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[2013] ZASCA 57
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Grancy Property Ltd v Manala and Others (665/12) [2013] ZASCA 57; [2013] 3 All SA 111 (SCA); 2015 (3) SA 313 (SCA) (10 May 2013)
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THE SUPREME COURT OF APPEAL OF
SOUTH AFRICA
JUDGMENT
Case
No: 665/12
Reportable
In
the matter between:
GRANCY
PROPERTY LIMITED
............................................................................
APPELLANT
and
LANCELOT
LENONO MANALA
.............................................................
FIRST
RESPONDENT
SEENA
MARENA INVESTMENTS (PTY) LTD
..................................
SECOND
RESPONDENT
DINES
CHANDRA MANILAL GIHWALA NO
.........................................
THIRD
RESPONDENT
SHANTI
GIHWALA NO
.......................................................................
FOURTH
RESPONDENT
KANTIELAL
JERAM PATEL NO
............................................................
FIFTH
RESPONDENT
NARENDRA
GIHWALA NO
....................................................................
SIXTH
RESPONDENT
KIRAN
GIHWALA NO
.......................................................................
SEVENTH
RESPONDENT
Neutral
citation:
Grancy Property Limited v Manala
(665/12)
[2013]
ZASCA 57
(10 May 2013).
Coram:
Mthiyane DP, Nugent, Lewis, Tshiqi and Petse JJA
Heard:
18 March 2013
Delivered:
10 May 2013
Summary:
Company law ─
Section 163
of the
Companies Act 71 of 2008
─
exercise of court’s discretion to grant relief from oppressive
or prejudicial or abusive conduct ─ court enjoying
wide
latitude in the exercise of its discretion under
s 163.
________________________________________________________________
ORDER
________________________________________________________________
On appeal from:
Western Cape
High Court (Henney J sitting as court of first instance):
1 The appeal is upheld with costs
including the costs of two counsel.
2 The order of the court below is set
aside and in its stead is substituted the following:
‘
1 It is
ordered in terms of
s 163(2)(f)(i)
of the
Companies Act 71 of 2008
that:
1.1 Mr B J Manca SC, a senior advocate
practising at the Cape Bar, and Mr Louis Strydom, a senior
Chartered Accountant (SA)
of Pricewaterhouse Coopers Inc, are
appointed independent directors of Seena Marena Investments (Pty)
Ltd.
2 The independent directors appointed
in terms of paragraph 1.1 of this order shall have the sole right, in
their absolute discretion,
to the exclusion of any other directors
nominated by the shareholders of Seena Marena Investments (Pty) Ltd,
to determine whether
an investigation into the affairs of Seena
Marena Investments (Pty) Ltd, in the light of the complaints made on
behalf of Grancy
Property Limited, is necessary and if so to conduct
such an investigation.
3 The said independent directors may
not be removed as directors save by a unanimous vote of the
shareholders of Seena Marena Investments
(Pty) Ltd or an order of the
high court, having jurisdiction.
4 The independent directors shall
constitute the Board of Directors of Seena Marena Investments (Pty)
Ltd together with such directors
as each of the shareholders may
appoint to the Board save that each shareholder shall be entitled to
appoint only one director.
5 The directors are to receive such
reasonable remuneration as determined by the Head of the Legal
Department at Deloitte &
Touche at Woodlands Drive, Woodmead,
South Africa.
6 This order shall operate pending the
finalisation of the action proceedings pending in the Western Cape
High Court under case
no 12193/11 in the matter between
Grancy
Property Limited & another v Dines Chandra Manilal Gihwala &
others
unless the Western Cape High Court determines otherwise.
7 The first and third to seventh
respondents are ordered to pay the costs of this application jointly
and severally, the one paying
the others to be absolved, including
the costs of two counsel.’
________________________________________________________________
JUDGMENT
________________________________________________________________
PETSE JA (
Mthiyane
DP, Nugent, Lewis, Tshiqi JJA
concurring):
[1] This appeal is concerned with one
of several legal wrangles which have occurred during what appears to
be the somewhat tortuous
journey of the litigation involving the same
parties in the court below. It emanates from one of a number of
interlocutory applications
in interrelated proceedings instituted in
the court below. The pending main action, to which the application
now on appeal in this
court is said to be incidental, was instituted
by the appellant, Grancy Property Limited (Grancy), as the first
plaintiff, against
the respondents on 17 June 2011 in which
wide-ranging relief is claimed.
[2] The principal issue on appeal is
whether Grancy had made out a case ─ on the facts presented by
it in the court below
against the respondents ─ entitling it to
relief under
s 163(2)(f)(i)
of the
Companies Act 71 of 2008
. More
particularly the appellant made multiple allegations of malfeasance
and moral turpitude against the first respondent, Lancelot
Lenono
Manala and the third respondent, Dines Chandra Manilal Gihwala in
their capacities as directors of Seena Marena Investments
(Pty) Ltd
(SMI).
