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[2011] ZAECPEHC 35
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Griffiths v Climatic Air Conditioning and Refrigeration CC and Others (14/11) [2011] ZAECPEHC 35 (11 August 2011)
IN THE HIGH COURT OF SOUTH AFRICA
EASTERN CAPE HIGH COURT: PORT ELIZABETH
CASE NO: 14/11
Heard on: 17/06/11
Delivered on: 11/08/11
In the matter between:
ROBERT GRIFFITHS
…...........................................................................
Applicant
and
CLIMATIC AIR CONDITIONING &
REFRIGERATION CC
Registration No. CK1986/002088/23
….........................................
First
Respondent
and
ANCHOR ENGINEERING CC
Registration No. 1986/004500/23
…..........................................
Second
Respondent
and
CLIFIN INVESTMENTS (PTY) LTD
Registration No. 1994/008500/07
….............................................
Third
Respondent
and
AINSLELY OWEN PUGHE-PARRY
…...................................
Fourth Respondent
and
GERALD JACK FRIEDMAN, AINSLEY OWEN
PUGHE-PARRY and CLEMENT CHARLES ROBERT
MORRIS in their capacities as Trustees for the time
being
of THE AINSLEY PUGHE-PARRY TRUST
Registration No. TM6106
…..........................................................
Fifth
Respondent
_____________________________________________________________
JUDGMENT
____________________________________________________________
NHLANGULELA J:
[1] The applicant has brought this application in terms
of s 36, s 49 and s 68 of the Close Corporations Act, Act No. 69 of
1984
(the Act); and s 252 of the Companies Act, Act No. 61 of 1973
(the Companies Act). The applicant seeks, in the first part, an order
that the membership and shareholding of the applicant in the first,
second and third respondents be terminated and that the applicant’s
members interest and loan accounts in those respondents be
transferred to the fourth, alternatively, the fifth respondent,
against
payment of certain sums to the applicant. In the second part,
the applicant seeks an order that the first, second and third
respondents
be placed under provisional liquidation in the hands of
this Court. The relief is sought in the second part only in the event
that
the relief in the first part is not granted.
[2] The applicable legislation in this case are s 36 and
s 49 of the Act and s 252 of the Companies Act. I quote hereinunder
the
relevant provisions of the pieces of the legislation
aforementioned.
Section 36 of the Act reads:
“
Cessation of membership by order of Court
(1) On application by any member of a corporation a Court may on any
of the following grounds order that any member shall cease
to be a
member of the corporation:
Subject to the provisions of the association agreement (if any),
that the member is permanently incapable, because of unsound
mind or
any other reason, of performing his or her part in the carrying on
of the business of the corporation;
that the member has been guilty of such conduct as taking into
account the nature of the corporation’s business, is likely
to
have a prejudicial effect on the carrying on of the business;
that the member so conducts himself or herself in matters relating
to the corporation’s business that it is not reasonably
practicable for the other member or members to carry on the business
of the corporation with him or her; or
that circumstances have arisen which render it just and equitable
that such member should cease to be a member of the corporation:
Provided that such application to a Court on any ground mentioned in
paragraph (a) or (d) may also be made by a member in respect
of whom
the order shall apply.
(2) A Court granting an order in terms of subsection (1) may make
such further orders as it deems fit in regard to–
the acquisition of the member’s interest concerned by the
corporation or by members other than the member concerned; or
the amounts (if any) to be paid in respect of the member’s
interest concerned or the claims against the corporation of
that
member, the manner and times of such payments and the persons to
whom they shall be made; or
any other matter regarding the cessation of membership which the
Court deems fit.”
Section 49 of the Act reads:
“
Unfairly prejudicial conduct
(1) Any member of a corporation who alleges that any particular act
or omission of the corporation or of one or more other members
is
unfairly prejudicial, unjust or inequitable to him or her, or to some
members including him or her, or that the affairs of the
corporation
are being conducted in a manner unfairly prejudicial, unjust or
inequitable to him or her, or to some members including
him or her,
may make an application to a Court for an order under this section.
(2) If on any such application it appears to the Court that the
particular act or omission is unfairly prejudicial, unjust or
inequitable as contemplated in subsection (1), or that the
corporation’s affairs are being conducted as so contemplated,
and if the Court considers it just and equitable, the Court may with
a view to settling the dispute make such order as it thinks
fit,
whether for regulating the future conduct of the affairs of the
corporation or for the purchase of the interest of any member
of the
corporation by other members thereof or by the corporation.
…
…
…”
Section 252 of the Companies Act reads:
“
Member’s remedy in case of oppressive or unfairly
prejudicial conduct
(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.
