
The litigation has a long tortuous history.
It began as a motion matter on 14 May 2010, when the plaintiffs
sought substantially
the same relief as is sought in the present
action.  the Court (Claassen J) dismissed the application
with costs on 11
May 2011.  Paradoxically, the 252 application
was resisted by the defendants on the ground that there were disputes
of fact
that could only properly be decided at a trial.  Yet,
when the present action was instituted, and after the plaintiffs had

given evidence for many days, the defendants chose to close their
case without adducing evidence.
[61]
Summons was issued on 14 December 2010.  The trial commenced
before me on 27 January 2014 and was only concluded on 1
April 2016.
Some seventy-five days were taken up in the hearing of evidence, and
a further five days in legal argument.
A veritable mass of
documentation was presented to the Court;  the record is some
ten thousand pages in length and the exhibits,
core bundles and heads
of argument run into thousands of pages.
[62]
Given the magnitude and complexity of the evidential material laid
before me, it is not practicable to deal with every material
item of
evidence and every point raised in argument.  Accordingly, I
will only deal in this judgment with those matters that
I consider to
be material.
[63]
The following cautionary remarks of Harman J in Re Unisoft Group
Limited (No 3)
[1994] 1 BCLC 556
at 611f-i
are
particularly apposite:
“
Petitions under
s 459 have become notorious to the judges of this court –
and I think also to the Bar – for their
length, their
unpredictability of management, and the enormous and appalling costs
which are incurred upon them particularly by
reason of the volume of
documents liable to be produced.  By way of example on this
petition there are before me upwards of
thirty lever-arch files of
documents.  In those circumstances it befits the court, in my
view, to be extremely careful to
ensure that oppression is not caused
to parties, respondents to such petitions or, indeed, petitioners
upon such petitions, by
allowing the parties to trawl through facts
which have given rise to grievances but which are not relevant
conduct within even
the very wide words of the section.
The
section requires there to have been conduct of ‘the company’s’
affairs, or an act or omission by ‘the
company’, so one
has to look and see that the activity complained of is an activity in
the course of conduct of the company’s
affairs or is by the
company, so that the petitioner can show that the affairs have been
conducted in a manner prejudicial to the
interests of the members.
The requirement of prejudice means that the conduct must be shown to
have done the members harm
and I believe harm in a commercial sense,
not in a merely emotional sense.  The further requirement that
the prejudice is
‘unfair’ is a more uncertain but
necessary thing to show, but before the fairness or unfairness of the
conduct or act
is considered, ‘prejudice’ – that is
harm or damage – must be shown.  Those requirements set
out the
basic rules that the court must in my view be careful to
insist upon to restrain this procedure from breaking all reasonable
bounds.
”
[64] A
period of four weeks was initially allocated for the hearing of the
matter.  But that period was taken up by, among
other things, an
abortive application brought by the defendants in terms of Rule 33(4)
to separate a question of law in the nature
of an exception.
The judgment dismissing that application is reported as De Sousa
and another v Technology Corporate
Management (Pty) Limited and
others
2016 (6) SA 528
(GJ)).
[65] The
record is bristling with objections, primarily taken by counsel for
the defendants.  There were unwarranted interlocutory

applications.  Three pertinent examples are the abortive
application in terms of Rule 33(4);  an application brought
by
the defendants to exclude evidence said to be beyond the scope of the
pleadings, and an unsubstantiated and groundless application
for my
recusal.
[66] The
cross-examination of the plaintiffs’ witnesses was unduly
lengthy and often traversed minutiae instead of focusing
on the facts
and broad legal issues that are dispositive of the case.  A
pertinent example is the cross-examination of Mr Geel,
the
chartered accountant and auditor called by the plaintiffs.  His
evidence-in-chief took approximately four days but he
was
cross-examined by defendants’ counsel for seventeen days.
Much time was taken up in dealing with details such as
the
unreliability of the values contained in stock summary and spares
valuation reports and the documentation preceding them, matters
which
in the result have little bearing on the outcome of the case.  Very
little by way of a contrary version was put
to Geel.  The same
may be said of Diez, who was also extensively cross-examined on the
accuracy of values contained in documentation
pertaining to
maintenance and other forms of inventory.
[67] In
proceedings for relief in terms of s 252 of the Act, or its
successor,
s 163
of the
Companies Act, 71 of 2008
, it is not
required of the Court to resolve every factual dispute.  The
real and overriding question for determination is
whether there is a
lack of probity and unfair dealing in the affairs of the company
which has given rise to a breakdown in the
confidence and trust among
the shareholders;  whether the majority voting power has been
abused or unfairly used to the prejudice
of the minority
shareholders, and whether the plaintiffs have been treated by the
company in a manner that is unfairly prejudicial,
unjust or
inequitable.
[68] The
number of objections taken by the defendants unnecessarily prolonged
the duration of the trial;  it is reasonable
to infer that the
defendants’ approach was calculated to delay and frustrate the
plaintiffs’ substantive and procedural
rights.
[69] The
following conduct affords clear evidence of the defendants’
intention to deprive the plaintiffs of the financial
wherewithal to
pursue the present claim.  Clause 17.2 of the shareholders’
agreement obliges the board of directors
of TCM to pay a dividend,
within thirty days after signature of the company’s annual
financial statements, equal to a percentage
of the company’s
net after tax profits earned during the preceding financial year.
According to the evidence it was
TCM’s practice to decide upon
the amount and date of payment of a dividend between July and
September of each year when the
audited annual financial statements
of TCM were approved.  For reasons best known to Cornelli and
the board of directors,
the financial statements for 2015 were only
approved on 11 November 2015, but no mention was made of a dividend.
Eventually,
a dividend was declared at a board meeting held on 14
December 2015, but De Sousa’s dividend - amounting to
approximately
R4 million – was withheld from him.
Instead of paying it to De Sousa the dividend was paid into TCM’s
attorneys’
trust account.  TCM’s attorney then
invoked interpleader proceedings alleging that there was a competing
claim for the
dividend from De Sousa’s former wife, Sharon De
Sousa (Sharon).
[70] The
withholding of the dividend placed the plaintiffs in an intolerable
position as they were funding the litigation from their
own pockets.
De Sousa has assisted Diez in paying for his legal costs.
Cornelli would have known that the only
financial benefits received
by the plaintiffs from TCM were their dividends and that the
withholding of the dividend would place
undue financial pressure on
De Sousa.
[71] It
is common cause that the legal costs incurred by the second to fifth
defendants have been and are presently being charged
to TCM.
The plaintiffs were accordingly driven to launch an application in
terms of
s 163
of the
Companies Act, 71 of 2008
, to compel
payment of the dividend and for an order that their legal costs would
also be paid by TCM.  De Sousa’s
wife purported to
intervene in these proceedings.  Prior to 26 October 2015, De
Sousa was married to Sharon in community of
property;  he was
the registered shareholder, and she, the beneficial owner of an
indivisible half of such shares.  Whatever
rights Sharon may
have to the shares is of no concern to TCM, which was obliged to pay
the declared dividend to De Sousa, the registered
member.  After
hearing argument, I ordered that the dividend be paid forthwith to
De Sousa.  This obviated the need
for the plaintiffs to
proceed with the
s 163
application.  The time taken up in
dealing with the
s 163
application had the effect of further
lengthening the duration of the trial.
[72] TCM
had no legal right to withhold payment of the dividend from De
Sousa.  Unless a company’s articles provide otherwise,

dividends are payable to the persons who are registered in its
register of members (see Henochsberg on the
Companies Act, 71 of
2008
, 24; Blackman, Commentary on the
Companies Act,  Vol
1,
5-152).  The full dividend should have been paid to De Sousa,
as he is the registered holder of the shares.
As a matter of
law, a company recognises only its registered shareholders, that is,
those whose names are entered in its register
of members.  The
company is not concerned with the principal whose name does not
appear on the register, usually described
as the “beneficial
owner” (Sammel at 666D; Oakland Nominees (Pty) Ltd v Gelria
Mining & Investment Co Ltd
1976 (1) SA 441
(A) at 453A-B, and
Standard Bank of South Africa Limited v Ocean Commodities Inc
1983
(1) SA 276
(A), 289B).
[73] The
legal position in regard to the payment of dividends is described by
Lindley LJ in Société Générale
de
Paris v Tramways Union Company Limited
(1884) 14 QBD 424
(at 451-452)
as follows:
“
If
a shareholder in a company governed by the
Companies Act
... does not
transfer his shares, but agrees to transfer them or to hold them upon
trust for another, either absolutely or by way
of security, there can
be no doubt as to the validity of the agreement, nor as to the effect
of it as between the parties to it.
As between them the
agreement or trust can be enforced; but as regards the company the
shareholder on the register remains a shareholder
still.  He is
the person to exercise the rights of a shareholder, for example, to
vote as such, to receive dividends as such,
and to transfer the
shares ....  The person having the beneficial interest in the
shares has, as against the company, no right
to them;  he has,
as against the company, no right to have them registered in his own
name.”
[74] In
Oakland Nominees (Pty) Ltd v Gelria Mining & Investment Co (Pty)
Limited
1976 (1) SA 441
(A) (at 453), the then Appellate Division
expressed the position in relation to nominee and beneficial
shareholders as follows:
“
The
principal, whose name does not appear on the register, is usually
described as the ‘beneficial owner’.  This
is not,
juristically speaking, wholly accurate; but it is a convenient and
well-understood label.  Ownership of shares does
not depend upon
registration.  On the other hand, the company recognises only
its registered shareholders.”
See also
Standard Bank of South Africa Limited v Ocean Commodities Inc 1983
(1) 276 (A) at 289.
[75]
It is settled law that upon declaration of a dividend the sum
due becmes a debt due from the company to the registered shareholder

(Blackman et al, Commentary on the
Companies Act (Vol
1, 5-149).
I consider the delay in declaring the dividend and
the payment thereof into TCM’s attorneys’ trust account
as a stratagem
employed by Cornelli to deprive the plaintiffs of the
means to properly pursue the present litigation.  The launch of
the
interpleader proceedings by TCM’s attorney was legally
unjustified.  It goes without saying that the withholding of the

dividend in the circumstances described unduly prejudiced De Sousa in
his capacity as a shareholder.
INTERVENTION
APPLICATION
[76] A
most disturbing feature is the fact that on the eve of the delivery
of this judgment proceedings were launched by Sharon
and defendants
which were calculated to derail the delivery of the judgment.
On 22 February 2017, some eleven months after
I had reserved judgment
(and more than two years after the commencement of the present
action), Sharon, who was formerly married
to De Sousa in
community of property, launched an application to intervene as a
sixth defendant for purposes of filing a plea
and counterclaim.
The intervention application was brought on the basis that upon the
divorce from De Sousa on 26 October
2015, she became the owner of 15%
of the shares in TCM, alternatively, a separate and free co-owner
with De Sousa of 30% of the
shares registered in his name.  She
asserted in her proposed counterclaim that because the joint estate
is still to be divided,
she is entitled to retain “her portion”
of the shareholding and to have a 15% shareholding in TCM registered
in her
name;  furthermore, that her interests would be
prejudicially affected if the relief sought in the present action
were granted.
[77] On 8
March 2017, the defendants opportunistically applied for leave to
amend their plea so as to allege that this Court lacks
jurisdiction
to make an order that any of the defendants purchase shares owned by
Sharon either solely or in c-ownership with De Sousa.
The
alleged basis for this new-found plea is that the defendants cannot
be ordered to buy shares from a person who refuses to sell
them.
[78] The
argument that Sharon had a legal entitlement to have 15% of the
shares registered in her name is specious.  The effect
of the
grant of the order of divorce was to bring an end to the community of
property that previously existed between Sharon and
De Sousa and to
require an equal division of the joint estate after payment of
liabilities (see Meyer v Thompson NO
1971 (3) SA 376
(D) at 377F).
Absent an agreement to the contrary, Sharon did not, upon the
divorce, acquire any right to the shares themselves
or any portion
thereof.  She could not claim any asset of the joint estate in
specie or in an undivided form, and was merely
entitled to a share of
the net proceeds of the joint estate after the realisation of
liabilities.
[79] The
fact that Sharon is presently a separate and free co-owner with
De Sousa of 30% of the shares in TCM does not entitle
her to be
registered as a member in the register of members.  The right to
be on the register is independent of ownership
of the shares (see
Davis v Buffelsfontein Gold Mining Co Ltd and another
1967 (4) SA 61
(W) at 633C-F and the reference therein to the case of Jeffery v
Pollak & Freemantle
1938 AD 1
at 18;  also see Hahlo, “South
African Company Law through the Cases” (6 ed) at 175).
[80] For
these reasons I held that Sharon did not have a direct or substantial
legal interest that would justify her intervention
in the present
action.
[81] It
is as well to also bear in mind that
s 252(3)
endows this Court
with the discretion to make “such order as it thinks fit …
with a view to bringing to an end the
matters complained of”.
The wide nature of the discretion would permit the Court, where
appropriate,to make an order
for the disposal of shares, contrary to
the wishes of the owner or beneficial owner thereof.
[82] I
dismissed the intervention application and the defendants’
proposed amendment as they were, in my view, devoid of any
merit.
Should the Court have been inclined to grant the orders sought, this
would have had serious and far-reaching consequences.
The
plaintiffs would have suffered grave prejudice, such, that cannot be
catered for by an appropriate costs order.  This
Court would
have been required to re-open the case and give consideration to a
whole range of factual disputes concerning the joint
estate of
De Sousa and Sharon, all of which are irrelevant to the relief
sought in the present action.  In proceedings
under
s 252
,
the Court is not concerned with the personal disputes between husband
and wife.  Had the trial been reopened, the Court would
have to
consider afresh what relief other than the disposal of the
plaintiffs’ shares would be appropriate.  This would
have
opened up new avenues of enquiry requiring further evidence to be
led.
[83]
Nowhere in the application for intervention did Sharon seek to
explain, or credibly explain, the reasons why her application
was
brought on the eve of the delivery of this judgment.  It is
considered to be an abuse of process where there is an inordinate,

unexplained or inexcusable delay causing prejudice (see Mahommed
Cassimjee v The Minister of Finance
2014 (3) SA 198
(SCA) paras [10]
to [12] and cases there cited).  The excessive unexplained
lateness of the application warranted the conclusion
that it was
brought with the ulterior purpose of derailing this judgment.
The launch of the application to intervene and
to amend the
defendants’ plea was in my view a well-orchestrated stratagem
with clearly defined ulterior motives;  Sharon
and Cornelli had
together conspired to derail the imminent judgment in the trial and
to deprive De Sousa of the capacity to enforce
his rights.  This
conduct constituted an abuse of the process of court.  For that
reason I ordered that the costs of
the applications be paid by Sharon
and the defendants on a punitive scale.
[84] A
most disturbing fact that emerged in the intervening application is
that TCM had again deliberately withheld payment of the
2016 dividend
to which De Sousa was entitled.  Instead, the dividend was
again paid into the trust account of TCM’s
attorney, who
instituted an interpleader proceeding.  An urgent application by
De Sousa to compel payment of the dividend
was struck off the Roll by
Windell J on 14 February 2017 on the grounds that it lacked
urgency, and that application is to
be determined on the opposed roll
of this Court in August 2017.  For the reasons stated, TCM had
no legal right to withhold
payment of the dividend from De Sousa.
[85] The
launch of the abortive urgent application served to further increase
the legal costs that De Sousa has had to bear.
[86] The
time spent in having to adjudicate upon the intervention application
and application inconvenienced me greatly.  The
papers in these
applications, including a copy of the record, are voluminous;
they run to approximately 1 000 pages.
Given the timing of
the launch of these applications, I am convinced that the true
purpose was to derail my judgment and delay
the finalisation of the
trial.
[87] Yet
a further indication that the defendants’ conduct was
calculated to delay and frustrate the plaintiffs’ rights
arises
from the following.  Meetings were held between the experts:
Geel, Professor Wainer and Greyling.  Professor Wainer
testified
that Greyling had been in agreement with him on certain matters but
that this had been countermanded and Greyling had
been instructed
that he was not at liberty to agree those issues with Wainer.
Wainer was not challenged on this aspect.
It is a matter of
concern that there was interference in this manner with the
defendants’ ostensibly independent expert witnesses.
Also
see, in this regard, the minutes of a meeting of accounting experts
dated 14 May 2015, Exhibit G para 5;  and Exhibit P

paragraph 2.22.
THE
TIMETABLE
[88] On
countless occasions, I warned the parties that a time limit had to be
imposed and that the trial could not proceed indefinitely.
I
emphasized that it was not in the public interest for litigants to
monopolise a judge for many months, especially in a busy division

such as the Gauteng High Court, and that the public purse could not
reasonably be expected to bear the expense of a long trial.
[89] At
some stage, the Judge President of this Division indicated that
finality had to be reached and that the matter had to be
concluded by
the end of the first term of 2016 (3 April 2016).  A meeting was
held in my Chambers at which a date for the
continuation of the trial
was to be decided upon.  At the meeting I informed the parties’
legal representatives that
because I was to retire at the end of July
2106, an assurance had to be given that at least the evidence would
be completed by
the end of the first term of 2016.  As far as I
was concerned such undertaking was given, but this was later disputed
by the
defendants’ counsel.  In the light of this, I again
contacted the Judge President, who instructed me to record that
whether or not the matter was finalised at the end of the first term
of 2016, the parties would not be permitted to enrol the matter
for
further hearing.
[90] In
an endeavour to ensure a fair apportionment of the remaining time
available for the hearing of the matter, I urged the parties
to agree
upon a timetable.  The defendants refused to do so.  Because
of their refusal to cooperate, I accepted the timetable
that had been
proposed by plaintiffs’ counsel (Exhibit U).
[91]
After De Sousa had been cross-examined for some eight days,
defendants’ senior counsel pointed out that there were a
number
of topics that he still wished to cover in cross-examination.  I
informed him that he would have to complete his cross-examination

within a further day.  He was also invited to at least put the
defendants’ versions in relation to the outstanding topics
to
De Sousa, but he refused to do so.
[92] The
aforegoing is, I believe, a fair summary of the reasons why the
litigation between the parties has been unduly protracted.
PREJUDICE
ALLEGEDLY SUFFERED BY THE DEFENDANTS
[93]
Counsel for the defendants submitted that the evidence of De Sousa
should be excluded because his cross-examination was terminated

prematurely by the Court.  Relying on a dictum of Wepener JA
in S v Khumalo 2012 JDR 1401 para [14], it was
argued that
the defendants’ right to a fair trial guaranteed by the
Constitution had been infringed.
[94] The
right to fully and effectively cross-examine a witness is undoubtedly
a fundamental procedural right and the failure to
allow
cross-examination is inconsistent with the right to a fair trial.
But, vital as the right may be, it is not an absolute
right.
Whether a curtailment of cross-examination has resulted in the
negation of the right to a fair trial depends upon
the circumstances
of each case, and much depends on whether the curtailment has
resulted in prejudice.
[95] In
Distillers Korporasie SA Beperk v Kotze
1956 (1) SA 357
(A) at 361H)
Schreiner JA, writing for the Court, said:
“
The
disallowance of proper questions sought to be put to a witness by
cross-examining counsel is an irregularity which entitles
the party
presented by the cross-examiner to relief from a Higher Court, unless
that Court is satisfied that the irregularity did
not prejudice him
”
[96] The
instances where a court is permitted to limit cross-examination are
well documented (see “Cross-examination in South
African Law”,
Dr JP Pretorius, pp 253 to 255;  “Principles of
Evidence”, PJ Schwikkard and
SE Van Der Merwe (4 ed)
pp 394 to 399, and “The South African Law of Evidence
(2 ed) – DT Zeffertt
and AP Paizes pp 909
to 912).
[97]
Cross-examination may be limited when it is protracted and
irrelevant, only adding to the cost of litigation and a waste of

