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[2022] ZAKZPHC 70
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Business Partners Limited v African Dune Investments 275 (Pty) Ltd and Another (999/2022P) [2022] ZAKZPHC 70 (7 November 2022)
IN
THE HIGH COURT OF SOUTH AFRICA
KWAZULU-NATLA
DIVISION, PIETERMARITZBURG
CASE
NUMBER 999/2022P
In
the matter between:
BUSINESS
PARTNERS LIMITED
APPLICANT
And
AFRICAN
DUNE INVESTMENTS 275 (PTY) LTD FIRST
RESPONDENT
NAKESH
SINGH SECOND
RESPONDENT
JUDGMENT
BEZUIDENHOUT
J
:
[1]
This matter was originally brought as an urgent application and after
it was ruled
that it was not urgent it was struck off the roll and
the matter was then set down on the opposed roll for hearing.
Applicant
is no longer seeking a rule
nisi
but a final order.
[2]
Applicant in the notice of motion is seeking the following order.
“
1.1
In terms of
section 163(2)(f)(i)
of the
Companies Act 2008
Angus
Findlay is appointed as director of First Respondent.
1.2
That in terms of
Rule 6.1
of the shareholders agreement concluded
between Applicant and Respondents dated 20 May 2010 as amended, Kevin
Govender is declared
appointed as a managing director of First
Respondent.
1.3
Decisions of the First Respondent by its resultant board of directors
are to be decided as to one rate per
director.
1.4
The director appointed in 1.1 above may not be removed as director
save by a unanimous vote of the shareholders
of First Respondent,
being the Applicant and the Second Respondent, or by order of court,
provided that the directorship of the
directors referred to in
paragraphs 1.1 and 1.2 hereof will cease is upon the successful sale
of the Applicant’s share in
the first Respondent, to the second
Respondent.
1.5
The director appointed in terms of 1.1 above is to be paid reasonable
remuneration, which, in the event of
a dispute regarding the quantum,
shall be determined by the Legal Practice Council.
1.6
That Second Respondent be directed to pay the costs of this
application including the costs consequent upon
the employment of
senior counsel.”
[3]
After Mr. Stokes SC commenced his argument Mr. Potgieter SC,
appearing on behalf of
Respondents, placed on record that Respondents
were no longer opposing the relief sought in paragraph 1.2 of
paragraph 2 above
namely that Kevin Govender be appointed as the
managing director of First Respondent. This relief was
therefore settled
[4]
It was disputed that Govender be appointed as the managing director
until this concession
was made on behalf of Respondents. It was
submitted by Mr. Stokes SC that Applicant has a legal right as a
shareholder as
it was a 38 % shareholder of First Respondent.
In terms of clause 6.1 at page 55 of the indexed papers it was
provided in
the shareholders agreement that shareholders can nominate
a director for appointment. Respondents answering affidavit
refers
to a simulated agreement in part and this is set out in
paragraph 54 on page 221. Respondents contend in paragraph 135
at
page 239 of the papers that First Respondent will, until the
disputes are resolved, keep Applicant appraised of what is
transpiring
and Applicant is protected by the
Companies Act as
it is
a registered shareholder with voting rights even though it may be
contended that it is a simulated transaction. Respondents
contended that Second Respondent is entitled to have the shareholding
of Applicant transferred to him.
[5]
An independent director is needed and that Applicant as shareholder
has made out a
case for such an appointment. It was submitted
there has been contraventions by Respondents as there is a tenant
which is
not paying rent and that Respondents have actively excluded
Applicant. Applicant was therefore entitled to appoint a
director
in terms of
section 163
of the
Companies Act. The
company was manipulated by Second Respondent to the exclusion of the
other director. Second Respondent is afraid that a third
director will break the stalemate between them. There is a
stalemate coming as Applicant contends that it is owed money.
Second Respondent contends that it has paid its debt and its
objection to have Findlay appointed as a director is an attempt by
Applicant to take control. The appointment of Findlay will
assist to stop someone seizing control.
[6]
It was submitted that the judgment in Grancy Limited v Manala &
Others
2015 (3) SA 313
(SCA) allows in terms of
section 163
of the
Companies Act for
the appointment of a director.