[3] It is necessary to set out a brief
narrative of certain facts and circumstances giving rise to the
litigation, which bear on
the questions to be decided in this appeal,
as they emerge from the record.
[4] On 28 September 2011 Grancy
brought an urgent interlocutory application under rules 6(11) and
(12) of the Uniform Rules of Court
in the Western Cape High Court
seeking an order for, inter alia, the appointment of what it
described as ‘objective and independent’
directors for
SMI. The one director was to be appointed by the Chairperson of the
Cape Bar Council from the ranks of senior advocates
practising in the
field of corporate law. The other director, a senior Chartered
Accountant and registered Auditor, was to be appointed
by the Chief
Executive Officer of the Independent Regulatory Board for Auditors.
[5] The relief sought ─ which
was characterised as interim
1
in nature ─ was intended to
operate until either confirmed or discharged at the trial of the
action proceedings instituted
by Grancy against the respondents which
are pending in the court below. We were informed at the hearing of
this appeal that the
trial is imminent.
[6] In its application, Grancy
essentially sought an order compelling Manala and Gihwala who are
majority shareholders in SMI to
undertake certain defined acts to
appoint two independent directors who would constitute the Board of
Directors of SMI. Once appointed
these directors would, over and
above their routine responsibilities, also investigate the affairs of
SMI from 2005 (which is when
Grancy became a minority shareholder of
SMI) to date. Grancy predicated its case upon allegations of
misconduct against Manala
and Gihwala which, inter alia, entailed
alleged breaches of fiduciary obligations, misappropriation and
misuse of assets, misrepresentations,
fraud, unauthorised use of
company funds and denying Grancy its entitlements as a shareholder of
SMI.
[7] Both Manala and Gihwala were
appointed directors of SMI in June 2003 until they resigned from
their directorships on 28 February
2011 and 18 September 2011
respectively. SMI was incorporated as a special purpose vehicle with
the sole purpose of channelling
investment in Spearhead Property
Holdings Ltd (Spearhead) to be made by Manala, Gihwala, Dines Gihwala
Family Trust (DGFT), Montague
Goldsmith AG in liquidation (MG) and
Grancy. The proceeds derived from investments made in Spearhead for
the benefit of SMI’s
shareholders would be paid as dividends to
SMI’s shareholders in proportion to their respective
contributions to the acquisition
costs once any profits on the
investment were realised by SMI.
[8] In its main founding affidavit
(deposed to by Karim Issa Mawji) Grancy elaborated on its allegations
of unfair and prejudicial
conduct on the part of Manala and Gihwala
against it as follows:
’
31.
In January 2010, Grancy and MG instituted the 2010 action proceedings
against,
inter
alios
,
Manala, Gihwala and SMI to recover various amounts that are owing to
Grancy and MG under the Agreement.
.
. .
32.
In the 2010 action proceedings, Grancy and MG set forth,
inter
alia
, the following
conduct by Manala, Gihwala, the DGFT and SMI (acting on the
directions of Manala and Gihwala):
32.1
breaches of numerous contractual and/or fiduciary obligations
contained in the Agreement and imposed by law;
32.2
unlawful preference by Manala and Gihwala of the DGFT and Manala as
creditors above Grancy;
32.3
misappropriation, by Gihwala and Manala, of funds from Ngatana which
were destined to SMI and its shareholders, including Grancy;
32.4
acting in bad faith and with the fraudulent intention to deceive and
prejudice Grancy and MG; and
32.5
carrying on the business of SMI, for the purposes of s 424(1) of the
Companies Act, 1973 (“the 1973 Companies Act”),
with the
intent to defraud creditors,
alternatively
recklessly.
.
. .
36.
In October 2010, Manala and Gihwala, in their capacities as directors
of SMI, circulated a “draft” copy of SMI’s
annual
financial statements for the year ended 28 February 2010; further
“
draft[s]
”
of these financial statements
were circulated in January and February 2011 (collectively, “the
2010 financial statements”).
.
. .
37.
All three versions of the 2010 financial statements reveal numerous,
serious ethical breaches, and civil and criminal wrongs
having been
committed by Manala, Gihwala, the DGFT and SMI (acting on the
directions of Manala and Gihwala), including theft, fraud
and
multiple statutory and fiduciary breaches.
38.
These breaches and wrongs include the:
38.1
unauthorised and unlawful payment of directors’ remuneration to
Manala and Gihwala in the amount of R5, 500, 000.00 for
the 2010
financial year (“the Directors’ remuneration”);
38.2
unauthorised and unlawful payment of fees in the amount of R1, 114,
539.00 to Manala and Gihwala, purportedly for “
providing
suretyship[s]
”
on
behalf of SMI (“the Suretyship fees”);
38.3
unauthorised and unlawful payment of an amount of R2, 898, 145.00 to
Manala;
38.4
unauthorised and unlawful payment of an amount of R101, 529.00 to Mr
Hyman Bruk and Bruk Munkes & Co (“the Auditors”),
as
“
Auditors’
remuneration
”
;
.
. .
41.
