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[2010] ZAWCHC 586
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St Dare v Dean and Others (17828/2010) [2010] ZAWCHC 586 (30 November 2010)
In
the High Court of South Africa
(Western
Cape High Court, Cape Town)
Case
No: 17828/2010
In
the matter between:
Daniel
Desmond St Dare
….......................................................................................................
Applicant
Versus
Warren
Edwin Dean
…..................................................................................................
First
Respondent
Eliz
Mclntyre
….........................................................................................................
Second
Respondent
The
Power of 2 CC
…...................................................................................................
Third
Respondent
Wiz
Financial Health Consultants CC
…....................................................................
Fourth
Respondent
First
National Bank
…....................................................................................................
Fifth
Respondent
Back
Office Fund Solutions (Pty) Ltd
….......................................................................
Sixth
Respondent
Discovery
Health Medical Scheme (Pty) Ltd
….......................................................
Seventh
Respondent
Vitality
Health Style (Pty) Ltd
…....................................................................................
Eight
Respondent
Discovery
Life Investment Services (Pty) Ltd
…..........................................................
Ninth
Respondent
Discovery
Life Collective Investments (Pty) Ltd
…......................................................
Tenth
Respondent
Discovery
Life Ltd
…...............................................................................................
Eleventh
Respondent
TSA
Administration (Pty) Ltd
…................................................................................
Twelfth
Respondent
Judgment
delivered: 30 November 2010
LOUW
J
[1]
This is an application launched on 16 August 2010 as a matter of
urgency for interim as well as final relief. The applicant
placed
the matter on the roll in the motion court on 8 September 2010. The
first to fourth and sixth respondents oppose the application
and
filed opposing papers on 8 September 2010. Apart from dealing with
the substance of the application, they deny that the matter
should
be heard as one deserving preference on the role.
[2]
The fifth and seventh to twelfth respondents do not oppose the
relief sought and abide the decision of the court. I shall
refer
herein, unless the context otherwise indicates, to the first to
fourth and sixth respondents, who oppose the application,
individually or, as the respondents.
[3]
The respondents contend that although the applicant had full
knowledge of the facts underlying his cause of action by February
2010 and knew already in May 2010 that the respondents would not
yield to his demands, he delayed bringing the application until
August 2010. On 8 September 2010 the papers were already voluminous
and the matter not being ripe for hearing, the court postponed
the
matter for hearing in the fourth division on 4 November 2010 and
expressly recorded that it made no finding in regard to
the urgency
of the matter or whether the matter was deserving of any preference
on the roll and the respondents' rights in this
regard were
reserved.
[4]
The court further ordered the applicant to file his replying papers
on 5 October 2010. The applicant filed his replying papers
late, on
20 October 2010 and he now applies for condonation for the late
filing of the papers. The application for condonation
is opposed.
[5]
There is a further preliminary issue. The respondents, who, as they
are obliged to do, have 'pleaded over', apply for the
striking out
of certain passages from the launching and replying affidavits of
the applicant as containing inadmissible hearsay.
[6]
I return to these preliminary issues hereunder.
[7]
Although the applicant's share-holding in the sixth respondent is in
dispute, I will accept for purposes of deciding this
application
that the applicant is indeed a 50 percent shareholder of the sixth
respondent. The remaining 50 percent of the shares
is owned by the
first respondent. The applicant and the first and second respondents
are the only directors of the sixth respondent.
The first and second
respondents are the sole shareholders and directors of the third and
fourth respondents.
[8]
The applicant states that the application is brought to protect his
rights as a shareholder and as a director of the sixth
respondent
and also to protect the rights of the sixth respondent itself, which
rights he contends were and are being violated
by his co-directors,
the first and second respondents who have devised and is in the
process of executing a plan to divest the
applicant of all value in
his shareholding and loan account in the sixth respondent by
diverting the income generating business,
assets and business
opportunities of the sixth respondent to their company, the third
respondent. This they did, it is contended,
without consulting the
applicant as their co-director. Their conduct, the applicant
asserts, is contrary to the interest of the
sixth respondent and is
in conflict with their fiduciary duty as directors of the sixth
respondent. In order to protect these
rights the applicant seeks
both final as well as interim relief pending the outcome of the
common law derivative action or the
action in terms of Section 266
of the Companies Act, 61 of 1973, the applicant intends instituting
on behalf of the sixth respondent.
