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[2013] ZASCA 164
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Thunder Cats Investments 92 (Pty) Ltd and Another v Nkonjane Economic Prospecting And Investment (Pty) Ltd and Others (847/2012) [2013] ZASCA 164; [2014] 1 All SA 474 (SCA); 2014 (5) SA 1 (SCA) (26 November 2013)
REPORTABLE
SUPREME COURT OF
APPEAL OF SOUTH AFRICA
JUDGMENT
CASE
NO: 847/2012
DATE: 26 November 2013
In the matter between:
THUNDER CATS
INVESTMENTS 92 (PTY) LTD
.............
FIRST
APPELLANT
TURQUOISE MOON TRADING
8 (PTY) LTD
..............
SECOND
APPELLANT
and
NKONJANE ECONOMIC
PROSPECTING
AND INVESTMENT (PTY)
LTD.
....................................
FIRST
RESPONDENT
BOSASA OPERATIONS
(PTY) LTD
........................
SECOND
RESPONDENT
BOSASA YOUTH
DEVELOPMENT
CENTRES (PTY)
LTD
...................................................
THIRD
RESPONDENT
Neutral citation:
Thunder Cats Investments 92 (Pty) Ltd v Nkonjane Economic
Prospecting and Investment (Pty) Ltd
(847/12)
[2013] ZASCA 164
(26 November 2013).
Coram:
Navsa
ADP, Malan, Shongwe, Wallis JJA et Meyer AJA
Heard:
11
November 2013
Delivered:
26
November 2013
Summary: Section
81(
d
)(iii)
of
Companies Act 71 of 2008
– winding-up on ground that it is
‘just and equitable’ – failure of relationship
between shareholders having
equal shareholding and representation on
board – clean hands – winding-up ordered.
ORDER
On appeal from:
South
Gauteng High Court, Cape Town (Vermeulen AJ sitting as court of first
instance):
The appeal is dismissed
with costs including the costs of two counsel.
The order of the court
below is confirmed save to the extent that the words ‘on the
scale as between attorney and client'
are deleted.
JUDGMENT
Malan JA (Navsa ADP,
Shongwe JA, Wallis JA et Meyer AJA concurring):
[1] This is an appeal
against the order of Vermeulen AJ in the South Gauteng High Court
winding up the first respondent, Nkonjane
Economic Prospecting and
Investment (Pty) Ltd (the company). The two appellants, Thunder Cats
Investments 92 (Pty) Ltd and Turquoise
Moon Trading 8 (Pty) Ltd and
the second and third respondents, Bosasa Operations (Pty) Ltd and
Bosasa Youth Development Centres
(Pty) Ltd (the respondents), are
shareholders of the company each holding 25 per cent of the issued
shares. The shareholders appointed
directors who vote in blocks in
proportion to their shareholding. The respondents’ nominees and
the appellants’ nominees
each have 50 per cent of the vote at
both board and shareholder level. Mr Sabelo Macingwane, the managing
director of the first
appellant, is the chairperson of the company
but has no casting vote. The company is solvent and its main asset is
an 11 per cent
shareholding in Ntsimbintle Mining (Pty) Ltd which is
worth some R132 million.
The high court
decision
[2] Vermeulen AJ made the
order liquidating the company on the basis that it was just and
equitable to do so as provided for by
s 81(1)(
d
)(iii) of the
Companies Act 71 of 2008
. He founded his judgment on the general
breakdown of the relationship between the shareholders and in
exercising his discretion
whether to liquidate, said that the company
was of the kind envisaged in
In re Yenidje Tobacco Company Limited
[1916] 2 Ch 426
(CA), that is, in substance a partnership in the
guise of a company. He took into account that the company had only
four members,
each having the right to appoint a director, and that
there was accordingly no body of shareholders distinct from the
board. Each
of the shareholders had the right to participate in the
management of the company. The shareholders’ rights to dispose
of
their shares were restricted so that a shareholder could not,
without the consent of the other shareholders, simply sell its shares
and go elsewhere. Given the irretrievable breakdown in the
relationship between the parties, which went further than the
inability
to meet or pass resolutions, and irrespective of whether it
also resulted in a deadlock at board level, he found that the
liquidation
of the company was, in the absence of any other remedy,
the only route to follow. In addition, he considered events that
occurred
after the filing of the answering affidavits and which were
recorded in the respondents’ replying affidavit, but found that
they strengthened his conclusion that the relationship between the
parties had irretrievably broken down. These events concern
the
agreement concluded after the liquidation application had been
launched for the sale of the respondents’ shares to the
appellants for some R51 million and the negotiations before and after
agreement in principle had been reached. This is an aspect
to which I
will return.
