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[2021] ZAGPJHC 480
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Valencia Holdings 13 (Pty) Ltd and Others vs Armitage N.O. (A5038/2018; 07995/2015; 4280/2016) [2021] ZAGPJHC 480 (29 September 2021)
REPUBLIC
OF SOUTH AFRICA
IN
THE HIGH COURT OF SOUTH AFRICA,
GAUTENG
DIVISION, JOHANNESBURG
APPEAL
CASE NO: A5038/2018
COURT
A QUO CASE NO: 07995/2015 & 4280/2016
REPORTABLE:
NO
OF
INTEREST TO OTHER JUDGES: NO
29
September 2021
In
the matter between:
VALENCIA
HOLDINGS 13 (PTY) LTD
1
ST
Appellant
MDS
INTERNATIONAL SKILLS (PTY) LTD
2
ND
Appellant
MDS
NDT CONSULTANTS (PTY) LTD
3
RD
Appellant
SHAUN
MICHAEL
GREEN
4
th
Appellant
MARK
DOUGLAS
SMITH
5
th
Appellant
RONALD
JAMES
HOY
6
th
Appellant
DEREK
NORMAN STANBRIDGE
7
th
Appellant
ALEXANDER
ELIAS RODITIS
8
TH
Apppellant
and
MICHELLE
ARMITAGE N.O.
Respondent
(This
judgment is handed down electronically by circulation to the parties’
legal representatives by email and by uploading
it to the electronic
file of this matter on CaseLines. The date for hand-down is deemed to
be 29 September 2021.)
JUDGMENT
MIA,
J
[1]
This matter concerns two appeals that are to be considered. The first
appeal includes
a cross-appeal against the judgment of Modiba J dated
10 February 2017 and related to two applications in terms of the
Promotion
of Access to Information Act 2 of 2000 ( “PAIA”),
heard together by Modiba J. I shall refer to them as the “PAIA
appeal”. The second appeal is against the decision of Van der
Westhuizen AJ dated 6 September 2017. The judgment related
to the
appellant’s refusal to comply with the order of Modiba J and
will be referred to as the “contempt appeal”.
Modiba J
granted the appellants leave to appeal in the PAIA appeal, whilst Van
der Westhuizen AJ refused leave to appeal in the
contempt appeal. The
SCA granted the appellants leave to appeal against the judgment of
Van der Westhuizen AJ in the contempt appeal
and directed that the
PAIA appeal and the contempt appeal be heard together.
BACKGROUND
FACTS
[2]
The first appellant, Valencia Holdings 13 (Pty) Ltd ("Valencia"),
is the
holding company of the second and third appellants, who are
MDS International Skills (Pty) Ltd ("MDS International")
and MDS NDT Consultants (Pty) Ltd ("MDS NDT"). The fourth
to seventh appellants, that are, Shaun Michael Green (Green),
Mark
Douglas Smith (Smith), Ronald James Hoy (Hoy) and Derek Norman
Stanbridge (Stanbridge), are shareholders and directors of
Valencia.
The eighth appellant, Alexander Elias Roditis (Roditis), is a
director of MDS International and MDS NDT. He is the financial
manager of Valencia. The respondent, Michelle Armitage, sued the
appellants in her official capacity as the executor of the deceased
estate of her late husband, Alan Joshua Armitage (Mr Armitage). Mr
Armitage was a director and holder of 7.5% issued shares in
Valencia,
before he died on 12 December 2013. After his demise, Mrs Armitage
brought the applications in her representative capacity
as executrix
of the deceased estate. She needed to access documents related to her
late husband’s shareholding in Valencia
to determine their
value in order to sell the shares. The Court considered that in
requesting the documents, (1) the applicant
had to demonstrate that
she required the records to protect her rights or interest, (2) she
complied with the procedural requirements
under PAIA and (3)
requested access to the requisite documents
[3]
Mrs Armitage commenced negotiations regarding the sale of her late
husband’s
(the deceased) shares, following his death.
Initially, Valencia claimed the Mr Armitage’s shareholder
account had a credit
balance of R994 980.55. Mrs Armitage’s
attorney, Ms Fung, queried this amount as Valencia’s audited
financial
statements for the year 28 February 2013 reflected a
balance of R594 245.00 in respect of the deceased’s loan
account
in Valencia. She requested Valencia’s management
accounts and audited financial statements for the year ending 28
February
2014. This information was not furnished to her. A dispute
arose between the parties regarding the proposed sale of the Mr
Armitage’s
shares. The remaining shareholders in Valencia
terminated negotiations on 30 April 2014, pertaining to the sale of
the shares.