(2) …
If on any such application it appears to the Court that
the particular act or omission is unfairly prejudicial, unjust or
inequitable, or that the company’s affairs are being conducted
as aforesaid and if the Court considers it just and equitable, the
Court may, with a view to bringing to an end the mattes complained
of, make such order as it thinks fit, whether for regulating the
future conduct of the company’s affairs or for the purchase
of
the shares of any members of the company by other members thereof or
by the company and, in the case of a purchase by the company,
for the
reduction accordingly of the company’s capital, or otherwise.
…
…”
[3] The nature and purpose of s 36 and 49 of the Act can
best be appreciated by referring to judgment of Nepgen J in
De
Franca v Exhaust Pro. CC (De Franca Intervening)
1997 (3) SA 878
(SECLD) at 893C–H, where the learned Judge stated as follows:
“Section 49 deals with the situation where conduct (an act or
an omission) of the close corporation or of one or more of
its
members, or where the manner in which the affairs of the close
corporation are being conducted, is unfairly prejudicial, unjust
or
inequitable to a member of the close corporation. When this occurs
such member may make application to the Court for an order
that will
have the effect of ‘settling the dispute’ (s 252 of Act
61 of 1973 provides for an order having the effect
of ‘bringing
to an end the matters complained of’). As to what an applicant
must establish, see
Gatenby’s
case (
supra
124B-G).
The Court has a wide discretion with regard to the order that it
decides to make to bring about the required result (
cf Gatenby
case
supra
at 122F-123J). Such order can, however, only be
made ‘if the Court considers it just and equitable’ to do
so.
Section 36 of the Act also deals with an application to Court by a
member of a close corporation, but such member is not required
to
establish conduct of the nature referred to above when discussing s
49 of the Act, namely conduct affecting him. It is the carrying
on of
the business of the close corporation that must be affected, either
by the existence of circumstances envisaged by ss (1)(a)
or by
conduct as described in ss (1)(b) and (1)(c). Subsection (1)(d),
however, gives wide and virtually unlimited scope for the
application
of s 36 of the Act, the only limitation being the ‘just and
equitable’ requirement. The order that a Court
can make in
terms of s 36(1) of the Act is circumscribed, namely an order that a
member shall cease to be a member of the close
corporation. Once a
Court decides that an order for such cessation of membership should
be made, it has a discretion to make further
orders as referred to in
s 36(2) of the Act. While a Court could, applying the provisions of s
49 of the Act, make an order compelling
one member to purchase the
interest of another, which would have the effect of such member’s
membership in the close corporation
ceasing, that which would have to
be established before this is done is quite different to what would
have to be established under
s 36 of the Act.”
[4] The Honourable Mr Justice Meskin in
Henochsberg
on the Close Corporations Act
, Vol. 3 paras. 36.1 and 49.1
confirms that a member who makes the application envisaged by s 36
and s 49 of the Act bears the
onus
of proving that he is
entitled to the relief which he seeks and it is incumbent upon him to
place before the court necessary evidence
to enable the court to
decide that it would be appropriate for it to grant the order sought.
In this regard the learned author
also refers to the case of
Kanakia
v Ritzshelf 1004 t/a Passage to India
2003 (2) SA 39
(D) at 48.
The applicant bears the same
onus
to persuade the court to
make any further order envisaged by s 36(2). See:
Geaney v Portion
117 Kalkheuwel Properties CC and Others
1998 (1) SA 622
(T) at
631H–632A.
[5] In terms of s 36(1)(a) the applicant should adduce
evidence to prove that the fourth respondent is permanently
incapable, for
whatever reason, of performing his part in the
carrying on of the business of the first, second and third
respondents. Under s
36(1)(b) the evidence must prove that the
conduct of the fourth respondent in relation to the business of the
first, second and
third respondents is likely to have a prejudicial
effect on the carrying on of the business of the entities and, in
terms of s
36(1)(c), that the conduct is such that it is not
reasonably practicable for the applicant to carry on the business of
the corporations
with the fourth respondent. Under s 36(1)(d), which
is couched in the terms which are wider than those employed in s
36(1)(b) and
(c), the evidence should prove the presence of
circumstances, other than the conduct of the fourth respondent and
with reference
to the carrying on of the business or any matter
relating thereto or otherwise, which render it just and equitable
that the applicant
should cease to be a member of the first, second
and third respondents. See
Henochsberg, supra,
para. 36.6.
