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[2010] ZAWCHC 443
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Indima Farming (Pty) Ltd v Stawelklip Estates (Pty) Ltd and Others (21770/2009) [2010] ZAWCHC 443 (19 August 2010)
Republic
of South Africa
IN
THE HIGH COURT OF SOUTH AFRICA
(WESTERN
CAPE HIGH COURT, CAPE TOWN)
Case
No: 21770/2009
In
the matter between:
INDIMA
FARMING (PTY) LTD
…....................................................
Applicant
And
STAWELKLIP
ESTATES (PTY) LTD
…................................
1
st
Respondent
(Registration
No.2000/018540/07)
The
trustee for the time being of
THE
HOCHLAND TRUST (IT260/95)
…...............................
2
nd
Respondent
HOCHLAND
WERKERS KOMMITTEE
…............................
3
rd
Respondent
DESMOND
GERHARD GOLIATH
…....................................
4
th
Respondent
MARTIN
BENJAMIN
….........................................................
5
th
Respondent
JOCOLENE
MBALULA
….....................................................
6
th
Respondent
NETO
MBALULA
….........................................................
7
th
Respondent
PIETER
DIETRICH
…............................................................
8
th
Respondent
TRACEY
GROOTBOOM
…...................................................
9
th
Respondent
MARIA
DIETRICH
…...........................................................
10
th
Respondent
MICHAEL
ENGELBRECHT
…............................................
11
th
Respondent
VERNON
BASSET
…..........................................................
12
th
Respondent
JUDGMENT
DELIVERED: 19 AUGUST 2010
BINNS-WARD,
J:
[1]
The applicant has applied for relief under two heads. The first head
is for an order appointing 'an interim manager' as 'representative
of the applicant' to manage the farm owned by the respondent jointly
with Hugo Schreiber ('Schreiber'), 'who acts as the present
manager
and representative of the second respondent'. The second head is for
an order directing the second respondent and Schreiber
to provide
one Stefan Schutte 'with all such financial documentation and
information requested by Schutte in regard to and in
connection with
the financial affairs of the farm, including access tothe first
respondent's computer and all other records of
first respondent'.
1
[2]
In order to contextualise the aforementioned relief an introduction
of the
dramatis
personae
and
a description of some of the background events is necessary. The
applicant company is a 50% shareholder in the first respondent
company. The business of the first respondent is the ownership and
operation of a fruit farm in the Piketberg region of the Western
Cape. The owner of the other 50% holding in the first respondent is
the second respondent. The second respondent is a trust in
which the
relevant proprietary affairs of Schreiber are effectively invested.
The second respondent had previously been the registered
owner of
the farm. It sold the farm in 2004 in terms of a transaction which
resulted in the farm being held by the first respondent
company with
the shareholding just described. Two relevant incidents of that
transaction were the conclusion of a shareholders'
agreement between
the applicant and the second respondent and of a management
agreement between the first respondent and Schreiber.
In terms of
the latter agreement, Schreiber was appointed to manage the farming
business of the first respondent company.
[3]
The management agreement was concluded for a five year period, which
was to be automatically renewed for a further five year
period
unless the shareholders decided, by a vote supported by 'at least
75% of [the company's] shareholders', to terminate the
agreement. It
is thus apparent that, unless the character of the initial
shareholding of the respondent, or the control of the
second
respondent were to change, Schreiber's position as the manager of
the first respondent's farming business was contractually
entrenched.
[4]
It also needs to be mentioned in this regard that Schreiber, whose
father had originally acquired the farm during the 1980's,
had been
in charge of the management of the farming operations there since
the early 1990's. It is common cause that Schreiber's
role was
considered by all concerned in the 2004 transaction to be 'pivotal'
to the enterprise to be conducted through the vehicle
of the first
respondent company. This much is clearly reflected in certain of the
provisions of the shareholders' agreement.
Clause 11.1 of the
shareholders' agreement recorded 'that Hugo Schreiber is a pivotal
figure in the management of the Company's
business as well as [the
second respondent trust] as shareholder of the company. As such it
is recorded that both shareholders
require an exit mechanism in the
event of the death or permanent disability of the said Hugo
Schreiber.' The shareholders' agreement
also contained provisions
that determined that the two shareholders would have equal
representation at board level and that no
meeting of the directors
would be quorate if not attended by at least one of the appointees
of each of the two shareholders.