Section 163
underscores the requirement that a shareholders interest that is
impaired may follow that course. The orders sought are as
was
granted in Grancy.
Section 163
allows the court to make an
order it deems fit.
[7]
In the counterapplication Respondents are seeking a debatement which
it was submitted
is devoid of any legal basis. It cannot show
the existence of a fiduciary relationship or a contractual
entitlement to debatement
or the existence of a statutory obligation
by Applicant to deliver a debatement of account. In addition to
the debatement
of account it seeks a declarator or that clauses 2 and
5.5 to 5.12 of the shareholders agreement concluded on 3 June 2010
are void
and of no force and affect between the parties. There
is a pending action challenging these clauses in the articles of
association
and to have them declared void. These are issues
which will be decided at the action. It is therefore submitted
that
Applicant is entitled to the relief sought in the notice of
motion and that the counterapplication should be dismissed with costs
such costs to include the costs of senior counsel.
[8]
It was submitted on behalf of Respondents that the appointment of
Findlay would be
oppressive conduct. Applicant did not make out
a case for such relief and there is no need for such an order.
The further
relief which is sought in paragraphs 1.3, 1.4 and 1.5 is
an attempt to make a minority shareholder equal to the majority
shareholder.
This matter is distinguishable from that of
Grancy. The directors each have a vote. Applicant has not
demonstrated
oppressive or unfairly prejudicial conduct on the part
of Second Respondent. It is not entitled to the appointment of
Findlay.
The only allegation by Applicant in this regard is in
paragraph 31 of its founding affidavit where it suggests that a
company linked
to Second Respondent is occupying premises in breach
of
section 75(3)
of the Companies Act. It was submitted that
this ignores the argument of a simulated transaction. There is
therefore
no case for such relief. It was submitted that there
are no allegations to support the further relief in the notice of
motion.
Frist Respondent was given authority from the outset to
lease the premises to Second Respondent or his nominee. The
relief sought is contrary to the terms of the shareholders agreement
which Applicant seeks to enforce.
[9]
In respect of the counterapplication Applicant’s complaint is
to deny the entitlement
to a debatement which First Respondent is
entitled to. Applicant and Second Respondent are shareholders
in First Respondent
that should be supporting the success of First
Respondent. This supports Respondents argument of a simulated
transaction.
The declaratory relief in the counterapplication
is based on the facts as set out in the answering affidavit.
The conflict
between the articles association and shareholders
agreement necessitates the declaring of clauses 5.5 to 5.12 of the
shareholders
agreement void as they are in conflict with the articles
of association. The directors each already have a vote at any
meeting.
First Respondent is disputing that there is any money
owing to the bond holder. Applicant wants to take away the
right of
the company to dispute the said amount. The
shareholders agreement is not in dispute and the relief sought is not
an amendment
as in
section 163.
There is an action pending
where the issues regarding to the articles of associations and
shareholders agreement will be
decided.
[10]
Applicant already has most of the powers which it is now seeking.
Applicant is a minority
shareholder and it is not the purpose of
section 163
that it can stop the process. The relief in
paragraph 1.4 goes against the shareholders agreement and there is
nothing to
amend it. The relief in paragraph 1.5 also requires
an amendment to the shareholders agreement. No facts have been
provided that brings the application within the ambit of
section
163.
For nineteen years the minority shareholder has not sought
any relief. Applicant allowed Second Respondent to run the
company until he disputed the amount owing to Applicant as the bond
holder. Applicant therefore has a conflict of interest.
There is nothing oppressive and an action has been instituted and if
the relief is granted now the action will not continue.
The
relief Applicant seeks is not necessary. The setting aside of
certain clauses of the shareholders agreement will be dealt
with in a
trial. The matter is distinguishable from Grancy and the
conduct is not oppressive neither unfairly prejudicial.
The
application should be refused with costs and the debatement should be
granted.
[11]
In reply it was submitted that Applicant has accounted. The
relief sought is more than
a statement from inception. An
independent director can address the issue whether there is money
owing or not. If the
shareholders agreement is not consistent
section 163
is there for that purpose. In terms of Grancy a
wide range of orders can be made.