[6] As already indicated in the case of
De Franca,
supra,
in terms of s 49(1) of the Act the applicant must adduce
evidence which proves that the conduct of the fourth respondent is
unfairly
prejudicial, unjust or inequitable to him. This feature
distinguishes a relief under s 49 from s 36 of the Act. Other than
that
feature, the two reliefs compliment each other, hence a need for
the applicant to rely on both sections. A relief under s 49 advances
rather than limit the rights of a member of a corporation to take
part in the running of the business of a corporation and when
he/she
wishes to terminate membership due to oppressive conduct by a
co-member to do so without unnecessary inhibition. The commonalities
between the two relief are described in
Henochsberg, supra,
para. 49.1 as follows:
“Circumstances which may justify the Court’s intervention
under this section also may justify the Court’s intervention
under s 36. Thus, it is difficult to conceive that the existence of
conduct unfairly prejudicial, unjust or inequitable to a member
(A),
within the meaning of subs (1), would not also inevitably qualify as
the existence of circumstances rendering it just and
equitable,
within the meaning of s 36(1)(d), that A should cease to be a member
if A were to prefer this. An application under
s 36(1)(d) of course
may be made also by A himself (see the proviso to s 36(1)). It may be
observed that under s 36(2) the Court
inter alia
may make an
order for the acquisition of A’s interest by the corporation or
by other members (cf s 49(2)). Conversely, under
s 36 (1)(d) read
with s 36(2) the Court may order that the interest of a member
responsible for the said conduct is to be acquired
by A. The
jurisdiction under s 49 is, however, wider than that under s 36 since
the Court can make any order, other than one envisaged
by s 36(2),
regulating the future conduct of the affairs of the corporation, ie
on the basis of there being no alteration to its
membership (eg by
appropriately permanently interdicting the member or members
responsible for the said conduct).”
[7] I find the passage in the case of
Gatenby v
Gatenby and Others
1996 (3) SA 118
(ECD) at 124B–G which is
referred to in the case of
De Franca,
to be significant and
relevant to the decision of this application. The said passage reads:
“It is necessary to consider what he must establish to succeed.
Garden Province Investment and Other v Aleph (Pty) Ltd and Others
(supra
at 531C
et seq)
holds that in order to succeed in
invoking the provisions of s 252 of the Companies Act a minority
shareholder 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
which the affairs
have been conducted as well as the result of the conduct of the
business in that manner in which must be shown
to be unfairly
prejudicial, unjust and 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.
Thus in the case of
Livanos v Swartzberg and Others
1962 (4) SA 395
(W) Cillie J
said at 399:
“In any event it is not the motive for the conduct that the
Court must look at
but the conduct itself and the effect
which
it has on the other members of the company.”
(My italics) (See also
Aspek Pipe Co (Pty) Ltd and Another v
Mauerberger and Others
1968 (1) SA 517
(C) at 529.)’
Section 49 places a similar
onus
upon a member of a close
corporation who considers that he is being unfairly prejudiced.”
[8] For the view which I take of this matter as a whole,
the alternative relief sought by the applicant to liquidate the
first,
second and third respondents in terms of s 68 of the Act,
seems to me to be inappropriate. I will give reasons for my view
later
on in this judgment.
[9] I now proceed to deal with the facts of this case to
see if there is evidence adduced to support the granting of the
relief
sought in part 1 of the notice of motion.
[10] Robert Griffiths, is an adult male businessman who
resides at 31 King Edward Street, Newton Park, Port Elizabeth. He is
the
applicant is this matter. Ainsley Owen Pughe-Parry is an adult
male businessman who resides at 19 Brighton Drive, Summerstrand,
Port
Elizabeth. He is the fourth respondent in this matter. I will
hereinafter refer to both the applicant and fourth respondent
as
Griffiths and Pughe-Parry, purely for the sake of convenience.
[11] Griffiths and Pughe-Parry became acquainted to each
other during 1984. At the time Pughe-Parry was operating a business
under
the name and style of Climatic Air Conditioning &
Refrigeration, a close corporation which is duly registered and
incorporated
in terms of the Act with its registered address at
Rosebank, 30 Bird Street, Port Elizabeth (hereinafter referred to as
Climatic).
Climatic conducts the business in the supply and
installation of air conditioning and refrigeration systems. In
essence, Climatic
would sub-contract to a building company during the
course of constructing a commercial or industrial development for the
installation
of the air conditioning system to the new structure.
Climatic is cited as the third respondent in this matter. Pughe-Parry
was
the sole member of the corporation.
[12] On invitation by Pughe-Parry, Griffiths joined
Climatic as an employee, serving as a sales representative.
[13] During the year 1987, Pughe-Parry offered to sell
to Griffiths 20% membership interest in Climatic at R87 000,00. The
offer
was accepted and the price was duly paid by Griffiths, thus
changing his status of an employee to that of a “co-owner”
of the business. To regulate their relationship as the members of
Climatic, the parties concluded a written association agreement.