Companies Act 71 of
2008
[3] The law regulating
the winding-up of a company is contained in
Part G
of Chapter
2 of the 2008 Act and Chapter XIV of the Companies Act 61 of 1973,
read with the applicable laws relating to insolvency.
The latter
statute continues to apply by virtue of the provisions of item 9 of
Schedule 5 notwithstanding its repeal with effect
from 1 May 2011. In
terms of the 2008 Act, the provisions of Chapter XIV continue to
apply until the Minister, by notice in the
Government Gazette
,
determines a date on which it shall cease to have effect, that is,
once the Minister is satisfied that ‘alternative legislation
has been brought into force adequately providing for the winding-up
and liquidation of insolvent companies’ (Item 9(4)
(a)
of
Schedule 5). However, in terms of item 9(2) of Schedule 5, ss 343,
344, 346 and 348 to 353 of the 1973 Act do not apply to the
winding-up of a ‘solvent company’ except to the extent
necessary to give effect to the provisions of
Part G
of
Chapter 2 of the new Act. Item 9(3) of Schedule 5 provides that in
the event of a conflict between a provision of the previous
Act that
continues to apply and a provision of
Part G
of Chapter 2 of
the new Act with respect to a solvent company, the provisions of the
new Act with respect to a solvent company
prevails. The winding-up of
solvent companies is dealt with in ss 79 to 81 of the new Act and
their deregistration in ss 82 and
83. The company concerned in this
matter is a ‘solvent company’.
[4] Section 81(1)
provides that a court may order the winding-up of a solvent company
where the company has resolved by a special
resolution that it be
wound up by the court (sub-s (
a
)(i)); or has applied to have
its voluntary winding-up continued by the court (sub sec (
a
)(ii)).
The court may further order the winding-up of a solvent company where
the practitioner appointed during business rescue
proceedings applies
for liquidation in terms of s 141(2)(
a
) on the ground that
there is no reasonable prospect of the company being rescued (s
81(1)(
b
)). Two further grounds are relevant and they are set
out in s 81(1)(
c
) and (
d
):
‘
(
c
) one
or more of the company’s creditors have applied to the court
for an order to wind up the company on the grounds that—
(I)
the company’s business rescue proceedings have ended in the
manner contemplated in section 132 (2)
(b)
or
(c)
(i) and it appears to the court that it is just and
equitable in the circumstances for the company to be wound up; or
(ii) it
is otherwise just and equitable for the company to be wound up;
(
d
) the
company, one or more directors or one or more shareholders have
applied to the court for an order to wind up the company on
the
grounds that—
(i) the
directors are deadlocked in the management of the company, and the
shareholders are unable to break the deadlock, and—
(
aa
) irreparable
injury to the company is resulting, or may result, from the deadlock;
or
(
bb
) the
company’s business cannot be conducted to the advantage of
shareholders generally, as a result of the deadlock;
(ii) the
shareholders are deadlocked in voting power, and have failed for a
period that includes at least two consecutive annual
general meeting
dates, to elect successors to directors whose terms have expired; or
(iii) it
is otherwise just and equitable for the company to be wound up…’.
[5] The 2008 Act contains
numerous innovations. They include the institution of business rescue
in Chapter 6; the provisions of
Part A
of Chapter 7 providing
for alternative dispute resolution and of
Part B
of Chapter 7
providing for a number of specific remedies. They require a
reconsideration of the grounds for the winding-up of companies.
Hence
the references to business rescue and deadlock in s 81(1). This
application is based on s 81(1)(
d
)(iii), an alternative ground
for winding-up, where ‘it is otherwise just and equitable for
the company to be wound up’.
Appellants’
contentions
[6] The appellants
contended that the application for winding-up is based on a deadlock
between the parties at both shareholder
and director level but that
deadlock, as a ground for liquidation, is excluded by clause 8.2 of
the shareholders agreement. The
respondents had stated at various
places in the founding affidavit that the directors were not able to
operate and make decisions
commercially because of a deadlock at both
levels. They also alleged that the directors were deadlocked
concerning the management
of the company and that the shareholders
were unable to break the deadlock, given the terms of the
shareholders agreement. The
result of the deadlock at both levels was
that the business of the company could not be conducted and its
assets managed to the
advantage of the shareholders generally. The
appellants also submitted that there was no evidence that the
relationship between
the parties had irretrievably broken down and
that the court below erred in coming to that conclusion. The further
submission was
made that a winding-up order may not be made on the
application of a party responsible for the situation giving rise to
the application.