In effect, Gihwala and Manala have transferred funds out of SMI to
themselves when these funds should have been transferred,
by way of
dividends, to the three shareholders. The party who has been excluded
and thus . . . unfairly disregarded is Grancy.
Manala and Gihwala . .
. have consistently preferred themselves and DGFT above the interests
of Grancy as a minority shareholder.’
[9] Following the resignation of
Manala and Gihwala as directors of SMI the latter was left without
directors. This state of affairs
prompted Grancy to invite Manala and
the DGFT, as shareholders in SMI, to consent to a mechanism in terms
of which the appointment
of two independent directors to the board of
SMI could be made. This invitation elicited no response from Manala
and Gihwala representing
the DGFT. This in turn precipitated the
application mentioned above in the court below which is now on appeal
in this court.
[10] The court below (Henney J)
dismissed the application with costs. It subsequently granted leave
to appeal to this court. In
dismissing the application the learned
judge essentially approached the matter along the following lines.
First, he found that
Grancy had not made out a case for the relief it
sought. In this regard he reasoned that: (a) it was not enough for
Grancy to base
its case ‘squarely’ on the same
allegations which are the foundation for its claims in the action
proceedings; (b)
that serious doubt was cast upon the case of Grancy
since Manala, Gihwala and the Dines Gihwala Family Trust had
satisfactorily
refuted the allegations of impropriety made against
them; and (c) that Manala and Gihwala had relinquished their
directorships;
offered Grancy the right to institute an independent
forensic investigation into the affairs of SMI at its cost; Gihwala
had repaid
the disputed director’s remuneration whilst Manala
asserted that he was entitled to the remuneration paid to him; the
fact
that Manala and Gihwala had offered Grancy a right to appoint
two directors notwithstanding that clause 107 of SMI’s articles
of association accords Grancy a right to nominate one director only.
[11] Second, the high court found that
Grancy contented itself with presenting evidence of past
infringements only and thus failed
to establish a well-grounded
apprehension of irreparable harm. Third, it found that in any event
Grancy had another satisfactory
alternative remedy available to it,
namely its right to nominate someone for appointment as a director of
SMI. I shall return to
these grounds later in this judgment.
[12] It is apposite at this stage to
mention that Grancy’s application in the court below was
resisted on a number of grounds.
First, it was contended that the
relief sought by Grancy was not of an interim nature but was final in
effect. It was thus contended
that Grancy was required to satisfy the
test for final relief on motion which it had failed to do. Second,
that Grancy had, contrary
to the prescripts of s 163(2)(f)(i) of
the Act, sought that the court below delegate its powers to appoint
directors to third
parties and also to impose obligations on such
directors. Third, that Grancy had satisfactory alternative remedies
at its disposal
that it could have pursued before approaching the
court below for relief. Fourth, that the denials on the papers by
Manala and
Gihwala of the allegations of impropriety imputed to them
by Grancy created a genuine dispute of fact that rendered the matter
incapable of resolution on the papers. Fifth, that the application
was in any event not urgent.
[13] The foregoing grounds were
persisted in on appeal in this court. For reasons that will become
apparent later in this judgment
it is, in my view, unnecessary to
traverse all the grounds advanced by Manala and Gihwala in resisting
the grant of the relief
sought by Grancy nor all of the findings of
the court below.
[14] As I have mentioned, the final
fate of the relief sought by Grancy in the court below, if granted,
will be determined at the
trial of the action instituted by Grancy
against, inter alios, Manala, DGFT and Gihwala. In that pending
action, allegations of
malfeasance are made which are denied. More
particularly it is alleged that: (a) the 2010 financial statements of
SMI reveal ethical
breaches and various wrongs perpetrated by Manala
and Gihwala as directors of SMI. These wrongs entail alleged
unauthorised and
unlawful payments of directors’ remuneration,
suretyship fees, a payment of R2 898 145 to Manala and payment
of R101
529 to SMI’s auditors.
[15] In considering the approach of
the court below to the matter, one should not lose sight of what
Grancy sought to achieve when
it instituted its so-called
interlocutory application. The sole purpose of that application, as
Mr Hodes, who appeared together
with Mr McNally for the appellant,
contended in argument before us, was to arrest the continuation of
the oppressive and unfairly
prejudicial conduct that unfairly
disregarded the interests of Grancy as a minority shareholder in SMI
perpetrated by Manala and
Gihwala. This would be achieved by the
court itself appointing directors either in place of or in addition
to those directors in
office to ensure that SMI was not exposed to
further risks.
[16] To my mind, we must determine
whether Grancy had made out a case entitling it to relief under s 163
of the Act.
[17] It was submitted on behalf of
Grancy that its averments in its various affidavits established, at
the very least on a prima
facie basis, that: (a) Manala and Gihwala
abused their powers as directors and shareholders of SMI; (b)
consistently acted in a
manner that was oppressive and unfairly
prejudicial to Grancy; and (c) their decisions and actions as
directors and shareholders
of SMI manifested a complete and unfair
disregard for the interests of Grancy and SMI, serving exclusively
their own interests.