public time (see Mechanical and General Inventions Company Limited
and Lehwess
[1935] AC 346
at 360).  In R v Melozani
1952 (3) SA 639
(A) at 641, Van den Heever JA, writing for the Court,
stated:
“
It
is the duty of a presiding Judge to control proceedings in his Court
and to prevent a waste of public time and treasure.
It is a
duty, however, which should be discharged with circumspection in the
interests of the administration of justice.
…
”
[98] In
Universal City Studios Inc and others v Network Video (Pty) Limited
1986 (2) SA 734A
at 754G, Corbett JA stated:
“
There
is no doubt that the Supreme Court possesses an inherent reservoir of
power to regulate its procedures in the interest of
the proper
administration of justice”
[99] In
1964, the Van Winsen Committee of Inquiry into the Uniform Court
Rules and Costs, alluded to the problem involving protracted

cross-examination in this way:
“
Repetitious
and unnecessary cross-examination and an over-elaboration of argument
serve in many cases to increase costs.  Not
rules, but the firm
intervention of the presiding judges is the remedy in such cases.
While it is not the function of the
judge unduly to curb
cross-examination or argument, it certainly is his right and duty to
put a term to unwarranted examination
and argument.  A more
frequent resort by judges to this right would certainly assist in
keeping down the level of costs.
”
[100]
Similar views were expressed by Harms JA in Take and Save
Trading CC v Standard Bank of South Africa Limited
2004 (4) SA 1
(SCA) at 4F-G:
“…
Fairness of court
proceedings requires of the trier to be actively involved in the
management of the trial, to control the proceedings,
to ensure that
public and private resources are not wasted, to point out when
evidence is irrelevant, and to refuse to listen to
irrelevant
evidence.  A supine approach towards litigation by judicial
officers is not justifiable either in terms of the
fair trial
requirement or in the context of resources. …
”
[101] In
my view, the defendants have not suffered any real or legally
cognizable prejudice as a result of the curtailment of the
period
allowed for the cross-examination of De Sousa.  The only
limitation placed on cross-examination was its duration.
The
defendants were not prevented from cross-examining De Sousa or any
other witness and no limitation was placed on the lines
of
cross-examination or the topics which the defendants were required to
cover.  Unfortunately, during cross-examination of
the
plaintiffs’ witnesses much time was taken up with matters that,
at the end of the day, are not dispositive of the case.
The
defendants chose not to confine themselves to the time-limits imposed
by the timetable.
[102] In
argument defendants’ senior counsel suggested that I had
repeatedly stressed that an inflexible line would be taken
in
relation to Exhibit U and that “the defendants would be
given no leeway”.  This is not correct.
What I in
fact stipulated was that the timetable would be rigidly applied
“unless justice required a departure therefrom”.
It
is not without relevance that in terms of Exhibit U, the period
allocated for the cross-examination of De Sousa was five
days but in
fact he was cross-examined by defendants’ counsel for nine
days.
[103] The
defendants closed their case on 1 March 2016.  The closure was
unheralded and came as a surprise to both the plaintiffs
and the
Court.  At that stage, there was still approximately a month
available for the hearing of evidence.  This period
could
usefully have been employed to call Cornelli, who is principally
implicated in the matter, to give evidence.  Other
witnesses
could also have been called by the defendants.
[104]
Before closing the defendants’ case, counsel for the defendants
handed in Exhibit Z,
entitled “Topics
still to be covered by defendants”.  In many of the topics
referred to in Exhibit Z are,
in my view, not material or
germane to the broad issues that are required to be decided;
and those that are could easily
have been dealt with during the time
allocated for cross-examination of the plaintiffs’ witnesses.
[105] The
following is to be observed if one examines Exhibit Z.  It
was not necessary for the Court to determine the
precise values of
the maintenance spares inventory (Item 3);  what mattered is the
manner in which maintenance spares were
accounted for by TCM.
It is common cause that TCM held a significant amount of maintenance
spares inventory from 2008 to
2013.  These items were treated as
an expense by TCM and only properly brought into account as inventory
in the financial
statements for the year ended 2013.  Why this
was done is peculiarly within the knowledge of Cornelli and the board
of directors
of TCM.  Only they and their accounting expert,
Mr Greyling, who it was thought would be called in evidence,
could explain
why maintenance spares for the period 2008 to 2013 were
expensed and not treated as inventory.  It was also not
necessary
for the Court to determine the precise values of inventory
on hand, or whether the spares valuation reports and stock summary
reports
were accurate.
[106] The
proceedings before the CCMA (Item 6) are not material to the
outcome of the case.  It is common cause that De
Sousa was
dismissed from his employment after a disciplinary hearing.
Even if it were proven that there were grounds for
De Sousa’s
dismissal, he would still be entitled to claim the relief sought and
to dispose of his shares in TCM at a fair
value.
[107] At
some stage during the trial, defendants’ counsel indicated that
he intended to call the eleven witnesses who had
apparently given
evidence at the CCMA hearing.  I indicated that that I would not
permit these witnesses to be called as this
would unduly prolong the
trial.  In my view, the evidence of these witnesses could have
had no material impact on the plaintiffs’
right or entitlement
of the relief sought.  Whether the witnesses were believed by
the Commissioner at the CCMA hearing, is
irrelevant and the findings
and opinions of the Commissioner are not binding on this Court (see
Hollington v F Hewthorn and
Co Limited
[1943] KB 487 (CA)).
[108]
De Sousa’s pie charts evidence (Item 9) does not advance
either party’s case.  Nor is the evidence pertaining
to
the ‘Secret Warehouse’ (Item 1) dispositive of the
case.
[109] The
plaintiffs’ complaint relating to the denial of their
legitimate expectations (Item 12) is indeed a vital aspect
which
should have been given priority by defendants’ counsel when
cross-examining De Sousa.  So, too, is the question
of the
office space and parking space complaint (Item 11); the
complaint relating to Hassim and the retention agreements (Item
10).
These matters could and should have been dealt with during the period
allocated for De Sousa’s cross-examination.
Why
these were not dealt with during his cross-examination is not clear.
[110] The
EBITDA question (Item 7) was fully dealt with in the
cross-examination of Geel.  In any event, the following
matters
relating to the EBITDA question are peculiarly within the knowledge
of Cornelli and TCM’s board of directors:
The accounting
treatment in respect of maintenance spares during the period 2008 to
2013;  the reasons for the R11.2 million
write-off of
inventory in 2008;  the payment of bonuses and increased
salaries (Item 5) to Hassim, and the dividend policy
adopted by
TCM.  Cornelli ought to have explained these matters and why the
EBITDA values were reduced during the period subsequent
to 2008.
[111]
Only the defendants could explain why TCM funds were used to pay for
the costs of the s 252 motion matter (Item 2)
and why TCM,
which is a neutral party and essentially a nominal defendant, should
have to pay the costs incurred by the second
to fourth defendants in
resisting the present action.
[112]
Litigants have a Constitutional right to a fair trial;  it is
fairness, and not length, that is guaranteed.  Given
the unduly
protracted nature of the trial as a result of the circumstances
described, there was every justification for the Court
to impose a
time limit for the hearing of evidence and cross-examination.
For these reasons I am satisfied that the defendants
have not
suffered any real or undue prejudice as a result of the curtailment
of the time permitted for cross-examination.
Their fair trial
rights have not been negated.
[113] For
these reasons I decline to exclude the evidence of De Sousa.
His evidence stands uncontradicted.
CLOSURE
OF THE DEFENDANTS’ CASE
[114]
The principal submission advanced on behalf of the defendants is that
there was no obligation upon them to testify as the
plaintiffs failed
to make out a prima facie
case.
[115] In
civil cases, a party’s failure to give gainsaying evidence
under oath or affirmation may have an adverse effect on
his case;
however, the effect of such failure would depend upon all the
circumstances of the case.  In Brandt v Minister
of Justice and
another
1959 (4) SA 712
(A), Ogilvie Thompson J said the
following at 712:
“…
Now, where a witness, who is available
and able to elucidate the facts, is not called by a party such
failure ‘leads naturally
to the inference that he fears that
such evidence will expose facts unfavourable to him’ (per
Watermeyer C.J., in Elgin
Fireclays Ltd. v Webb
1947 (4) SA 744
(A) at p 750).
Ex hypothesi, such
adverse inference only arises if the witness in question is able to
elucidate the facts or may, from the circumstances,
be presumed to be
so able.
…”
[116] In
Titus v Shield Insurance Co Ltd,
1980 (3) SA 119
(A), Miller JA at
133E said:
“
It
is clearly not an invariable rule that an adverse inference be drawn;
in the final result the decision must depend in large measure
upon
‘the particular circumstances of the litigation’ in which
the question arises.  And one of the circumstances
that must be
taken into account and give due weight, is the strength or weakness
of the case which faces a party who refrains from
calling the
witness.”
[117]
Similarly, in Tshishonga v Minister of Justice and Constitutional
Development and Another, Pillay J said:
“
The
failure of a party to call a witness is excusable in certain
circumstances, such as when the opposition fails to make out a
prima
facie case.  But an adverse inference must be drawn if a party
fails to testify or produce evidence of a witness who
is available
and able to elucidate the facts, as this failure leads naturally to
the inference that he fears that such evidence
will expose facts
unfavourable to him, or even damage his case.”
[118]
Cornelli, who is principally implicated in this action, was present
throughout the hearing and there has been no suggestion
that he was
not available to be called as a witness.  Nor is there any
suggestion that Mr Greyling, the defendants’
accounting
expert, or Frank and Fabio Cornelli, who are also implicated in the
matter, were unavailable to give evidence.
Mr Impey, the
financial director of TCM, also sat in Court for virtually the entire
duration of the proceedings.  It
is reasonable to suppose that
each of these witnesses would have been able to give evidence in
relation to the facts in dispute.
[119]
That Cornelli was able to elucidate the facts is evident from the
following facts:  He deposed to the answering affidavit
in the
252 application, in which he dealt extensively with the complaints
levelled against the defendants in the present action.
As is
required when deposing to affidavits, Cornelli stated that the facts
contained in the affidavit were within his own knowledge.
[120] In
defendants’ counsels’ written “submissions on
application to separate issues and opening address”,
it was
stated that Cornelli would or probably would give evidence in
relation to a number of matters.   In paragraph
62 it was
stated that Cornelli will testify as to what happened at numerous
board meetings and general meetings.  And, in
paragraph 64, it
was stated that as far as dividends are concerned, Cornelli “will
give evidence” that over the period
28 February 2005 to 30
November 2013, TCM declared dividends every year totalling
R123 million.  In paragraph 75, it
was said that “Cornelli
will testify that the disaffection of the plaintiffs commenced with
the advent of Hassim”.
It was further indicated in
paragraphs 76, 77, 78, 79, 81 and 84, that Cornelli would give
evidence relating to the failure by
Standard Bank to renew its
contract with TCM;  the need to seek out a person who would
satisfy BEE criteria;  the decision
to sell shares to Hassim and
the reasons why retention agreements were entered into.
[121] Of
particular significance is the statement made in paragraph 86 of the
defendants’ counsels’ written submissions,
where the
following is stated:
“
Cornelli
will testify to the truth of the plea concerning the Supplies
Division complaint.  He will also adduce evidence of
accounting
between TCM, on the one hand, and the Supplies Division, on the
other.  He will produce cheques drawn on TCM in
favour of the
Supplies Division and he will testify to both De Souza and Diez’
knowledge and participation therein.
”
[122] In
paragraph 90, it was stated that “Cornelli will testify”
that there was no understatement of inventory as alleged
in paragraph
15 of the particulars of claim.  It was also stated that he did
not conduct himself in the manner alleged in
paragraphs 16 and 17 of
the particulars of claim.
[123]
And, in paragraphs 90, 92, 95, 96 and 97 of the written submissions,
it is stated that Cornelli will testify in regard to
the following
matters:  His attempts to persuade his fellow shareholders to
reduce the purchase price of the shares that each
had sold to
Hassim;  and that none of the shareholders of TCM has been
offered the shares of either plaintiff in terms of
the provisions of
the shareholders’ agreement;  that there was no
under-statement of inventory as alleged in paragraph
15 of the
particulars of claim and that he did not conduct himself towards the
plaintiffs in the manner alleged in paragraphs 16
and 17 of the
particulars of claim.
[124] In
cross-examination versions were put to the plaintiffs’
witnesses that Cornelli would testify along the lines set
out in the
defendants’ written submissions.  This gave rise to the
reasonable expectation that the defendants would
give countervailing
evidence.
[125] In
ZT Mtembu v The Safety and Security Sectorial Bargaining Council and
others, a judgment of the Labour Court (Case No JR2870/10
–
para [39]) it was held (per Snider AJ) that no reliance can be
placed on versions put to witnesses in respect of which
no evidence
is subsequently given.
[126]
Whether the defendants were justified in failing to adduce evidence
and whether an adverse inference ought to be drawn is
a matter with
which I will deal later in the judgment.
WHERE
THE UNFAIR PREJUDICE LIES
[127] On
a proper conspectus of the allegations made in the particulars of
claim, the unfair prejudice or inequity relied on falls
within the
following three categories:  First, that the affairs of TCM have
been conducted in a manner that is detrimental
to the plaintiffs’
financial interests.  Cornelli and those who control its affairs
under his direction have embarked
on a course of conduct that has
negatively impacted on the value of the plaintiffs’ shares and
reduced the dividends and
other financial benefits payable to them.
This is the import and effect of the allegations made in paragraphs
12, 13.6, 15
and 15A of the particulars of claim.  Second, that
there is a lack of probity or unfair dealing in the manner in which
the
affairs of TCM have been conducted which has given rise to a
breakdown of confidence and trust.  Third, that the majority,

under the direction of Cornelli, have excluded the plaintiffs from
participating in the management of TCM’s business without

affording them an opportunity to dispose of their shares at fair
value or upon reasonable terms.
[128]
That De Sousa had a right or, at the very least a legitimate
expectation, to participate in the management of the business
of TCM
can admit of no doubt.  TCM may properly be described as a
quasi-partnership company.  Although technically and
legally
governed by the strictures of company law, in fact and in reality,
the relationship amongst the shareholders was more akin
to a
partnership in which each held 50% of the shares (see Emphy and
another v Pacer Properties (Pty) Ltd
1979 (3) SA 364
(DCLD) at
365-367 and cases there cited).  Since its establishment TCM
functioned and was administered under the direct control
of its two
founding members who participated equally in its management.  De
Sousa testified that a pact was made between him
and Cornelli that
for as long as TCM existed they would be equal partners in the
business, would earn the same benefits and would
have an equal say in
its affairs.  It was always intended that all shareholders be
employed by the company.  I also accept
that despite the
introduction of Diez, De Sousa and Hassim as minority shareholders,
TCM retained its identity as a domestic company
in the nature of a
partnership primarily between De Sousa and Cornelli.
[129] As
a matter of law, it is irrelevant whether or not Cornelli or the
board of directors of TCM were justified in dismissing
De Sousa from
his employment.  What matters is that he has been excluded from
management and has allegedly not been able to
properly dispose of his
shares at a fair value.  It is alleged in paragraph 14 of the
particulars of claim that Cornelli has
refused to engage in bona fide
discussions or negotiations with the aim of permitting the plaintiffs
to dispose of their shares
either to TCM, the remaining shareholders
or a third party.  They further allege that Cornelli has
prevented them from having
proper access to the financial
documentation of TCM, which is necessary to enable the plaintiffs to
arrive at a fair assessment
of the value of their shares.
[130] As
was highlighted in O’Neill (at 970d-f and 975), the unfairness
lies not in De Sousa’s exclusion from participating
in the
management of TCM, but his exclusion coupled with an alleged
inability to dispose of his shares at a fair value.  Fairness

requires that De Sousa should not have to maintain his investment in
TCM which is managed by the majority with whom he has fallen
out.
The same considerations apply to Diez.  Such unfairness would
disappear if De Sousa and Diez were offered a fair
price for their
shares.
[131] It
is critical to know, therefore, whether a reasonable offer has been
put by the majority for the purchase of the plaintiffs’
shares
or a fair arrangement has been made which would enable the plaintiffs
to dispose of their shares at a fair value.
The putting of such
offer would alleviate any prejudice suffered by the plaintiffs.
It is also necessary to establish whether
the plaintiffs have been
afforded sufficient access to the financial information of TCM to
enable a proper assessment of the value
of the shares to be
conducted.
[132] In
O’Neill (p 975) Lord Hoffmann set out the criteria
for the determination of a reasonable offer.  Five
factors were
referred to.  (1)  The offer must be to purchase the
shares at a fair value.  This would ordinarily
be a value
representing an equivalent proportion of the total issued share
capital, without a discount for its being a minority
holding.
(2)  The value, if not agreed, should be determined by a
competent expert.  (3)  The offer
should have the
value determined by the expert as an expert and should not provide
for the full machinery of arbitration or of
an expert who gives
reasons.  The objective should be economy and expedition.
(4)  The parties should have
the same right of access to
information about the company which bears upon the value of the
shares, and both should have the right
to make submissions to the
expert.  (5)  When an offer is made after years of
litigation, the offer should generally
be accompanied by an offer to
pay costs.  In the present case, there is evidence that the
plaintiffs expended substantial
amounts in legal costs in furtherance
of the litigation.  Allowance must be made for this factor in
determining a fair value
for the shares.
[133] It
is appropriate to at this stage refer to the shareholders’
agreement concluded on 29 June 2005.  The agreement
regulates
the manner in which the shareholders are to dispose of their shares.
Subclause 10.1 provides that any shareholder
whose employment by the
company is terminated for whatever reason shall be deemed to have
offered his shares and loan account for
sale to the remaining
shareholders on the basis set out in clause 13.  This clause
deals with the pre-emptive rights of the
shareholders.
Subclauses 13.14 and 13.15 require the plaintiffs to first offer
their shares for sale to the other shareholders.
The offer
shall is to remain open for acceptance for a period of fourteen days
following the receipt thereof, and must stipulate
a price at which
the plaintiffs wish to sell their shares to a bona fide third party.
Subclauses 13.17 and 13.18 provide
that should the offer not be
accepted, the plaintiffs shall be entitled to dispose of their shares
to a third party subject to
the consent of the board of TCM.
[134]
Clause 12 of the shareholders agreement obliges the company to keep
proper and up-to-date accounting, financial and other
records in
relation to its business and affairs.  It also obliges the
company to provide monthly management accounts and audited
financial
statements.  Subclause 12.2.2.3 and 12.2.3 provide that a
shareholder may request information as to the financial
affairs and
business of the company and that should the requested information not
be provided, a shareholder may appoint an independent
firm of
accountants to produce such information or investigate the affairs of
the company at the company’s expense.
[135]
Shareholders are not inflexibly bound to the provisions of the
shareholders’ agreement and it would be perfectly permissible

for a bona fide offer to be made outside the realm of the
shareholders’ agreement.  Nor is the Court duty-bound to
enforce the shareholders’ agreement.  Equitable
considerations may dictate that there be a departure from the strict

provisions of the shareholders’ agreement (see O’Neill at
967C).
[136]
Because De Sousa’s employment was finally terminated on 3 April
2009, he is deemed or presumed, in terms of the shareholders’

agreement, to have offered his shares for sale to the remaining
shareholders on that date.  In reality, however, he had made
an
offer to sell his shares prior to that date.
[137] On
4 February 2009, a letter was addressed by plaintiffs’
attorneys to defendants’ attorney, in which it was indicated

that the plaintiffs were desirous of disposing of their shares in
TCM.  The defendants were invited to engage in such process.

