Brief Summary

Companies — Directors — Delinquent directors — Application for declaration of delinquency against director under section 162 of the Companies Act — Court of first instance finding in favour of applicants and declaring director delinquent — Appeal court finding that relevant factual matters were ignored by the court a quo — Appeal upheld, and original finding set aside, resulting in dismissal of applications with costs.

Comprehensive Summary

Summary of Judgment

Introduction

The matter concerned two related appeals arising from motion proceedings in the Gauteng Division of the High Court, Johannesburg. The appeals were heard by Mudau and Keightley JJ and Farber AJ (with Farber AJ delivering the judgment). The appeals lay against a single “composite” judgment of the court of first instance (Molahlehi J), which had heard two applications together because they involved substantially the same parties and overlapping subject matter.

In the first application (case number 7284/2021, referred to in the judgment as the Finrite application), the applicants were Finrite Administration (Pty) Ltd, Tigerwit Investments (Pty) Ltd, the trustees for the time being of the Ivory Trust, and three individuals associated with the relevant entities. The respondents were SA Madiba (Pty) Ltd and Mr Wessel Petrus van der Merwe. The principal relief sought was the setting aside, on alleged unlawfulness and misrepresentation, of a share sale agreement concluded on 5 January 2021 in terms of which the Ivory Trust sold 250 shares (25%) in Finrite to SA Madiba. Ancillary relief included restitution, transfer back of an earlier 5% shareholding transferred to SA Madiba, and a declaration of delinquency against Mr van der Merwe under the Companies Act.

In the second application (case number 8958/2021, referred to as the Tigerwit application), the applicants sought declarations and specific performance based on an alleged oral agreement concluded in October 2019, in terms of which Matsamo Capital (Pty) Ltd (associated with Mr Bhekisisa James Themba Shongwe) allegedly purchased the entire issued share capital of Tigerwit from SA Madiba for R1 000. The respondents included Mr van der Merwe and SA Madiba (among others). The two applications were opposed, but the court a quo granted final relief in both.

Leave to appeal was sought from and granted by the court a quo. The appeal court was required to assess whether the court a quo properly dealt with disputes of fact in motion proceedings and whether its factual findings and resultant orders could be sustained.

Material Facts

Finrite was established in 1993 and operated in financial administration. Since 2015 the Ivory Trust held the entire issued share capital of Finrite, having been formed to hold the Matthews family’s interest in the company. Ms Karin Matthews played a central role in the affairs of the Ivory Trust and, through it, in Finrite.

In July 2019 Mr van der Merwe (a chartered accountant and businessman, and the controlling mind of SA Madiba) was introduced to Ms Matthews. He became involved in advising her regarding the contemplated disposal of Finrite shares. Mr van der Merwe also had an existing relationship with Mr Shongwe, and prior to August 2019 they had discussed investment opportunities, including the possible acquisition by Matsamo (controlled by Mr Shongwe) of a shareholding in Tigerwit, whose entire issued share capital was at the time held by SA Madiba.

On 18 August 2019 Mr van der Merwe submitted a written offer to Ms Matthews for Tigerwit to acquire 51% of Finrite for R12 million. The offer and accompanying profile described Tigerwit as black owned and positioned it as a black empowerment partner for Finrite. On 19 August 2019 Mr van der Merwe resigned as a director of Tigerwit, and Mr Shongwe and others were appointed to its board.

On 14 October 2019 the Ivory Trust, Tigerwit, and Finrite concluded an agreement in terms of which Tigerwit acquired 51% of Finrite from the Ivory Trust for R12 million. As part of the broader transaction, the Ivory Trust transferred 50 shares (5%) in Finrite to SA Madiba as consideration for Mr van der Merwe’s advisory services in relation to the transaction. Finrite’s public communications thereafter reflected that it had become black majority-owned through the Tigerwit transaction. Mr Shongwe later became a director of Finrite (28 October 2019) and then executive chairman of its board (15 November 2019).

Subsequently, and importantly for the later disputes, Mr van der Merwe sent Mr Shongwe (on 21 November 2019) a suite of draft agreements dealing with, among other things, the sale by SA Madiba to Matsamo of Tigerwit’s entire issued share capital, the proposed price, governance arrangements, and an option structure. Those draft agreements contained terms materially different from the later version alleged by the applicants in the Tigerwit application to have been orally agreed earlier.