The cumulative effect of these factors warrant,
concluded the argument, the court’s intervention to appoint
independent and
objective directors not only to oversee SMI’s
financial and corporate affairs but also to investigate such affairs
so as
to unravel the extent of the malfeasance complained of by
Grancy.
[18] Grancy’s averments are,
unsurprisingly, denied by Manala and Gihwala on whose behalf it was
submitted that such denials
cast a shadow of doubt thereon. Mr Hodes
sought to meet this argument by submitting that Manala and Gihwala
have contented
themselves with bare denials of Grancy’s factual
allegations. Thus, so went the argument, such denials come nowhere
close
to creating a dispute of fact and are consequently no bar to
the grant of the relief sought by Grancy. This is particularly so,
it
was argued, if regard is had to the fact that: (a) the payment of
R5,5 million to Manala and Gihwala as directors’ remuneration;
R1 114 539 million to Manala and Gihwala supposedly in respect of
suretyship fees; R2 898 145 million to Manala; and the resolution
to
pay Manala R15 000 per month are all not seriously disputed; (b)
the report made by SMI’s auditors to the Independent
Regulatory
Board for Auditors reporting on grave irregularities committed by
Manala and Gihwala in conducting SMI’s corporate
affairs which
has not been gainsaid; and (c) both Manala and Gihwala persist in
their assertions that they were entitled to the
various amounts paid
to themselves.
[19] It is apposite at this juncture
to deal with the contention of the respondents’ counsel that
the denials of the appellant’s
allegations by Manala and
Gihwala are not of such a nature that a court would be justified in
rejecting their evidence on the papers.
For this contention counsel
called in aid the often cited judgment of
Plascon-Evans
Paints Ltd v Van Riebeeck Paints (Pty) Ltd
.
2
As I have already said, counsel for
the appellant countered this contention by arguing that the
respondents contented themselves
with bare denials without refuting
the substance of the allegations in the appellant’s affidavits.
It seems to me that the
proper approach to a situation such as the
one that has arisen in this case is that re-stated in
Wightman
t/a JW Construction v Headfour (Pty) Ltd
[2008] ZASCA 6
;
2008
(3) SA 371
(SCA) in which the following was stated (para 13):
‘
A
real, genuine and bona fide
dispute
of fact can exist only where the court is satisfied that the party
who purports to raise the dispute has in his affidavit
seriously and
unambiguously addressed the fact said to be disputed. There will of
course be instances where a bare denial meets
the requirement because
there is no other way open to the disputing party and nothing more
can therefore be expected of him. But
even that may not be sufficient
if the fact averred lies purely within the knowledge of the averring
party and no basis is laid
for disputing the veracity or accuracy of
the averment. When the facts averred are such that the disputing
party must necessarily
possess knowledge of them and be able to
provide an answer (or countervailing evidence) if they be not true or
accurate but, instead
of doing so, rests his case on a bare or
ambiguous denial the court will generally have difficulty in finding
that the test is
satisfied. I say ‘generally’ because
factual averments seldom stand apart from a broader matrix of
circumstances all
of which needs to be borne in mind when arriving at
a decision. A litigant may not necessarily recognise or understand
the nuances
of a bare or general denial as against a real attempt to
grapple with all relevant factual allegations made by the other
party.
But when he signs the answering affidavit, he commits himself
to its contents, inadequate as they may be, and will only in
exceptional
circumstances be permitted to disavow them. There is thus
a serious duty imposed upon a legal adviser who settles an answering
affidavit to ascertain and engage with facts which his client
disputes and to reflect such disputes fully and accurately in the
answering affidavit. If that does not happen it should come as no
surprise that the court takes a robust view of the matter.’
[20] In my view
Grancy’s submissions that the denials of Manala and Gihwala do
not constitute real disputes of fact, at least
in relation to the
payment of the amounts mentioned in para 18 above, are correct.
Accordingly, to the extent that the court below
approached the matter
on the basis that the versions of Manala and Gihwala on this score
sufficiently cast a shadow of doubt on
Grancy’s version, it
erred. As I see it the record reveals that the versions of Manala and
Gihwala did not appropriately
answer the central case made by Grancy
but sought to ‘envelope [their case] in a fog which hides or
distorts the reality’.
3
The
reality is that there is no serious dispute in relation to the
amounts mentioned in para 18 above nor the irregularities reported
on
by SMI’s auditors. Indeed Mr Slon, who appeared for Manala, was
constrained to concede as much.