A meeting was then held at the offices of KPMG on 18 February 2009
for the purposes of discussing recommendations to enable the

plaintiffs to sell their shares either to TCM, or to the remaining
shareholders or an interested third party.  Among the persons

present were the plaintiffs, Geel, Cornelli, Impey and their
respective attorneys.
[138] De
Sousa and Geel testified that shortly after the meeting commenced,
Cornelli made various demands.  He demanded that
the plaintiffs
absent themselves from the workplace for at least three months during
which he would attempt to find a purchaser
for their shares.  He
also insisted that they resign as directors and that they accept
payment of 80% of their existing salaries.
De Sousa was not
prepared to accept these demands.  As a result, Cornelli lost
his temper and stormed out of the meeting.
[139] The
next day, 19 February 2009, De Sousa received an email from Cornelli
stating that he had been suspended from the employment
of TCM, with
full pay and benefits, pending the outcome of a disciplinary
investigation and hearing.  The reason for his suspension
was
his alleged insubordination, non-performance, undermining of the
chief executive’s authority and causing a breakdown
in trust
amongst fellow employees and directors.  Disciplinary
proceedings were thereafter instituted against De Sousa.
[140] On
24 February 2009, defendants’ attorney wrote to Geel in which
it was claimed that Geel was not entitled to be in
possession of
financial information of TCM as it was confidential.  The
following was stated in the letter:
“
3.
It became apparent during the course of the meeting that your clients
have furnished you with certain
confidential information in regard to
TCM and its subsidiary companies.  Please can you urgently
forward to me full details
of what financial information your clients
have furnished you with in particular balance sheets, draft financial
statements, management
accounts, budgets, bank statements and any
other documentation that is presently in your possession.
4.
Please note that according to TCM and its subsidiary companies you
are not entitled to be in possession
of such financial information
without the consent of the Boards of Directors of the relevant
companies.  My clients have instructed
me to place on record
that any financial information that you are in possession of has been
received without the authority of the
relevant Boards of Directors.
My instructions are furthermore to request that you urgently furnish
to my client a detailed
list of the financial information in your
possession together with an undertaking that such information will be
released to any
third party without the express consent of the
relevant Boards of Directors and that such information will be
treated in a confidential
manner.  My clients have further
instructed me to place on record that should it transpire that any
financial and confidential
information is leaked to any third party
or competitors which results in financial loss to my clients, my
clients will hold KPMG
Services (Pty) Ltd, Mr De Sousa and
Mr Diez jointly and severally responsible for such loss.”
[141]
This was followed by a number of offers made by one or other of the
parties during the period March 2009 to November 2014.
The
first such offer was made by the plaintiffs through a letter from
their attorneys to TCM dated 13 March 2009.  The offer
was for
the shareholders, alternatively TCM itself, to purchase the
plaintiffs’ shares at a price of R160 million.
This
offer was rejected in a letter from defendants’ attorney dated
23 March 2009.  In the letter of rejection it was
recorded that
the defendants did not agree with the valuation attributed to the
shares, and that they were not prepared to purchase
the shares “for
the price as indicated”.
[142] On
9 April 2009, plaintiffs’ attorneys wrote to defendants’
attorney requesting that the defendants indicate at
what price the
defendants were in fact willing to purchase the shares and to provide
a proper valuation to support such offer.
[143] In
response thereto, defendants’ attorney wrote to plaintiffs’
attorneys on 21 April 2009 in which they stated
that "[Y]our
clients’ purported offer contained in your letter of 13 March
2009 does not comply with the provisions
of clauses 13.14 and 13.15
of the shareholders’ agreement.  In the circumstances,
such offer is invalid and is to be
regarded as pro non scripto”.
The letter continues as follows:  “In any event, my
clients are, at this time,
not interested in purchasing your clients’
shares in TCM.”
[144] The
plaintiffs’ attorney responded to the letter of 21 April 2009
in the following terms:
“…
we
see no reason why the offer made to your clients to purchase our
client’s shares should not have constituted a genuine,
valid
and bona fide offer, albeit outside the realm of the Shareholders
Agreement.  It is our view that it is  entirely
possible to
offer the shares for sale in this manner, and that such offer is most
certainly not ‘pro non scripto’ as
you describe it.
…”
[145] No
further negotiations with a view to the disposal of the plaintiffs’
shares took place until 9 December 2013, when
Cornelli made what has
been referred to in the evidence as the “Mandela offer”.
It reads:
“
In
the spirit of Nelson Mandela’s legacy and principles, subject
to TCM board approval, I offer you 7 days to unconditionally
withdraw
your case, each party paying their own costs.
I
will thereafter apply my mind, on how to best effect a transfer or
your shares to good faith and synergy investors, on a willing
buyer,
willing seller basis.
This
offer expires at 10am on Monday 16 December 2013.”
[146] On
3 December 2014, TCM made an offer to buy the plaintiffs’
shares for an amount of approximately R54 million.
It was
accompanied by a valuation demonstrating how the figures had been
arrived at.  The offer was required to be accepted
by 17
December 2014.  The plaintiffs responded that it was not
possible for them to comply with the deadline imposed and that
the
defendants were to assume that the offer had not been accepted.
The hope was also expressed that if the offer is made
in good faith,
negotiations should continue so that the matter could be resolved.
The date for acceptance was extended until
19 January 2015, but on 12
February 2015 the plaintiffs’ attorneys advised that the
defendants’ attorneys’ offer
was not acceptable.
[147] On
17 February 2016, and when the trial was nearly at an end, counsel
for the defendants produced a letter from defendants’
attorney
embodying an offer together with a valuation drawn by a firm of
accountants, Grant Thornton.  In terms of the offer,
which was
made without any admission of liability, TCM offered to pay
R50 094 000 for the shares held by De Sousa;
and
R11 037 000 for the shares held by Diez.  The offer
was open for acceptance by the close of business on 22
February 2016.  I permitted the letter to be handed in as
Exhibit DD, but refused to allow the valuation to be introduced

into evidence.  To have allowed the introduction of the
valuation would have given rise to new lines of inquiry and would

have further prolonged the trial.  Moreover, it appeared that
the letter and valuation had not been discovered and were introduced

without prior notice to the plaintiffs or the Court.
[148] For
the sake of completeness it is necessary to refer to a purported
offer made to all shareholders by an undisclosed third
party.
On 25 June 2008, Cornelli explained that the third party wished to
purchase 35% of the issued shares in TCM
for no more than R35 million
plus interest payable in instalments over three years.  That
offer was rejected by the plaintiffs
and presumably also by the
remaining shareholders.  De Sousa testified that he was not
prepared to sell his shares at that
price and that he assumed
“Mr Cornelli was actually the person that was looking to
buy the shares and he was just taking
a big chance”.  That
offer is of little relevance for present purposes as it was made well
before De Sousa’s dismissal
from his employment and that the
plaintiffs could not reasonably have been expected to have accepted
such offer.  Subsequent
offers made by the defendants have well
exceeded that price.
[149] The
allegations made in paragraph 14 of the particulars of plaintiffs’
claim are in my view well-founded.  It is
readily evident that
Cornelli and the remaining shareholders have refused to engage in
bona fide discussions or negotiations with
the aim of permitting the
plaintiffs to dispose of their shares at a fair value and without
resort to litigation.
[150]It
is clear that from the outset Cornelli had no serious intention to
enter into bona fide negotiations with the plaintiffs.
At the
meeting held at the offices of KPMG on 18 February 2009 he sought to
impose a number of wholly unreasonable conditions.
Cornelli
could not reasonably have expected the plaintiffs to resign as
directors with a reduction in salary;  nor could he
have
expected them to agree to him alone finding an interested third party
to buy their shares.  Because the plaintiffs did
not yield to
his demands, he lost his temper and stormed out of the room.
The following day, he issued a notice suspending
De Sousa from
his employment.  This, in my view, is not the conduct expected
of someone who is seriously interested in
engaging in negotiations.
[151] It
is plain from the correspondence to which I have referred that
Cornelli and the remaining shareholders had no interest
in
negotiating with the plaintiffs for the disposal of their shares.
Following the rejection of the plaintiffs’ offer
made
on13 March 2009, the defendants were invited to indicate at what
price they were prepared to purchase the plaintiffs’
shares but
they refused to do so.  Instead, it was contended in the letter
sent by the defendants’ attorney on 21 April
2009 that the
offer made on 13 March 2009 was invalid and is to be regarded as pro
non scripto.  It was emphatically stated
in that letter that the
defendants were, “at that stage, not interested in purchasing
the plaintiffs’ shares”.
The following was also
stated in the defendants’ attorneys’ letter:  “To
the extent that your clients intend
selling their shares to a third
party, we direct their attention to the provisions of clauses 13.14
to 13.18 of the shareholders’
agreement.”
[152]
There is no merit in the contention that plaintiffs’ offer made
on 13 March 2009 was invalid.  The grounds of alleged
invalidity
are not stated in defendants’ attorneys’ letter.
But I assume that the defendants’ attorney’s
bases his
contention on the fact that the offer made by the plaintiffs on 13
March 2009 was required to be accepted within ten
days and not the
fourteen-day period stipulated in subclause 13.15.1 of the
shareholders’ agreement.  This is not a
ground that would
render the offer invalid.  The period stipulated in 13.5.1 is
for the benefit of the defendants and they
could have waived this
requirement.  Even if the defendants’ attorney’s
construction of the shareholders’
agreement is correct,
equitable considerations make it unfair for the defendants to
strictly rely upon the provisions of the shareholders’

agreement.  It was at all times open to the plaintiffs to put a
bona fide offer for the sale of their shares outside the realm
of the
shareholders’ agreement.
[153] In
the final paragraph of defendants’ attorneys’ letter, it
was indicated that if the plaintiffs intended to sell
to a third
party, they were obliged to comply with the pre-emptive provisions of
the shareholders’ agreement, subclauses
13.14 to 13.18.
Plaintiffs’ counsel submitted that this was disingenuous since
the defendants knew full well that there
was no reasonable means by
which the plaintiffs were able to comply with the shareholders’
agreement requiring the identification
of a third party purchaser and
a price to be offered by that party.
[154]The
plaintiffs’ access to the financial information of TCM also
appears to have been unduly restricted or curtailed.  Geel

had been instructed by the plaintiffs to conduct a valuation of their
shares.  De Sousa testified that among the documents
that
Geel wanted to look at was the general ledger.  When he
requested access to the ledger, he was informed that he could
only
view it at the offices of TCM.  De Sousa was not permitted
access to TCM’s computer system to enable him to view
the
ledger and the underlying documents on his lap-top computer.  In
order to access these documents on TCM’s system
De Sousa
required the log-in details which were never given to him.  De
Sousa did not take up the offer to view the ledger
and the underlying
documents at the offices of TCM as such access would have been under
the control and supervision of TCM, and
would have been
time-consuming.
[155] The
content of the following emails which passed between the parties in
February 2015 are indicative of Cornelli’s obstructive

behaviour in affording De Sousa access to TCM’s financial
documentation:  On 13 February 2015, De Sousa complained
that
his access to TCM’s operating systems had always been denied.
Cornelli responded thereto as follows:  “Your
access to
view TCM systems have never being denied.  On multiple
occasions, I’ve offered you on-site access to view
our General
Ledger System (to view any numbers you wish).  You’ve
always ignored my multiple offers. …”
On 16
February 2015, Cornelli sent an email stating the following:  “I
remind you, that your general access to
TCM premises and staff is
only possible after you have supplied an adequate SAPS clearance
certificate.”  On the same
date he addressed a further
email in which the following was stated:
“
Access
to view TCM’s GL (General Ledger) is available as offered.
On site at TCM.  (not remotely)
Your
general access to TCM premises and staff is only possible after you
provide an adequate Clearance Certificate.  You are
welcome to
assign Jose Diez, or any other (known safe) consultant, hopefully JBA
trained, to view the GL, if you unable to get
an adequate SAP’s
clearance certificate.”
[156]
Subclause 12.2 of the shareholders’ agreement has an important
bearing on the plaintiffs’ entitlement to have
access to TCM’s
financial information.  It provides, among other things, that
shareholders have a right to be furnished
with the financial
documentation of TCM;  this includes monthly management accounts
of each company in the TCM group, balance
sheets, profit and loss
accounts and cash-flow statements together with written management
reports.  Shareholders are also
entitled to the audited
financial statements of each company.
[157] In
the letter sent by defendants’ attorney to Geel on 24 February
2009 TCM objected to Geel being in possession of TCM’s

financial information.  The plaintiffs were entitled to consult
Geel in order to conduct a proper valuation of their shares.
It
stands to reason that without proper access to TCM’s financial
information it would have been virtually impossible for
the
plaintiffs or their accountant to make a proper assessment of the
value of their shares.  This compromised their ability
to put a
proper offer to the defendants or to negotiate with a third party for
the disposal of their shares.
[158] The
so-called ‘Mandela offer’ which was made on 9 December
2013 is no offer at all as no price is stipulated for
the purchase of
the plaintiffs’ shares.
[159] The
plaintiffs could not reasonably have been expected to give proper
consideration to the offer made on 3 December 2014.
The
deadline imposed for acceptance of the offer and the subsequent
extensions granted were clearly inadequate.  The supporting

valuation had to be evaluated and the figures upon which it was based
verified.  This would have required the plaintiffs to
have had
full and proper access to TCM’s financial information.  As
I have already mentioned, such access had been unduly
restricted or
curtailed.  The chance of the plaintiffs being afforded proper
and unfettered access to TCM’s financial
information, seems
remote.  Absent such information, the plaintiffs would not have
been able to properly address the offer
with their appointed expert.
Why the offer was put at the onset of the festive season is a matter
of concern and is suggestive
of an absence of bona fides on the part
of Cornelli.
[160] I
find it hard to accept that the offer put on 17 February 2016 was a
genuine, valid and bona fide offer.  It could hardly
be
contended that the offer was made with the intention of bringing the
litigation and conflict to an end;  it was made some
seven to
eight years after the termination of De Sousa’s employment
and when the present case was at an advanced stage.
When the
offer was put, the plaintiffs had incurred substantial legal costs in
furtherance of the litigation (approximately R28 million).

There is no indication that the offer provided for the payment of the
plaintiffs’ costs.  It was held in O’Neil
(at 974E)
that it was proper to reject an offer which did not provide for the
payment costs.
[161] But
most importantly, the offer was only open for acceptance until the
close of business on 22 February 2016, some five days
after it was
made.  A period of five days could hardly have afforded the
plaintiffs enough time to properly consider the offer
and the
accompanying valuation.  The plaintiffs would first have had to
have been given access to the financial information
of TCM in order
to discuss the offer with their appointed expert, but this, as I have
previously indicated, was not forthcoming.
[162] The
plaintiffs have had to resort to lengthy and expensive litigation in
order to compel the purchase of their shares.
I was told that
at the present time the plaintiffs have expended approximately
R28 million in legal costs.  If the defendants
seriously
intended to avoid litigation, a proper offer to purchase their shares
at a fair value should have been put before the
launch of the s 252
application and the present action.  In O’Neill (at 974J),
Hoffmann J emphasized “…
that parties ought to be
encouraged, where at all possible, to avoid the expense of money and
spirit inevitably involved in such
litigation by make an offer to
purchase at an early stage.”
[163] The
ineluctable conclusion to be drawn from the above facts is that
Cornelli and the remaining shareholders of TCM have failed
or refused
to engage in bona fide discussions or negotiations with the aim of
permitting the plaintiffs to dispose of their shares
at a fair value
and without resort to litigation.  The defendants have not made
a fair or proper offer to purchase the plaintiffs’
shares.
This has unfairly prejudiced the plaintiffs.  Accordingly, the
plaintiffs have proven the allegations made in
paragraph 14 of the
particulars of plaintiffs’ claim.
THE
PLAINTIFFS’ FURTHER COMPLAINTS
[164] The
principal complaint is that since about 2008 Cornelli and the
remaining shareholders have intentionally or recklessly
conducted the
affairs of TCM in such a way as to diminish or jeopardise the value
of the plaintiffs’ shares and to reduce
the dividends and other
financial benefits payable to them.  The causes that underlie
this complaint are threefold.
[165]
First, that Cornelli has procured that the business of TCM’s
Supplies Division (the Supplies Division) be conducted
and accounted
for as if it were a separate entity from TCM, and caused all income
and profits arising therefrom to accrue solely
to Hassim or
alternatively the Trust, and Frank and Fabio Cornelli.  This has
caused loss to TCM of its Supplies Division
business.  It has
also deprived the shareholders of value by way of dividends and has
eroded the value of the plaintiffs’
shares.
[166]
Second, the true values of TCM’s assets are not properly
reflected in its annual financial statements.  There has
been a
material understatement of inventory in the annual financial
statements for the years 2008 to 2012.  This has occurred
as a
result of a failure to take account of all sales inventory;  to
include work-in-progress inventory on hand, and to properly
account
for maintenance spares inventory.  There was also an unjustified
and unexplained stock write-off of R11.2 million
in 2008.
Such undervaluation does not reflect the true financial position of
TCM.  The plaintiffs contend that the undervaluation
was
procured by Cornelli for the ulterior purpose of reducing the value
of the plaintiffs’ shares (see para 15 of the particulars
of
claim).
[167]
Third, that from 2007, the business of TCM has been conducted in such
a manner that its operating profit available to shareholders
after
all expenses have been discharged, has been drastically reduced.
Cornelli has intentionally or recklessly failed to
contain and/or
reduce the total operating expenses of TCM so as to ensure its
ultimate profitability.  The operating expenses
and especially
management fees, staff costs, directors’ emoluments and bonuses
have substantially increased.  This conduct
has resulted in the
resources and patrimony of TCM being unduly depleted and its EBITDA
reduced.  I will deal later in the
judgment with the question of
EBITDA (see para 15A of particulars of claim).
THE
SUPPLIES DIVISION
[168] The
crux of the dispute concerning the Supplies Division is whether the
owner or proprietor of the Supplies Division business
is TCM (as
contended by the plaintiffs), or Frank and Fabio Cornelli.
[169]
De Sousa’s evidence is that TCM acquired the business in
about 1995 from Sternco (Pty) Limited (Sternco), which
had been
placed in liquidation.  As the owner of the business TCM is
entitled to all income and profits arising from its business

operations.  This is denied by the defendants.
[170] The
defendants allege that Sternco, which was incorporated by Frank and
Fabio Cornelli in about 1986, imported industrial
spare parts and all
of the computers and spare parts for TCM.  The liquidation of
Sternco placed TCM’s supply chain
at risk.  For purposes
of ensuring the continuity of its supply chain, TCM decided to assist
Frank and Fabio Cornelli by “warehousing”
the former
business of Sternco in TCM and describing it as the “TCM
Supplies Division”.  The business would be
ringfenced from
the remaining business of TCM.  However. the Supplies Division
would be owned by Frank and Fabio Cornelli
and run at their personal
risk and for their personal benefit.  The plaintiffs were party
to this decision.
[171] It
is alleged further that the Supplies Division has throughout its
existence and with the knowledge and consent of the plaintiffs,