The respondents were, in other words, not
approaching the court with ‘clean hands’.
Respondents’
desire to dispose of their shares company
[7] The winding-up
application was motivated by the desire of the second and third
respondents to dispose of their shares. The shareholders
agreement
provides a mechanism for this but requires that all the other
shareholders consent thereto in writing. The appellants,
it was
argued, were and remain unwilling to consent to the respondents
disposing of their shares or to meet in order to discuss
a reasonable
basis for their leaving the company. The result of the impasse and
the consequent lack of trust between the parties
have rendered the
management of the company dysfunctional and the company moribund,
justifying its winding-up.
[8] The company holds
shares in Ntsimbintle and it is therefore merely a vehicle for the
parties’ investment in that company.
The respondents wish to
leave the company and to do so they must sell their shares. The
appellants refused to consent to a sale
and submitted that
liquidation would be to their prejudice. The second appellant
considers Ntsimbintle as a long-term investment
and has no intention
of disinvesting. Any such disinvestment, it suggested, would result
in the loss of the full value of the investment,
which will only be
realised once Ntsimbintle starts mining and disposing of its
minerals.
[9] This argument is
flawed. The respondents wish to leave the company and to do so have
to dispose of their shares, not of the
company’s shares in
Ntsimbintle. The company’s 11 per cent holding in Ntsimbintle
will not be affected by the respondents’
disposing of their
shareholding in the company. Sale of their shares will only mean that
50 per cent of the shares will no longer
be held by the respondents
but by the purchaser.
Deadlock
[10] The appellants
relied on clause 8 of the shareholders agreement which, they
submitted, excludes, as a ground for liquidation,
a deadlock. The
ordinary meaning of ‘deadlock’ is a ‘condition or
situation in which no progress or activity
is possible; a complete
standstill; lack of progress due to irreconcilable disagreement or
equal opposing forces’.
1
However, clause 8.2 must be construed in its context.
2
The clause is headed ‘Deadlock’ and provides as follows:
‘
8.1 If
the required majority for the passing of a Directors’
resolution cannot be obtained, such resolution shall cease to
be
within the Directors’ domain and shall be put to the
Shareholders in a General Meeting.
8.2 A
deadlock shall not constitute grounds for the winding-up of the
Company.’
The clause immediately
preceding it, clause 7, deals with resolutions of the board or
shareholders pertaining to certain prescribed
matters which require
the consent of directors or shareholders holding or representing 75
per cent of the issued shares. Clause
8.1 then follows by providing
that where the required majority cannot be obtained at board level,
the matter shall be put to the
shareholders at a general meeting.
Clause 8.2 deals with a deadlock at
board level
and excludes
the inability to obtain the required vote at that level as a ground
for winding-up. It does not affect what has been
referred to as the
‘deadlock principle’ or other forms of ‘deadlock’.
It follows that the respondents were
not precluded by clause 8.2 from
launching the winding-up application.
[11] Moreover, the power
to consent to the respondents’ proposed exit is not a power
that falls within the powers of the board
of directors. Nor is the
non-selling shareholders’ consent to the respondents’
sale of their shares a matter that has
to be resolved necessarily by
the shareholders in general meeting. Clause 11.1 is clear:
‘
Save
as is provided for in this Agreement, no Shareholders shall sell or
transfer any Equity in the Company or any interest in such
Equity,
without the prior written consent of all other Shareholders who may,
without assigning any reasons therefore, decline such
consent.’
Consent could have been
sought and granted by the other shareholders in any manner, save that
it must be in writing. There was no
need for a general meeting to be
convened to obtain the consent of the other shareholders. Clause
11.3.6 of the shareholders agreement
has the effect of creating an
automatic ‘option’ or right of first refusal in favour of
the remaining shareholders.
This option, however, only comes into
effect when the remaining shareholders, in terms of clause 11.1, have
all consented to the
proposed sale. No consent to the proposed sale
has been given.
Construction of s
81(1)(
d
)
[12] The words ‘just
and equitable’ appear in both the 1973 and the 2008 Acts. The
question that arises here is whether
s 81(1)(
d
)(i)
and (ii) affects the construction of the words ‘just and
equitable’ in s 81(1)(
d
)(iii)
so as to preclude all other grounds of deadlock. Mr van Niewenhuizen,
on behalf of the respondents, submitted that the word
‘deadlock’
as used in s 81(1)(
d
)(i)
and (ii) should not be interpreted so as to restrict its meaning to a
rigid category excluding other forms of deadlock from
forming the
basis for liquidation under s 81(1)(
d
)(iii).