[21] In my view,
as I have said, the central issue for determination is whether or not
Grancy has made out a case for the relief
it sought in its
application in the court below. As alluded to earlier, Grancy’s
case is founded on s 163 of the Act. Section
163 of the Act provides
a shareholder (which is what Grancy is) with a remedy against any
oppressive or unfairly prejudicial acts
or omissions of a company or
related person that unfairly disregard the interests of a party such
as Grancy. It provides:
‘
(1)
A shareholder or a director of a company may apply to a court for
relief if-
(a)
any
act or omission of the company, or a related person, has had a result
that is oppressive or unfairly prejudicial to, or that
unfairly
disregards the interests of, the applicant;
(b)
the
business of the company, or a related person, is being or has been
carried on or conducted in a manner that is oppressive or
unfairly
prejudicial to, or that unfairly disregards the interests of, the
applicant; or
(c)
the
powers of a director or prescribed officer of the company, or a
person related to the company, are being or have been exercised
in a
manner that is oppressive or unfairly prejudicial to, or that
unfairly disregards the interests of, the applicant.
(2)
Upon considering an application in terms of subsection (1), the court
may make
any
interim or final order it considers fit, including-
(a)
an order restraining the conduct complained of;
.
. .
(f)
an order-
(i)
appointing directors in place of or in addition to all or any of
the directors then in office
; or
(ii)
declaring any person delinquent or under probation, as contemplated
in section 162;
.
. .
(l)
an
order for the trial of any issue as determined by the court.’
(My emphasis.)
[22] There is a
substantial body of case law on the import of s 252 of the Companies
Act 61 of 1973, which, in material respects,
is the previous
equivalent of s 163 of the Act. In my view there is a benefit to be
derived from considering the jurisprudence
developed over the years
as to what constitutes oppressive or unfairly prejudicial conduct. To
determine the meaning of the concept
of ‘oppressive’ in s
163 it is apposite to refer to
Aspek
Pipe Co (Pty) Ltd v Mauerberger
1968
(1) SA 517
(C) which held (at 525H-526E):
‘
I
turn next to a consideration of what is meant by conduct which is
“oppressive”, as that word is used in sec. 111
bis
or
sec. 210 of the English Act. Many definitions of the word in the
context of the section have been laid down in decisions both
of our
Courts and in England and Scotland and as I feel that a proper
appreciation of what was intended by the Legislature in affording
relief to shareholders who complain that the affairs of a company are
being conducted in a manner “oppressive” to them
is basic
to the issue which presently lies for decision by me, it is necessary
to attempt to extract from such definitions a formulation
of such
intention. “Oppressive” conduct has been defined as
“unjust or harsh or tyrannical” . . . or “burdensome,
harsh and wrongful” . . . or which “involves at least an
element of lack of probity or fair dealing” . . . or
“
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” . . . It
will be readily appreciated that these various definitions
represent
widely divergent concepts of “oppressive” conduct.
Conduct which is “tyrannical” is obviously
notionally
completely different from conduct which is “a violation of the
conditions of fair play”.
.
. .
“
[T]yrannical”
conduct represents a higher degree of oppression than conduct which
is “harsh” or “unjust”.
The
Shorter Oxford Dictionary
defines
“tyrannical” as “severely oppressive; despotically
harsh or cruel”. For reasons which I shall now
set out I do not
think it is necessary for an applicant to have to go to the lengths
of establishing conduct of such a nature before
he is entitled to
relief under sec. 111
bis
.’
(Citations omitted.)
[23] There is also
the decision of the House of Lords in
Scottish
Co-operative Wholesale Society Ltd v Meyer
[1959]
A 324 HL at 342 which is to the effect that the concept of
‘oppressive’ denotes conduct that is ‘burdensome,
harsh and wrongful’ and that such conduct would include lack of
probity or good faith and fair dealing in the affairs of
a company to
the prejudice of some portion of its members.
[24] The next case
to which I wish to refer is
Garden
Province Investment v Aleph (Pty) Ltd
1979
(2) SA 525
(D) at 531 where Friedman J said:
‘
It
seems to me that a minority shareholder seeking to invoke the
provisions of s 252(1) of the Companies Act must establish not
only
that a particular act or omission of a company results in a state of
affairs which is unfairly prejudicial, unjust or inequitable
to him,
but that the particular act or omission itself was one which was
unfair or unjust or inequitable. Similarly, looking at
the second
part of the section, where the complaint relates to the manner of
conduct of the business, it is the manner in
which the affairs
have been conducted as well as the result of the conduct of the
business in that manner which must be shown to
be unfairly
prejudicial, unjust or inequitable. In the Afrikaans version the word
"unfairly" is translated as "onredelike"
and in
point of fact it was the Afrikaans version of the Act which was
signed. The word "unfairly", therefore, whether
it
qualifies only the word "prejudicial" or whether it
qualifies the words "prejudicial, unjust or inequitable"
means therefore "unfairly" in the sense of "unreasonably",
and it seems to me that the use of the word "unfairly"
in
this sense in the section fortifies my belief that the section
relates both to the manner and nature of the conduct as well
as to
the results or effect of that conduct. When one looks at the second
part of the section it is stated explicitly that the
manner in which
the affairs of the company are being conducted must be shown to be
unfairly prejudicial, unjust or inequitable.
This conclusion seems to
me also to be consistent with what has been said on a number of
occasions with regard to the predecessor
of this section, namely the
previous s 111
bis
.’