operated as if it was a separate entity owned by Frank and Fabio
Cornelli.  It had a separate bank account and overdraft
facility.  All profits generated by It would accrue solely to
Frank and Fabio Cornelli and, since June 2005, also to Hassim.
[172] The
onus of proof that the Supplies Division belongs to TCM is on the
plaintiffs.  In cross-examination it was put to
De Sousa that
Cornelli would give evidence to support the allegations set out in
the defendants’ plea.  In the event,
however, Cornelli did
not give evidence and accordingly no reliance can be placed upon the
versions that had been put.  The
issue of the proprietorship of
the Supplies Division must therefore be decided on the basis of the
evidence adduced by the plaintiffs.
[173] De
Sousa testified that after the liquidation of Sternco and
sequestration of Frank Cornelli, Cornelli told him that TCM was
going
to employ Frank Cornelli in order to preserve the relationship
between TCM and Sternco regarding TCM’s freight
requirements.
Frank Cornelli was going to be an employee who would earn a salary
and obtain benefits just like every other
TCM employee and he would
then manage the import and freighting of TCM’s goods in that
capacity.  The importation of
Sternco’s industrial or
mining goods would be retained by Frank Cornelli and the benefits
thereof would accrue to TCM in
order to subsidise the overheads which
Frank Cornelli’s employment now presented to TCM.
De Sousa agreed
to this.
[174]
Frank Cornelli was also given the task of managing the business of a
subsidiary of TCM known as TCM Networks (Pty) Limited.
The
business of networks was to stock and sell consumables for PCs such
as printer heads, print belts, tapes, ink and toner
and similar
such perishables consumed in the use of computers.  At a later
stage this company expanded its business to include
the supply of
small printers.
[175]
De Sousa was adamant that the business formerly conducted by
Sternco was not to be “warehoused” in TCM as
alleged, and
run autonomously by Frank and Fabio Cornelli.
[176] De
Sousa also testified that on or about 19 September 2005 he was
presented with a written addendum to the shareholders’

agreement which had been signed by the parties on 29 June 2005.
The following was provided in clauses 3 and 4 of the addendum:
“
3.
Iqbal further agrees that he is aware that the division known as TCM
Supplies Division has reflected
a nil net asset value in computing
the purchase price of the shares.
4.
All the parties are aware that the profits losses, assets and
liabilities of the TCM Supplies Division
accrue for the benefit of
Frank Cornelli and Fabio Cornelli.”
[177] De
Sousa refused to sign the addendum as he did not agree with its terms
and in particular with what was stated in clause
4.  But the
addendum was signed by the remaining shareholders, including Diez.
[178] The
addendum must be viewed in the context of the various attempts by
Cornelli to assist Hassim to pay for his shares and
to retain his
services.  On 22 November 2007, Cornelli recommended that the
sale of shares agreement concluded with Hassim
be amended to reduce
the purchase price of his shares by 20%.  De Sousa disagreed
with this and put a counter-proposal that
if Hassim paid the purchase
price in full by 15 December 2007, he could have a 15% reduction.
De Sousa’s proposal was
rejected out of hand by Cornelli.
[179] On
26 November 2007 Cornelli addressed an email to De Sousa in which he
stated, among other things, that he was left with
“little
alternate (sic), but to pursue other methods and incentives in
achieving the above.  I will propose a draft
resolution close to
YE Feb 2008 to achieve this”.
[180] On
27 November 2007, Cornelli wrote a letter to Impey in which he
instructed him to “convert TCM Supplies from TCM Division
to a
separate PTY LTD company.  Shares 25.1% Iqbal, 37.45 each
between Frank and Fabio”.  This instruction was
given by
Cornelli without reference to De Sousa.  De Sousa testified that
when he learnt of this instruction he took objection
as he considered
that a valuable part of TCM’s business would be made over to a
company controlled by Cornelli’s brothers
and Hassim.
[181]
There then followed a series of emails between Cornelli, Impey and
De Sousa.  On 29 November 2007, he asked Cornelli
and Impey
to explain what the purpose was of transferring the Supplies Division
business to a new company.  He also wanted
to know why there was
no direct TCM shareholding in the company.  On the same day,
Cornelli responded as follows:  “The
business is well
known and the beneficiary the same from inception … now
extended to BEE.  They not the same as other
TCM companies as
they are different … since inception”.  De Sousa
replied on 1 December 2007 in the following
terms:
“
I
find your reply very vague and avoiding the requested info.
I
remind you that I am a 30% shareholder of TCM and even if I was only
a 5 or even a 1% shareholder I deserve a proper answer and
you as CEO
are obliged to provide such information comprehensively on request.
Regarding
the 2nd point made, perhaps you would like to explain in what way
they are different from the other TCM companies other
them having
been only a Division and NOT a Company”
[182] On
4 December 2007, Cornelli responded to the above email as follows:
“You asking for information which is well
known to you and all
for the past 20 years.  There is no reason to continually state
the obvious.  Feel free to call
a meeting if you wish to discuss
this further.”  On 5 December 2007, De Sousa wrote a
letter to Cornelli and the remaining
shareholders in which he advised
them that he would like to meet.
[183]
Unbeknown to De Sousa, a company known as “TCM Printing
Solutions (Pty) Limited” (Printing Solutions) had
already been
incorporated on 13 November 2007;  and that on 3 December 2007,
Frank and Fabio Cornelli, as well as Hassim,
were appointed directors
of that company.
[184] It
is common cause that the incorporation of the Supplies Division
business into Printing Solutions did not eventuate.
Instead,
what occurred is that from approximately September 2008 all income
and profits of the Supplies Division were diverted
to Printing
Solutions where they have accrued for the benefit of the Cornelli
brothers and Hassim.
[185]
Geel provided the Court with the operating results of the Supplies
Division for the years ended 28 February 2006 to 29 February
2012
which demonstrate how the income and profits of the Supplies Division
were applied.  The results were extracted from
the management
accounts for the years ended 28 February 2006 to 29 February 2008 and
TCM’s annual financial statements from
29 February 2008 to 29
February 2012.  Using this information Geel compiled four tables
- two reflecting the profits before
tax of the Supplies Division
(Exhibit A pp 793 and 794), and the third and fourth a
breakdown of the operating expenses
of the Division (Exhibit A
pp 795 and 796).
[186]
Based on these tables, Geel made the following observations:
The bulk of the operating expenses of the division are
comprised of
management fees and staff costs including bonuses.  All of the
profits in each year have been distributed as
bonuses to the
shareholders of Printing Solutions;  whatever profit was made by
the division in a particular year was set
off by a “charge”
by way of a bonus payment to Hassim and Frank and Fabio Cornelli.
The table (Exhibit A
p 793) reflects that in 2008, the
profit before tax was 3%.  But from 2009 until 2012, the profit
before tax is reflected
as 0%.  By distributing the profits in
this way, the value to be attributed to the Supplies Division is nil,
and the shareholders
of TCM would have been deprived of any value by
way of dividends.  This also has had the effect of eroding the
value of the
shares of TCM.
[187] It
strikes me as odd that the business of the Supplies Division is
conducted in such a way that all of its profits are diverted
to
Printing Solutions, leaving a profit before tax of 0%.  The
probabilities are that this conduct is merely a stratagem employed
to
assist Hassim and Frank and Fabio Cornelli.  This phenomenon of
‘stripping out’ all of the Supplies Division
profits
ought to have been explained to the Court by either Cornelli, Hassim
and/or the Cornelli brothers.
[188]
During his cross-examination, De Sousa was referred to the following
features which were said to be an indication that the
Supplies
Division was not part of TCM’s business.  Although TCM had
three other divisions, the Supplies Division was
treated differently
from the other divisions:  It had its own bank account at
Mercantile Bank, whilst TCM’s current
account was at the
Standard Bank.  The signatories on the Supplies Division bank
account were Frank and Fabio Cornelli.
TCM had pledged funds in
a separate account at Mercantile Bank as security for the Supplies
Division overdraft.  Separate
ledgers were kept for TCM on the
one hand, and the Supplies Division on the other.  When TCM
collected the debts belonging
to the Supplies Division they separated
such debtors from TCM’s own debtors.  The moneys collected
were paid by TCM
drawing a cheque which was deposited in the TCM bank
account at Mercantile Bank.  TCM effected sales to the Supplies
Division
and issued invoices to it.  TCM also issued invoices on
behalf of the Supplies Division in respect of industrial equipment

which had nothing to do with the TCM business.  TCM, its
subsidiaries and the Supplies Division paid management fees to TCM

Management (Pty) Limited, a subsidiary of TCM;  the other
divisions did not.  The Supplies Division was treated in a

similar way that TCM’s subsidiaries were treated.
[189] A
further feature alluded to in cross-examination is that Frank and
Fabio Cornelli have, since at least 2006, been loan account
creditors
of TCM;  they are the only non-shareholders who are or have ever
been loan account creditors of TCM.  It is
unusual for a
non-shareholder to be a loan account creditor of a company.
[190] In
answer to the propositions put to him, D
e Souza
plausibly explained that the reason the Supplies Division maintained
a separate bank account at Mercantile Bank was
to enable the
financial viability of the newly-acquired business to be monitored.
The bank account was also in overdraft
and it was necessary to
monitor Frank Cornelli’s overheads.  His explanation
also accords with the probabilities.
[191] De
Sousa’s explanation must be viewed in the context of the
circumstances under which the Supplies Division business
was taken
over by TCM.  Sternco, the previous owner of the business, had
been placed under liquidation and there would have
been a great deal
of scepticism as to its financial viability and the ability of Frank
Cornelli to profitably run such business.
The bank account at
Mercantile Bank would have been the perfect vehicle to monitor and
gauge the financial viability of the business.
[192] TCM
provided security to Mercantile Bank in a form of pledged funds in a
separate bank account in order to secure the Supplies
Division
overdraft.  The amount pledged was substantial.  The only
probable reason why TCM would have pledged its own
funds in order to
secure the overdraft is because it was the proprietor of the business
of the Supplies Division.  It is also
unlikely that TCM would
have pledged substantial funds merely in order to assist Frank and
Fabio Cornelli, in order to operate
the Supplies Division.
[193] The
fact that Frank and Fabio Cornelli were signatories on the Supplies
Division bank account is also not necessarily an indication
that they
were the proprietors of the Supplies Division.  According to De
Sousa it was agreed that Frank, and later Fabio,
were to manage the
business of the Supplies Division.  They would have been
required to sign cheques in order to conduct such
business.  Nor
is the fact that TCM collected the debtors of the Supplies Division
and deposited the amounts collected into
the TCM bank account at
Mercantile Bank an indication that TCM is not the owner of the
business of the Supplies Division.
If one accepts De Souza’s
testimony that it was necessary to monitor the financial viability of
the business, then it
would reasonably have been expected that TCM
would collect the debtors that belonged to the Supplies Division and
have paid the
amounts collected into the Mercantile Bank account.
The probabilities are that because the bank account was in overdraft
and TCM had pledged its own funds as security, TCM would have wanted
to ensure that the amounts collected were paid into the account
in
order to reduce the overdraft.
[194] So,
too, is the fact that separate ledgers were kept for TCM on the one
hand and the Supplies Division is no indication that
Cornelli’s
brothers were the owners of the business.  If the intention was
to monitor the Supplies Division business
it would have been
important to have maintained a separate ledger from that of TCM.
[195]
Because TCM effected sales to the Supplies Division and issued
invoices to that Division and the fact that the Supplies Division

paid management fees to TCM Management (Pty) Limited is also not
necessarily indicative of the fact that its business was not owned
by
TCM.  This is wholly consistent with De Sousa’s
explanation that the business was to be treated as a separate
entity
for purposes of monitoring its financial viability.
[196]
Counsel for the defendants also pointed to the fact that TCM issued
invoices on behalf of the Supplies Division in respect
of industrial
equipment, which equipment had nothing to do with the TCM business.
Again, this does not establish Frank Cornelli’s
ownership of
the business.  De Sousa’s uncontested evidence is that the
importation of Sternco’s industrial or
mining goods was to be
retained by Frank Cornelli and the benefits thereof were to accrue to
TCM in order to subsidise the overheads
which Frank Cornelli’s
employment presented to TCM.
[197] It
was strenuously argued by on behalf of the defendants that the
following wording of the addendum dated 19 September 2005
was
indicative that Frank and Fabio Cornelli were the owners of the
Supplies Division business.
“
4.
All the parties are aware that the profits, losses, assets and
liabilities of TCM Supplies
Division accrue for the benefit of
Frank Cornelli and Fabio Cornelli.”
[198] The
wording of the aforesaid clause is ambivalent.  There is no
indication from the wording employed that Frank and Fabio
Cornelli
are the owners of the Supplies Division business.  What is
stated is that the profits, losses, assets and liabilities
would
“accrue for the benefit of Frank Cornelli and Fabio Cornelli”.
The clause is certainly open to the construction
that although the
business properly belongs to TCM, the financial benefits of the
business will accrue to Frank and Fabio Cornelli.
If, indeed,
Frank and Fabio Cornelli were intended to be the owners of the
Supplies Division this would have been stated in clear
and
unambiguous terms.
[199] An
examination of the annual financial statements reveals that for many
years the accounting for TCM Supplies Division has
been fully
integrated into TCM’s financial statements.  It was only
for the first time in 2009 that TCM purported to
reflect the
financial position of the Supplies Division on a separate balance
sheet attached to the main TCM financials.
[200] In
the notes to the annual financial statements for the year ended 28
February 2009, the following is stated:
“
29.
TCM Supplies division
Included
in the results for the year is the TCM Supplies division, which
trades as a separate division of Technology Corporate Management

(Pty) Ltd, under a dedicated management structure.  The
financial position and results for the division are set out on page

41.
The
management of the TCM Supplies division share in 100% of all profits
generated by the division.
”
[201]
Geel rightly testified that from an accounting point of view, a
reasonable third party examining the financial statements
of TCM
after 2009 would conclude that TCM Supplies is merely a division of
TCM and that TCM is responsible in every respect for
such division.
The accounting and financial treatment of the Supplies Division is
consistent with the plaintiffs’ version
that the Supplies
Division is part of and owned by TCM itself.
[202] It
was foreshadowed during the defendants’ opening address and,
later, in the cross-examination of De Sousa, that Cornelli
would give
evidence concerning the ownership of the Supplies Division.
Cornelli, who is principally implicated in the matter,
was available
to give evidence.  He was present in Court throughout the
hearing and obviously has personal knowledge of the
relevant facts.
His failure to testify serves to strengthen De Sousa’s
evidence, and in my view, an adverse inference
ought to be drawn
against the defendants.  This is quintessentially a case where
it is proper to infer that Cornelli feared
that his evidence would
expose facts unfavourable to him and damage the defendants’
case (see Elgin Fireclays;  Titus
v Shield Insurance and
Tshishonga v Minister of Justice & Constitutional
Development.  Also see Absa Investment
Management Services (Pty)
Ltd v Crowhurst
[2006] 2 BLLR 107
(LAC)).
[203]
On the basis of De Sousa’s unchallenged evidence, which is
corroborated by Geel, it is my finding
that the Supplies
Division is owned by and is part of TCM, and its value is to be taken
into account in the valuation of TCM as
a whole.
[204]
Presently, the business of the Supplies Division is carried on solely
for the benefit of Hassim and Frank and Fabio Cornelli.
Hassim
derives 25.1% thereof, and Frank and Fabio Cornelli 37.45% each.
B
y permitting the business to be carried on in this way, TCM
has been deprived of the income of a lucrative part of its business.

This has impacted negatively on the profitability of TCM and the
value of its shares.  This constitutes a misapplication of
TCM’s
assets which is unfairly prejudicial to its members and in particular
to the plaintiffs.
[205]
Geel testified that the Supplies Division presently has a value of
approximately R15 million.  Such value must be
brought into
account in determining the overall value of TCM for purposes of the
relief sought.
/INVENTORY …
INVENTORY
[206] I
turn now to consider the question whether the true values of TCM’s
inventory are properly reflected in its annual
financial statements
for the years 2008 to 2012.
[207] In
regard to this issue, the plaintiffs relied on the evidence and
Professor Wainer.  Geel is an experienced chartered
accountant
and auditor.  Professor Wainer has considerable experience in
regard to accounting and auditing practice.
He is a member of
the Auditing Standards Board established in terms of the Public
Accountants and Auditors’ Act, and is a
past member of the
Accounting Practices Committee and the Reporting Award Committee of
the SA Institute of Chartered Accountants
(SAICA).  He is also a
past member of the Accounting Issues Task Force of SAICA.
[208]
Geel testified as to TCM’s treatment of inventory for the year
ended 29 February 2008, as well as the historical trends
in TCM’s
inventory balances between 2008 and 2013.  He sought to
demonstrate that there had been an understatement of
sales inventory,
and that TCM had failed to properly account for maintenance spares
and work-in-progress.  This had impacted
negatively on TCM’s
gross profit margins.
[209]
Professor Wainer gave evidence as to the proper manner in which spare
parts held by TCM for maintaining its customers’
computer
equipment ought to have been accounted for.  He was brought in
as a witness to counter the views of the defendants’
accounting
expert, Mr Greyling, who it was thought would give evidence.
[210]
Geel conducted a careful and meticulous analysis of TCM’s
financial documentation, including the auditors’ working
papers
to which I have referred, and the annual financial statements of
TCM.  The full extent of his analysis appears from
the summary
of his analysis, “Exhibit A”.  Based on his
observations, Geel concluded that there has been
a material
understatement of inventory in the annual financial statements for
the years ended 2008 to 2012 which has resulted in
TCM’s gross
profit margins being reduced.  There has also been a significant
increase in total operating expenses and,
in particular, management
fees and staff costs, including directors’ emoluments and
bonuses.  All of this has had a
negative impact on TCM’s
profitability and its EBITDA results.
[211] The
following basic principles of accounting are relevant for present
purposes.    Gross profit is the difference
between
sales (or revenue) and the cost of sales.  The cost of sales are
the costs directly attributable to the generation
of sales of
inventory and include purchases or cost of inputs, labour, etc.
[212]
Cost of sales is determined by subtracting the closing balance of
inventory on hand at year-end from the opening inventory
balance,
plus inventory purchases.  Expressed as a formula, it is as
follows:
Cost
of sales = Opening Inventory + Purchases – Closing Inventory.
If
the closing inventory balance is understated this would have the
result of overstating the cost of sales balance, and reducing
the
gross profit of the company.  Thus, the amount at which
inventory is included in the annual financial statements is
fundamental
to the reported profit.  If inventory is
understated, profits will, likewise, be understated.  This, in
turn, has a direct
impact on the valuation of the business.
[213]
Geel referred the Court to tables reflecting the historical trends in
TCM’s inventory balances subsequent to 2008 as
well as the
average implied days of inventory on hand (see Tables 1 and 8
(Exhibit A pp 735-737).  Table 8
is a combined
summary of the historical trends in inventory during the period 2006
to 2013, and also reflects the revenue of TCM
(sales), cost of sales
and gross profit during such period.  The Court was also
referred to the source documents from which
the tables were
compiled;  these are contained in Exhibit D1.
[214] The
following is to be observed from these tables.  There was a
marked reduction in inventory from R16.5 million
in 2007, to
R7.1 million in 2008.  This was followed by a further
decrease to R5.4 million in 2009.  Inventory
holdings
increased during 2010 and 2011, rising to R9.7 million by 2012.
[215]
Table 8 also reflects revenue or sales during the period 2006 to
2013.  An analysis of that table reveals that revenue
during
that period showed significant growth.  According to Geel TCM’s
total revenue growth during this period was 143%.
Revenue
growth had increased by 15% from 2008 to 2009;  remained flat
from 2009 to 2010 and increased by 7% from 2010 to 2011,
and 6% from
2011 to 2012.
[216]
Geel testified that it does not make sense that the value of stock
reflected in the financial statements for these years should
have
declined from R16.5 million as at 28 February 2007 to R7 million
as 28 February 2008, particularly given that revenue
increased over
the same period.
AVERAGE
DAYS OF INVENTORY ON HAND
[217] The
aforesaid tables also reveal that in 2008 there was a marked
reduction in the average days of inventory on hand.
Average
days of inventory on hand is an indication of how many days of future
sales one has on hand before being out of stock.
It is a key
indicator used to assess inventory movements and is calculated as
follows:  Average days of inventory on hand
= (Closing
inventory/Cost of Sales) x 365 days.  In 2006 the
average days of inventory on hand was 18 days and 23
days in 2007.
This decreased to 6 days in 2008;  it remained at 6 days
during 2009 to 2012, and only rose to 10 days
in 2013.  In all,
there was a 67% decrease from 2006 to 2012.
[218]
Geel also analysed the inventory holdings reflected in the annual
financial statements of two listed companies, Datatec Limited
and
Business Connexion Group Limited (CoCos), for the years ended 2006 to
2012.  According to Geel, these companies have similar
business
models and operations to TCM.  The inventory trends are
reflected in Table 9 (Exhibit A p 744).  In
the case
of Datatec, the average days of inventory on hand was consistently in
excess of 30 days, save for 2009 and 2011, when
this was reduced to
25 and 29 days respectively.  In the case of Business Connexion,
the average days of inventory on hand
consistently exceeded 17 days,
save for 2006, 2007, 2008 and 2013, when these were 8, 14, 13 and 16
respectively.  These statistics
are a further indication that
the inventory holdings disclosed in TCM’s annual financial
statements are unrealistic.
Cornelli should have given evidence
to explain how it was possible for TCM to have operated with such low
levels of inventory on
hand.  It seems hardly likely that TCM
could have operated on 6 days of inventory on hand as depicted in
Table 8.
[219] It
was suggested during cross-examination that it was inappropriate to
compare TCM’s performance with those of Datatec
and Business
Connexion.  Defendants’ counsel pointed to a number of
distinguishing features:  Datatec and Business
Connexion are
both listed companies, whereas TCM is a private company;
Datatec is an investment holding company with about
100 subsidiaries
and the same, albeit to a lesser degree, applies to Business
Connexion.  TCM is a single operating company;
whereas
Geel chose, to TCM’s detriment, to compare it on its own
without its subsidiaries, to the whole of the Datatec
Group.
Another difference is that TCM operates virtually exclusively in
South Africa but Datatec has international operations.
And the
inventory comparisons were made without knowledge of Datatec’s
revenue and how this was generated.  It was also
suggested, with
reference to the financial statements of the CoCos that they did not
have similar business models and operations
to TCM and that the
comparisons were inappropriate.
[220]
Whilst I accept that there may be some justification in the
defendants’ contention that it was inappropriate to use
the
CoCos referred to as a basis of comparison, this is not dispositive
of the real question that must be decided, namely whether
the
inventory values disclosed in TCM’s financial statements are
correct.  Geel’s evidence concerning the CoCos
may be
discounted.  The very obvious fact remains that on the basis of
TCM’s own financial statements the average implied
days of
inventory on hand plummeted from 23 days in 2007 to 6 days in 2008.
In 2004, it was 4 days;  then 7 days in
2010, and in 2011 and
2012, 6 days respectively (see Table 8, Exhibit A p 735).
[221]
Given the growth of TCM’s revenue during the period 2012 to
2016, it is highly unlikely that TCM would only have had
an average 6
days of inventory on hand as reflected in Table 8 of Geel’s
expert summary.  Ordinarily, one would
expect that a company
that increases its activity and sales over time will increase its
level of inventory holdings.  It is
unrealistic to accept that
on average TCM only had 6 or 7 days of stock on hand before it ran
out of stock.  It is common
cause that TCM provides repairs and
maintenance services to large clients such as FNB.  Service
level agreements require TCM
to maintain ATM machines and other
computer products supplied to FNB.  TCM must, as a probability,
have had sufficient inventory
holdings to meet the needs of FNB and
other large clients.
[222] The
low average days of inventory on hand is a strong indicator that the
inventory balances stated in the 2006 to 2012 financial
statements
are probably materially understated.
[223]
Geel attributes the marked decline in inventory holdings during the
2006 to 2012 financial years to principally four factors:

First, the incorrect expensing through the income statement of
maintenance spares on hand in February 2008, which should have been

accounted for as inventory;  second, the failure to bring into
account work-in-progress;  third, a failure to take into
account
the stock or inventory held at all of TCM’s branches;
and, fourth, an unexplained stock write-down of R11.2 million
in
2008.
/MAINTENANCE
SPARES …
MAINTENANCE
SPARES
[224] It
is common cause that TCM purchases spares to be used in maintaining
the computer facilities of its customers, from which
TCM derives
revenue.  These will be referred to hereafter as ‘spares’
or ‘maintenance spares’.
At the end of each
financial year, TCM holds spares which have not yet been utilised in
the maintenance of its customers’
computer facilities.
[225]
Both Geel and Professor Wainer testified that in the financial
statements for the years ended 2006 to 2012, TCM did not recognise

maintenance spares held at financial year-end as any kind of asset,
that is, neither as inventory or fixed assets.  TCM’s

practice was to treat the spares as an expense in the income
statement.  This was usually done in the year that the spares

were acquired and not in the year when utilised.  It is also
common cause that in the 2013 financial statements, maintenance

spares were treated for the first time as a fixed asset (property,
plant and equipment – PPE) and not as inventory.
[226]
Professor Wainer testified that it was clearly wrong for TCM to have
accounted for the spares stock on hand as an expense
in the year
acquired.  These spares should have been dealt with as
inventory.  It was also wrong to have treated them
as fixed
assets (PPE).  He explained that the TCM financial statements
are required to be prepared in accordance with International

Financial Reporting Standards (IFRS).  IFRS includes
International Accounting Standard IAS2, which provides in paragraph 6

thereof as follows:
“
6.
Inventories are assets:
…
(c)
in the form of materials of supplies to be consumed in the production
process in the rendering of services”
As
the maintenance spares stock are materials to be consumed in the
rendering of services by TCM, they fall squarely within
the
definition of inventories in IAS2.
[227] I
have no hesitation in accepting the opinions expressed by Professor
Wainer and Geel to the effect that TCM’s practice
of expensing
maintenance spares through the income statement, instead of treating
them as inventory, was incorrect.  Both
De Sousa and Diez
testified that maintenance spares were used in maintaining the
computer facilities of TCM’s clients.
Accordingly, on the
basis of Accounting Standard IAS 2 referred to above, these
spares should have been treated as inventory.
[228] It
is axiomatic that if the spares held at the financial year-end are
simply treated as an expense, TCM’s profits are
reduced.
And, conversely, if the spares held are treated as inventory, the
profits of TCM would be higher.  If the spares
are treated as
fixed assets (PPEs), as was done in 2013, the amount thereof is not
an expense, and the profit would also be higher
as the spares would
be depreciated over time and the expense recognised over the
depreciated period.
[229] The
probabilities are that TCM would have carried considerable levels of
inventory in the form of maintenance spare parts
during the period
2008 to 2012.  It provides repairs and maintenance services to
large clients such as FNB.  These customers
would require TCM to
hold a significant amount of inventory on hand in the case of
emergency repairs and maintenance on a countrywide
basis.  The
2013 financial statements reflect a carrying value at 28 February
2013 of maintenance spare parts in the sum of
R6 696 541;
this clearly demonstrates the considerable value of the maintenance
spares held by TCM at any time.
[230] It
was argued on behalf of the defendants that the complaint about the
expensing of maintenance spares would only be relevant
if it be shown
that the value of the spares held by TCM was material, and that such
materiality has not been demonstrated.
Diez, who was the
logistics director of TCM, had testified that the values attributed
to maintenance spares in the spares valuation
reports were
inaccurate.  It was submitted that as Geel had based his
contention about the expensing of spares on these reports,
it had not
been shown that the value of spares held by TCM was material.  I
do not agree with this submission.  As indicated
above, the
probabilities are that TCM would have carried considerable levels of
inventory in the form of spare parts in order to
provide repairs and
maintenance services to its large clients.  The carrying value
at 28 February 2013 of maintenance spare
parts was R6 696 541.
[231] It
was further argued that when TCM’s business changed in 2012,
with the introduction of what is termed the BTR contract,
it became
necessary for TCM to hold maintenance spares.  It was only at
this point in time that maintenance spares became
material.
This is why TCM, based on expert advice received from the technical
department of its auditors, PKF, changed its
policy of expensing and
accounted for maintenance spares as PPE in 2013 and as inventory in
2014.  The difficulty that I have
with this argument is that it
is unsupported by any evidence.  The defendants should have
advanced evidence to show that TCM’s
business had changed in
2012 with the introduction of the BTR contract and that it was no
longer appropriate to expense maintenance
spares.
[232] The
defendants persistently contended that it was proper for the
maintenance spares to be expensed.  This was the stance
taken by
Greyling, the defendants’ expert, in his expert summary and at
the meetings of experts.  This was also the
version put by
defendants’ counsel to plaintiffs’ witnesses.  It
was not surprising that Greyling, who so adamantly
clung to what is
clearly an untenable thesis, did not enter the witness-box to explain
the stance taken by him.  Why maintenance
spares were treated as
PPEs in 2013 and then as inventory in the 2014 financial statements
should have been explained.
[233] The
evidence establishes beyond doubt that TCM’s failure to treat
maintenance spares as inventory in the 2006 to 2012
annual financial
statements has materially contributed to the understatement of the
final year-end inventory balances.  The
practice of expensing
maintenance spares through the income statement has also had the
effect of suppressing TCM’s profits.
WORK-IN-PROGRESS
[234] Up
and until 2007, TCM reflected work-in-progress in the financial
statements (see Exhibit D1 p 127, where

work-in-progress is reflected as R5 977 499).
However, since that year, no work-in-progress has been accounted
for
in the annual financial statements.
[235]
Geel pointed out that the stock summary report for 2008 reflects a
sum of R3 105 739 in respect of work-in-progress.

This is depicted in Table 12 of Exhibit A (p 753).
In his view at least R3 105 739 should have been
considered
and brought into the annual financial statements at 28 February 2008
as work-in-progress.
[236]
Geel also expressed the opinion that it is unlikely, given that TCM
provides and holds ATMs for FNB – as is evident
from the
auditors’ working papers – that no work-in-progress
exists at year-end.
[237] Why
work-in-progress was not reflected in TCM’s financial
statements subsequent to 2007 ought to have been explained
by
Cornelli and/or the defendants’ auditors.
STOCKTAKING
[238]
Geel conducted a detailed review of the audit working papers of TCM’s
auditors, PKF, with regard to inventory as at
29 February 2008.
He referred the Court to extracts from PKF’s audit programme
for physical stocktaking (Exhibit A pp 805
to 814). In
particular, he referred to the following recorded comment made by one
of the PKF audit team members:  “Only
attended the Midrand
stock count.  No stock kept in Durban and Cape Town” (see
Exhibit A p 805).
[239] The
statement that “no stock is kept in Durban and Cape Town”
is clearly contradicted by PKF’s own audit
working papers
elsewhere in their audit files.  PKF’s subsequent stock
costing exercise identified stock in Durban and
Cape Town.  In
PKF’s working papers regarding the stock costing and net
realisable value testing reference is made to
stock at Durban and
Cape Town (see Exhibit A, Table 5 p 730).  PKF
also conducted interval sampling tests,
tests for materiality and
stock costing at various locations including KZN and Cape Town
(see Exhibit A pp 807
and 808).  Furthermore,
the summary of the opening trial balance in PKF’s working
papers shows stock at Head Office,
Midrand, Cape Town and Durban for
the 2007 and 2008 financial years (see Exhibit A, Table 6
p 731).
[240]
What is abundantly clear from the audit working papers of PKF is that
the only stock count conducted was at TCM’s Midrand
branch.
Stock at other locations appears not to have been counted by
PKF, and not included in the final inventory balance
in February
2008.
[241]
Geel expressed the view that the low levels of inventory values in
the 2008 to 2012 financial statements are not credible,
especially
given that TCM has 5 main branches, a head office in Midrand and
offices in Bloemfontein, Cape Town and Durban.
It further has a
further 37 satellite branches country-wide, which presumably hold
inventory.
/R11.2 MILLION STOCK …
R11.2 MILLION
STOCK WRITE-OFF
[242]
During Geel’s review of PKF’s audit working papers and
the management accounts of TCM, he identified an inventory
write-off
of R11.2 million.  A journal entry had been passed which
had the effect of reducing inventory from the management
accounts
balance of R18 328 687.05 to R7 107 353, as
reflected in the 2008 financial statements.  PKF’s
stock
analytical review reflecting the composition of R18 328 687.05
is summarised in Table 6 of Exhibit A
p 731.  And
the inventory balance of R7 107 353 is contained in the
annual financial statements for the year
ended 2008 (Exhibit D1
p 179).
[243] The
stock write-off of R11.2 million mainly related to the
work-in-progress of approximately R6 million, and the
opening
balances of the stock at Durban (approximately R700 000) and
Cape Town (R4.5 million).  The ostensible reason
for the
write-off is that the auditors had been told by management that the
stock does not exist.  This is apparent from the
following note
made under the schedule dealing with stock costing in the audit
working papers (see Exhibit A p 811).
“
The
other stock accounts amounting to R11,2 million are opening
balances for which there is no existing stock according to

management.”
[244]
Geel rightly approached the stock write-off with a great deal of
scepticism.  There is no audit working paper evidence
that PKF
had investigated the explanation provided by management for the
write-off.  From the PKF comments on the audit file
referred to
above, it appears that PKF merely relied on the representations from
management that there was no existing stock.
Management’s
assertion that there was no stock at these locations was not tested
or verified, as no stock counts were performed
at these locations or
any other location except for the Midrand location.
[245] The
statement that there was no stock at these locations is contradicted
by PKF’s own working papers which reflect considerable
stock on
hand in Cape Town and Durban (see Tables 6 and B4 of Exhibit A,
pp 731 and 809).  PKF’s working
papers show that they
conduct stock costing and Net Realisable Value (NRV) testing at
various locations, including Durban and Cape
Town (see In B3.1 and
B3.2 of Exhibit A pp 807 and 808).
[246] It
is extremely improbable that TCM would not have held stock at its
Durban and Cape Town branches.  If, as appears from
the
aforementioned note in the PKF’s audit working papers, someone
in TCM’s management had instructed them that such
stock did not
exist, such instruction could only have been made with the object of
deliberately suppressing the value of TCM’s
inventory holdings.
[247] The
write-off is inconsistent with TCM’s accounting treatment in
prior years.  Geel pointed out that it does not
make sense that
the value of stock should have declined from approximately
R16.5 million, as at 28 February 2007, to approximately

R7 million at 28 February 2008, particularly given that revenue
had increased over the same period.
[248]In
cross-examination it was put to Geel that at a meeting of experts
held on 14 May 2015 he had conceded that the stock adjustment
had
been validly made.  This concession is said to be contained in
the following clause of the minutes of the meeting of accounting

experts (Exhibit G):
“
Geel
accepts and understands that the journal entry on page 810 removes
the closing inventory balances at 28 February 2007 financial
year
(i.e. opening inventory balances at 1 March 2007 for the 2008
financial year) for the relevant accounts, and this was understood

and is confirmed as reflected on Exhibit A page 732 the 3rd
paragraph.  This journal is not disputed.”
[249]
Geel responded that the adjustment on its own is correct but it is
only one element of the year-end process and did not give

consideration to fully reflecting closing stock as part of the
year-end balances.  The journal entry writing-off all of the

inventory opening balances was the “one side of the coin”,
and no final journal entry for the ‘other side of
the coin’,
being the reinstatement of the closing balance was made.  By way
of example, specifically relating to work-in-progress,
Geel
highlighted that at least R3.1 million should have been
considered and brought into the annual financial statements at
28
February 2008, as work-in-progress, but that no such amount was
reflected.  The R3.1 million is reflected in the TCM

summary report for 2008 as shown on Exhibit A (p 753).
[250] The
defendants’ counsel also sought to criticise Geel on the basis
that he had relied on the stock summary and spares
valuation reports
which Diez had admitted were inaccurate.  The inaccuracy or
otherwise of these documents is irrelevant.
What matters is the
overwhelming evidence that there was stock on hand in Cape Town and
Durban that appears not have been taken
into account during the
stocktaking in 2008.
[251]The
defendants contend that in respect of the R11.2 million
write-off there was no case for the defendants to answer.
More
than that – it was a vexatious waste of resources and should
attract a punitive order as to costs.  I do not think
so.
Ex facie TCM’s management accounts and PKF’S audit
working papers, there was an R11.2 million adjustment
that
needed to be explained, and Geel was right to raise it as an issue.
[252]
Geel’s evidence concerning the stock write-off called for an
answer from the defendants.  I have already referred
to
defendants’ counsel’s written submissions in support of
the separation application to the effect that Cornelli would
give
evidence in order to explain the reasons for the write-off.  Of
particular significance is the following statement made
by counsel
for the defendants:
“
96
Cornelli will testify that there was no understatement of inventory
as alleged in paragraph 15 of the particulars
of claim.  It was
an accounting adjustment which satisfied the auditors who has
consistently given TCM unqualified annual
financial statements.
”
[253]
Cornelli should have entered the witness-box in order to explain the
reasons for the stock write-off.  His failure to
do so serves to
reinforce the views expressed by Geel.  It is reasonable to
suppose that Cornelli would not have been able
to credibly explain
the reasons for the write-off.
[254] As
there is no discernable or probable reason for the R11.2 million
write-off, the inescapable conclusion is that the
write-off was
unjustified and made with the fdeliberate intention of suppressing
the inventory balance in the 2008 annual financial
statement.
[255] It
was argued on behalf of the defendants that Geel’s opinions
ought to be rejected as the facts upon which they are
founded have
not been proven or common cause.  There is no merit in that
submission.  Geel’s opinions are based
on TCM’s own
financial records, namely its annual financial statements, the
general ledger, the journal and stock records.
These documents
were generated by TCM or by the auditors on its behalf and are
clearly admissible against TCM.
[256] A
further argument advanced was that the defendants’ auditors,
PKF, should have been called in order to prove the audit
working
papers as these documents did not belong to TCM, were not in its
possession and were procured by means of a subpoena duces
tecum.
This contention is also without merit.
Much
depends upon the probative purpose for which the audit working papers
were relied on.  If the purpose was to prove or
establish the
accuracy of the working papers, then the authors of the audit working
papers ought to have been called as witnesses.
But Geel did not
use the audit working papers and notes for such purpose.  They
were used to in large measure to test the
observations that Geel had
independently reached after analysis of TCM’s annual financial
statements; management accounts;
general ledger, journal,
stock-sheets and spares valuation reports.  To the extent that
certain notes purportedly made by
the auditors in the working papers
- such as for example the notes concerning the note concerning
stock-costing contained in Exhibit A
p 811 - may constitute
hearsay, such hearsay is admissible in terms of
s 3
of the
Law of Evidence Amendment Act, 45 of 1988
.  I am of the opinion
that having regard to the facts listed in the aforesaid section of
the Act, such evidence should be
admitted in the interests of
justice.
[257] The
defendants further argued that no reliance could be placed on Geel’s
evidence concerning maintenance spares as Diez
had conceded that the
spares valuation reports were inaccurate.  There is similarly no
merit in this submission.  Geel
did not rely on these reports in
order to establish their accuracy or the truth of their contents, but
rather to show that at any
given time TCM was in possession of
substantial quantities of maintenance spares.  That TCM in fact
held such spare parts
is evident from the 2013 financial statements
which for the first time treated them as fixed assets.  The
carrying value at
28 February 2013 of maintenance spare parts was
R6 696 541.
[258] To
sum up, therefore, if regard be had to the low average days of
inventory on hand;  TCM’s accounting treatment
in respect
of maintenance spares;  the failure to account for
work-in-progress;  the absence of proper stocktaking and
the
unjustified stock write-off R11.2 million, it is clear that the
inventory values in the 2008 to 2012 annual financial
statements have
been materially understated.  This has contributed to an
understatement of TCM’s profits and probably
to a devaluation
of its asset value.
[259]
Given the absence of countervailing evidence from the defendants, it
is reasonable to conclude that the undervaluation of
inventory was
deliberately made with the ulterior purpose of suppressing the true
value of the plaintiffs’ shares in TCM.
I am fortified in
this conclusion by the fact that the downward trend of the value of
inventory reflected in the 2008 to 2012 financial
statements
commenced at about the same time that fundamental difficulties arose
between De Sousa and Cornelli.
EBITDA
[260] The
EBITDA complaint is to be found in paragraph 15A of the particulars
of claim.  In essence, what is alleged in these
paragraphs is
that from 2007 Cornelli has conducted and continues to conduct the
business of TCM in such a manner that that the
operating profit
available to shareholders after all its expenses have been
discharged, has been drastically reduced.  This
has resulted in
a reduction of the dividends paid to shareholders and has negatively
impacted on the value of TCM shares.
[261]
“EBITDA” is an acronym used to represent the earnings of
a company before interest, tax, depreciation and amortisation.