[13] There are
conflicting decisions in the high court. In
Muller
v Lilly Valley (Pty) Ltd
3
Weiner J accepted that the
legal basis for a liquidation order under s 344(h) of the old Act is
the same as under s 81(1)
(d)
(iii)
of the new Act. The provisions of the new provision ‘mirror the
“just and equitable” ground provided for
in terms of
section 344(
h
)
of the old Act’. On this basis she seems to have accepted that
the ‘same legal principles which held sway in relation
to such
section of the old Act are applicable to the present inquiry under
the new Act’. In a subsequent case,
Budge
& others NNO v Midnight Storm Investments 256 (Pty) Ltd &
another
4
in the same division Meyer J qualified the judgment of Weiner J and
said:
‘
The
‘just and equitable’ basis for the winding-up of a
solvent company in terms of s 81(1)
(d)
(iii) of the new
Companies Act should for the reasons that follow not be interpreted
so as to only include matters
eiusdem generis
the other
grounds enumerated in s 81. The
eiusdem generis
rule, in my
view, is inapplicable to s 81(1)
(d)
(iii) of the
new Companies Act.
In
enacting s 81(1)
(d)
(i), which applies to a situation where the
directors are deadlocked in the management of a company, and s
81(1)
(d)
(ii), which applies to a situation where the
shareholders are deadlocked in voting power, the legislature modified
the judicially
developed deadlock category that forms part of the
just and equitable ground for winding-up of a company and made its
application
subject to certain new requirements. The application of
s 81(1)
(d)
(iii) to deadlock categories and to the
circumstances referred to in s 81(1)
(c)
would render the
provisions of s 81(1)
(d)
(i) and of s 81(1)
(d)
(ii)
nugatory since an applicant who is unable to meet the requirements of
those sections would nevertheless be able to invoke the
judicially
developed deadlock category that forms part of the just and equitable
ground for winding-up in terms of s 81(1)
(d)
(iii). I am
further of the view that the
eiusdem generis
rule is excluded,
because the specific words of s 81(1)
(d)
(i) and of
s 81(1)
(d)
(ii) exhaust the genus, in this instance
deadlock.’
[14] Meyer J’s
conclusion that the just and equitable ground in s 81(1)(
d
)(iii)
should not be interpreted so as to include only matters similar to
the other grounds stated in s 81(1) is clearly correct.
However, his
conclusion that s 81(1)(
d
)(iii)
modified the ‘judicially developed deadlock category’ is
doubtful. Meyer J was dealing with what has been (inappropriately)
termed the ‘complete deadlock’ category and not with the
‘deadlock principle’.
5
Indeed he made the winding-up order on what has been referred to as
the ‘deadlock principle’. This case is also concerned
with the ‘deadlock principle’ or, preferably, the failure
of the relationship between the parties. The examples of
‘deadlock’
given in s 81(1)(
d
)
(i) and (ii), that is, where either the board or the shareholders are
deadlocked are examples only, and, it seems to me, are not
exhaustive
and do not limit s 81(1)(
d
)(iii).
The use of the word ‘otherwise’ in the subsection does
not limit what is meant by ‘just and equitable’.
On the
contrary, it extends the grounds of winding-up to include other cases
of deadlock. It is conceivable that it may be just
and equitable to
liquidate even if the shareholders have been unable to elect
successors to directors for less than the stipulated
period that
includes two consecutive annual general meeting dates, as s
81(1)(
d
)(ii)
requires.
‘
Otherwise just
and equitable’
[15] Section 344(h) of
the 1973 Act provides that a company may be wound up by the court
when it is ‘just and equitable’
to do so. A winding-up on
this basis ‘postulates not facts but only a broad conclusion of
law, justice and equity, as a ground
for winding-up’.
6
The subsection is not confined to cases which were analogous to the
grounds mentioned in other parts of the section.
7
Nor can any general rule be laid down as to the nature of the
circumstances that had to be considered to ascertain whether a case
came within the phrase.
8
There is no fixed category of circumstances which may provide a basis
for a winding-up on the just and equitable ground. In
Sweet
v Finbain
9
it was said:
‘
The
ground is to be widely construed; it confers a wide judicial
discretion, and it is not to be interpreted so as to exclude matters
which are not eiusdem generis with the other grounds specified in s
344. The fact that the Courts have evolved certain principles
as
guides in particular cases, or examples of situations where the
discretion to grant a winding-up order will be exercised, does
not
require or entitle the Court to cut down the generality of the words
“just and equitable”.’