Section 163
allows the relief
under 3 categories and an order should therefore be granted. In
the order sought a paragraph 1.4(a) should
be inserted that the
director appointed in terms of paragraph 1.1 will not have any vote
in respect of any pending action on issues
related thereto.
[12]
The issues remaining are therefore those in paragraph 1.1, 1.3, 1.4,
1.5 and 1.6 of the notice
of motion and the debatement of account in
terms of the counterapplication.
[13]
Section 163
of the
Companies Act 71 of 2008
sets out relief from
oppressive or prejudicial conduct or from abuse of separate juristic
personality of a company.
“
(1)
A shareholder or a director of a company may apply to court for
relief if:
(a)
any
act or omission of a company, or a related person, has had a result
that is oppressive or unfairly prejudicial to, or that unfairly
disregards the interest of the applicant.
(b)
the
business of the company, or a related person is being or has been
carried on or conducted in a manner that is oppressive or
unfairly
prejudicial to, or that unfairly disregards the interests of the
applicant, or
(c)
the
powers of the director or prescribed officer of the company, or a
person related to the company, are been or have been exercised
in a
manner that is oppressive or unfairly prejudicial to, or that
unfairly disregards the interests of the applicant.
(2)
Upon considering an application in terms of subsection (1) the court
may make an interim order or final
order that it considers fit
including:
(a)
-
(b)
-
(c)
-
(d)
an order to regulate the company’s affairs, the by directing
the company to amend its Memorandum of its corporation
or to create
or amend a unanimous shareholder agreement.
(e)
-
(f)
an order
(i)
appointing directors in place of or in addition to all or any of the
directors then in office
or;
(ii)
declaring any person delinquent, or under probation, as contemplated
in
section 162.
”
[14]
It was submitted on behalf of Applicant that in the present case what
was found in paragraph
15 of Grancy was applicable where it held as
follows:
“
The
sole purpose of that application as Mr. Hodes, who appeared together
with Mr. MacNally for the appellant, contended in argument
before us,
was to arrest the continuation of the oppressive and unfairly
prejudicial conduct that unfairly disregard the interest
of Grancy as
a minority shareholder in SMI perpetrated by Manala and Gihwala.
This would be achieved by the court itself
appointing directors
either in place of or in addition to those directors in office to
ensure that SMI was not exposed to further
risks.”
In
paragraph 26 it was held:
“
Accordingly,
there is much to be said for the proposition that
section 163
must be
construed in the manner that will advance the remedy that it provides
rather than limit it.”
It
continues in paragraph 27:
“
In
concluding on this particular aspect of the case it bears mention
that in determining whether the conduct complained of is oppressive,
unfairly prejudicial or unfairly disregards the interests of Grancy
it is not the motive for the conduct complained of that the
court
must look at but the conduct itself and the effect which it has on
the other members of the company.”
In
the case of Grancy the court after considering the matter appointed
two independent directors. The order which was granted
is
similar to that which is being sought by Applicant in the present
matter.
[15]
It was submitted on behalf of Respondent that the facts of the
present matter is different to
that in Grancy and that the decision
in Grancy accordingly does not apply. It was submitted that the
decision in Gent and
Another v Du Plessis
[2020] ZASCA 184
is the
more recent decision in this regard. In paragraph 2 of Gent it
was held that:
“
An
applicant is only entitled to relief under
section 163(1)
upon
satisfying the criteria set out therein. And only then is a
court empowered to grant appropriate relief in terms of
section
163(2)
of the Act, upon the proper exercise of its discretion.”
From
this decision it is apparent that it has to be shown that the conduct
complained of was oppressive or unfairly prejudicial,
or that
Applicant’s interests have been unfairly disregarded. It
was further held that the exercise of a majority shareholding
voting
rights does not amount to oppression.
[16]
In both Grancy and Gent there were indeed severe misconduct on the
part of the other directors
or shareholders and accordingly it
resulted in the orders which were granted. No misconduct of
that sort has been committed
in the present case. This will be
dealt with later.