Pursuant thereto, Griffiths, aged 31 years at the time, put his heart
and soul into the business. He worked hard. He helped build
up a
substantial new client base and expanded and maintained the existing
client base. Griffiths was primarily responsible for
the sales and
marketing; designing of air conditioning, refrigeration, and tender
calculations. Project management also formed
a large part of his
duties and responsibilities. Pughe-Parry was responsible for managing
the day to day affairs of Climatic.
[14] As the business of Climatic grew in leaps and
bounds; so did the financial strength and business appetite of
Griffiths and
Pughe-Parry. During the year 2001, Griffiths and
Pughe-Parry acquired the second respondent, Anchor Engineering Close
Corporation
(Anchor), at a price of approximately R100 000,00. The
parties became members of Anchor with membership interest at the
ratio of
20%–80% respectively. The business of Anchor was the
manufacture of ducting and sheet metal products which became a
strategic
fit with Climatic’s business. No association
agreement was concluded by the parties in Anchor.
[15] Further, in 2003, Griffiths and Pughe-Parry decided
to activate a dormant company, Clifin Investments (Pty) Ltd (Clifin),
to
establish a business of supply of air conditioning control
systems, maintainance and repair services to customers of Climatic.
Clifin is cited as the third respondent in this matter. While
Pughe-Parry took 80% shares in Clifin, Griffiths contentend himself
with the remaining 20% shares. They later transferred 20% and 5%
shares respectively in favour of one Mr Duane John Schmidt, the
erstwhile employee of Climatic.
[16] I interpose to say something about the fifth
respondent. It is described as the Ainsley Pughe-Parry Trust, which
is duly registered
under No. TM6106 in terms of the Trust Property
Control Act, Act No. 57 of 1988. Pughe-Parry is a trustee of the
Trust together
with Mr Gerald Jack Friedman and Mr Clement Charles
Morris. It is common cause that the Trust is the alter ego of
Pughe-Parry,
the sole beneficiary thereof.
[17] Throughout the years of successful operations
Climatic, Anchor and Clifin grew into substantial businesses. During
the year
2007, Climatic had grown into a business with a turnover of
approximately eighteen million rand per annum and assets with a
market
value which was estimated between eight million rand to nine
million rand. It had acquired approximately 35 vehicles, plant
equipment,
tools and stock. Anchor has a turnover of approximately
one million rand six hundred thousand rand per annum. The assets
consist
of modern state of the art sheet metal manufacturing
equipment. Clifin grew into a company with a turnover of two million
five
hundred thousand rand per annum. The assets consist of vehicles,
tools, equipment and stock.
[18] Notwithstanding Griffiths’ interest in the
entities, Griffiths was dominated by Pughe-Parry, who simply decreed
all operating
and management decisions without consultation with
Griffiths. This state of affairs, exacerbated by many other reasons
which will
be outlined shortly, culminated in a rift between the
parties which led Griffiths to opt out of the entities and leave
Pughe-Parry
to carry on with the business. On 17 November 2006
Griffiths informed Pughe-Parry in writing of his decision to resign
from all
three entities. This letter was in compliance with the
association agreement.
[19] The reasons for Griffiths to leaving the entities
are not seriously disputed by Pughe-Parry. A good business
relationship of
23 years which existed between the parties had
declined over a period of time to a point where the trust and respect
between the
parties was lost completely. Griffiths states that
despite his protestations and objections, Pughe-Parry committed the
bulk of
Climatics resources to a large building contractor, which is
commonly known as WBHO. This contractor was engaged in huge projects
extending to Paarl, Mossel Bay, George, Vereeniging and Port
Elizabeth. The stake given by WBHO to Climatic constituted 60% of
turnover in WBHO. Further, at the same time Climatic was caused by
Pughe-Parry to accept all of VWSA’s paint shop projects.
Such
huge commitment effectively stripped the entities from their ability
to service its remaining loyal client base. The entities
became
unable to satisfy their existing clients, resulting in a decline in
customer satisfaction and orders. Griffiths was left
to pacify the
disgruntled customers with little resources or support from
Pughe-Parry. When the entities could not deliver in accordance
with
the programme of works, Pughe-Parry over extended the entities to
WBHO and VWSA resulting in shoddy and poor workmanship and
substantial retentions and funds owed to the entities, being offset
to repair and rectify poor quality workmanship. Pughe-Parry
disregarded the involvement of Griffiths in the operations of the
businesses and insisted on treating him like an employee. Pughe-Parry
failed to call meetings for the entities, did not consult with
Griffiths meaningfully in relation to decisions made by the entities
or contracts entered into by the entities, and conducted the affairs
of the entities in a way where financial or other information
became
virtually unavailable. It became almost impossible for Griffiths to
establish or monitor his investments in the entities,
the financial
position of the entities or the entities’ exposure to risk.