Section 344(
h
)
gave the court a wide discretion in the exercise of which certain
other sections of the Act had to be taken into account.
10
[16] Some of the
categories that have been identified are the disappearance of a
company’s substratum; illegality of the objects
of the company
and fraud connected in relation to it; a deadlock; oppression; and
grounds similar to the dissolution of a partnership.
11
A ‘deadlock’ which, because of a divided voting power at
both the board and general meeting, affected the management
of the
company could also found a liquidation order on this ground.
12
No doubt these categories remain under the new Act and may be
extended.
13
[17] The word ‘deadlock’
is not always given the same meaning.
14
The reference to deadlock in the previous paragraph and also in s
81(1)(
d
)(i)
and (ii) was described as a case of ‘complete deadlock’,
15
but there is no particular advantage in the introduction of this
term. The ‘deadlock principle’, on the other hand,
is –
‘
.
. . founded on the analogy of partnership and is strictly confined to
those small domestic companies in which, because of some
arrangement,
express, tacit or implied, there exists between the members in regard
to the company’s affairs a particular
personal relationship of
confidence and trust similar to that existing between partners in
regard to the partnership business.’
16
The ‘superimposition
of equitable considerations’ in such a case may justify the
dissolution of such a company under
the just and equitable
provision.
17
[18] The company under
consideration, the first respondent in the court below, is not a
partnership and there is no evidence that
it is the continuation of a
partnership. It is a relationship based on the shareholders agreement
which is the ‘entire agreement
between the parties’
(clause 2.27). The shareholders agreement is stated to be personal to
the parties and they may not without
the consent of the other
‘transfer, encumber, subcontract or otherwise deal or dispose
with any or all of their obligations
(clause 18). Clause 19 obliges
the parties in their dealings with each other in the implementation
of the agreement ‘to observe
the utmost good faith and to give
full effect to the intent and purpose of this agreement’. In
addition, the parties undertake
to keep confidential the agreement
and details of the transaction (clause 20.2). The shareholders each
have an equal say in the
management of the company. Indeed, it can
only function consensually. Transfer of the shares of members is
restricted. For those
reasons, the company can function only when the
relationship of confidence and trust between the parties is
maintained.
[19] The appellants,
however, invoked the maxim
pacta
sunt servanda
. They rely on
the words of the constitutional court stating that,
18
-
‘
.
. . public policy, as informed by the Constitution, requires in
general that parties should comply with contractual obligations
that
have been freely and voluntarily undertaken.'
They argue that the
winding-up application was motivated solely by the respondents’
desire to exit the company and that clause
11 of the shareholders
agreement governs the disposal of shares by members to third parties.
They contended that there was nothing
inequitable or unjust regarding
the appellant’s insistence that the respondents pursue the
agreed course concerning the disposal
of their shares.
[20] However, the
oft-cited passage from the speech of Lord Wilberforce in
Ebrahimi
v Westbourne Galleries Ltd & others
19
is particularly apposite:
‘
The
“just and equitable” provision does not … entitle
one party to disregard the obligation he assumes by entering
a
company, nor the court to dispense him from it. It does, as equity
always does, enable the court to subject the exercise of legal
rights
to equitable considerations; considerations, that is, of a personal
character arising between one individual and another,
which may make
it unjust, or inequitable, to insist on legal rights, or to exercise
them in a particular way.’
Failure of the
relationship
[21] The court below
found that the application for the company’s liquidation was
founded on the general failure of the relationship
between the
parties. Although there are references to deadlock in the founding
papers, one should be careful, as the court below
emphasised, not to
confuse the symptom, that is deadlock, with the malaise. This is made
clear in the founding affidavit where
the deponent in so many words
stated that the relationship had broken down irretrievably to the
extent that attempts by the respondents
to meet in order to discuss
their exit from the company had failed. As a result, the company lost
its ability to function and the
board became unable to take
decisions.
[22] Indeed, the board of
directors has not met since 11 March 2011. The meetings of the board
and shareholders set down for 8 June
2011 had four items on its
agenda for the shareholders’ meeting. The first was a
presentation by Questco (Pty) Ltd relating
to the proposed disposal
of 5,5 per cent of the company’s shareholding in Ntsimbintle.
The second was a discussion and the
approval of the proposed
disposal. The third entailed the disposal of the respondents’
holdings to the remaining shareholders,
alternatively, to the
company. The fourth concerned the ratification of the board’s
decision to approve the annual financial
statements for the year
ending 28 February 2010. The meetings of 8 June 2013 were cancelled
by the respondents because their representatives
were not available
on that day.