[9]
Apart from orders relating to urgency and costs the applicant seeks
the following relief:
'2.
Declaring that the Applicant remains a director of the Sixth
Respondent and is authorised to represent the Sixth Respondent
insofar as his capacity as director entitles him to do so;
3.
That pending the outcome of the proposal legal action referred to in
paragraph 173 & 174 of the founding affidavit annexed
hereto,
the First, Second, Third and Fourth Respondents be interdicted:
3.1.
from competing with the Sixth Respondent for the sale of (a) pension
fund consulting services, (b) medical aid consulting
services, and
(c) life insurance and investment products to any person who was a
client of the Sixth Respondent over the period
between June 2003 to
date;
3.2.
inducing the Sixth Respondent's service providers or clients to
alter or terminate any contractual arrangements with the
Sixth
Respondent;
3.3.
Concluding any contract for the sale of the aforesaid products or
consulting services for the marketing or sale of any of
the
aforesaid products or consulting services for or on behalf of
persons, juristic or otherwise, who were service providers
to the
Six Respondent over the period from June 2003 to date;
3.4.
Inducing any person who has currently mandated the Sixth Respondent
to act as its financial service provider, to alter or
terminate any
such mandate with the Sixth Respondent or to conclude a similar
mandate with the Third or Fourth Respondents;
3.5.
Misappropriating the funds of the Sixth Respondent whether by
withdrawing funds from the Sixth Respondent's accounts and
paying
them over to any other person or by inducing persons, juristic and
otherwise, from whom funds are due to the Sixth Respondent,
to pay
such funds over to any other person.
3.6.
In any other way soliciting or interfering with the business and
trade connections of the Sixth Respondent.
4.
That the First and Second Respondents be interdicted from taking any
steps to exclude the Applicant from access to, control
over or
involvement in the management of the Sixth Respondent;
5.
That the Fifth Respondent shall forthwith freeze or place a hold on
the Sixth Respondent's banking accounts (including internet
banking,
debit and credit cards) and shall not pay out any amount from such
accounts save on written instruction signed by the
Applicant and the
First and Second Respondents;
6.
The Seventh, Eighth, Ninth, Tenth, Eleventh and Twelfth Respondents
shall render an account to the Sixth Respondent and to
the
Applicant, of all amounts paid by them or on their behalf to the
First, Second, Third and/or Fourth Respondents since 1 February
2009;
7.
That there shall be debatement of the accounts referred to in the
previous paragraph and that upon the conclusion of such a
debatement
the Seventh, Eight, Ninth, Tenth, Eleventh and Twelfth Respondents
shall pay to the Sixth Respondent such amounts
as may be found due
to it upon such debatement;
8.
That the legal action referred to in paragraph 173 & 174 of the
founding affidavit shall be instituted within 20 court
days of the
date of this order.
9.
In the event that any of the relief set out above is opposed, that
determination of such aspect of relief be postponed for
hearing on a
date to be determined by this Honourable Court with such provision
for the filing of papers and the further conduct
of the matter as
the Court may deem fit.'
[10]
It is common cause that up to 2005 the sixth respondent's business
consisted of three components:
the
business related to the EFACTS computer software, which is
described as 'a web based compliance tool' which the applicant
and
the first respondent had developed;
the
business related to the ENTERCAL computer software, which is
described as 'a medical aid online advice tool', and
the
commission generating consultancy business.
[11]
The second respondent joined the business as a secretarial and
administrative assistant in 2003 and became a director of
the sixth
respondent in 2004.
[12]
In 2003 the sixth respondent lost a major software client and by
2005, the sixth respondent found itself in financial difficulties.
It was not trading at a profit and was probably insolvent.