It is a measure of the profitability of an entity and is often used
as a prime marker in assessing or establishing the commercial
value
of any business conducting activities for profit.  It is also a
measure of a company’s operating performance.
[262]
Geel explained that the EBITDA number or value can be multiplied by
an EBITDA multiple to establish a value approximating
‘Enterprise
Value’ (EV).  EBITDA is considered the most appropriate
benchmark to which to apply a multiple to
approximate an EV.
This is because EBITDA ignores the financing structure of a business
and the cost thereof.  It also
ignores taxes and non-cash items
such as depreciation and amortisation.  The exclusion of these
from EBITDA allows for EBITDA
to be a better comparison of companies
which may have different financing structures, tax positions and
asset utilisation than
other measures, such as earnings after tax.
[263]
Geel analysed the historical trends in TCM’s EBITDA for the
period 2008 to 2013.  The product of this analysis
is reflected
in Tables 10 and 16 of Exhibit A (pp 766 and
767).  The information contained in these tables
was derived
from the operating results of TCM (the company and not the TCM Group)
as reflected in its audited financial statements
for the years ended
28 February 2006 to 28 February 2013.
[264]
Table 10 shows that in 2008, EBITDA (before
dividends) was R36 803 694, whereas in 2009 it dropped
substantially
to R17 762 331.  It remained flat for
the 2010 and 2011 years and rose minimally to R20 369 999.

The EBITDA percentage for 2008 was 6%, but dropped to 3% in 2009, and
declined steadily thereafter.  In 2011 it was 2%, and
in 2012
rose minimally to 2.6%.
[265] In
2008 the profit before tax was R42 518 019 but in 2009
dropped significantly to R25 838 548.
In 2010, it
rose to R34 247 164, then dropped to R27 037 149
in 2011, and dropped even further in 2012, to
R22 682 811.
The percentage profit before tax dropped from 7% in 2008 to 4% for
2009, 2010, 2011, and 3% in 2012.
[266] A
significant feature pointed out by Geel is that despite the dramatic
decrease in the profit before tax the dividends paid
to shareholders
increased significantly.  In 2008 the dividends paid amounted to
R10 000 000.  For 2009, 2010
and 2011 it was
R15 000 000 and in 2012 rose to R16 000 000.  All
of this, in my view, suggests either
that the profit before tax as
reflected in the annual financial statements of TCM has been
deliberately suppressed or understated.
And, if not, that
operating expenses have been inefficiently managed and unacceptably
high dividends have been paid.
[267]
Revenue, as depicted in Table 10, shows the following trends.
There was a growth in revenue of 19% and 56% in 2007
and 2008
respectively, an increase by 15% from 2008 to 2009.  This
remained flat from 2009 to 2010, and increased by 7% from
2010 to
2011.  The specific figures are the following.  Revenue
rose from R318 161 745 in 2006 to R379 766 587
in
2007.  In 2008 it was R591 317 419.  In 2009,
R67 920 728.  This remained approximately the
same in
2010.  In 2011 it rose to R728 987 538, and in 2012 to
R774 566 940.
[268]
Geel also conducted an analysis of the trends in the gross profit of
TCM for the years 2006 to 2012.  These are reflected
in Table 3
(Exhibit A p 747).  According to Geel TCM achieved
gross profit margins of 30% and 31% in 2006 and
2007 respectively,
and then 26% and 25% in the 2008 and 2009 financial years.  He
also testified that as a consequence of
the reduction in inventory
from 2007 (R16.5 million) to 2008 (R7.1 million), and a
further decrease to R5.4 million
in 2009, the gross profit was
suppressed, as was the profitability of TCM.
[269] It
is clearly evident from Tables 3 and 10 and the financial
statements that underlie them that despite the substantial
increase
in revenue during the period 2006 to 2012, there was little change in
TCM’s gross profit percentages.  From
an accounting point
of view the understatement of inventory would have increased the cost
of sales, with a resultant reduction
in the gross profit of TCM.
[270]
Table 16 (2013) (Exhibit A p 767) is an updated schedule
reflecting the operating results for TCM, as they appear
from the
audited financial statements for the years ended 28 February 2011 to
2013.  This table shows that EBITDA (before
dividends) in 2013
has grown by 113% to a value of R42.5 million.  In 2012, it
was R19.9 million.  according
to Geel, whose opinion is
supported by Professor Wainer, the significant increase in EBITDA is
entirely due to an increase in the
total depreciation expense of
approximately R20 million.  This occurred as a result of
the TCM’s change of accounting
policy in respect of maintenance
spare parts to which I have previously referred.
[271]
Geel attributes the increase in gross profit margin to 33% in 2013
from 30% in 2012 to the capitalisation and subsequent depreciation
of
maintenance spares inventory as PPE in 2013.  The cost of sales
therefore decreased and depreciation expenses increased
in the 2013
year.  The depreciation related to maintenance spares is 2% of
revenue.  The depreciation (expense below
the gross profit line)
has historically been included in cost of sales (above the line).
If this had been accounted for on
the same basis as it had been in
the past, then the gross profit percentage for TCM would have been
30% in 2013.
[272]
Geel also identified a number of categories on which there had been
significant increases in total operating expenses in TCM
over the
financial years 2008 to 2012.  Operating expenses were 20% of
revenue at 2008 and increased to 28% of revenue in
2012.  This
was largely due to the payment of increased management fees,
directors’ emoluments and staff costs.
[273]
Geel pointed out that until 2008 management fees grew in line with
revenue but after that date these fees grew at a rate in
excess of
revenue growth year on year until 2011.  Until 2009, staff costs
and directors’ emoluments as a percentage
of revenue was 14% of
revenue.  Subsequently, these costs increased to 17%, 18% and
19% in the 2010, 2011 and 2012 financial
years (Tables 10 and 16
– Exhibit A pp 766 and 767).
[274]
Geel prepared an analysis of directors’ emoluments and
dividends paid by TCM during the financial years 2010 to 2013
(Tables
18 and 24 – Exhibit A pp 781 and 782).  These tables
were derived from the annual financial statements
and management
accounts of TCM.  The tables reflect that all of the directors,
except De Souza, received directors’
emoluments for the
2010 to 2012 financial years.  All of the directors also
received commission and performance bonuses.
De Sousa has
only received dividends for these years.
[275]
Table 18 also reflects a breakdown of the emoluments and other
benefits paid to Hassim.  He, like all other directors,
received
a salary and thirteenth cheque, as well as commission and performance
bonuses.  He also received what is termed a
“TCM Supplies
Division split”;  in 2010, this was R980 259;
in 2011, R2 886 866 and in 2012,
R1 648 014.
He also received retention payments during these years.  In
2010, the retention payment was R2 500 000.
The same
amount was paid in each of 2011 and 2012.
[276]
Table 24 (Exhibit A p 782) shows that emoluments paid
to Hassim increased significantly during the period 2011
to 2013.
Hassim’s total emoluments in 2011 amounted to R8 466 571;
in 2012, R7 111 245, and in
2013, R445 140.
There is also a significant discrepancy between the emoluments paid
to Cornelli and Hassim.  In
2011, the total emoluments paid to
Hassim purportedly amounted to R8 466 571, whereas Cornelli
received emoluments totalling
R3 506 016.  The
emoluments paid to Hassim were more than double those paid to
Cornelli.  For the ensuing year,
that is, 2012, the position
remained the same.  But in 2013, the emoluments paid to Hassim
decreased to R4 445 140.
[277]
The manner in which the business of the Supplies Division has been
conducted has also contributed to a reduction in TCM’s
EBITDA.
The Supplies Division has been permitted to operate as if it was a
separate entity owned by Frank and Fabio Cornelli
and all profits
generated by it accrue solely to them and, since June 2005, also to
Hassim.  All of its profits have been
diverted to TCM Printing
Solutions (Pty) Limited, leaving a profit before tax of nought per
cent.  No revenue or benefit has
accrued to TCM as a result of
the Supplies Division being run and accounted for as a separate
entity
.
Substantial bonuses have been
paid to the Cornelli brothers, Frank and Fabio, and Hassim, which
have been expensed, thereby reducing
the Supplies Division’s
net profit.  TCM has been deprived of the profits generated by
the Supplies Division and this
has materially contributed to a
reduction in TCM’s EBITDA.
[278]
Geel referred the Court to Table 30 (2013) (Annexure A p 790).
This table deals with the growth in revenue
and operating expenses
for period 2008 to 2013.  This table shows that the increase in
total operating costs has been higher
than the growth in revenue in
each year subsequent to 2008.  This is illustrated by the
negative differential between the
growth in revenue and the growth in
total operating costs expenses.  Geel is of the view that if
this continues in the future,
that is, where operating costs and
total staff costs are higher than the increase in revenue, the
prospect of a dividend being
declared will be reduced and
shareholders will not be able to extract value from the business.
[279]
Geel also undertook a comparison of TCM with other listed companies
in what he considered to be the market in which TCM operates.

These were Datatec Limited (Datatec), Datacentrix Holdings Limited
(Datacentrix) and Business Connexion Group Limited (BCX).
[280] He
recognised that there had been a global recession which impacted upon
the IT industry, and that all the comparative companies
referred to
experienced a decline in revenue in the 2010 financial year.
Although the industry experienced operating difficulties
at around
the time of the recession (March 2009), the comparative companies
have subsequently recovered and are all trading at
similar levels to
or higher than before, thereby improving shareholder value.
These companies have shown increased gross
profit margins and
significant increases in EBITDA.  This is contrary to the
performance of TCM during the same period.
[281]
Whereas TCM had consistently outperformed the comparable companies
pre-2008, this was no longer the case after that date and
TCM now
significantly lags and underperforms against the comparable
companies.
[282]
Geel identified substantial increases in the EBITDA of the three
comparative companies which is reflected in the movement
in their
share prices during the period 2008 to 2012.  This was a matter
of concern as the comparative companies faced the
same macro-economic
factors and difficulties in the market.  Geel observed that the
trends and budgetary constraints in relation
to the comparative
companies are consistent with well-managed companies, but the same
cannot be said for TCM in the period post-2008.
[283]
During a cross-examination, counsel for the defendants sought to
discredit Geel’s choice of comparable companies.
The
following are, in essence, the criticisms levelled at Geel’s
choice of companies.
[284]
Geel claimed that he had used Datatec, Datacentrix and BCX because,
in his view, they had similar business models and operations
to TCM
but this was incorrect as he had no knowledge of either their
business models or operation.  Geel asserted that TCM
and these
companies have similar products, similar customer bases, similar
risks and similar business cycles.  But he knew
nothing about
any of these aspects.  Each of the distinguishing facts was
drawn from the annual reports of each of these companies,
which are
in the trial bundle.
[285] It
was submitted that there were clear distinguishing features between
TCM and the three companies:  For example, Datatec
was a public
company listed on the Johannesburg Securities Exchange, whereas TCM
was a private company.  Datatec is an investment
holding company
with about a hundred subsidiaries.  TCM is an operating company
whereas Datatec is an investment holding company.
TCM operates
virtually exclusively in South Africa, whereas Datatec has
international operations.  95% of Datatec’s
revenue was
generated in the United States and Europe.
[286]Datacentrix
was also distinguishable from TCM.  Datacentrix is a holding
company and does not trade;  its revenue
is zero.  TCM is
an operating company.  Datacentrix is a mainly services company
rather an inventory company.
[287]
Defendants’ counsel also pointed to other distinguishing
features in relation to BCX and TCM but it is unnecessary
for present
purposes to refer to each of these features.
[288] It
was submitted that Geel did not present a balanced view of the facts
relating to the comparative companies and that in
certain respects he
had been less than candid with the Court but this was disputed.
He confirmed that he does not profess
to be an expert in IT companies
or what expenses an IT company should normally incur, or what sort of
staff numbers an IT company
should employ or what salaries they
should receive or what are the correct numbers for staff costs and
directors’ emoluments.
He also confirmed that other than
by comparison with the three comparative companies he would not know
what sort of inventory an
IT company should carry.
[289]
Whilst there may be some force in the arguments advanced by the
defendants, it is unnecessary for present purposes to decide
whether
in fact Datatec, BCX and Datacentrix are appropriate comparative
companies.  A finding one way or the other does not
detract from
Geel’s evidence concerning TCM’s EBITDA.  Based on
TCM’s own annual financial statements, management
accounts and
other financial documents, Geel’s convincingly demonstrated
that there had been an understatement of inventory
with a significant
increase in operating expenses of TCM during the period 2008 to 2012
which led to a significant reduction in
EBITDA during that period.
The comparison with the EBITDA of Datatec, Datacentrix and BC was
only intended to reinforce this
view.
[290] The
evidence incontrovertibly shows that TCM’s EBITDA decreased
from R36.8 million in 2008, to an EBITDA of just
R22.5 million
in 2013.  This dramatic reduction in EBITDA is an indication
that TCM has not been run profitably;
that the profits
available to shareholders have decreased significantly and that
shareholder value has been reduced.  The
low EBITDA trends will
undoubtedly influence the price that a third party would be willing
to pay in order to purchase the plain/tiffs’
shares in TCM.
[291]
Geel’s conclusion in respect of EBITDA is expressed as follows
in his expert summary (Exhibit A pp 789
to 790):
“
3.9.1
From the analysis and review of the results reflected in the audited
AFS,
although the revenue of TCM has shown an increase over the
relevant period, the share of the profits available to shareholders,

including De Sousa and Diez, has decreased dramatically (EBITDA has
decreased from R36.8 million in 2008 to an EBITDA of just

R22.5 million in 2013) by reason of the significant increase in
total staff costs (including directors’ emoluments),
management
fees since 2008 and other operating expenses, indicating a degree of
inefficient management of the operating expenses
of TCM.  This
is contrary to the performance of the other CoCos over the same
period where they have shown growth.
3.9.2
As can be seen from the analysis above and as shown in Table 30
below,
although the revenue of TCM has shown an increase over the
period from 2008 to 2013, the increase in total operating costs has
been higher than the growth in revenue in each year subsequent to
2008.  This is illustrated by the negative differential between

the growth in revenue and the growth in total operating expenses.
3.9.3
Should this conduct continue in the future i.e. where the operating
costs (and most significantly the total staff costs and the
management fees) increase at a rate substantially higher than the
increase
in revenue, the prospect of even a dividend being declared
will be even more remote and the shareholders will not be able to
extract
value from the business.  Shareholder value could only
be enhanced by improved management control of costs etc. to turn
around
the business and prevent a continued erosion of the
shareholder value of TCM, as has been the case over the last five
years.”
[292]
Save for Geel’s reference to the CoCos in 3.9.1 above I have no
hesitation in accepting his aforesaid conclusion and
the opinions
expressed by him.  His opinions are well-reasoned and based on
facts and data contained in TCM’s auditors’
working
papers and TCM’s annual financial statements from 2007 through
until 2014.  See in this regard Coopers (South
Africa) (Pty) Ltd
v Deutsche Gesellschaft für Schädlingsbekämpfung Mbh
1976 (3) SA 352
(A) at 371G.  Most importantly, Geel’s
evidence concerning TCM’s EBITDA was not controverted by the
defendants.
[293]
For
these reasons it is my conclusion that TCM’s low EBITDA will
have negatively impacted upon the value of the plaintiffs’

shares.
GEEL’S
EVIDENCE
[294]
During his cross-examination Geel was subjected to an unreasonable
and unrelenting attack on
his credibility and competency to
give evidence as an expert.  His c
ross-examination,
which endured for some sixteen days, was detailed and searching.
But, regrettably,
was at times insulting and
defamatory.
[295]
Geel was an impressive and credible witness.  His expert
testimony was helpful and of immeasurable assistance to
the Court.
Contrary to what was argued by the defendants, his evidence in regard
to the material aspects of this case cannot
be criticised.  When
reliance was placed by him on evidence imparted to him by third
parties or from documents, he made this
plain and readily and fairly
made concessions when they were called for.  For these reasons I
unhesitatingly accept his opinions
and conclusions.
[296] In
attempting to discredit Geel’s evidence, counsel for the
defendants sought to draw parallels from the criticism that
the
Supreme Court of Appeal had directed at the expert witness in
Pricewaterhousecoopers Inc v National Potato Co-Operative Limited
[2015] 2 All SA 403
(SCA).  In Pricewaterhouse, Wallis JA,
writing for the court, identified the following five complaints
against the expert
witness.
“…
First, he laid no
foundation for being regarded as an expert, save his qualifications
as an accountant who had not been in practice
for many years and had
limited practical experience.  Second, his opinions were based
largely upon the hearsay evidence he
had culled from various
documents and were not founded on proven facts.  Third, his
evidence, fairly viewed, was nothing more
than that of an advocate
advancing the case of his client, the NPC.  Fourth, it was not
objective but was directed at justifying
the conclusions he had
formed.  He was unwilling to defer to the experience of those
with far greater expertise in the matters
under consideration than
he.  Fifth, it must be borne in mind that he not only undertook
the original investigation leading
to the claim, but was intimately
involved in the gathering of evidence and the pleaded formulation of
the claim.  …
”
[297] It
was submitted that, as had occurred in Pricewaterhouse, Geel had laid
no foundation for being regarded as an expert in
auditing and
accounting matters, save for his qualifications as an accountant.
He had not been in practice for many years
and had limited practical
experience.  He conceded that he had not been involved in an
audit since 1994 and that he had never
had responsibility for the
conduct of an audit.  Notwithstanding this, Geel did not
hesitate to criticise TCM’s auditors
for the manner in which
they performed their audit, and TCM for the way it accounted for its
maintenance spare parts and the manner
in which it ran its business.
[298] The
criticisms levelled at Geel are wholly unjustified.  Geel’s
expertise is evident from the following facts.
He joined KPMG,
a prominent firm of accountants, in 1988 and qualified as a chartered
accountant in 1990.  From 1991 to 1993
he was seconded to KPMG,
London, in the audit practice where he performed audits to the point
where he became a senior manager
who was made a partner of KPMG in
1996 and was appointed as the managing director of the corporate
finance business with effect
from 1 March 2005, and of the
Transactions and Restructuring Division in September 2008.
[299]
Geel is primarily concerned with mergers and acquisitions and
valuations activity and is involved in all of the sales processes,

acquisition and disposal mandates including negotiation support,
business valuations and the structuring of transactions and deal

closure.  He is a director in both KPMG Inc, which is the
audit business, and of KPMG Services, which is the advisory

side.  As appears from his Curriculum Vitae (Notices Bundle,
p 224) he has been involved in the disposal of numerous

businesses involving both listed and private companies.  He has
conducted numerous financial reviews and working capital reviews.