[23] Meetings by
directors and shareholders were called for on 13 July 2011 and the
same agenda circulated. The meetings did not
go ahead and the reason
for their cancellation is not clear. A meeting of ‘elders’
was then called for 17 August 2011
by Mr Macingwane. The attorneys
for the appellants wrote to the attorneys for the respondents on 1
July 2011:
‘
Our
instructions are that at the meeting of the 16
th
October 2008 held at 1 Windsor Road, Luipaardsvlei, Mogale City, it
was decided that the “elders” would convene a meeting
for
the purposes of discussing the correction of the share register of
the company. This meeting has not taken place and our client
requests
the said meeting be held as a matter of urgency. Our client is
available at any time that suits your client.’
The respondents’
attorneys replied on 4 July that the share register required no
correction and that the proposed meeting
need for that reason not be
held. They referred to the ‘impasse’ existing between the
shareholders and requested a
meeting with them, together with their
respective attorneys, to ‘resolve issues once and for all’.
[24] An exchange of
e-mails and faxes followed on 16 August 2011, the day before the
meeting of ‘elders’ was to take
place. The respondents
requested an agenda but none was forthcoming because, the appellants
replied, the agenda had to be prepared
by the ‘elders’.
The respondents answered as follows:
‘
The
“impasse” in the company is the fact that it is moribund
and unable to function given the terms of the shareholders
agreement.
Our
clients, who hold 50% of the shares in Nkonjane, wish to exit the
company. A satisfactory mechanism enabling our clients to
do so was
proposed by Questco the advisors to Safika Resources, which would
enable our client to realise value utilising its 50%
portion of
Nkonjane’s holding in Ntsimbintle Mining.
Questco
have been and remain amenable to make a presentation to all of the
Nkonjane shareholders to explain to them the basis for
our client
exiting and realising value, and to the extent that your client
wished to realise value, he would be entitled to do
so. However, your
client has cancelled a number of board and shareholders meetings
convened for this purpose. Your client suggested
a meeting of
“elders” (whatever that may mean), we said yes, provided
that such meeting was together with their attorneys.
It
is our client’s exit from Nkonjane and the realisation of its
value in Ntsimbintle that our client is amenable to discuss
tomorrow.’
However, the appellants
were ‘not at this stage interested in any presentation by
Questco’. They made their conditions
for the respondents’
exit clear:
‘
1.
the correction of the share register before such an exit; and
2.
the payment of outstanding/withheld dividend due to our client. The
amount that has been withheld is R 100 000.00’
The respondents were not
prepared to meet on those terms and the meeting of ‘elders’
never took place.
[25] While the
cancellation of some of the meetings cannot be explained, the fact
remains that the last time the board met was on
11 March 2011. The
appellants simply denied that the relationship had broken down and
that no such inference could be drawn from
the failure to meet. To my
mind, however, the failure to meet has one cause only, that is, the
breakdown in the relationship. Why
were the appellants not interested
in discussing the Questco proposal? Why would the chairman, Mr
Macingwane, instead call for
a meeting of ‘elders’, and
not of shareholders, to resolve the impasse? The very tone of the
letters exchanged between
the parties’ representatives suggests
a strained relationship. No agenda was set by Mr Macingwane. When the
respondents’
attorney stated that the appellants’ exit
from the company had to be discussed, the response was that one of
the conditions
of any consent to the respondents’ disposing of
their shareholdings was the correction of the share register. Several
references
to the rectification of the share register are made, but
Mr Macingwane did not disclose why the register was supposedly
incorrect.
Indeed, he stated that this issue was of no relevance. If
it is the contention that the respondents own less than half of the
shares
in the company then, of course, the appellants will not
consent to the disposal by the respondents of 50 per cent of the
shares
nor pay for them.
[26] In addition, during
2008 the company instituted action against Mr Macingwane for the
recovery of moneys lent and advanced.
The first respondent thereafter
joined the action as a plaintiff. The action was then consolidated
with an action instituted by
Mr Watson in which recovery of moneys
lent by Mr Watson to Mr Macingwane was sought. The matters went to
trial in 2010 and Mr Macingwane
succesfully defended the claim of the
company and the first respondent. Watson’s claim is currently
on appeal. Mr Macingwane
laid criminal charges against Mr Watson and
made allegations against the first respondent of theft of dividends
the company was
said to owe the second appellant. One can hardly
conceive of better evidence of the breakdown of the relationship than
the chronicle
of the litigation between the parties. The business
atmosphere between the parties was replaced by one of litigation and
confrontation.