The second respondent's appointees
to the four member board of directors were Schreiber and his wife.
Schreiber was therefore,
by virtue of the contemporaneous operation
of the management agreement, for all intents and purposes the
managing director of
the first respondent company.
[5]
The measure of latitude afforded Schreiber in his role as
de
facto
managing
director was a wide one. That much is apparent from the provisions
of the management contract, which expressed Schreiber's
duties and
the terms of his remuneration and benefits in such loose language as
to afford him, subject to such limited constraints
as the directors
might have sought to place on the construction of the relevant
provisions, a broad discretion in their determination
and
implementation. Schreiber's duties under the contract were defined
in the following manner:
5.1.
Schreiber will manage the business diligently in accordance with the
norms and standards that would be expected of a reasonable
farming
manager of a farm of this type.
5.2.
The parties annex hereto a business plan which is intended to
regulate the future conduct of the company's business.
5.3.
Schreiber will be required to manage the business materially in
accordance with this business plan and with any revised business
plan presented by the Company from time to time.
The
latitude arising from the broad provisions of clause 5.1, quoted,
above, was underscored in the manner the contract was implemented;
because no business plan, as referred to in subclauses 5.2 and
5.3, was ever attached to the executed deed of contract,
or
presented in the ensuing five years before the falling out which
occurred between the shareholders in or about 2009 and gave
rise to
the current proceedings and the other litigation to which I shall
refer presently.
[6]
Apart from the loosely defined constraints provided in terms of
clause 5.1 of the management agreement, the only limitations
on
Schreiber's management authority was that arising from clause 5.1 of
the shareholders' agreement which reserved to the directors
the
management of the day to day activities of the company and the
exercise of 'all such powers as are granted to them in terms
of the
common law, the [Companies] Act and the articles of association'. In
that regard too, the powers in fact reposed in Schreiber,
with the
apparent acquiescence of all concerned, were emphasised by the
absence of any intervention or direction from the board.
The board
of directors actually never met, notwithstanding the provision in
the shareholders' agreement that it should meet every
six months.
[7]
For reasons about which it is best that I say as little as possible
in the circumstances, the applicant determined, late in
2009, to
apply for the winding up of the first respondent company. The
resultant court proceedings are still pending and currently
set down
for hearing in this court two and a half month's hence The essential
basis of the allegations founding that application
is that it would
be just and equitable for the company to be dissolved because of a
deadlock in the sense generally understood
in that context. In its
replying papers in those proceedings, as not infrequently happens in
cases of that nature, the relief
sought by the applicant was
broadened to include a prayer for alternative relief by way of a
buy-out order in terms of s 252
of the Companies Act, No. 61 of
1973. The winding up proceedings are opposed by the second
respondent. The employees of the first
respondent have also obtained
leave to intervene as respondents in the application. The
respondents in the pending proceedings,
which had been set down for
hearing at the end of May, some two and a half months ago, required
the opportunity to deal with
the alternative relief belatedly
introduced. That resulted in a postponement of those proceedings for
hearing in November 2010.
[8]
The current application was launched on the day that the winding up
application had been due to be heard at the end of May.
The first
head of relief as described in paragraph [1], above, was formulated
in the expectation that the winding up / s 252
application would be
postponed
sine
die.
The
appointment of the co-manager was sought pending the eventual
hearing of the to be postponed winding up application. In the
context of subsequent developments, which included an order by the
Deputy Judge President setting a timetable for the exchange
of
papers in and hearing of the current application, the application
before me falls to be understood as being for the appointment
of an
interim manager pending the hearing of what I shall for convenience
call 'the main application' in November.
[9]
The relief sought under the first head of the current application is
unusual and no precedent for it was cited by the applicant's
counsel. It was initially labelled as an 'interim interdict
application', but that appellation was later amended and it was
contended that in seeking it the applicant was actually availing of
s 252 of the Companies Act. Indeed, I think that it is only
under
that statutory provision that a basis for the relief might arguably
resort. One is thus confronted with what is, in my
experience, the
novel situation of an application for interim relief in terms of s
252 of the Companies Act pending the determination
in different
proceedings of a different form of final relief under s 252 of the
Companies Act. If it were competent to afford
the relief on that
basis - something I am prepared, without so holding, to assume in
the applicant's favour - the context of
the case would suggest that
the treatment of the application should be governed by the
well-established principles applicable
to interim interdict
applications. Indeed, counsel on both sides appeared to accept this
proposition when I put it to them during
argument.