[4]
On 5 September 2015, Mrs Armitage instructed her current attorneys to
request Valencia’s
audited financial statements for the year
ending 28 February 2014 and other information related to the
deceased’s shareholding
account. A meeting took place on 8
October 2014 and Mrs Armitage’s financial adviser, Mr Wayne
Danheisser (Danheisser) was
afforded insight into some of the
deceased’s loan ledger accounts. Mrs Armitage was informed that
the information she sought
was with the subsidiaries and she should
seek the relevant records from the subsidiaries. Danheisser met with
Mr Roditis again
on 21 October 2014 to discuss the buying and selling
policy and related matters. It was reiterated that Mrs Armitage
should request
the information she sought from the subsidiaries.
[5]
Mrs Armitage was not satisfied with the information furnished. On 11
December 2014
she requested the following documents in terms of
section 53(1) of PAIA:
5.1
Valencia’s audited 2014 financial statements. If not approved,
the latest draft,
5.2 the
deceased’s loan account ledger and supporting documents and
documents justifying debit and credit
entries on this account,
5.3 the
loan account ledger for each of the other shareholders and supporting
documents or documents justifying
debit and credit entries on each
account.
[6]
The respondents were required to comply by 23 February 2015. The
respondents requested
an extension, however, the applicant did not
respond to the request for an extension but rather launched the first
PAIA application
on 2 March 2015. The respondents provided Mrs
Armitage’s attorneys with:
6.1
Valencia’s audited statements for 2014 which were signed by its
directors on 17 November 2014 and its
auditors on 18 November 2015.
The statements were still to be reviewed by the auditors. The
auditors only approved them on 27 February
2015.
6.2 A
detailed loan ledger of every shareholder in Valencia.
APPELLANTS’
SUBMISSIONS
[7]
Counsel for the
appellant,
submitted that the Court
a
quo
erred in granting the application. He further submitted that the
first PAIA application should have been dismissed by the Court
a
quo
because
by the 7
October 2014,
the
respondent was in possession of
every
document that she needed to determine why the late Mr Armitage's loan
account had moved from a credit balance of R594 245
at the end of
February 2013 to a debit balance of R990 221 at the end of February
2014.It followed that the respondent did not
have a legitimate
"right" to exercise or to protect when she launched the
application. He submitted furthermore that
the
respondent did not make out a case establishing how these documents
would assist her in exercising or protecting her "right"
to
determine the loan account of Mr Armitage for the purposes of
resolving the disputes between the parties on that issue of the
sale
of shares.
[8]
Counsel submitted further that the Court
a quo
erred in
finding that Valencia "is in control of supporting documents for
transactions reflected in its books of account as
well as the books
of account of its subsidiaries in respect of transactions that appear
in its shareholders' loan accounts,”.
This was so, he argued,
as it was common cause that the documents supporting all the debits
and credits in the respective shareholders'
loan accounts in Valencia
were in the possession of either MDS International or MDS NDT,
depending on which entity made the payment.
He argued, that Mr
Danheisser's opinion was that Valencia must have joint possession or
control of documents "relevant to
the bank account" of each
subsidiary, not that it did. Mr Danheisser did not specify or explain
exactly what these documents
are. This clearly raised a dispute of
fact on the papers.
[9]
He continued that even though the respondents asserted, by way of an
opinion, that
Valencia ought to have the documents relevant to each
subsidiary’s bank account in its possession or under its
control despite,
it was common cause, that Valencia does not trade
and does not have a bank account. Any payments that were made to its
shareholders
or any payments made to third parties on behalf of its
shareholders were paid out of the bank accounts of MDS International
and/or
MDS NDT, through the cash book and general ledger of either
MDS International and MDS NDT (depending on which entity made the
payment).
The documents that support the aforementioned payments were
generated, stored and in the possession of MDS International and/or
MDS NDT. He clarified that at the end of each financial year, the
balance of the loan accounts on MDS International and MDS NDT's
trial
balance was raised in Valencia's books of account. This was done via
a single journal entry. There are no further records
or details of
this transaction to be recorded. Valencia's AFS are not audited. Its
accounting records are reviewed annually in
accordance with the
International Standard on Review Engagements (ISRE) 2400; and the AFS
of MDS International and MDS NDT are
audited and the audited AFS's of
MDS International and MDS NDT are unqualified.
[10]
Counsel submitted moreover that the payments made by MDS
International and MDS NDT through their
respective bank accounts to
the shareholders, were thus audited in these two entities. He
submitted that Danheisser does not explain
what statutory obligation
Valencia breaches in circumstances where the transactions that take
place occur in the books and records
of MDS International and MDS NDT
and not in Valencia. Counsel argued that Mr Danheisser's
opinion
was bald, unsubstantiated and meaningless. Thus he argued that it
should be rejected
[1]
.
[11]
Furthermore, in motion proceedings, he reiterated that
the
appellants’ version must be accepted in accordance with the
principles applicable to motion matters summarised by Harms
JA in the
case of
President
of the Republic of South Africa and Others v M&G Media
Limited
.