[13]
At the time, the sixth respondent had recently registered with the
Financial Services Board (the FSB) as a Financial Service
Provider
(FSP) and the first and second respondents were appointed as the
only accredited consultants associated with the sixth
respondent. In
addition, the second respondent was the designated compliance
officer of the sixth respondent.
[14]
The principal factual dispute in this matter is whether the
applicant and the first respondent concluded an agreement during
the
course of two meetings they held on 13 and 28 October 2005 to
discuss the future conduct of the business of the sixth respondent.
According to the applicant they agreed that save for a
responsibility and interest in Efacts, the applicant would no longer
be actively involved in the affairs of the sixth respondent and that
the first and second respondents would be free to develop
and grow
their own consultancy business. The applicant would have no interest
in and would not share in the income derived from
such business. The
applicant disputes that such an agreement was concluded.
[15]
According to the first respondent, he and the second respondent did
not have the money to form a new company or to obtain
a separate FSP
licence to carry on their consultancy business. Therefore, as a
matter of convenience and with the full knowledge
of the applicant,
they 'housed' their business in the sixth respondent.
[16]
According to the first respondent, by 2007, their consultancy
business had generated sufficient income for them to repay
all of
the sixth respondent's debt. The second respondent then sought to
acquire a shareholding in the sixth respondent because
'she wanted
shares in the business that she was helping to build up'. Meetings
were held towards the end of 2007 and e-mails
annexed as 'D8' to the
applicant's papers, were exchanged between the three directors of
the sixth respondent. Both the applicant
and the first and second
respondents aver that the e-mails support their respective
contentions that an agreement was (according
to the respondents) and
was not (according to the applicant) concluded. The contents of the
e-mails are in my view not conclusive
in regard to the question
whether an agreement was concluded in October 2005. However, it is
clear in my view that the applicant's
main interest in the sixth
respondent was that his loan account be repaid and that for this
reason, he wished to retain a share
in the sixth respondent to serve
'as collateral security' for the money he had invested in the sixth
respondent prior to 2005.
The e-mails also record the first
respondent's assertion that at the meeting of 13 October 2005, the
applicant had been 'most
emphatic' that he did not wish to get
involved in 'the consulting side of the business' and the first
respondent's view that
the income derived from consulting 'was
effectively being ring fenced' and held apart from Efacts and
Entercall.
[17]
Because of a dispute between the applicant and the first respondent
in regard to the extent and the terms of the applicant's
loan
account, the second respondent decided not to take up a share in the
sixth respondent. In March 2008 the second respondent
made a further
attempt to acquire shares in the sixth respondent by offering to buy
out all the applicant's shares. This offer
was not accepted by the
applicant.
[18]
It is not necessary for the purposes of deciding this application to
make a finding whether an agreement was concluded and,
if so, what
the terms of that agreement was. It is clear that after October
2005, the applicant played at best, a very insignificant
role in the
business affairs of the sixth respondent. His principal interest in
his shareholding was the repayment of his loan
[19]
I commence with the interim interdictory relief sought in par 3 of
the notice of motion. The requirements for an interim
interdict are:
1.
a prima facie right;
2.
a well-grounded apprehension of irreparable harm if the interim
relief is not granted and the ultimate relief is eventually
granted;
3.
that the balance of convenience favours the granting of an interim
interdict; and
4.
that the applicant has no other satisfactory remedy.
[20]
The applicant's case for interim relief is premised on the
contention that he will in due course institute an action for
damages or monetary compensation in the form of
'either
a derivative action to reclaim monies diverted to other entities and
persons and possibly also damages on behalf of the
sixth respondent
or steps in terms of section 266 of the Companies Act. . . to
reclaim the monies illegally diverted and damages
suffered as a
result of the unlawful conduct of the first and second respondents'.
[21]
Save for the relief sought in par 3.5, the applicant in effect seeks
to interdict the first to fourth respondents on an interim
basis
from competing with the sixth respondent in regard to the consulting
business. This relief is premised thereon that the
sixth respondent
will in future carry on a consultancy business.