During 2020, a further shareholders’ agreement relating to Finrite was concluded between Tigerwit, SA Madiba and the Ivory Trust. It included a pre-emptive right clause (clause 7.2), requiring that any shareholder wishing to sell shares must first offer them to the other shareholders pro rata.

By the end of 2020 Ms Matthews indicated a desire to sell 25% of Finrite (250 shares) held by the Ivory Trust. Following discussions, on 5 January 2021 the Ivory Trust and SA Madiba concluded the impugned agreement for that sale. The next day Ms Matthews advised Mr Shongwe of the transaction, but later repudiated it, asserting she had been misled. Ms Matthews recorded in an email on 7 January 2021 that she regarded the transaction as null and void, would refund the deposit paid, and expressed concern that the valuation and process were prejudicial and potentially inconsistent with prior agreements.

The applicants’ attack on the impugned agreement relied substantially on alleged misrepresentation(s) associated with Tigerwit’s ownership and empowerment status, and on alleged non-compliance with the pre-emptive right mechanism in the shareholders’ agreement. Mr van der Merwe denied that the alleged representation induced the transaction, and advanced the version that Ms Matthews sought the sale primarily to raise funds (including for a house purchase), not because of empowerment considerations. He also denied the conclusion of the alleged oral agreement by which Matsamo purportedly acquired Tigerwit, asserting instead that agreements were drafted but never concluded.

The appeal court treated certain background facts as common cause or not seriously contestable (including the sequence of agreements and communications), but emphasised that core issues were disputed on the papers, including whether an oral agreement for the sale of Tigerwit was concluded and, correspondingly, whether the alleged representation that Tigerwit was black owned was false at the relevant time.

Legal Issues

The central legal questions were, first, whether the court a quo was entitled in motion proceedings to grant final relief despite the existence of disputes of fact on material issues, and in particular whether it correctly applied the principles governing disputes of fact under the Plascon-Evans approach and its recognised exceptions.

Second, in the Finrite application, the dispute required determination of whether the impugned share sale agreement was vitiated by misrepresentation, including whether any representation concerning Tigerwit’s black ownership was false and whether it induced Ms Matthews (on behalf of the Ivory Trust) to conclude the agreement. This was principally a question of the application of legal principles to contested facts, rather than a purely legal issue.

Third, in the Tigerwit application, the court was required to determine whether an oral agreement for the sale of the entire issued share capital of Tigerwit from SA Madiba to Matsamo was concluded in October 2019 and whether it was valid and enforceable. This was a factual enquiry (existence and terms of an agreement) with legal consequences, again arising within motion proceedings.

Fourth, the appeal court had to decide the appropriate appellate response where the court a quo allegedly failed to consider relevant factual matter when dealing with disputes of fact, and whether the appropriate remedy on appeal was dismissal of the applications (rather than referral to oral evidence or trial), given the procedural choices made by the applicants.

Court’s Reasoning

The appeal court restated the general principle that motion proceedings for final relief are intended to determine legal issues on common cause facts, not to resolve factual disputes by weighing probabilities. It reaffirmed that final relief may ordinarily be granted only if the facts in the applicant’s affidavits, admitted by the respondent, together with the respondent’s version, justify the order sought. It further reiterated that courts may reject a respondent’s version on the papers only in limited circumstances, such as where the denial is bald or demonstrably uncreditworthy, or where the respondent’s version is palpably implausible, far-fetched, or clearly untenable.

The appeal court emphasised that whether a genuine dispute of fact exists is a factual enquiry to be conducted on the evidence as a whole, and not a discretionary preference to prefer one version over another. The judgment highlighted that a court must consider the facts in their entirety when deciding whether it is justified in rejecting a respondent’s version; ignoring relevant factual material in that assessment constitutes a material irregularity capable of appellate interference.

In relation to the Finrite application, the court a quo had set aside the 5 January 2021 agreement on the basis that Mr van der Merwe fraudulently represented to Ms Matthews that Tigerwit was wholly black owned, and that this misrepresentation vitiated the contract and related transactions. The appeal court accepted that, as a matter of general background, Mr van der Merwe’s conduct and communications reflected repeated assertions to third parties that Tigerwit was black owned. However, the appeal court found that this did not resolve the decisive questions on the papers.