[2]
The appellants’
version
cannot be rejected, he argued, as it could not be said to comprise
bald or uncreditworthy denials nor was it palpably implausible,
far-fetched or so clearly untenable. It was a version that even the
respondent accepted.
[12]
In addition, counsel argued that the Court
a
quo
erred in granting the declaratory order
that
Valencia "is in control of supporting documents for transactions
reflected in its books of account as well as the books
of account of
its subsidiaries in respect of transactions that appear in its
shareholders' loan accounts".
This
was so, he argued, because the Court did not find that Valencia was
in possession of the documents and also because there were
no
transactions recorded in Valencia's books of account. Counsel
submitted that a shareholder right to "control" access
to
documents is determined by sections 26 and 31 of the Companies Act 71
of 2008 (Companies Act). Valencia had no greater right
to access the
documents of MDS International and MDS NDT than that which is
provided for in
sections 26
and
31
of the
Companies Act. MDS
International and MDS NDT are separate and distinct juristic persons.
The only relationship Valencia has with these entities is
one based
on its shareholding in these entities.
[13]
He pointed out that the Court
a quo
acknowledged, in its
reasons for granting leave to appeal, its error in the following
terms:
"
In paragraph 1b,
I declared that Valencia is in control of supporting documents for
transactions reflected in its books of account
as well as the books
of account of its subsidiaries in respect of accounts that appear in
its shareholders' loan accounts. It is
common cause that there were
no transactions reflected in Valencia's books of account. Only
composite entries in respect of directors'
loan account transactions
reflected in the books of its subsidiaries are reflected in
Valencia's books. As argued by counsel for
the respondent, as a
shareholder in its subsidiaries, Valencia is only entitled, in terms
of
section 26
of the
Companies Act to
documents listed in this
section. These exclude source documents. Therefore it is probable
that another court would find that Valencia
is not in control of the
relevant documents and that Mrs Armitage is not entitled to these
documents, particularly in light of
the authority in Clutchco (Pty)
Ltd v Davis. In Clutchco, the Supreme Court of Appeal found that the
legislature could not have
intended the
Promotion of Access to
Information Act (PAIA
) to trump the limitations imposed by the
Companies Act in
respect of information shareholders are entitled to,
especially in light of other safeguards for shareholders in the
Companies Act and
the common law and in circumstances where a
substantial foundation for any irregularities in the company's
financial statements
has not been laid
."
[14]
He further submitted that the Court
a quo
also erred in
finding that Valencia had handed over the documents in respect of the
late Mr Armitage's records. This was not so.
He continued that it was
common cause that the documents provided to the respondent in support
of the late Mr Armitage's loan account
were provided with the
specific permission and authority of the directors of MDS
International and MDS NDT. It was MDS International
and MDS NDT and
not Valencia who met this demand. The respondent was informed on at
least four occasions that the documents were
in the possession of MDS
International and MDS NDT. In requesting the same documents through
the second PAIA application from MDS
International and MDS NDT, the
respondent accepted that the records were not in the possession or
under the control of Valencia.
There was then no need to persist with
the first PAIA application against Valencia, rendering it academic.
[15]
Counsel submitted that the first PAIA application should accordingly
have been dismissed. This
was so, he argued, because the application
was academic in view of the fact that the identical relief was sought
in the second
PAIA application against MDS International and MDS NDT
and in the circumstances, the Court
a quo
erred in making the
declaratory order in 1b of its order and the consequential order in
2a in respect of the first PAIA application.
He submitted that the
order in paragraph 1a of the Court
a quo
's judgment was not
necessary. Valencia’s attorneys had already, on 15 June 2015,
informed the respondent that it would not
be proceeding in argument
with their point
in limine
and there was thus no reason why
the respondent had to apply to amend her Notice of Motion to seek
declaratory relief in the terms
of paragraph 1a of the Court
a
quo
's order. The amendment was superfluous, he argued, and if
Valencia had persisted with the
in limine
point, the Court
would simply have dismissed the point if it was a bad point.
[16]
He continued that the Court
a
quo
had
already
confirmed in its reasons for granting leave to appeal, that 2b of the
order should not have been granted. He submitted that
it was
necessary to correct the factual finding that the Court
a
quo
made in respect of
the 2014 AFS that was incorrect. This, he indicated, occurred in
paragraph [20] of the judgment, where the Court
a
quo
found:
"On the
respondent's version, the 2014 draft financial statements were signed
by 2 of the directors and auditors in November
2014, yet its auditors
were yet to review them. It is implausible that auditors would append
their signature to financial statements
they were yet to approve.