[17]
Before a court can exercise its discretion to make an order in terms
of
section 163(2)
it has to be satisfied that there was indeed a
contravention as set out in
section 163(1).
There must
therefore have been oppressive or unfairly prejudicial conduct that
unfairly disregards the interest of Applicant.
The business of
the company must be carried on or conducted in a manner that is
oppressive or unfairly prejudicial or that unfairly
disregards the
interest of Applicant. Or the powers of the director or a
person related to the company are being exercised
in a manner that is
oppressive or unfairly prejudicial and disregards the interests of
Applicant.
[18]
In Henochsberg on the
Companies Act 71 2008
relating to
section 163
at 574(8) it states:
“
Only
conduct which adversely effects the rights or interests or is
detrimental to the financial interest of a shareholder is relevant
and therefore the prejudice must be commercial and not merely
emotional . . . A disregard of the rights of a member, as such,
without any financial consequences may amount to prejudice falling
within the section.”
“
Where
the acts complained of have no adverse financial consequence, it may
be more difficult to establish relevant prejudice.
Mere
dissatisfaction with or disapproval of the conduct of a majority
shareholder does not render the acts unfairly prejudicial.
The
conduct must be unreasonable or unethical and interests unfairly
prejudiced must result in commercial unfairness affecting
the
applicant in capacity as dissenting minority.”
It
further states at 574(11):
“
It
is not sufficient to establish that the manner in which the company’s
affairs are being conducted is unfairly prejudicial,
unjust or
inequitable. It must also be established that the result of the
conduct of the affairs in that manner is oppressive
or unfairly
prejudicial to or unfairly disregards the interests of the
applicant. It is therefore the effect of the challenged
conduct
which is critical.”
It
continues at 574(12):
“
The
conduct of the majority shareholders should, however, always be
judged in the light also of the principles that by becoming
a
shareholder in a company a person undertakes by his contract to be
bound by the decisions of the prescribed majority of shareholders,
if
those decisions on the affairs of the company are arrived at in
accordance with the law, even where they adversely affect his
own
rights as a shareholder.”
[19]
At this stage Applicant is a 38 % shareholder in First Respondent and
Second Respondent holds
62 %. At a meeting held Applicant
required details of the tenancy of the property owned by First
Respondent. It is
contended that First and Second Respondent
refused to provide this information but advised that a company called
Zyosync Pty (Ltd)
was in occupation but was not paying rental.
The sole director of this company is Second Respondent. It is
contended
that Applicant should be informed whether rental is being
received or not.
[20]
Applicant contends that Respondents conduct is unfair and prejudicial
to Applicant and that Applicant
is prevented from invoking its right
to sell the shares back to Second Respondent and to receive the
agreed payment. Second
Respondent carries on the business of
First Respondent in contravention of
section 75(3)
of the
Companies
Act. Applicant
contends that the appointment of Govender as a
director will lead to an impasse between the two directors.
Applicant wishes
Findlay to be appointed as a director as this will
allow for a majority decision one way or the other. It would
thus prevent
an impasse.
[21]
It is contended by Second Respondent that there is no indication in
the application papers that
the business of First Respondent is being
jeopardised. Second Respondent has been conducting the business
since 2010 and
there has never been any queries about him doing so.
No shareholders meeting was held in the last 11 years nor was there
any suggestion of any steps as envisaged in
section 60
of the Act.
Applicant never participated in ordinary or special shareholders
resolutions as envisaged in
section 65
and Second Respondent ran the
business as envisaged in
section 66
of the Act. There is no
reason for Second Respondent to jeopardise the position of First
Respondent as he is the majority
shareholder thereof.
[22]
It is contended that the main objection by Applicant is that Second
Respondent has permitted
an offence in terms of
section 75(3)
of the
Act by allowing an associated entity to occupy the premises that
forms the subject matter of dispute without payment of
rental.
It is submitted that this is ill conceived or misplaced. It is
apparent from annexure “A” to the
founding affidavit that
First Respondent had a lease agreement for a period of 5 years with
Erwing 542 CC commencing on 1 May 2010
and Applicant was aware that
Second Respondent had an interest in the said close corporation.