All of this work, although not audit focused, requires him to have an
in-depth understanding of financial statements and their
preparation
in accordance with IFRS.  The evidence that he gave did not
require him to be a technical auditing expert or to
express highly
technical auditing opinions.  His evidence dealt primarily with
inventory, trends and inventory subsequent
to 2008 and inventory on
hand.  It also dealt with EBITDA between 2006 and 2013 of both
TCM and listed comparable companies.
None of these matters
required him to express a technical audit opinion.  His evidence
in relation to inventory and EBITDA
was based on TCM’s own
annual financial statements and management accounts.  And the
views that he expressed on the
trends to which he referred are
self-evident to anyone who is versed in fundamental accounting
principles.  Most significantly,
the views that he expressed in
regard to the accounting treatment of maintenance spare parts, was
corroborated by Professor Wainer.
His evidence was not
controversial or challenged by the defendants on any credible basis.
[300]
It was further submitted that Geel lacked the independence and
neutrality required of an expert.  Reliance in this regard
was
placed on two English cases, referred to with approval in
PriceWaterhouse[7]:  The Ikarian Reefer[8] and Elliot C

Wightman et al v Estate of Peter N Widdrington,[9] both of
which dealt in extensive detail with the duties of an expert

witness.  Geel’s alleged lack of objectivity was premised
on the following:  He was the person who devised the
claim;
he was intimately involved in the gathering of evidence and the
pleadings’ formulation of the claim;  he
effectively
became the advocate on the claim’s merits and disregarded and
discounted any facts inconsistent with his own
theories and
conclusions.  He was not objective and his evidence was directed
at justifying the conclusions he had formed.
His opinions
were expressed without any factual basis having been established by
way of admissible evidence, and he gave evidence
in areas where he
lacked expertise.
[301] The
following factors are said to impair Geel’s independence as an
expert.  He was involved in the matter long
before either the
252 application or the summons was issued;  he had
performed valuations during 2008 and is the author
of the EBITDA
claim;  he was also the author of the R11.2 million
adjustment or understatement complaint;  he was
directly
involved in the pleaded formulation of the claim and in the gathering
of evidence.  The comparative company exercise
was his idea, as
was the choice of the three companies.
[302] The
fact that Geel was involved in the manner alleged does not detract
from the probative value of his opinions.  Initially,
his
mandate was to act as a valuer of De Souza’s interest.
But later, when the litigation commenced, his mandate
changed and he
was required to act as a forensic expert.  Geel’s evidence
is essentially limited to the question of
the trends in TCM’s
inventory from 2008 to 2013, inventory on hand and maintenance spare
parts;  the trends in TCM’s
EBITDA between 2006 and 2013,
and the trends in the profitability of the Supplies Division from
2006 and 2013.
[303] The
fact that he is the author of the EBITDA claim and that during the
course of his analysis of TCM’s financial documentation,
he
discovered that there was a R11.2 million adjustment or
understatement, does not impair his independence as an expert.

Nor does the fact that he was involved in the pleaded formulation of
the claim and in gathering of the relevant evidence.
It is
reasonably to be expected of a forensic expert who is approached in
regard to pending litigation to perform the tasks that
Geel had
undertaken.  I am satisfied that none of the criticisms levelled
by the defendants bears scrutiny or is justifiable.
I am
fortified in this conclusion by the fact that the defendants chose
not to lead countervailing evidence in order to rebut Geel’s

conclusions.
[304] It
was further argued that Geel had a personal financial interest in the
case as he was working on a contingency fee in the
litigation.
The quantum of the fee payable was in part based on the value of the
shares forming the subject-matter of the
claim.  It was
submitted that Pricewaterhouse, properly read, makes it plain that
the proposition of a contingency fee is
inimical to the independence
of an expert and that, accordingly, the Court should rule out any
reliance on his testimony.
[305] In
the context of the present case, I am satisfied that the fact that
Geel acted on a contingency basis has in no way compromised
his
independence as an expert.
Geel
explained that he initially started his assignment for De Souza
as a valuator but that once the litigation commenced his
mandate
changed.  He issued a final valuation report in November 2008.
Thereafter, his engagement changed when he was
requested by De Souza
to assist him in relation to the present action.  The engagement
letters embodying the contingency
fee were produced in evidence.
In terms of KPMG’s initial engagement Geel did not act on a
contingency basis.
The introduction of a contingency fee
element was only introduced on or about 26 January 2009.  Geel
explained that at that
stage he was aware that the plaintiffs had
incurred substantial legal costs and expenses;  they were not
receiving any income
and were funding the litigation from the
dividend that was paid to them.  If the plaintiffs were to pay
KPMG’s fee on
a purely time basis this would place undue
financial strain on the plaintiffs.  He indicated that he was
prepared to take
some risk but at the same time be paid on an hourly
basis, hence the change in mandate and the introduction of a
contingency fee.
[306]
Geel’s reasons for introducing a contingency fee element are
perfectly understandable.  The evidence shows that
the
plaintiffs have had to incur many millions of rands in order to
finance the litigation in that other than dividends they have

received no income from TCM.  I accept that if the value of the
plaintiffs’ shares were the issue to be determined in
the
present case, then it could reasonably have been argued that Geel had
a financial interest in the outcome of the litigation.
But that is
not the position in the present case.
[307]
Another point of criticism raised by the defendants was that Geel’s
mandate embodied certain material restrictions.
The engagement
was accepted on the basis of KPMG’s general terms of business.
Clause 6 of the standard terms provides:
“
We
shall not be under any obligation in any circumstances to update any
advice, report or any product of the services, oral or written,
for
events occurring after the advice, report or product concerned has
been issued in final form, unless specifically agreed upon
by mutual
consent by you and us in the body of the Engagement Letter.”
[308] In
terms of clause 9 of the standard terms and conditions it was
provided:
“
We
shall not seek to establish the reliability of information received
from you or any other information source.”
The
clause continues as follows:
“
Accordingly
we assume no responsibility representations with respect to the
accuracy, reliability or completeness of any information
provided to
us.”
[309] In
my view, the fact that the KPMG mandate embodied the abovementioned
restrictions did not reduce the evidential weight to
be attached to
Geel’s opinions.  His opinions are primarily based on
TCM’s annual financial statements, management
accounts and
other financial documents.  The annual financial statements were
intended to represent to the outside world the
true financial
position of TCM during the financial years in question.  It
certainly was not required of Geel to test the
veracity or accuracy
of the information stated in the financial statements.  Nor was
it required of Geel to verify the accuracy
of the management accounts
and other financial documents produced by TCM and its board.
[310] The
following factors operate to strengthen the evidence and opinions
expressed by Geel.  A great deal of his evidence
was not
controversial or challenged on any credible basis.  The
defendants’ expert accountant, Greyling, who it was
reasonably
anticipated would give evidence was not called as a witness.
Geel’s evidence is corroborated by the testimony
of Professor
Wainer.  His evidence was not challenged in material respects or
on any serious or credible basis.
USE OF
COMPANY FUNDS TO RESIST THE ACTION
[311]
This complaint is set out in paragraph 18 of the particulars of
claim.
[312]
There is no dispute that since the date of inception of the
litigation, TCM has borne all of the defendants’ legal costs;

this includes the costs of the 252 application and the present
action.  The plaintiffs assert that this is a misuse of TCM’s

funds.
[313]
An extensive exposition of the relevant legal principles is to be
found in Blackman.[10]  A summary of what is stated
is the
following.  It is a general principle of company law that the
company’s money should not be expended on disputes
between the
shareholders.  The use of the company’s funds by the
majority in defending an application or action is a
misuse of such
funds because it confers a distinct financial advantage on the
majority, and prejudices and discriminates against
the minority
shareholders.  But this is not necessarily always the case.
Company funds may be used where it is necessary
or expedient to
protect the company’s interests.  Thus, expenditure of
company funds may be justifiable in order to
resist an order that the
company buy back the shares of a member or to pay a dividend.
[314] In
Re a company (No 1126) of 1992)
[1994] 2 BCLC 146
at 156),
Lindsay J stated that there is a heavy onus on a company to
satisfy the Court with evidence of the necessity or expediency
to
have incurred such expenditure.  The majority must show that
such costs were properly payable out of such company’s
assets.
As was amusingly pointed out by Lindsay J, there is “a
sort of rebuttable distaste for such participation
and expenditure,
initial scepticism as to its necessity or expediency”.
[315]The
defendants’ legal representatives contended that it was
permissible for TCM to fund the litigation by virtue of it
having
been cited as the first defendant and relief being sought against
it.  This contention is misplaced.  TCM is in
effect a
nominal defendant as the true disputing parties are the
shareholders.  TCM only defends the action by virtue of Cornelli

and the remaining defendants having caused it to do so.
[316] It
was also contended that TCM is not a nominal defendant as a judgment
in favour of the plaintiffs would impact on TCM’s
balance
sheet; its liquidity; creditors, and its ability to obtain credit in
order to carry on its business.  I do not agree.
There was
a heavy onus upon the defendants to have established these facts by
means of evidence but such evidence was not forthcoming.
The
failure of the defendants to afford an explanation leads to the
conclusion that this is not a situation where it was necessary
or
expedient for TCM to expend money in order to protect its interests.
I find, therefore, that the expenditure of such moneys
constitutes a
misuse of TCM’s funds.
[317] The
plaintiffs have expended approximately R30 million of their own
funds on legal costs.  In the circumstances,
the use by the
second to fifth defendants of TCM’s funds to resist the
plaintiffs’ claim is in itself a ground of unfair
prejudice
under s 252 of the Act.
[318]
Should an order for the purchase of the plaintiffs’ shares be
granted, in arriving at a value and a fair price for the
shares, an
adjustment ought to be made for the fact that TCM has borne legal
costs in respect of the action and the prior 252 application.
[319] I
am satisfied therefore that the plaintiffs have proven the
allegations made in paragraph 18 of the particulars of claim.
THE
RETENTION AGREEMENTS
[320] The
plaintiffs allege in paragraph 13.4 of the particulars of claim that
Cornelli procured that a retention agreement (which
was a scam) was
concluded between the company and Hassim which unduly favoured
Hassim’s financial position at the expense
of TCM and the other
shareholders.
[321] It
is common cause that a series of nine retention agreements were
entered into between TCM and Hassim during the period 1
October 2008
to 18 July 2012.  Copies of these are attached to the
defendants’ answer to the plaintiffs’ request
for further
particulars dated 20 August 2012.  Each agreement which is
signed by Cornelli is labelled “CEO RETENTION
PROGRAM”,
and provides that the program is to be “in strict confidence”.
[322]In
terms of each retention agreement Hassim was to receive a ‘Cash
Retention Payment’ of R1.25 million.
[323]
De Sousa contends that the retention agreements were simulated
transactions in that their true purpose was not to retain
Hassim’s
services but to assist him to pay for his shares.
[324]
This Court is entitled to know whether the parties actually intended
that the retention agreements should have effect between
them
according to their tenor.  As was stated by Wessels CJ in
Kilburn v Estate Kilburn
1931 AD 501
at 507:
“
It
is a well-known principle of our law that Courts of Law will not be
deceived by the form of the transaction:  it will rend
aside the
veil in which the transaction is wrapped and examine its true nature
and substance.  Plus valeat quod agitur quam
simulate
concipitur.
”
[325]
There is every indication that the retention agreements are indeed
simulated transactions.
[326] The
agreements must be viewed in the context of the previous unsuccessful
attempts made by Cornelli to assist Hassim in order
to pay for his
shares all of which were resisted by De Sousa.  Initially,
Cornelli sought to persuade all the shareholders
to reduce the
purchase price of Hassim’s shares by 20%;  he then decided
that TCM finance a loan to the Trust and/or
Hassim but that was
opposed by De Sousa on the basis that as the law stood at that
stage such loan would have constituted
a contravention of s 38
of the Act.  He thereupon decided to conclude the suite of
retention agreements.
[327]
There was obviously no need to enter into any retention agreement in
order to guard against the loss of Hassim’s services.
He
never expressed a desire to leave TCM and was generously remunerated.
He was a shareholder, executive director and employee
who was
remunerated by means of a substantial salary, dividends and bonuses.
He also received, and continues to receive,
a substantial portion of
the profits generated by the Supplies Division.  Geel conducted
an analysis of the directors’
emoluments and dividends paid by
TCM for the period 2010 to 2013 (Exhibit A, Tables 18 and
24 pp 781 and 782).
These tables reflect that Hassim
received a salary and thirteenth cheque; a commission and performance
bonus;  a share of
the profits of the TCM Supplies Division
referred to as “TCM Supplies Division Split”, and a
retention payment.
Geel testified that Hassim’s income in
2011 was some R8.5 million, which is comparable to top
directors’ remuneration
and listed companies.  Without the
retention payment it would come to some R6 million.  This,
in my view, would
have been more than sufficient to retain his
services.
[328]
Cornelli should have given evidence in order to explain the true
reason and commercial purpose of the retention agreements.
As
was stated by Watermeyer CJ in Elgin Fireclays Limited v Webb
(1947 (4) SA 744
(A) at 750), his failure to give evidence “leads
naturally to the inference that he fears that such evidence will
expose
facts unfavourable to him”.  In the circumstances,
an adverse inference ought to be drawn against him.
[329] I
accordingly find that the retention agreements are indeed simulated,
and that their true commercial purpose was to assist
Hassim to pay
for his shares.  The entering into of such agreements unduly
favoured Hassim and/or the Trust’s financial
position at the
expense of TCM and the other shareholders thereof.  The entering
into the so-called retention agreements constitutes
further evidence
of a lack of probity in the manner in which the affairs of TCM have
been conducted.
CONCLUSION
[338] On
a proper conspectus of the evidence it is readily evident that the
affairs of TCM have been and continue to be conducted
in a manner
that is unfairly prejudicial, unjust and/or inequitable to the
plaintiffs as members of TCM.
[331] In
their treatment of the plaintiffs, Cornelli, and those acting under
his supervision, have displayed what Lord Cooper
in Elder v
Elder described as –
“
a
visible departure from the standards of fair dealing and a violation
of the conditions of fair play on which every shareholder
who
entrusts his money to a company is entitled to rely”.
[332]
De Sousa and Diez, who had a right or
legitimate expectation to do so, have been excluded from
participating in the management
of TCM but have been unable to
dispose of their shares at a fair value.  Cornelli has refused
to engage in bona fide negotiations
with the aim of permitting the
plaintiffs to dispose of their shares.  This is unduly
prejudicial to them as they remain passive
shareholders in the
company which appears to be mismanaged by the majority with whom they
have fallen out.  It cannot reasonably
be expected of the
plaintiffs who have lost their employment to keep their assets locked
in TCM.
[333]
The following is a glaring example of a lack of probity in which
TCM’s affairs have been conducted.
The true value
of TCM is not properly reflected in its annual financial statements
for the period 2008 to 2012.
The evidence
incontrovertibly shows that there has been a manipulation of the
financial results of TCM since 2008;  sales inventory
has been
deliberately understated; work-in-progress has not been brought into
account and maintenance spares have not been properly
accounted for.
The R11.2 million stock write-off in 2008 has not been
explained.  This has had the effect of suppressing
TCM’s
gross profit and, ultimately, its net profit and EBITDA.
The
probabilities are that this was deliberately done in order to
suppress share values in the event that TCM or the second to fifth

defendants were compelled to purchase the plaintiffs’ shares.
[334]
TCM’s EBITDA has decreased from R36.8 million in 2008 to
R20.4 million in 2012 by reason of a significant
increase in
staff costs, directors’ emoluments, management fees, the
payment of bonuses and other operating expenses.
This is
indicative of an inefficient management of the operating expenses of
TCM.  The profits available to shareholders have
decreased
dramatically which has negatively impacted on the level of dividends
payable to the plaintiffs.  Shareholder value
has been eroded.
The lower EBITDA trends will negatively influence the price that the
remaining shareholders or a third party
would be willing to pay in
order to purchase the plaintiffs’ shares.
[335]
There has been a deliberate misapplication of TCM’s assets.
The business of the Supplies Division, which is owned
by TCM, has
been conducted and accounted for as if it were a separate entity from
TCM;  all its income and profits accrue
solely to Hassim and the
brothers of Cornelli, Frank and Fabio.  This has resulted in a
loss to TCM of the business and profit
derived by the Supplies
Division and jeopardised shareholder value.  The payment by TCM
of the legal costs incurred by the
second to fifth defendants to
resist the present action and the 252 application also constitutes a
misapplication of TCM’s
assets.  The entering into of the
simulated retention agreements with Hassim constitutes a further
misapplication of TCM’s
assets.
[336]
A particularly sinister feature is that there is an unmistakable
temporal coincidence between the difficulties that arose between
De
Sousa and Cornelli and the sudden seeming decline in the financial
fortunes of TCM as reflected in its 2008 to 2012 annual financial

statements.  Whilst there was a global recession that impacted
on the IT industry in the 2010 financial year, this does not
explain
the sudden drop in TCM’s EBITDA percentage, from 6% in 2008 to
3% in 2009.  This is all the more inexplicable
given the fact
that there was a significant growth in revenue from of 19% in 2007 to
56% in 2008.  It is not surprising that
the defendants chose not
to explain the reasons for the drop in EBITDA.
[337] In
the premises, the plaintiffs are entitled to relief in terms of s 252
of the Act.  The jurisdictional criteria
for the grant of such
relief have been satisfied (see Louw & ors v Nel supra
para [23]).  There is every reason
to believe that the conduct
complained of will continue and that the plaintiffs will be
prejudiced by that conduct unless given
relief in terms of s 252(3).
COSTS
[338]
This is quintessentially a case in which costs ought to be awarded
against the second to fifth defendants on a punitive scale.
[339] The
following factors justify such an award.
[340] The
defendants’ approach to the litigation has been obstructive.
They have taken every opportunity to prolong
the hearing and delay
the finalisation of the trial.
[341] The
proceedings were punctuated by groundless objections brought by the
defendants.  At the outset of the trial the defendants

unsuccessfully applied to separate issues and raised a question of
law in the nature of an exception.  This application was