Clean hands
[27] The appellants
contended that the respondents and Watson were to blame for the
breakdown in the parties’ relationship
and that, for this
reason, they were precluded from seeking the liquidation of the
company. The appellants, in other words, invoke
the principle that a
person who applies for winding-up on the just and equitable ground
must come to court with ‘clean hands’.
If the breakdown
in the relationship is due to an applicant’s misconduct, it
cannot insist on the company being wound up.
20
However, lack of clean hands is not an absolute bar.
[28] As Santow J stated
in
Ruut v Head
:
21
‘
As
a matter of logic, lack of clean hands could not be an absolute bar,
else otherwise for example, where both Partners are equally
at fault,
neither could obtain a winding-up order. Nonetheless it must be an
important factor in the exercise of the court’s
discretion
along with other factors, such as whether the partnership is truly
deadlocked.’
A court should thus
assess the respective contributions to the breakdown to determine
whether it is just and equitable to liquidate.
But a party’s
fault should not necessarily deter a court from winding-up –
‘
.
. . so that the paralysis … may be eliminated, a competent
functionary (in the person of a liquidator) may be placed in
control
of [the company] and that functionary may address the question of
where the best interests of [the company] lie ….’
22
[29] Vermeulen AJ found
that the blame for the breakdown in the relationship could not be
apportioned with precision. He nevertheless
held that the
respondents’ blameworthiness was no greater than that of the
appellants. An equal apportionment of blameworthiness,
he thought
might be somewhat charitable to the appellants but not an outright
injustice to the respondents. I cannot fault his
reasoning.
Subsequent events
[30] The appellants
argued that the agreement reached at the meeting of shareholders on 4
November 2012, after the liquidation application
was launched, was
binding on the parties. This agreement provided for the purchase by
the appellants of the combined shareholding
of the respondents for a
consideration of R51.7 million. The agreement was, however, subject
to the liquidation application being
kept in abeyance pending
finalisation of the sale agreement. Moreover, the parties had to
obtain the consent of the Ntsimbintle
shareholders prior to 25
November 2011. The closing date of the transaction was to be 25
November 2011 or such later date agreed
upon in writing, on which
date the purchase price had to be paid in cash. Furthermore, the
parties agreed that should payment not
be made by 25 November 2011
(or at a later agreed date) the respondents would be entitled to sell
their 50 per cent
aliquot
stake in Ntsimbintle to Ntsimbintle
or its nominee on its own terms. It was further agreed that the
respondents’ attorneys
would provide a draft of the agreement
to the other parties for comment. This was done on 18 November 2011.
[31] The appellants’
response was to propose an amendment of the closing date from 25
November 2011 to 29 February 2012 and
to remove the clause relating
to the power of the respondents to conclude an agreement with
Ntisimbintle if payment was not made
on the agreed date. The
respondents did not agree to the proposed amendments and made counter
proposals. In the result no agreement
was concluded.
[32] The court below
correctly found that, because no agreement was reached, the events
provided further evidence of the breakdown
of the relationship.
Moreover, after the matter was postponed on 8 February 2012 to give
the parties a further opportunity to settle,
the further negotiations
led nowhere. This, the court below found, strengthened the conclusion
that winding-up was the only feasible
method of resolving the
breakdown between the parties.
[33] The shareholders
agreement and the equal holding of shares and voting power on the
board require the shareholders to co-operate.
Without such
co-operation the company cannot function. It was not possible to meet
and approve the financial statements for the
year ending February
2010. In these circumstances their relationship has broken down
irretrievably and the court below correctly
found that it was just
and equitable that the company be wound up. Only a winding-up will
break the paralysis that haunts the company.
Costs of the recusal
application
[34] When this matter
commenced before Vermeulen AJ, the appellants applied for his recusal
on the basis that he was a member of
the same group as senior counsel
representing the respondents. It was contended that this presented
grounds for a reasonable apprehension
of bias. The application was
dismissed with costs on the scale as between attorney and client.
[35] The appellants
appeal against the costs order only. The court below correctly
dismissed the application: it was obviously devoid
of merit.
23
However, in making the punitive costs order the court said that ‘it
is difficult to resist the [inference] that it was actuated
by an
ulterior motive’. However, no proper application was before the
court below. It was moved from the bar and there are
no facts on
record to justify the inference drawn and, hence, the punitive costs
order made. For this reason the order made should
be set aside and
amended.
[36] In the result the
appeal should be dismissed. The following order is made.
1. The appeal is
dismissed with costs including the costs of two counsel.
The order of the court
below is confirmed save to the extent that the words ‘on the
scale as between attorney and client’
are deleted.