[22]
It is common cause, however, that save for the question whether the
sixth respondent was still receiving some income from
business
conducted in the past, the sixth respondent is not presently
carrying on a consultancy business. Its registration as
an FSP has
been suspended by the FSB and the applicant has withdrawn as its
compliance officer. In addition, the sixth respondent's
members will
reach a deadlock at a meeting of members and if a meeting of
directors should be held, the applicant will be outvoted.
There is
therefore no prospect that the sixth respondent will, under its
present regime carry on a consultancy business.
[23]
All the clients mentioned by the applicant in the launching papers
have on the applicant's own version by September 2009
already
stopped making commission payments to the sixth respondent or were
by February 2010 no longer using the sixth respondent
as a broker.
An interim interdict to stop the first, second and third respondents
from carrying on a business on the basis that
it competes with the
sixth respondent, will consequently not protect the interest of the
sixth respondent in the interim.
[24]
An interim interdict will, on the other hand, cause serious and
significant prejudice to the respondents. The first and second
respondents have built up a consultancy business and, if they are
stopped, it will result in serious financial consequences for
them.
In contrast, the sixth respondent itself does not and cannot trade,
as a consultant. While the business will be lost to
the respondents,
such business will not, and in fact cannot, go to the sixth
respondent. Such business will probably go to a
third party. An
interim interdict will therefore also compromise the sixth
respondent's claim under the proposed derivative action.
The balance
of convenience does not favour the applicant.
[25]
It follows that whatever claim the applicant may ultimately have for
damages or monetary compensation, he has, in my view
not made out a
case for an interim interdict in terms of par 3 of the notice of
motion.
[26]
In paragraph 3.5 the applicant seeks to interdict the first to
fourth respondents from misappropriating or withdrawing the
sixth
respondent's funds from its bank accounts or from inducing persons
or entities from paying over to them funds due to the
sixth
respondent. This relief relates to monies derived from the
consultancy business which had, in the past been paid into the
sixth
respondent's bank account and to the stream of income that the
applicant asserts is still being paid into the sixth respondent's
bank accounts. The respondents deny that there are such funds under
threat from their conduct.
[27]
The case put up by the applicant in this regard is the following.
1.
It is common cause that as at 14 May 2010 an income stream derived
from the consultancy business is being paid into the sixth
respondent's FNB bank account and that the respondents had in the
past and as at 14 May 2010 withdrawn such monies from the account.
It is not clear on the papers that there is an ongoing threat that
monies will be diverted from the sixth respondent's bank account
by
the respondents.
2.
In an e-mail dated 10 April 2010, Discovery Holdings Limited stated
that it would draw a distinction between business conducted
by the
sixth respondent with Discovery before 1 February 2009 and business
done thereafter. The income derived from the former
would be
reversed and allocated to the sixth respondent and the income
derived from the latter would be allocated to the third
respondent.
The applicant states, however, that despite this 'ruling' by
Discovery, it had not been put into effect as far as
the pre- 1
February 2009 income is concerned and that Discovery has not
effected the transfer of the income derived from the
pre- 1 February
2009 business to the applicant. In the respondents' answering papers
it is alleged that the adjustment was made
by Discovery. The
position with regard to these payments from Discovery are at best
for the applicant, uncertain. An interim
interdict cannot, in my
view, be made in these proceedings on such basis as a precursor to
the applicant's claim for damages
or monetary compensation.
3.
The twelfth respondent (TSA) stopped paying commission into the
sixth respondent's bank account after July 2009. It is clear
from
the hearsay evidence alluded to by the applicant in this regard that
at least by June 2010, TSA had appointed the third
respondent as
their broker/financial advisor. There is therefore no basis on which
an interim interdict, pending the applicant's
claims for damages or
monetary compensation can be made. The past income has already been
paid to the respondents and in respect
of the future, TSA has given
a mandate to the third respondent. As indicated earlier, there is no
prospect that the sixth respondent
will under its present regime
carry on a consultancy business. There can therefore be no
competition between the sixth respondent
and the third respondent
and consequently, the applicant is not entitled to an interdict
relating to the income derived from
the exercise of the mandate
given by TSA to the third respondent.