[10]
The right that the applicant seeks to protect by means of the first
head of relief is to have the first respondent company
managed in
accordance with the prescripts of the shareholders' and management
agreements. More particularly, it wants a co-manager
to be appointed
to shadow, or supervise the activity of the appointed manager,
Schreiber (the wording of paragraph 1 of the notice
of motion
expresses the intended role of the interim manager more extensively
and invasively than I have done, but I am adopting
the watered down
description of the co-manager's intended authority advanced by the
applicant's counsel in argument). Of course
it is not ordinarily
open to shareholders to intervene in the management of a company in
the manner that the applicant seeks
to do in this matter. That is
another reason which no doubt explains why it is sought to reason it
as being founded on the exceptional
remedies afforded in terms of s
252. The consequence, however, is that the applicant has to bring
its complaint within the ambit
of s 252(1) if it is to get even its
toe in the door.
[11]
Section 252 (1) provides:
(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.
[12]
The complaints or apprehensions upon which the application is
founded do not concern the acts or omissions of the first
respondent, but those of Schreiber,
qua
manager.
And the alleged effects of Schreiber's management directly affect
the company rather than the applicant in its capacity
as a member.
Another aspect weighing against the application considered as one in
terms of s 252 is that the relief ordinarily
sought in terms of the
provision is directed to bring to an end that which has happened or
is occurring rather than to address
apprehended, but undefined,
future prejudice. Problems that have occurred in the past can,
however, afford a basis for an order
in terms of the section
directed at regulating the future conduct of the company's affairs
(see s 252(3) of the Companies Act).
With those considerations of
principle in mind, I turn to examine the factual basis for the
relief sought under the first head
in the founding affidavit in the
current application.
[13]
The grounds advanced in the founding papers in support of an interim
order regulating the future conduct of the first respondent's
affairs are the following
1.
Schreiber had recently purchased a Toyota Land Cruiser. It was
suspected that the expenditure that was incurred may have been
debited to the first respondent's account. If so, it had not been
included in the budget and had been made without prior authorisation
of the board, or any knowledge whatsoever by the applicant.
2.
Schreiber had purchased new tyres for the vehicle. This purchase was
connected to the needs of a private trip to be undertaken
by
Schreiber to Mozambique. These expenses had also not been provided
for in the first respondent's budget.
3.
Schreiber had booked a trip to Mozambique for himself and his
family, the cost of which may have been charged to the first
respondent, but had not been budgeted for.
4.
Schreiber had been on overseas trips to the Netherlands and China
with his family 'also probably funded by the company and
which
expenditures were also not included in the budget, or were made
without any prior authorisation from the board of the company
or
even knowledge of the applicant'.
5.
Schreiber 'had incurred a debt on behalf of the company in respect
of pesticide in the amount of approximately R3 million which
was
unpaid and in respect of which the creditor was agitating for
payment... The possibility of this particular creditor resorting
to
legal proceedings to recover this debt and the consequent detriment
that any such legal proceedings would be (sic) to the
company is a
genuine cause for concern'.
Apart
from these identified concerns, it was admitted by the applicant
that Schreiber was managing the farming operations in an
efficient
and productive manner. The applicant was concerned however about the
prospect of unauthorised expenditure being incurred
by Schreiber for
his own benefit or for unauthorised purposes because of the pending
litigation in the main application.
[14]
The applicant's counsel submitted that these examples of alleged
past conduct by Schreiber in respect of the conduct of the
company's
affairs provided sufficient basis for the court to intervene to
regulate the future conduct of the company's affairs
in the manner
sought in terms of paragraph 1 of the notice of motion by way of the
appointment of a co-manager.
[15]
Assuming, without so finding, that the applicant's counsel's
submission might find any basis in principle - notwithstanding
the
problems I consider that the applicant has bringing itself within
the qualifying criteria for relief in terms of s 252(1)
- it becomes
evident, when consideration is given to the respondents' responses
to the aforementioned allegations, that the bases
for apprehension
of harm by the applicant are shown to be very thin.
1.
The Toyota was not paid for by the first respondent. The first
respondent's funds were appropriated to pay for the deposit
on the
vehicle, but the expenditure was debited to the second respondent's
loan account in the company, which stood in credit
in the amount of
several million rand, many millions of which were at the time
immediately payable by the first respondent to
the second
respondent.