[25] In
Louw
v Nel
2011
(2) SA 172
(SCA) this court said the following (para 23):
‘
The
combined effect of ss (1) and (3) is to empower the court to make
such order as it thinks fit for the giving of relief,
if it is
satisfied that the affairs of the company are being conducted in a
manner that is unfairly prejudicial to the interests
of a dissident
minority. The conduct of the minority may thus become material in at
least the following two obvious ways. First,
it may render the
conduct of the majority, even though prejudicial to the
minority, not unfair. Second, even though the conduct
of the majority
may be both prejudicial and unfair, the conduct of the minority may
nevertheless affect the relief that a court
thinks fit to grant under
ss 3. An applicant for relief under s 252 cannot content himself or
herself with a number of vague and
rather general allegations, but
must establish the following: that the particular act or omission
has been committed, or
that the affairs of the company are
being conducted in the manner alleged, and that such act or omission
or conduct of the company's
affairs is unfairly prejudicial, unjust
or inequitable to him or some part of the members of the company; the
nature of the relief
that must be granted to bring to an end the
matters complained of; and that it is just and equitable that
such relief be granted.
Thus, the court's jurisdiction to make an
order does not arise until the specified statutory criteria have been
satisfied.’
(Citations omitted.)
[26] According to Professor FHI Cassim
et al
4
the extensive nature of the remedy for
which s 163 provides is underscored by the inclusion of the element
of unfair disregard of
the applicant’s interests. I agree with
this view for it derives support from a judgment of this court in
Utopia Vakansie-Oorde Bpk v
Du Plessis
1974 (3) SA 148
(A) at 170H-171D where it was stated that the concept of ‘interests’
(in the context of s 62
quat
(4) of the 1926 Companies Act) is much
wider than the concept of ‘rights’. Accordingly there is
much to be said for
the proposition that s 163 must be construed in a
manner that will advance the remedy that it provides rather than
limit it.
[27] In concluding on this particular
aspect of the case it bears mention that in determining whether the
conduct complained of
is oppressive, unfairly prejudicial or unfairly
disregards the interests of Grancy it is not the motive for the
conduct complained
of that the court must look at but the conduct
itself and the effect which it has on the other members of the
company (see eg
Livanos v
Swartzberg & others
1962
(4) SA 395
(W) at 399).
[28] Against that backdrop I return to
the facts of this case. It was submitted on behalf of Grancy that the
court below, in coming
to the conclusion that Grancy had not
established that Manala and Gihwala had, by their conduct, unfairly
disregarded its interests,
glossed over and failed to have regard to
several factors which are manifestly prejudicial to the respondents’
case. These
factors were: (a) the report made by SMI’s auditors
to the Independent Regulatory Board for Auditors detailing some of
the
respondents’ unlawful and prejudicial conduct; (b) the
admission by Manala and Gihwala that they paid themselves R5,5
million
supposedly as directors’ remuneration; (c) the
admission by the respondents that R2 898 145 million was paid to
Manala without
any lawful basis for such payment; (d) the admission
by the respondents that SMI’s financial statements contained
errors
despite the respondents’ attempt to downplay the
significance of such errors; and the respondents’ failure to
proffer
any plausible explanation as to the basis for paying to
Manala and Gihwala substantial amounts in respect of directors’
fees,
suretyship fees and a payment of R2 898 145 to Manala
regard being had to the fact that SMI’s sole purpose was to
invest
in Spearhead.
[29] In giving consideration to these
contentions it is convenient to commence by referring to the case of
Bader v Weston
1967
(1) SA 134
(C). There Corbett J dealt with an analogous situation
under s 111
bis
of the Companies Act of 1926 which
provided a remedy to a minority shareholder who is unfairly
prejudiced as a result of the conduct
of the majority shareholders.
The learned judge found (at 147E) that:
‘
The
words “such order as it thinks fit” are of wide import.’
[30] In dealing with s 252 of the
Companies Act 61 of 1973 in
Louw
v Nel
2011 (2) SA 172
(SCA)
this court recognised that its [s 252] objective was ‘to
empower the court to make such order as it thinks fit for
the giving
of the relief, if it is satisfied that the affairs of the company are
being conducted in a manner that is unfairly prejudicial
to the
interests of a dissident minority’.
[31] Professor
FHI Cassim
et
al
in
Contemporary
Company Law
2
ed (2012) at 769-775 have expressed the view that the provisions of s
163 of the Act are of wide import and constitute a flexible
mechanism
for the protection of a minority shareholder from oppressive or
prejudicial conduct. The authors also consider that the
list of
orders that a court may make under s 163(2) is non-exhaustive and
open-ended. The latter is of course clear from subsection
(2) itself
which provides that a court may make any interim or final order it
considers fit including a variety of orders listed
in (a) to (l)
thereof such as, in the context of this case, ‘an order for the
trial of any issue as determined by the court’.