[20] Pughe-Parry’s version is that from 1994
onwards Griffiths started misusing drugs, was arrested, jailed and
convicted
for drug related crimes. Griffiths misused the internet
facilities of Climatic and at the sight of clients and staff members,
wrongfully
visiting ponographic websites. Griffiths had to be
referred to a rehabilitation centre at cost to Climatic. He alleges
that the
condition of Griffiths had degenerated to such an extent
that he was unable to make any sensible decisions regarding anything
to
do with the entities. This necessitated “bottle feeding”
Griffiths most of the time.
[21] Pughe-Parry blames Griffiths for dishonesty in
that, whilst still being a member in the entities, in the year 2007
he and one
Mr Daniel De Jager formed Siyalungisa Manufacturing (Pty),
an engineering company manufacturing sheet metal ventilation and
air-conditioning.
Siyalungisa offered a service, design, manufacture
and supply of sheet metal ducting to the air-conditioning and
ventilation industry
contractors in Port Elizabeth and the Eastern
Cape. Siyalungisa was formed and had been operated in direct
competition with Climatic,
doing so in contravention of a restraint
of trade clause in the association agreement.
[22] Griffiths denies all the blame which is leveled
against him by Pughe-Parry, contending that the alleged issues of
dishonesty
are partly untrue, exaggerated and, in any event,
irrelevant to the core matters of business operations. Griffiths
further contends
that he was ill treated and disrespected by
Pughe-Parry over a long period of time.
[23] It is clear from the above facts that the trust and
respect between the parties has dissipated, the relationship between
the
parties is dysfunctional and their partnership relationship in
the entities has disintegrated. The concession has been made by
Pughe-Parry that any further co-operation between him and Griffiths
is impossible. It comes as no surprise that Griffiths left the
operations of the entities into the hands of Pughe-Parry. The
management and operations of the entities became a one man show.
Griffiths had been sidelined and reduced to an employee, albeit
without any say. A deadlock situation has been reached between
the
two members. An attempt by Griffiths to terminate his membership and
get paid for his investments in the entities is a further
indication
that both the personal and business relationship between the parties
has irretrievably broken down with no prospect
of reconciliation in
sight.
[24] The question now to be asked, and answered, is
whether Griffiths has made a case against the respondents in terms of
s 36,
s 49 and s 68 of the Act and s 252 of the Companies Act. If the
question is answered in the affirmative, the next question is whether
the relief sought should be granted as prayed in the notice of
motion.
[25] It was submitted by
Miss Mey
, counsel for
the respondents, that Griffiths has not made out a case for a relief
sought because of the existence of material dispute
of facts relating
to, not only why and how Griffiths left the employ of the entities
and decided to terminate his membership, but
also the manner in which
the entities were run with regard to settlement discussions and
Griffith’s breach of restraint of
trade. I do not agree with
this submission because the material facts stated by Griffiths
regarding why and how a rift, developed
between the parties, which
culminated in a deadlock, has been admitted by Pughe-Parry.
[26] The dispute around the issue of restraint of trade
is not material in my view because it was not the main reason for the
break-down
of business relationship between the parties, but it was
the result of such break-down. It is also significant to note that a
claim
based on such alleged breach cannot even be taken into account
in the evaluation of membership interest since no counter-claim was
made for it and it has, in any event, become prescribed. In the
circumstances there would be no need for Griffiths to apply for
hearing of oral evidence on the issue of restraint of trade.
[27] I will not deal with the legal objection that the
issues in this application are pending determination by a Court in
the summons
proceedings because such action was withdrawn.
[28]
Miss Mey
submitted further that the relief
sought cannot be granted because Griffiths has failed to prove that
Pughe-Parry and the Trust
are able to make payment for the transfer
of membership interest of Griffiths to them. She also submitted that
Griffiths has failed
to prove the value of his membership interest
and loan accounts which should be paid to him. Further, it was
submitted that it
would not be just and equitable for the Court to
terminate Griffiths’ membership in the entities or to order
transfer of
membership interest where Griffiths would be left with a
contingent liability towards creditors in favour of whom he had
signed
sureties.
[29]
Mr Huisamen SC,
who appeared on behalf of
Griffiths, submitted that sufficient evidence has been placed before
Court to prove that Griffiths is
entitled to the relief sought.