First, the appeal court held that Mr van der Merwe’s version raised a direct and material dispute about inducement: on his account, Ms Matthews’ decision to sell 25% of Finrite to SA Madiba was driven by a need for funding and was not causally connected to empowerment considerations or to the identity of Tigerwit’s ultimate shareholder. That dispute was not one that could properly be resolved against him on the papers in the manner the court a quo did.

Second, and more fundamentally, the appeal court reasoned that the alleged misrepresentation depended on whether Tigerwit was in fact black owned at the relevant time. That factual premise could not be safely determined in motion proceedings because there was a substantial dispute about whether Matsamo had acquired Tigerwit via the alleged oral agreement. If the oral agreement existed and was effective, Mr Shongwe’s asserted ownership structure might be true, which would undermine the allegation that the representation was false. The appeal court therefore concluded that, on the papers, the falsity of the representation and the alleged fraud were not established to the standard required for final relief. In that light, the restitution order and delinquency declaration, being premised on a factual finding of fraud, could not stand.

The appeal court also addressed the pre-emptive right complaint. It indicated that even if there were a pre-emptive mechanism, the ownership and control issues surrounding Tigerwit could affect who had authority to waive or exercise such rights. This reinforced, rather than dispelled, the conclusion that the matter involved material disputes not capable of final resolution in motion proceedings on the existing papers.

As to the separate relief concerning the return of the 50 shares (5%) earlier transferred to SA Madiba as consideration for transaction advisory services, the appeal court held that this aspect of the case was also problematic. It noted that no recognised cause of action for recovery of those shares had been properly formulated on the papers, and that there was a sharp dispute about what Mr van der Merwe was required to do as “transaction adviser” and whether he performed accordingly. This provided an additional reason why final relief of that kind was not justified on motion.

In relation to the Tigerwit application, the appeal court accepted that Mr van der Merwe’s post-2019 conduct—such as relinquishing directorship in Tigerwit, the operational role assumed by Mr Shongwe, and repeated outward representations consistent with Tigerwit being black owned—strongly supported the inference that an agreement transferring Tigerwit to Matsamo may have been concluded. The appeal court further recognised that parties’ conduct can be a significant indicator of whether an agreement exists and is binding, even where formal documents are later contemplated.

However, the appeal court held that this inference could not be treated as decisive in isolation because there was material countervailing evidence. Shortly after the alleged oral agreement, Mr van der Merwe sent draft agreements embodying terms materially different from those alleged by Mr Shongwe to have been orally agreed; and Mr Shongwe did not, on the correspondence reflected in the record, respond by asserting that a concluded agreement already existed and that the drafts were unnecessary or inconsistent. The appeal court considered that this interaction supported at least a plausible inference that the transaction remained under negotiation and that no final agreement had been reached. The appeal court also observed that Mr Shongwe’s account of the oral agreement (including context, circumstances, and timing) was tersely presented, creating further uncertainty that could not properly be resolved without oral evidence.

On that basis, the appeal court concluded that, notwithstanding a strong probability favouring the applicants’ version, Mr van der Merwe had raised a triable issue that could not be dismissed as contrived or fictitious. The dispute required oral evidence for proper resolution. Accordingly, the court a quo’s conclusion that there was no genuine dispute of fact was treated as involving a material misdirection, particularly because the court a quo failed to consider relevant facts (including the draft agreements and the implications of the parties’ reactions to them) when deciding whether the disputes were real.

Turning to appellate standards, the appeal court reiterated that it would not lightly interfere with factual findings, but that it may do so where there is a material misdirection going to the core of the decision. Because it found that the court a quo omitted to consider material facts in both applications when evaluating the disputes of fact, the appeal court held itself entitled to intervene and substitute its own outcome.

Finally, the appeal court addressed remedy. Although it accepted that the disputes could not be resolved without oral evidence, it nevertheless declined to refer the matters to trial or oral evidence. It reasoned that it should have been apparent to the applicants before launching the applications that core disputes of fact existed, yet they chose motion proceedings and persisted to argument on the papers without seeking referral. In those circumstances, the appeal court considered dismissal with costs to be the appropriate consequence.