There was no objection by Applicant
to this. Applicant took
steps and instituted litigation in terms of the loan agreement
against First Respondent knowing that
Applicant is a shareholder of
the company that it was litigating against and Applicant as
shareholder never raised any concern
on this issue neither called a
general meeting. It is contended that a special power of
attorney which is attached to the
founding affidavit and especially
clause 1 thereof Applicant is appointed by First Respondent to be its
lawful and sole exclusive
agent and could dispose of the said
property. The bond was settled in August 2021 and Zyosync
continued to make payment of
rentals to ensure that the instalments
to Applicant under the bond were paid.
[23]
There is a dispute between the parties as to whether there is still
an amount owed by First Respondent
to Applicant or whether the bond
has been paid up. Respondents therefore require a debatement of
account. It was held
in Absa Bank Ppk v Janse van Rensburg
2002
(3) SA 701
(HHA) at paragraph 15 that for a party to succeed with a
request for a debatement it must prove:
(a)
the existence of a fiduciary relationship between the parties or
(b)
a contractual agreement to do so or
(c)
the existence of a statutory duty obliging the
debatement of account. It held further at paragraph
16 that
there was no reason why a party should be legally obliged to help
determine the extent of a claim against it.
[24]
Respondents contend that Applicant and Second Respondent are both
shareholders and Applicant
is also a shareholder and bond holder.
As it is also a bond holder it must provide a debatement of account.
Applicant
contends that a third director can establish if there is an
amount owing. This appears to me to be unnecessary. Why
would he be able if the other directors cannot obtain it?
Applicant is a credit provider. Does the fat that it is also
a
shareholder effect whether it should provide a debatement of account
or not. If a shareholder contends that the company
owes it
money in respect of a bond which is disputed why should such
shareholder/bondholder not set out how it was determined.
The
relationship between the parties in this matter is unique as
Applicant is a shareholder and also a bond holder. All that
is
required is a calculation of what is owed and what has been paid.
Applicant stands in a position of confidence and good
faith towards
First Respondent. It therefore has a fiduciary duty.
Whether a fiduciary relationship is established
will depend on the
circumstances of each case. See Phillips v Fieldstone Africa
(Pty) Ltd and Another
2004 (3) Sa 465
(SCA) at 477 to 479. In
my view there is such a duty due to Applicant’s unique
position. Applicant must therefore
provide Respondents with a
debatement of account.
[25]
I am not satisfied that Applicant has made out a case for the
appointment of a third director.
The conduct of Respondents are
not oppressive or prejudicial to Applicant. If a stalemate does
arise it can be addressed
at that stage. An independent third
director cannot be appointed merely because there may be a stalemate.
[26]
The relief in paragraph 1.4 of the notice of motion is contrary to
the shareholders agreement
and the relief in paragraph 1.5 is already
catered for in the shareholders agreement.
[27]
Both Applicant and Respondents have been partly successful. It
would therefore appear to
me that no order as to costs be made.
The
following order is made.
1.
An
order is granted in terms of paragraph 1.2 of the Notice of Motion.
2.
An
order is granted in terms of paragraph (a) of the counterapplication
at page 202.
BEZUIDENHOUT
J.
JUDGMENT
RESERVED ON: 10
AUGUST 2022
JUDGMENT
HANDED DOWN: 7
NOVEMBER 2022
COUNSEL
FOR APPLICANT: A
STOKES SC
Instructed
by:
Edward
Nathan Sonnenbergs
Inc.
Umhlanga
Ref:
Adam Lombard
Tel:
031 536 8655
c/o
Stowell & Co.
Pietermaritzburg
Tel:
033 8450 500
Ref:
N Moodley
COUNSEL
FOR RESPONDENTS: A
E POTGIETER SC
Instructed
by:
Sanjay
Lorick &
Partners
Durban
Tel:
031 940 3924/3946
Ref:
SL/lA020/22ry
c/o
Cajee Setsubi Chetty Inc.
Pietermaritzburg
Tel:
033 8149 150
Ref:
A Essa/ND