[30] In my view the facts of this case prove that the
conduct of Pughe-Parry in relation to the business of the entities
constitute
the grounds which are stated in s 36(1)(b), (c) and (d) of
the Act. The domineering attitude that Pughe-Parry displayed towards
Griffiths, the exclusion of Griffiths from the decision making which
is necessary for the smooth and all inclusive carrying on
of the
business, his reluctance to convene business meetings and failure to
prepare financial statements do not augur well for
the success of the
entities. The departure of Griffiths in 2006 has shown that it was
not reasonably practicable for him to carry
on the business of the
entities with Pughe-Parry. In these circumstances it would be just
and equitable that Griffiths ceases to
be a member of the entities.
It appears that the establishment of Siyalungisa was caused by the
anomalous situation in which Griffiths
found himself. The fact that
Pughe-Parry himself does not wish to work with Griffiths anymore may
very well be a circumstance that
supports the relief sought by
Griffiths to terminate his membership in the entities.
[31] The conduct of which complaint is made by Griffiths
in terms of s 36 is the same conduct that affects Griffiths in his
personal
capacity as envisaged in s 49 (1) of the Act. See
Henochsberg
, para. 49.1. Therefore, Griffiths has proved by
credible evidence, which is set out in his affidavits, that he is
entitled to a
relief in terms of s 49 of the Act and s 252 (1) of the
Companies Act because he is a victim of oppressive conduct of
Pughe-Parry.
It has been proved that not only is the conduct of
Pughe-Parry unfairly prejudicial, unjust or inequitable to Griffiths,
but also
that his conduct is itself unfair, or unjust or inequitable
within the description of unfair conduct as mentioned by Jones J in
the case of
Gatenby, supra,
at 125G–H with reference to
the case of
Donaldson Investments (Pty) Ltd and Others v
Anglo-Transvaal Collieries Ltd: SA Mutual Life Assurance Society And
Another Intervening
1979 (3) SA 713
(W) at 722E–G where it
was stated:
“It seems to me that the new wording of s 252 means, at least,
what was set out in some of the cases dealing with the old
s 111
bis,
where the requirement was placed at the less stringent level. In
my view, the applicants must establish a lack of probity or fair
dealing, or a visible departure from the standards of fair dealing,
or a violation of the conditions of fair play on which every
shareholder is entitled to rely. Couched in another form, I agree
that the applicants must establish that the majority shareholders
are
using their greater voting power in a manner which does not enable
the minority to enjoy a fair participation in the affairs
of a
company. The emphasis is upon the unfairness of the conduct
complained of. It must be conduct which departs from the accepted
standards of fair play, or which amounts to an unfair discrimination
against the minority.”
[32] The remedy sought by Griffiths in terms of s 36 and
s 49 of the Act and s 252 of the Companies Act, has origin in the
common
law solutions to deadlocks between partners arising from the
joint ownership of property and collective oppression arising from
shareholders, see:
Heckmair v Beton and Sandstein Industreë
(Pty) Ltd en Andere
(1)
1980 (1) SA 350
(SWA) at 353A. To this
Jones J states in
Gatenby, supra,
at 123E that there is a
common feature in the legislation relating to companies, close
corporation and common law, in acknowledgement
of the underlying
equitable principle that no co-owner, no partner, no shareholder and
no member is normally obliged to remain
as a co-owner, partner,
shareholder or member against his will in circumstances where this is
unfair or oppressive to him. Based
on this statement, I am of the
view that the provisions of s 36(2) and 49(2) of the Act and s 252
(2) of the Companies Act constitute
an appropriate remedy for
Griffiths in Climatic, Anchor and Clifin. I am satisfied that an
order terminating Griffith’s membership
in the entities is
appropriate; and that his membership interest, shareholding and loan
accounts should be transferred to Pughe-Parry
against payment of a
fair price.
[33] The verbal agreement reached between Griffiths and
Pugh-Parry in November 2006 that Pughe-Parry would purchase the
equity of
Griffiths in the entities, does not permit an argument that
Pughe-Parry cannot raise funds to pay. Such an agreement was later
undermined by Pughe-Parry who suddenly raised a defence that due to
breach of restraint of trade by Griffiths, he was no longer
bound to
purchase Griffiths’ equity at a fair value.