unheralded and took the Court and the plaintiffs by surprise.
Why the exception was not brought within the time parameters
provided
for in the Rules of Court was not explained.  A failure to
except timeously will normally render a party liable for
such
additional costs as have been caused by such failure (see Porter v
Union Government
1919 TPD 234
;  Burroughs Machines Limited v
Chenille Corporation of SA (Pty) Limited
1964 (1) SA 669
(W) at
676);  also AC Cilliers, “Law of Costs” (3 ed)
3-07).
[342]
After the dismissal of the application to separate / exception, an
application was brought to exclude the scope of the evidence
which
the plaintiffs intended to lead.  This, too, was dismissed.
And, at a later stage, the defendants launched an
abortive
application for my recusal.
[343] The
cross-examination of the plaintiffs’ witnesses was excessively
long.   As previously stated, Geel was
cross-examined for
approximately seventeen days.  Counsel for the defendants dealt
with many issues that at the end of the
day are not dispositive of
the case.  Very little by way of a contrary version was put to
Geel.
[344] On
7 August 2012, the defendants delivered a notice in terms of Rule
36(9)(a) indicating that they intended to call Mr Allan
Greyling to
give evidence as an expert witness at the trial.  In his expert
summary it was stated that he would give evidence
to show that
maintenance spares had been properly accounted for by TCM in terms of
IFRS.  The plaintiffs called Professor
Wainer to give evidence
in rebuttal of Greyling’s opinion.  But that proved
unnecessary as the defendants chose not
to call Greyling as a
witness.  In the result the plaintiffs had unnecessarily
incurred the cost and expense of calling Professor
Wainer.
[345] The
following are examples of the defendants’ obstructive
behaviour.  When the trial was at an advanced stage,
I urged the
parties to agree upon a timetable in order to limit the duration of
the trial but the defendants refused to do so.
As a result I
was compelled to impose a timetable but the defendants did not adhere
thereto.
[346]
After De Sousa had been cross-examined for about eight days,
defendants’ senior counsel pointed out that there
were a number
of topics that he still wished to cover in cross-examination.  I
informed him that he had to complete his cross-examination
within a
further day and invited him to at least put to De Sousa the
defendants’ versions in relation to these topics.
But he
refused to do so.
[347]
One cannot ignore the wrongful conduct of withholding the dividends
declared in favour of De Sousa. Cornelli and those
under his
control clearly contrived a situation where the dividend instead of
being paid to De Sousa, was paid into the trust
account of TCM’s
attorney, who issued interpleader proceedings.  This conduct was
calculated to delay and frustrate
the plaintiffs’ substantive
and procedural rights.  Such conduct warrants an exemplary order
as to costs.
T
here was no legal basis
whatever for the dividend
s
to be withheld
from De Sousa and for interpleader proceedings to have been
instituted
.
De Sousa, as the
registered member and holder of the shares
in TCM,
was
entitled to receive the dividend (Société Générale
de Paris
supra at
424;  Henochsberg on
the
Companies Act
>, 71 of 2008 (p 24).
[348] In
order to obtain the release of the 2014 dividend to which he was
entitled, De Sousa was compelled to institute an
application in
terms of
s 163
of the
Companies Act, 71 of 2008
.  The
launch of this application was both necessary and reasonable and the
relief sought therein justified.  I will accordingly
order that
the costs of the 163 application, which were reserved, be paid by
Cornelli personally and the third to fifth defendants
on the scale as
between attorney and client.
[349]
Cornelli has refused to engage in bona fide discussions or
negotiations with the aim of permitting the plaintiffs to dispose
of
their shares at a fair value and without resort to litigation.
There is no reason why a proper offer was not put prior
to the onset
of the litigation in order to avoid the incurrence of unnecessary
legal costs.  This conduct was wholly unreasonable
and has
prejudiced the plaintiffs who have had to incur substantial legal
costs in furtherance of the litigation. Approximately
R30 million
has been expended by the plaintiffs in legal costs.
[350]As I
have already mentioned there was a recent orchestrated attempt made
by Cornelli and De Sousa’s wife to derail
the delivery of
this judgment.  I have already dealt in detail with the events
surrounding the launch of the application timing
to intervene and to
amend.
[351] The
wrongful use of TCM’s funds to resist the present proceedings
is also an important factor that impacts on the question
of costs.
It was argued by counsel for the defendants that TCM was not a
nominal party to the proceedings and that it was
necessary for it to
employ its own funds in order to resist the plaintiffs’ claim.
The principal relief is against
TCM and, if its defence
was unsuccessful, it would be obliged to produce a sum of up to
R160 million to satisfy a judgment
against it.  That
judgment would affect its balance sheet, liquidity, creditors and its
ability to obtain credit.  This
justified TCM’s decision
to defend the action and to utilise its funds to do so.  I
cannot accept this argument.
As was stated by Lindsay J in
Re a company (No 1126) of 1992)
[1994] BCLC 146
at 146), there is a
“heavy onus” on a company to satisfy the Court with
evidence of the necessity or expediency to
have incurred such
expenditure.  The defendants failed to adduce the necessary
evidence.  Moreover, it should be borne
in mind that TCM only
defends the action by virtue of Cornelli and the remaining defendants
having caused it to do so.  It
would be unfair to burden TCM
with such costs.  Any cost order should be borne by Cornelli and
the third, fourth and fifth
defendants jointly and severally.
[352] In
Blackman et al (at 9-55 to 9-56), the learned authors express
the position most aptly:
“
In
the vast majority of cases there will be no real prospect of
satisfying the tests.  Usually, the company is merely a nominal

party to an application without any interest in the matter, the
dispute being in substance one between the shareholders.
And
this is invariably the case where the applicant seeks to be bought
out either by other shareholders or by the company itself;
thus if it
is shown that directors of a company have been causing the company’s
money to be spent on financing the resistance
to such an application,
the Court should prevent such expenditure, such expenditure being a
misfeasance and there is no excuse
for it in law.  The mere fact
that the directors concerned have strong feelings about the person
they would like to see in
control of the company and able to appoint
and remove its directors, does not entitle them at the expense of the
company to take
part in a dispute whether the applicant’s
shares should be compulsorily acquired by other shareholders or by
the company.”
[353] It
is proper to award costs on an attorney and client scale where a
party has deliberately failed to limit or curtail proceedings,
or has
abused the Court’s process.  In this regard I am mindful
of the following dictum of Innes CJ in Scheepers
and Nolte v
Pate
1909 TS 353
at 356 said the following:
“
I
think it is the duty of a litigant to avoid any course which unduly
protracts a lawsuit, or unduly increases its expense.
If there
is a legal defence which can be effectively raised, by way of
exception or otherwise, at an early stage, he ought at that
stage to
raise it.  If he only takes it later on it may still be
effective, but the fact that it came late, and that considerable

expense was unnecessarily incurred in consequence, seems to me an
element which may well affect the mind of the court in apportioning

the costs.
”
[354] The
object of award of attorney and client costs was been explained by
Tindall J in Nel v Waterberg Landbouwers Ko-Operatieve

Vereeniging 1946 (A) 597 at 607:
“
The
true explanation of awards of attorney and client costs not expressly
authorised by Statute seems to be that, by reason of special

considerations arising either from the circumstances which give rise
to the action or from the conduct of the losing party, the
court in a
particular case considers it just, by means of such an order, to
ensure more effectually than it can do by means of
a judgment for
party and party costs that the successful party will not be out of
pocket in respect of the expense caused to him
by the litigation.
”
Nel’s
case was approved by the Constitutional Court in Swartbooi and others
v Brink and others
2006 (1) SA 203
(CC) para [27]
[355]
Given the manner in which the litigation has been conducted by the
second to fifth defendants, the Court should, as a mark
of its
disapproval, direct that the second to fifth defendants bear the
costs of the action jointly and severally, the one paying,
the others
to be absolved, on the scale as between attorney and client.
Such costs should include the qualifying and attendance
fees for the
plaintiffs’ expert witnesses, Geel and Professor Wainer, as
well as the costs consequent upon the employment
of two counsel.
[356] The
following costs should also to be paid by the second to fifth
defendants jointly and severally, the one paying, the other
to be
absolved, on an attorney and client basis:  (a) The wasted
costs occasioned by the postponement of the trial set
down for
hearing on 2 October 2012.  These costs should include the costs
occasioned by the employment of two counsel and
the qualifying fees
in respect of the plaintiffs’ experts, Geel and Professor
Wainer.  (b)  The costs relating
to the plaintiffs’
application for leave to amend in terms of their notice of intention
to amend dated 9/10 December 2013,
and the costs relating to the
plaintiffs’ application in terms of
Rule 35(3)
dated 4 December
2015.  These costs are also to include the costs occasioned by
the employment of two counsel.
APPROPRIATE
RELIEF
[357]
Section 252(3)
provides that the order may be “for regulating
the future conduct of the company’s affairs or for the purchase
of the
shares of any members of the company by other members or by
the company, or otherwise”.  The Court has a wide
discretion
concerning the order it should make, subject to the
overriding consideration that the order should aim at bringing to an
end the
matters complained of (Blackman et al, Commentary on the
Companies Act 9-46 and
cases there cited).
[358]
Having regard to these considerations, the only practicable order
that should be made is that TCM be directed to purchase
the
plaintiffs’ shares.  The shares shall be purchased by TCM
at their value on the date of the order to be granted.
[359] It
is necessary that a referee be appointed in order to determine the
value of the plaintiffs’ shares in TCM.
Due to the
numerous concerns raised by Geel and Professor Wainer in relation to
the manner in which TCM’s financial statements
have been
audited, it is undesirable that the referee undertaking such
valuation be the company’s auditors.  The referee
should
be a registered and practising chartered accountant and auditor of
not less than 15 years’ standing to be nominated
by the
President of the Institute of Chartered Accountants for the time
being from any one of the following South African accounting
and
auditing practices – PriceWaterhouseCoopers, Ernst & Young
and Deloittes.  The referee shall act as an expert
and not
arbitrator (see in this regard Perdikis v Jamieson
2002 (6)
SA 356
(W) para [5]).
[360] The
appointed referee shall have the powers and duties akin to a referee
appointed in terms of
s 19bis
of the now repealed Supreme Court
Act, 59 of 1959.[11]  Section 19bis allowed a court, with the
consent of the parties, to
refer the matter for determination by a
referee.  However, such consent is not be required in the
present case.  This
Court has a wide discretion, in terms of
s 252(3), to make “such order as it thinks fit whether for
… the purchase
of the shares of any members of the company by
other members thereof, or by the company …”.  This
includes the
power to appoint a referee with the same powers and
duties as a referee would have had in terms of s 19bis of the
repealed
Supreme Court Act.[12]
[361] The
plaintiffs are entitled to be paid a fair price for their shares.
As a general rule, where the aggrieved shareholder’s
shares are
to be purchased, a fair price is the value that his shares would have
had if there had been no unfair treatment (Blackman
et al 9-50 to
9-51).  The following specific provisions must, at the very
minimum, be contained in the order.
(1)  The
valuation of the shares shall make no allowance or deduction for
the fact that the plaintiffs hold a minority
shareholding and there
should be no discount for that fact.  The following statement of
Binns-Ward AJ in paragraph 4
of the supplementary judgment in
McMillan NO v Pott at 541A-D, properly reflects the position:
“
[4]
Firstly, the provision that the shares be valued without any discount
for the shares representing a minority holding was
consciously made
to the applicant’s choosing.  The reason why a minority
interest is frequently only saleable at a discount
is explained in
the report by Mr Pter Crawford, annexed to the respondents’
submissions.  Those considerations
apply in an ordinary
commercial transaction between willing buyer and willing seller.
There is, however, no reason in principle
why in the peculiar
circumstances of a compulsory sale, pursuant to an order made in
terms of
s 252
of the
Companies’ Act, the
acquiring party
should be able to obtain the excluded party’s shares at a
discount to the pro rated value of all the issued
shares in the
company.  Compare the observation at
part 10
of the opinion in
O’Neill v Phillips, the ‘fair value’ in such
circumstances –
‘
will
ordinarily be a value representing an equivalent proportion of the
total issued share capital, that is, without a discount
for its being
a minority holding.  The Law Commission (paragraphs 3.57-62) has
recommended a statutory presumption that in
cases to which the
presumption of unfairly prejudicial conduct applies, the fair value
of the shares should be determined on a
pro rata basis.  This
too reflects the existing practice.’”
(2)  The
valuation shall include the value of the TCM Supplies Division.
THE
ORDER
[362] In
the premises, the following order is granted.
1.
The first defendant (TCM) is directed to purchase the shares of the
plaintiffs in the first defendant
and to take transfer thereof
against payment to the plaintiffs of a purchase consideration in an
amount to be determined by the
referee referred to in paragraph 4
below, being the value of the plaintiffs’ shares in TCM as at
the date on which this order
is made.
2.
The plaintiffs shall, within five days after the payment to them in
full of the purchase consideration
referred to above, in writing
notify TCM of their resignation as directors of TCM.
3.
The parties shall take all steps, do all things and sign all
documents which are necessary to give
effect to the provisions of 1
and 2 above as expeditiously as possible, failing which the Sheriff
of this Court is hereby authorised
and directed to take such steps,
do such things and/or sign such documents on behalf of the party or
parties to do so for such
purpose.
4.
A referee be appointed in the nature of and akin to a referee
appointed in terms of s 19bis
of the Supreme Court Act, No 59
of 1959 (the Act) in order to determine the value of the plaintiffs’
shares in TCM as
at the date on which this order is made.
5.
The valuation of the plaintiffs’ shares to be determined by the
referee shall –
5.1
make no allowance or deduction for the fact that
the plaintiffs hold
a minority shareholding and there should be no discount for that
fact;
5.2
include the value of the TCM Supplies Division;
5.3
be on the basis as if all payments made by TCM
for legal costs
(including all fee deposits) and disbursements up to date of
valuation in respect of this action and the prior
application under
Case No 2009/41464 had not been paid or borne by TCM, and
the TCM cash and expense position shall be
notionally adjusted
accordingly;
5.4
ignore the effect of any cost order against TCM
in terms of this
order;
5.5
take into account any adjustment considered necessary
to account for
the spares inventory, sales inventory, work-in-progress and other
categories of inventory on hand at TCM.
6.
The referee’s costs are to be paid in the first instance to the
referee by TCM, subject to
what is set out in paragraph 13 below in
relation to such costs.
7.
In the absence of agreement between the parties within fourteen days
from date of this order in
relation to the identity of the referee,
such referee is to be a registered and practising chartered
accountant of not less than
fifteen years’ standing to be
nominated by the President of the Institute of Chartered Accountants
for the time being from
any one of the following South African
accounting and auditing practices:  PriceWaterhouseCoopers,
Ernst & Young and Deloittes.
8.
The referee is required to meet with and receive representations from
each of the parties and their
financial representative/s in carrying
out his/her functions.
9.
It is declared that the TCM Supplies Division is owned by and is part
of TCM and that its value
is to be taken into account in the
valuation of the plaintiffs’ shares.
10.
The referee shall have all powers mutatis mutandis contemplated in
s 19bis of the Act, and shall include
the power to assess what
he/she considers to be a fair value for inventory in carrying out the
valuation of the plaintiffs’
shares in TCM.
11.
In valuing the plaintiffs’ shares in TCM, the referee shall
have the further power to make such adjustments
as the referee may
consider fair to arrive at what, in the referee’s professional
expert opinion would constitute a “fair
price” for the
plaintiffs’ shares to be acquired by TCM as set out in 1
above.
12.
The referee’s report is to serve before this Court mutatis
mutandis as would a referee’s report
in terms of s 19bis
of the Act.  Such report is to be dealt with by this Court in
accordance with s 19bis of the
Act.
13.
The second to fifth defendants are to pay the costs of this action
jointly and severally, the one paying,
the others to be absolved,
including the qualifying and attendance fees for the plaintiffs’
expert witnesses, Mr J Geel
and Professor H E Wainer
and the referee’s costs.  The costs to be paid by second
to fifth defendants shall
include the costs consequent upon the
employment of two counsel and are to be taxed on the scale as between
attorney and client.
14.
The reserved costs in respect of the plaintiffs’ application in
terms of
s 163
of the
Companies Act, 71 of 2008
, and in respect
of the first defendant’s counter-application for recusal are to
be paid by the second to fifth defendants
jointly and severally, the
one paying, the others to be absolved.  These costs are to
include the costs consequent upon the
employment of two counsel and
are to be taxed on the scale as between attorney and client.
15.
The wasted costs occasioned by the postponement of the trial in this
action set down for hearing on 2 October
2012 are to be paid by the
second to fifth defendants jointly and severally, the one paying, the
others to be absolved on the scale
as between attorney and client.
These costs are to include the costs consequent upon the employment
of two counsel and the
qualifying fees in respect of the plaintiffs’
experts, Mr J Geel and Professor H E Wainer.
16.
The costs relating to the plaintiffs’ application for leave to
amend in terms of their notice of intention
to amend dated 9/10
December 2013 and the costs relating to the plaintiffs’
application in terms of
Rule 35(3)
dated 4 December 2015 are to be
paid by the second to fifth defendants jointly and severally, the one
paying, the others to be
absolved, on the scale as between attorney
and client and are to include the costs occasioned by the employment
of two counsel.
DATED at
JOHANNESBURG this 31st day of MARCH 2017.
__________________________
BORUCHOWITZ
J
JUDGE
OF THE HIGH COURT,
GAUTENG
LOCAL DIVISION,
JOHANNESBURG
/DATE
OF HEARING …
DATE OF
HEARING
:
1 April
2016
DATE OF
JUDGMENT       :
31 March 2017
ON BEHALF
OF
THE
PLAINTIFFS
:

ADVOCATE A SUBEL SC
with Adv B SLON
INSTRUCTED
BY
:
EDWARD
NATHAN SONNENBERGS INC
Ref:  T
BUCHLER/0279457
ON BEHALF
OF
:

ADVOCATE J SUTTNER SC
THE
DEFENDANTS

with Adv P CIRONE
INSTRUCTED
BY
:
ROY
STOLER ATTORNEYS
Ref:  R
STOLER/RJ/T366
[1]
The remedy for oppressive or prejudicial conduct under the 2008
Companies Act is
contained in
s 163.
[2]
The predecessor of the current English oppression remedy, s 459(1)
of the English Companies Act, 1985, read
as follows:
“
A
member of a company may apply to the court by petition for an order
under this Part on the ground that the company’s affairs
are
being or have been conducted in a manner which is unfairly
prejudicial to the interests of some part of the members (including

at least himself) or that any actual or proposed act or omission of
the company (including an act or omission on its behalf)
is or would
be so prejudicial.”
Section
459(1) of the Companies Act, 1985 (as amended by the Companies Act,
1989) now provides as follows:
“
A
member of a company may apply to the court by petition for an order
under this Part on the ground that the company’s affairs
are
being or have been conducted in a manner which is unfairly
prejudicial to the interests of its members generally or of some

part of its members (including at least himself) or that any actual
or proposed act or omission of the company (including an
act or
omission on its behalf) is or would be so prejudicial.”
[3]
Section 103(2) of the Act, provides that a member is a person
“…who agrees to become a member
of a company and whose
name is entered into its register of members …”.
The right to be on the register is
independent of ownership of the
shares (see Davis v Buffelsfontein Gold Mining Co Limited &
another
1967 (4) SA 631
(W) at 633D-F).
[4]
“unfairness” has been held to mean ‘unreasonable’
(see Garden Province Investment v Aleph
(Pty) Limited 1979 (SA) SA
525 (D) at 531).
[5]
Re H.R. Harmer Limited,
(1958) 3 All ER 689
at pp 699, 706).
[6]
See McMillan NO v Pott & others
2011 (1) SA 511
(WC) para [40].
[7]
Pricewaterhouse paras 96 to 99.
[8] The
Ikarian Reefer [1993] 2 Lloyd’s Rep 68 [QB] Con Ct)] at 81-82.
[9]
Elliot C Wightman et al v Estate of Peter N Widdrington
2014
CanLII 341
(SCC).
[10]
Blackman et al Commentary on the Companies Act (Vol 2) p 9-54-2
to 9-56).
[11]
Investigation by a referee is now regulated by
s 38
of
the
Superior Courts Act, 10 of 2013
.
[12]
Section 19bis of the Supreme Court Act, 59 of 1959, provided as
follows:
“
(1)
In any civil proceedings any court of a provincial or local division
may, with the consent of the parties, refer –
(a)
any matter which requires extensive examination of documents or
scientific, technical or local
investigation which in the opinion of
a court cannot be conveniently conducted by it; or
(b)
any matter which relates wholly or in part to accounts; or
(c)
any other matter arising in such proceedings,
for
enquiry and report to a referee, and the court may adopt the report
of any such referee, either wholly or in part, and either
with or
without modifications, or may remit such report for further enquiry
or report or consideration by such referee, or make
such other order
in regard thereto as may be necessary or desirable.
(2)
Any such report or any part thereof which is adopted by the court,
whether with or without modifications, shall have effect
as if it
were a finding by the court in the civil proceedings in question.
(3)
Any such referee shall for the purpose of such enquiry have such
powers and shall conduct the enquiry in such manner as may
be
prescribed by a special order of court or by rules of court.”