F R MALAN
JUDGE OF APPEAL
APPEARANCES
FOR APPELLANTS: D.
B. Ntsebeza SC with M. Sello
Instructed by:
Lowndes Dlamini c/o
Savage Jooste & Adams, Pretoria
Matsepes Inc,
Bloemfontein
FOR SECOND AND THIRD
S. van Niewenhuizen SC with
RESPONDENT: A. J.
Daniels
Instructed by:
Le Grange
Attorneys, Pretoria
Symington &
De Kok, Bloemfontein
1
The Shorter Oxford English Dictionary
6 ed (2007) vol 1 at 611.
2
Natal Joint Municipal
Pension Fund v Endumeni Municipality
2012 (4) SA 593
(SCA) para
17.
3
Muller v Lilly Valley (Pty) Ltd
[2012] 1
All SA 187
(GSJ) paras 1 and 2.
4
Budge NO v Midnight Storm Investments 256 (Pty) Ltd
2
012
(2) SA 28
(GSJ) paras 9-10.
5
See
Cilliers NO v
Duin & See (Pty) Ltd
2012 (4) SA
203
(WCC) paras 5 and 6.
6
Moosa, NO v Mavjee Bhawan (Pty) Ltd
1967
(3) SA 131
(T) at 136H-I.
7
Apco
Africa (Pty) Ltd v Apco Worldwide Inc
[2008] ZASCA 64
;
2008
(5) SA 615
(SCA) para 16;
Loch
v John
Blackwood,
Limited
[1924] AC 783
(HL).
8
Apco
para 16.
9
Sweet v
Finbain
1984 (3) SA 441
(W) and see
Sunny
South Canners (Pty) Ltd v Mbangxa
NO
[2001]
1 All SA 474
(SCA) at 481.
10
Erasmus v Pentamed Investments (Pty) Ltd
1982
(1) SA 178
(W) at 181C-H.
11
See
Rand Air (Pty)
Ltd v Ray Bester Investments (Pty) Ltd
1985 (2) SA 345
(W) at 350C-H.
12
Rand Air (Pty) Ltd v Ray Bester Investments
(Pty) Ltd
1985 (2) SA 345
(W) at
350E-G.
13
Herman v
Set-Mak Civils CC
2013 (1) SA 386
(FB) para 15;
Scania
Finance Southern
Africa
(Pty) Ltd v Thomi-Gee Road Carriers CC
2013
(2) SA 439
(FB) para 22.
14
See P H McPherson
‘Winding Up on the “Just and Equitable” Ground’
(1964)
Modern
Law
Review
282
at 293-297.
15
Cilliers v Duin & See
2012 (4) SA 203
(WCC) para 5.
16
Apco
Africa (Pty) Ltd v Apco Worldwide Inc
2008 (5) 615 (SCA) para 19;
Emphy
v Pacer
Properties
(Pty) Ltd
1979 (3) SA 363
(D) para 2;
Cilliers
v Duin & See
2012
(4) SA 203
(WCC)
para 5.
17
Apco
para 17 with reference to Lord Wiberforce’s speech in
Ebrahimi
v Westbourne
Galleries
Ltd
[1973] AC 360
(HL) at 379
b
-380
b
;
[1972] 2 All ER 492
at 500
a
-
h.
18
Barkhuizen v Napier
[2007] ZACC 5
;
2007 (5) SA 323
(CC) para 57.
19
[1973] AC
360
(HL) at 379C-G. See also
Muller
v Lilly Valley (Pty) Ltd
[2012] 1 All SA 187
(GSJ)
para 18.
20
Apco
para
19;
Emphy
v Pacer Properties (Pty) Ltd
1979
(3) SA 363
(D) at 368G-I;
Ebrahimi
v
Westbourne Galleries Ltd
[1973]
AC 360
(HL) at 387G-H.
21
Ruut v
Head
(1996)
20 ACSR 160
at 162 cited with approval in
Pham
Thai Duc v Pts
Australian
Distributor (Pty) Ltd
[2005]
NSWSC 98
para 17.
22
Pham Thai Duc v Pts Australian Distributor (Pty) Ltd
[2005]
NSWSC 98
para 18.
23
Bernert
v ABSA Bank Ltd
2011 (3) SA 92
(CC) para 29. See
BTR
Industries South Africa
(Pty) Ltd v
Metal and Allied Workers’ Union
[1992] ZASCA 85
;
1992
(3) SA 673
(A) at 691F-G;
President
of the
Republic of
South Africa v South African Rugby Football Union
2000
(1) SA 1
(CC) at 170I-
171F.