2.
The tyres for the Toyota had not been paid for by the first
respondent, but by the second respondent.
3.
The incurrence of any expenses by the first respondent in respect of
a trip to Mozambique by Schreiber and his family was denied.
4.
Schreiber explained that his personal expenses on business trips to
the Netherlands and China were incurred in the furtherance
of the
first respondent's business. He acknowledged that any expenses
incurred in respect of any accompanying members of his
family were
for his own account.
5.
The dispute in relation to the pesticide issue was related to crop
damage that had occurred as a consequence of the use of
the
pesticide. The parties involved, including the supplier-creditor
referred to by the applicant, had reached a mutually agreed
settlement in terms of which the supplier had accepted a materially
reduced sum in payment.
[16]
Confronted with these somewhat deflating answers, the applicant in
reply averred:
'While
it may well be that the expenditures referred to in these
paragraphs, upon
investigation,
are expenses which properly relate to the business of the First
Respondent, still it is clear from the terms of
the shareholders'
agreement, particularly clause 5.2.27 thereof that in regard thereto
"no decision...shall be taken or
implemented unless
shareholders holding not less than 51% of the issued shareholding of
the company vote in favour thereof. No
such vote has taken place in
regard to these expenditures. It does not avail Schreiber to debit
his loan account with expenditures
on First Respondent's
behalf
in the first place.
[17]
The applicant's reply rings distinctly hollow in the context of the
evident lack of any concern by the applicant about the
noncompliance with the shareholders' agreement over several
years in respect of the running of the company. It is evident
that
the applicant during that period had been content to leave the
management of the company entirely to Schreiber and that
it had not
exercised the rights afforded to it by virtue of its joint control
of the board of directors to exercise supervision
and direction over
Schreiber's executive functions. Moreover, there is no explanation
as to why the grounds of complaint described
in paragraph [13],
above, were not addressed through the offices of the board of
directors before an approach by the applicant
to court for
extraordinary relief. In my view it is only after demonstrating that
the applicant's concerns could not be addressed
in the exercise of
the powers of the appropriate organs of the company's government
that an approach to court in terms of s 252
would arguably be
warranted. Many of the issues could have been clarified upon simple
enquiry. Others could have been addressed
simply by the directors
serving on the board as the applicant's appointees exercising their
rights of access to the company's
accounts. There was no availment
of these mechanisms. In any event it does not seem to me that any of
the complaints relied upon
by the applicant affected it in its
capacity as a member (cf.
Ben-Tovim
v Ben-Tovim
2001
(3) SA 1074
(C) at 1093). They are rather matters that might have
affected the first respondent company, and, if they did, are matters
that
should have been addressed by its board of directors. If the
complaints had been established, and the board of directors had
failed to address the issue arising appropriately, applicant might
have come closer to establishing that the affairs of the company
were being conducted in a manner unfairly prejudicial, unjust or
inequitable to it.
[18]
In my judgment therefore, the applicant has failed to bring itself
within the ambit of s 252(1) of the Companies Act. Even
were I to be
wrong in so concluding, I am not persuaded that the applicant has
established sufficiently cogent grounds for its
apprehension that it
is prejudiced by the conduct of the company's affairs to the extent
that a material intervention in the
management of the company is
warranted pending the determination of the main application. It
seems to me that it is within the
power of the applicant using its
vote as a shareholder and its rights under the shareholders'
agreement to appoint directors
to represent its interests in the
company to achieve, in the ordinary course, the degree of insight
into and supervision over
the management of the company by Schreiber
that it seeks instead to obtain by the extraordinary measure of the
appointment of
a co-manager by the court. The notion implicit in the
argument by the applicant's counsel that in the current
circumstances it
would be unrealistic to expect effective action by
the board of directors is conjectural. The directors representing
the second
respondent's interests have every reason to have the
first respondent's best interests at heart in the discharge of their
functions.
Apart from the fact that the first respondent's best
interests coincide with those of Schreiber and the second
respondent, an
obstructive or objectively indefensible conduct of
the company's affairs at this stage would only heighten the
likelihood of
a winding up order or an order directing the sale of
the second respondent's interest to the applicant in the main
application;
neither of which results would be desired by Schreiber
or the second respondent.