[32] But MS
Blackman in
Commentary
on the Companies Act
vol
2 (2002) at 9-4 cautioned that:
‘
The
very wide jurisdiction and discretion [s 252] confers on the court
must, however, be carefully controlled in order to prevent
the
section from itself being used as a means of oppression.’
Dealing with the
wide ambit of s 163 of the Act, Cassim
et
al
make
the telling point that (p771-772):
‘
Despite
the wide ambit of s 163, it must be borne in mind that the conduct of
the majority shareholders must be evaluated in light
of the
fundamental corporate law principle that, by becoming a shareholder,
one undertakes to be bound by the decisions of the
majority
shareholders.
5
.
. . Thus not all acts which prejudicially affect shareholders or
directors, or which disregard their interests, will entitle them
to
relief ─ it must be shown that the “conduct” is not
only prejudicial or disregardful but also that it is
unfairly
so.’
[33] The principal argument advanced
by the respondents in resisting the appeal is four-fold. First, the
respondents submitted that
although the relief sought by Grancy was
intended to be of limited duration its effect would be final.
Consequently Grancy was
required to satisfy the requisite threshold
of proof for final relief on motion which it failed to meet.
Second, that s 163(2)(f)(i)
contemplates that it is
the court itself which should appoint directors and not third parties
to whom the court has delegated that
power. Third, the application
was not urgent and that in any event Grancy did not meet the
requirements for urgency. Fourth, the
application was entirely
unnecessary as Grancy had other satisfactory alternative remedies
available to it.
[34] I do not
find it necessary to traverse all of the contentions advanced by the
respondents. Suffice it to say that as I have
already mentioned in
para 16 above, as I see it the real issue is whether Grancy has made
out a case for the relief it sought in
the court below. As far as the
nature of the relief sought by Grancy is concerned, even accepting
that the order is final in effect,
the undisputed facts alleged by
Grancy, together with the facts alleged by the respondents, which is
the test to be applied in
such cases as laid down by
Plascon-Evans
,
Grancy is entitled to such relief. As to the lack of urgency
contended for, it must be said that there is nothing to be made of
that fact in this court as the court below chose to deal with the
merits of the application and thereafter dismissed it.
6
Thus the
real question before us now is whether the application should have
been dismissed.
[35] This then
brings me to the questions whether Grancy has established conduct of
the nature contemplated in s 163 of the Act
and whether the relief
that it seeks has been properly formulated on the papers.
7
I have
already dealt above with the allegations made by Grancy against the
respondents. Both Manala and Gihwala dispute Grancy’s
entitlement to any relief. It is, however, manifest from the record
that neither the payments made by them to themselves which
Grancy
claims constituted a diversion of moneys destined for SMI (and thus
the ultimate benefit of all its shareholders) nor the
irregularities
reported on by SMI’s internal auditors are in dispute.
Accordingly in the circumstances of this case Grancy’s
assertions against Manala and Gihwala have to be accepted as correct.
To my mind not only is the respondents’ evidence on
this score
untenable but its shortcomings are exacerbated by the absence of a
cogent explanation as to why such payments were made
in the first
place.
[36] Moreover
the record reveals that the legitimacy of the payments that Manala
and Gihwala made to themselves has always been
contested by Grancy.
Yet there seems to have been no demonstrable attempt by Manala and
Gihwala to meaningfully address Grancy’s
protestations
concerning those contested payments.
8
This is
borne out by the fact that Grancy was compelled, more than once, to
resort to litigation to assert its rights. Consequently,
those
undisputed facts as have emerged from the record warrant, in my view,
an in-depth investigation by objective and independent
directors
9
and
depending on the outcome of such investigation it may be necessary
that the trial court in the pending main action make a final
determination on such issues. Put differently, these contentious
payments in themselves justify the grant of the relief sought
by
Grancy.
[37] Both in the written heads of
argument and their oral submission counsel for Grancy persisted in
their contention that the two
independent and objective directors
should constitute SMI’s Board to the exclusion of any other
directors that SMI’s
shareholders would otherwise be entitled
to nominate under clause 105 of SMI’s articles of association.
The foundation for
Grancy’s contention in this regard was that
between them, Manala and the DGFT were entitled to nominate four
directors who
would then constitute a majority on the Board. Thus,
concluded the argument, those directors could potentially use their
position
as the majority to undermine anything that the two
independent and objective directors might consider best served SMI’s
corporate
interests.
[38] To my mind it is only fair that
all of SMI’s shareholders should be allowed the right to
nominate one director who would
serve on the Board in collaboration
with the two independent and objective directors appointed by this
court. But given that we
are satisfied that Grancy has made out a
case under s 163 of the Act, care must be taken to ensure that the
directors appointed
by this court are not hamstrung in their task in
determining whether or not there has been any malfeasance concerning
SMI’s
corporate affairs. Thus it will be necessary to put
measures in place to ensure that the two independent directors are
free to
undertake their task without let or hindrance by
incorporating an appropriate provision in this court’s order.