[34] Griffiths has made an effort to valuate his equity
in the entities so that he may be paid and leave the entities as
already
agreed. Faced with the hostility and refusal by Pughe-Parry
to comply with a request for financial statements, in 2006 Griffiths
took steps to hire one Mr Michael Howcroft, (Howcroft), the chartered
accountant, to calculate and give value to his membership
interest
and loan accounts. After making necessary calculations, on 03
December 2008, Howcroft came up with a value of R2 103 296,00,
which
was disputed by Pughe-Parry’s auditors, Mazars Moores Rowland
(Mazars). In March 2009, Mazars responded that an amount
of between
R900 000,00 to R1 050 000,00 was appropriate. This figure was later
on lowered to R707 000,00. The problem between the
auditors lay in
the disputed method of calculation. In an attempt to address the
problems, Howcroft came up with an offer in the
sum of R1 465 000,00,
which was rejected by Pughe-Parry. Pursuant to a valuation meeting
which was held on 29 April 2009, Howcroft
delivered a compromise
offer in the sum of R1 100 000,00, which was rejected by Pughe-Parry
contending that he was prepared to
pay only R800 000,00. The counter
offer was not based on any accounting method. However, on 14 August
2009, the parties agreed
to settle the dispute at R1,1m less certain
expenses in the sum of R178 883,00. After a settlement agreement was
drafted and signed
by Griffiths, Pughe-Parry refused to sign it. He
repudiated the agreement, instead, albeit with a measure of
ambivalence as he
stated that he needed more time to collect funds
and would settle the matter provided that a dispute about breach of
restraint
of trade was going to be addressed simultaneously with the
claims of Griffiths. Yet again, on 26 March 2010 he stated that he
was
arranging finances to pay Griffiths. Frustrated by Pughe-Parry’s
dilatoriness in the settlement of his claims, Griffiths resolved
to
approach this Court for a relief sought.
[35] On the foregoing, I am not persuaded that
Pughe-Parry is unable to pay for the membership interest and loan
accounts of Griffiths.
I can find no reason in the papers to support
the submission that Griffiths equity cannot be purchased because
Pughe-Parry has
no money to do so. What I see in Pughe-Parry is an
unwillingness to pay, an attitude which is consistent with his
statement made
on affidavit that any further co-operation with
Griffiths is impossible to him.
[36] It was submitted further on behalf of Pughe-Parry
that the relief sought may not be granted because Griffiths is a
co-surety
with Pughe-Parry for certain liabilities of the entities
for which he has not been released by the creditors. Pughe-Parry
refuses
to indemnify Griffiths in respect of such liabilities. In
this regard the case of
Kanakia, supra,
at 54C was referred
to. It must be said that the facts in
Kanakia
are
distinguishable from the facts of this case. There, the applicant, a
member sought relief in terms of s 36(2) and s 49(2) of
the Act,
failed to place evidence before the Court that he was able to
indemnify a co-member, whom the applicant wanted to be removed
from
the corporation against transfer of joint liabilities towards the
creditors of the corporation if the co-member is not released
from
suretyship in the future. There was evidence that the applicant had
made certain undertakings which he did not honour. As
a result, the
court held that it was not just and equitable for the membership
interest of the co-member to be transferred to the
applicant and to
leave the co-member with a contingent liability towards creditors in
favour of whom he had signed suretyship.
[37] In this case, Griffiths has proved with credible
evidence that the entities are financially sound and,
ex
hypothesi
, Pughe-Parry, as a majority holder, has financial means
to indemnify him. The fact that Griffiths is not a controlling member
and
shareholder and that he left the entire entities, which are still
up and running, under the control of Pughe-Parry in November 2006,
reinforces my belief that it would be just and equitable to order
transfer of the membership interest subject to indemnification
of
Griffiths against liabilities of creditors. I have also not received
evidence that any of the creditors, who have not been revealed
to the
Court, has not been paid by the entities. In the circumstances, it
would be absurd for this Court to deny a remedy to Griffiths
in a
situation where compelling evidence exists for it to be granted
merely on the basis that Griffiths has bound himself to creditors.
[38] For a decision that I have already made that a case
has been made out for relief in terms of s 36 and s 49 of the Act and
s
252 of the Companies Act, no purpose would be served in entering
into discussions on s 68 of the Act. Suffice it to be said that
liquidating the entities would not be desirable as no basis exists
for the Court to make such an order. The
dictum
by Nepgen J in
De Franca, supra,
serves as a guideline. The learned Judge
said the following at 896E:
“In fact, it is my view that it is highly probable that by
enacting s 36 of the Act one of the purposes of the Legislature
was
to create a mechanism whereby the inevitability of winding-up can be
avoided where a ‘deadlock’ situation exists
between
members. Even if that was not the specific intention of the
Legislature, s 36 of the Act clearly has such result.”
[39] A determination of a fair value of interest and
loan account of Griffiths has not been a simple matter for the
parties. In
the light of the disagreements that have endured from the
year 2006 to date, it cannot be a simple matter for the Court either.