Outcome and Relief

The appeals in relation to both applications (case numbers 7284/2021 and 8958/2021) were upheld. The orders of the court a quo were set aside and substituted in each instance with an order that the application is dismissed with costs.

The appellants were awarded the costs of appeal, including the costs consequent upon the engagement of two counsel.

Cases Cited

Plascon-Evans Paints Ltd v Van Riebeeck Paints [1984] ZASCA 51; 1984 (3) SA 623 (AD).

National Director of Public Prosecutions v Zuma 2009 (2) SA 279 (SCA).

South Coast Furnishers CC v Secprop 30 Investments (Pty) Ltd 2012 (3) SA 431 (KZP).

Peterson v Cuthbert & Co Ltd 1945 AD 420.

Truth Verification Testing Centre CC v PSE Truth Detection Centre CC 1998 (2) SA 689 (W).

Ripoll-Dausa v Middleton [2005] ZAWCHC 6; 2005 (3) SA 141 (C).

Administrator, Transvaal v Theletsane [1990] ZASCA 156; 1991 (2) SA 192 (AD).

Ismail v Durban City Council 1973 (2) SA 362 (N).

Unica Iron and Steel (Pty) Ltd and Another v Mirchandani 2016 (2) SA 307 (SCA).

Taljaard v Sentrale Raad Koöp Assuransie Bpk 1974 (2) SA 450 (AD).

Allie v Foodworld Stores Distribution Centre (Pty) Ltd 2004 (2) SA 433 (SCA).

Santam Bpk v Biddulph 2004 (5) SA 586 (SCA).

Legislation Cited

Broad-Based Black Economic Empowerment Act 53 of 2003 (as amended by Act 46 of 2013).

Companies Act 71 of 2008, section 162(2)(a) and section 162(2)(b)(i).

Rules of Court Cited

No specific rules of court were cited in the judgment.

Held

The appeal court held that the court a quo granted final relief in motion proceedings despite material disputes of fact on issues central to both applications, and that it did so after failing to consider relevant factual matter when assessing whether the disputes were genuine.

In the Finrite application, the appeal court held that the alleged fraudulent misrepresentation concerning Tigerwit’s black ownership and its causal role in inducing the impugned agreement were not established on the papers to justify final relief, particularly because ownership of Tigerwit could not safely be determined without resolving the disputed oral agreement issue.

In the Tigerwit application, the appeal court held that although the conduct relied upon by the applicants supported their version, the existence and terms of a binding oral agreement could not be finally determined on the papers because the draft agreements and the parties’ interaction raised a triable issue requiring oral evidence.

Given that the applicants had chosen motion proceedings despite foreseeable factual disputes and did not seek referral to trial or oral evidence, the appeal court held that the proper remedy was to dismiss both applications with costs, and it substituted the court a quo’s orders accordingly.

LEGAL PRINCIPLES

The judgment applied the principle that final relief in motion proceedings is ordinarily determined on the basis of common cause facts, and that under the Plascon-Evans rule final relief is justified only where the applicant’s admitted allegations together with the respondent’s version support the order sought.

It reaffirmed that a respondent’s version may be rejected on the papers only in limited circumstances, including where denials are bald or uncreditworthy, or where the version advanced is palpably implausible, far-fetched, or clearly untenable. A mere dispute of fact is not avoided simply because the applicant’s version appears more probable; motion proceedings are not designed to resolve probabilities where material factual disputes exist.

The judgment emphasised that whether a genuine dispute of fact exists is a factual enquiry to be decided on a conspectus of the evidence as a whole, and not a discretionary choice. It further applied the principle that a court assessing whether disputes are genuine must consider the material facts in their entirety; failure to take relevant and material factual matter into account in that evaluation constitutes a material misdirection.

On appellate intervention, the judgment applied the principle that while appellate courts are slow to interfere with factual findings, they may do so where a material misdirection affects the core findings, in which event the appellate court may substitute its own decision.

Finally, the judgment applied the procedural principle that where applicants choose motion proceedings for final relief in the face of foreseeable and proclaimed disputes of fact, and persist without seeking referral to oral evidence or trial, dismissal (rather than referral) may be the appropriate remedy, with costs following the result.

SA Madiba (Pty) Ltd and Another v Finrite Administration (Pty) Ltd and Others (A5029/2022) [2023] ZAGPJHC 716 (15 June 2023)