[39] For all the foregoing reasons I
am satisfied that the court below erred in holding that Grancy failed
to make out a case for
the relief it sought in its application. The
totality of the allegations made in Grancy’s affidavits is,
despite denials
by Manala and Gihwala, such as to make a compelling
call for this court to come to Grancy’s assistance by
exercising its
discretion in Grancy’s favour substantially in
the terms prayed.
[40] In the result the following order
is made:
1 The appeal is upheld with costs
including the costs of two counsel.
2 The order of the court below is set
aside and in its stead is substituted the following:
‘
1 It is
ordered in terms of
s 163(2)(f)(i)
of the
Companies Act 71 of 2008
that:
1.1 Mr B J Manca SC, a senior advocate
practising at the Cape Bar, and Mr Louis Strydom, a senior
Chartered Accountant (SA)
of Pricewaterhouse Coopers Inc, are
appointed independent directors of Seena Marena Investments (Pty)
Ltd.
2 The independent directors appointed
in terms of paragraph 1.1 of this order shall have the sole right, in
their absolute discretion,
to the exclusion of any other directors
nominated by the shareholders of Seena Marena Investments (Pty) Ltd,
to determine whether
an investigation into the affairs of Seena
Marena Investments (Pty) Ltd, in the light of the complaints made on
behalf of Grancy
Property Limited, is necessary and if so to conduct
such an investigation.
3 The said independent directors may
not be removed as directors save by a unanimous vote of the
shareholders of Seena Marena Investments
(Pty) Ltd or an order of the
high court, having jurisdiction.
4 The independent directors shall
constitute the Board of Directors of Seena Marena Investments (Pty)
Ltd together with such directors
as each of the shareholders may
appoint to the Board save that each shareholder shall be entitled to
appoint only one director.
5 The directors are to receive such
reasonable remuneration as determined by the Head of the Legal
Department at Deloitte &
Touche at Woodlands Drive, Woodmead,
South Africa.
6 This order shall operate pending the
finalisation of the action proceedings pending in the Western Cape
High Court under case
no 12193/11 in the matter between
Grancy
Property Limited & another v Dines Chandra Manilal Gihwala &
others
unless the Western Cape High Court determines otherwise.
7 The first and third to seventh
respondents are ordered to pay the costs of this application jointly
and severally, the one paying
the others to be absolved, including
the costs of two counsel.’
_________________
X M PETSE
JUDGE OF APPEAL
Appearances:
Appellant: P B Hodes SC (with him J P
McNally SC)
Instructed by:
Webber Wentzel, Johannesburg
Symington & De Kok, Bloemfontein
For 1
st
Respondent: B M
Slon
Instructed by:
Edward Nathan Sonnenberg Inc, Sandton
Webbers, Bloemfontein
For 3
rd
– 7
th
Respondent: S C Kirk-Cohen SC
Instructed by:
Thompson Wilks Inc, Cape Town
Honey Attorneys Inc, Bloemfontein
1
Considerable
time and effort was devoted to this aspect in counsel’s heads
of argument but given what lies at the heart
of the dispute between
the parties, as will emerge from the judgment, it is not germane.
2
Plascon-Evans
Paints Ltd v Van Riebeeck Paints (Pty) Ltd
[1984] ZASCA 51
;
1984 (3) SA 623
(A)
at 634E-G where it is stated that where factual disputes in motion
proceedings arise, relief may only be granted if the facts
averred
in the applicant’s affidavit that have been admitted by the
respondent, together with the facts alleged by the
respondent,
justify the order sought.
3
Wightman
t/a JW Construction v Headfour (Pty) Ltd
[2008] ZASCA 6
;
2008 (3) SA 371
(SCA)
para 16.
4
F
H I Cassim
Contemporary Company Law
2 ed (2012) at 770-771.
5
See
eg:
Sammel v President Brand Gold Mining Co Ltd
1969 (3) SA
629
(A) at 678G-H;
Garden Province Investment v Aleph (Pty) Ltd
1979 (2) SA 525
(D) at 534A-535C.
6
Commissioner,
South African Revenue Services v Hawker Air Services (Pty) Ltd;
Commissioner, South African Revenue Services v Hawker
Aviation
Partnership & others
[2006] ZASCA 51
;
2006 (4) SA 292
(SCA) paras 9-11.
7
Compare:
Breetveldt v Van Zyl
1972 (1) SA 304
(T) SA 304 (T) at
315A-E;
Lourenco v Ferela (Pty) Ltd (No1)
1998 (3) SA 281
(T)
at 295F-296C.
8
Compare:
Re Marco (Ipswich) Ltd
[1994] 2 BCLR 354
in which unfairly
prejudicial conduct against minority shareholders was found to have
been established where specific acts of
mismanagement which were
repeated over a period of time with no attempt by the majority
shareholders to prevent or rectify them.
9
Compare:
Parker v National Roads and Motorists’ Association
(1993)
11 ACSR 370
CA (NSW) where it was held that directors must act with
fair procedures in regard to complaints and challenges by minorities
or individual members.