[19]
Reverting to the analogous requirements of interim interdictory
relief, I have not been persuaded that the applicant in that
sense
has established a
prima
facie
right,
even though open to doubt. Even if the establishment of a
prima
facie
right
had been satisfied, I would not be persuaded that the applicant had
established a reasonable or well grounded apprehension
of
irreparable harm, or the absence of an alternative remedy.
[20]
Recognising the tenuousness of the established bases of complaint,
the applicant's counsel sought to persuade me that the
issue was not
what had already happened, but a concern as to what might happen in
the future pending the final determination
of the main application.
In advancing that argument counsel was, perhaps unconsciously,
reversing his characterisation of the
relief as having been sought
in terms of s 252 of the Companies Act and reverting to the position
of an applicant for interim
interdictory relief in the conventional
sense. The argument was untenable. Section 252 is premised on
addressing the prejudicial
conduct of a company's affairs that has
already occurred. It thereby affords an affected member an
extraordinary remedy by way
of an exception from the consequences
deriving from the common law position exemplified by the decision in
Foss
v Harbottle
(1843)67
ER 189. An interim interdict in the conventional sense is afforded
to prevent apprehended future harm. But where, outside
the ambit of
s 252 of the Companies Act, is a member's legal standing to seek
relief interfering in the conduct of a company's
management in
circumstances where the apprehended harm is properly a matter to be
addressed by the company and not by its members
acting in their
individual capacity?
[21]
There were other difficulties in the way of granting the applicant
the relief it sought under the first head. I do not think
it
necessary to discuss them all. The most obvious is that the
application does not put up any identified person as the proposed
co-manager and it does not nearly adequately define precisely how
the co-management functions are to be discharged. The applicant's
counsel contended that these were details that might be addressed if
the court were persuaded in principle that some form of
co-management regime should be instituted. He conceded that these
further aspects would require a further hearing, presumably
on the
exchange of yet further papers (the papers in the current matter run
to in excess of 630 pages and those in the main application
to in
excess of 800 pages). Having regard to the context of the matter
seen as a whole, and in particular that there is only
a short period
before the main application is due to be heard, I would not in any
event have been inclined to exercise my discretion
in favour of
embarking upon such a course on the basis of the conjectural basis
established for an apprehension of material prejudice
to the
applicant in the interim.
[22]
In the circumstances the application for the first head of relief
cannot be upheld.
[23]
The second head of relief may be shortly disposed of. It seemed to
me to have been wholly misconceived. By virtue of its
representation
on the board of directors, the applicant is able through either of
its two appointees to obtain access to the
first respondent's
financial records whenever such access is reasonably required. For
the purposes of such examination the director
or directors concerned
are entitled to be assisted by a professional accountant such as Mr
Schutte. This follows from the provisions
of s 284 of the Companies
Act and the interpretation given thereto in the reported cases.
Should the company or any of its directors
or officers be complicit
in frustrating the provisions of s 284 of the Companies Act, the
appropriate remedy would be for the
frustrated director to seek
urgent interdictory relief. The directors or officers responsible
for the company's non-compliance
would also lay themselves open to
criminal prosecution.
[24]
There is no basis in law of which I am aware, or to which the
applicant's counsel could direct my attention, which gives
a
shareholder the right to appoint, or to have the court appoint on
its behalf, an accountant to examine the company's books
(cf.
(Clutchco
(Pty) Ltd v Davis
[2005]
2 All SA 225
(SCA) at para. 14).
[25]
The application for relief under the second head must therefore also
fail.
[26]
The Hochland Workers Kommittee and a number of employees of the
first respondent were admitted as intervening parties in
the
application in terms of the aforementioned order made by the Deputy
Judge President. The intervening parties made common
cause with the
second respondent in opposing the application. I am somewhat at a
loss to understand why the applicant consented
to such an order
because the basis of the legal standing of the intervening parties
on the matter in issue in the current application
is by no means
apparent to me. It may be that the applicant decided that the
exigencies of obtaining a hearing on an urgent basis
rendered it
impracticable to contest the intervention of the intervening parties
having regard to the delays that such a course
would probably
occasion. Whatever the reason, it seems to me that once it allowed
the intervention the applicant thereby exposed
itself to paying the
costs of the intervening parties in the event of the application for
interim relief not succeeding.
[27]
In the result the following order is made:
The
application is dismissed with costs, including the costs of two
counsel where such were employed.
A.G
B
INNS-WARD
Judge
of the High Court
1
The
words within inverted commas are quoted directly from the notice of
motion.