The fact of the matter is that each party has displayed sceptism and
mistrust towards the other’s audit report. Both Howcroft
and
Mazars have compiled reports. These experts have themselves been
entangled in disputes regarding the appropriateness of accounting
methods and formulas as applied by each. To the debate that ensued on
the issue,
Miss Mey
contended that the valuation placed on
Griffiths’ members’ interest and loan accounts is
outdated and unacceptable,
as financial information utilized was
collected two years before the application was brought. With
reference to the relief sought
that the Court should order payment of
R1 632 000,00,
Miss Mey
, relying on the case of
Smyth and
Another v Mew 2
010 (6) SA 537
(SCA) at 543E, submitted that not
enough financial information was placed before the Court in support
of that value to enable the
Court to exercise its discretion in
favour of Griffiths. I would not agree with
Miss Mey
that the
information utilized is outdated; neither would I agree that the
financial information was inadequate. It seems to me
that the audit
reports of the respective parties need to be verified and reconciled
to the extent that the parties do not agree
on accounting methods and
formulas to be applied in the calculation of Griffiths’
membership interest and loan account in
the entities. Thus, referring
the matter to an independent chartered accountant is an appropriate
step to be taken.
[40] The resolution of a dispute concerning the
insurance policies of Griffiths and Pughe-Parry need not detain the
Court. There
is no real dispute here. Insurance policies taken by the
one member on the life of the other are regulated in terms of the
association
agreement which was concluded by the parties in Climatic.
There is merit in the relief sought that the insurance policies be
dealt
with in terms of paragraphs 11 and 13 of the association
agreement dated 24 September 1987, by each member ceding a policy on
the
life of the other. Pughe-Parry will not be prejudiced as his
interest in the entities is larger as compared to that of Griffiths.
[41] Although the applicant failed to support the relief
sought for the liquidation of the entities he has, nevertheless,
achieved
substantial success in the application. He is therefore
entitled to the costs, which should be paid by all the respondents
except
the fifth respondent.
[42] In the result the following order shall issue:
That the membership of the applicant in the first, second and
third respondents be and is hereby ordered to cease with immediate
effect.
That the fourth respondent be and is hereby directed to acquire
the applicant’s membership interest in and loan claims against
the first, second and third respondents for an amount/price to be
determined within thirty (30) days from the date of this order
by an
expert practicing as a Chartered Accountant of at least 10 (ten)
years experience appointed by the Chairman of the Port
Elizabeth
Region Association of Chartered Accountants.
That the price shall bear interest at the prescribed legal rate
from 7 November 2006 to date of payment, which is to be calculated
monthly in arrears and compounded; and such accrued interest is to
be paid:
without deduction or set-off within 30 (thirty) days of the date
of its determination.
into the Trust Account of the applicant’s attorneys of
record.
That the fourth respondent and the applicant be and are hereby
directed to cede to each other all and any insurance policies
effected
on the lives of each other in pursuance of paragraph 11 of
the Association Agreement entered into between the parties in
relation
to the first respondent on 24 September 1987.
That the first and fourth respondents be and are hereby directed
to take whatever steps might be necessary to secure the release
of
the applicant from all or any sureties signed by the applicant on
behalf of the first respondent in pursuance of paragraph
8 of the
Association Agreement forthwith and, failing any such release, to
indemnify the applicant against all or any claims
which may be made
against the applicant by any creditor of the first respondent on the
strength of any such surety.
That the fourth respondent be and is hereby ordered and directed,
both in his personal capacity as well as in his representative
capacity on behalf of the first, second and third respondents, to
take all such steps and sign all such documents, as are necessary
to
give effect to the oder, alternatively and in the event of the
fourth respondent failing to take steps required within 7 (seven)
days of granting this oder, the Sheriff be authorized and directed
to take all such steps and sign all such documents, on all
the
respondents’ behalf, to give effect to the order.
That the relief sought in part B of the notice of motion be and
is hereby refused.
That the first, second, third and fourth respondents pay the
applicant’s taxed party and party costs, such liability to be
jointly and severally, the one respondent to pay the other
respondents to be absolved from liability; and such costs to include
costs incurred in the determination of the prices of the applicant’s
membership interest, shares and loan accounts.
_____________________________
Z.M.
NHLANGULELA
JUDGE
OF THE HIGH COURT
Counsel for the applicants : Adv. J.D. Huisamen SC
Instructed by : Joubert, Galpin & Searle Inc
PORT ELIZABETH
Counsel for the respondents : Adv. C.K. Mey
Instructed by : Laubscher Attorneys
PORT ELIZABETH