[28]
In paragraph 2 of the notice of motion an order is sought declaring
the applicant to be a director of the sixth respondent
and declaring
that he is authorised to represent the sixth respondent 'insofar as
his capacity as director entitles him to do
so.'
[29]
It is common cause that the applicant has remained a director of the
sixth respondent. This has never been in issue. The
applicant has by
operation of law the rights, duties and obligations of a director.
The order sought will not add to this and
will consequently be
meaningless and have no exigible content.
[30]
The order sought in paragraph 4 of the notice of motion seeks to
interdict the first and second respondents 'from taking
any steps to
exclude the applicant from access to, control over or involvement in
the management of the sixth respondent.' The
applicant is a director
of the sixth respondent and is entitled to exercise the powers,
duties and responsibilities of that position.
However, it is the
directors acting as a body who are vested, save to the extent that
it has been delegated, with the management
and control of the
company. Henochsberg on the Companies Act, vol 2 Issue 28 at p 1031
states:
The
powers conferred by the articles on the directors are conferred upon
them collectively to be exercised (unless the articles
provide
otherwise) in accordance with the will of the majority of them (see
further the notes on art 75). The case of the sole
director of a
private company apart (see further
infra),
an
individual ordinary director, as such, has no authority to act for
the company for any purpose unless he is authorised expressly,
impliedly or ostensibly to do so
(Robinson
v Randfontein Estates Gold Mining Co Ltd
1921
AD 168
at 216 - 218, in which it was held also that a delegation by
the directors of any of their powers to one or more of their number
may ensue not only formally by way of a board resolution, but also
informally by the directors acquiescing in a course of dealing,
which might be inferred from the circumstances of a particular
case.'
[31]
It is clear from the papers that since 2006, the first and second
respondents have been managing the affairs of the sixth
respondent.
This could only have been with the consent or acquiescence of all
three its directors. The applicant described himself
in a recent
letter (9 June 2010) to the FSB as 'currently a non-executive
director' of the sixth respondent. As a director, the
applicant is
entitled to call for a meeting of the directors of the sixth
respondent. The court cannot make an order giving him
the rights of
management and control which the board of directors may or may not
delegate to him. The applicant is in the minority
on the board of
directors and on the facts of this case, he will be outvoted in
regard to the management and control over the
affairs of the sixth
respondent. The same goes for the relief sought in paragraph 5 of
the notice of motion, namely an order
that the sixth respondent's
bank account be frozen and that no amount be paid from such account
save on written instructions
signed by all three the directors,
i.e., the applicant and first and second respondents. This court
cannot interfere with the
affairs of the sixth respondent by in
effect giving the applicant as one of three directors, a veto right
in regard to the conduct
of the sixth respondent's bank account.
[32]
The relief sought in paragraphs 6 and 7 is for an order that the
seventh to twelfth respondents render accounts to the sixth
respondent and to the applicant and thereafter for the debatement of
such accounts and the payment of monies to the sixth respondent.
Not
surprisingly, Mr. Bremridge on behalf of the applicant did not
pursue this relief with any enthusiasm. It is in effect, an
attempt
to obtain discovery of documents from parties who are not directly
involved in the dispute between the applicant and
the opposing
respondents. It does not follow from the fact that the respondents
in question are not opposing the relief and that
they abide the
decision of the court, that the relief should be granted against
them. No basis has been advanced as to why these
orders can and
should be made in proceedings on notice of motion in which the said
respondents are parties. Once the proposed
action is instituted by
the applicant, the documents may be obtained from these parties by
subpoenas duces tecum.
[33]
The applicant is in my view therefore not entitled to the relief
sought. In the light of this conclusion, it is not necessary
to deal
with the preliminary issues referred to earlier.
[34]
The following order is consequently made:
1.
The application is dismissed; and
2.
The applicant is ordered to pay the costs, including the costs
occasioned by the various preliminary issues.
W
J LOUW
Judge
of the High Court