Valencia is very conservative in its explanation as to why it took
until 2 March 2015 to make the financial
statements available to Mrs
Armitage, particularly because Mrs Armitage's request included draft
financial statements if the approved
financial statements were not
available. It failed to take this court into its confidence regarding
the nature of the review that
the auditors had to undertake after
signing the financial statements.”
He
continued that the finding in paragraph [20] above was incorrect.
This was so because it was correct that the 2014 AFS, whilst
dated 17
November 2014, were issued as final on 27 February 2015. The
respondent did not dispute this and in fact relied on the
fact that
the 2014 AFS were only issued on 27 February 2015, "almost a
year after the end of the financial year." in
support of her
contention that Valencia failed to prepare its AFS within the
statutory period.
[17]
In the second PAIA application, counsel took issue with the
respondent’s reasons for the
request for information, the late
request as well as the request for condonation appearing in the
replying affidavit. Counsel noted
that
no
case was made out, nor was there an attempt to advance a case to
demonstrate that it was in the interests of justice that the
Court
condone the non-compliance. The respondent did not advance any facts
or submissions to persuade the Court to condone the
second PAIA
application. No case was made out why it would be in the interests of
justice and be just and equitable. The Court
a
quo
granted condonation and in its reasons granting leave to appeal,
noted that the respondent did not make out a case that it was
in the
interests of justice that condonation be granted.
[3]
The Court noted that an appeal Court may find that it erred in doing
so.
[18]
He argued that the very reasons furnished by the respondent for why
they did not proceed earlier,
such as disposing of the first
application, saving costs and reconsidering lodging the second PAIA
application, demonstrated that
it is was not in the interests of
justice that condonation be granted. There was no case made out, he
submitted, which enabled
the Court
a quo
to grant the relief
sought in prayer 1 of the amended Notice of Motion because no case
was made out that it was in the interests
of justice that condonation
be granted. This, he reiterated, was confirmed by the Court
a quo
in its reasons for granting leave to appeal.
[19]
The issue of joinder was also submitted as a factor which reflected
on the respondents conduct.
Counsel submitted that it was indicative
of the respondent’s abusive conduct that she did not deny that
her conduct in joining
the fourth to eighth appellants was calculated
to embarrass and terrorise. He argued that this was the real reason
for their joinder
and confirms the fact that these appellants should
not have been joined in the first place. He submitted that the Court
a quo
should have dismissed the second PAIA application on the
grounds of either misjoinder or non-joinder. He pointed out that the
Court
a quo
, did not consider the issue of joinder at all.
[20]
He submitted that the Court erred in ordering MDS International and
MDS NDT to provide the respondent
with "copies of all documents
supporting and/or justifying the credits raised against the
shareholders' loan account ledger
of Valencia and non-personal
expenses paid in respect of benefits for the shareholders" for
the years 2012, 2013 and 2014.
This is so,
he
submitted,
because
these
documents have nothing to do with her alleged right "to enforce
payment of any loan account owed to the "estate"
by
Valencia". The respondent was already in possession of a copy of
the deceased's loan account as well as every document
that supported
the quantification of the late Mr Armitage's loan account.
Furthermore, the respondent failed to demonstrate how
any
of the records she has demanded would assist her in exercising or
protecting this "right". He argued, on that basis
alone,
the second application should have been dismissed.
[21]
Counsel contended that the respondent stated that
she required the records to "determine the true value
of the
company's shares for the purpose of proceeding under
section 163
of
the
Companies Act and
she required the records to protect or exercise
the right to defend "any claim on loan account" made by
Valencia against
the "estate". He argued that this was not
a valid reason as she has no legal right to launch a
section 163
application against MDS International and MDS NDT and especially when
offers had been made by the appellants to purchase the late
Mr
Armitage's shares. He continued that it was impermissible to utilise
the machinery of PAIA to protect a right which had not
even
materialised or presented itself.
[22]
He noted that the respondents’ affidavits were filled with a
myriad of allegations of theft,
falsification, fraud, misconduct,
irregularities and wrongdoings. The respondent alleges impropriety
and misconduct on the part
of the appellants to deliberately taint
the reader’s perception of the appellants. He argues however
the when the allegations
are considered with the application of
common sense, the allegations are exposed as the ambiguous and
deliberately misleading assertions
that they are. Regarding the
irregularity of the dividend issue, he submitted that this was a
non-issue. This was so, he argued,
because the respondent's expert,
Mr Danheisser, accepted the recalculation of the dividend on gross
dividends which was admitted
in paragraph 29.19 of her reply
[4]
.
where she states:
“
It is correct
that there was an interchange between Danheisser and Cambanis
regarding the recalculation of the dividend on a correct
basis and
that Danheisser was satisfied with the correctness of that
recalculation.”
[23]
Counsel submitted that the respondent's conduct in reporting Cambanis
to the IRBA was unwarranted.
This was unwarranted, he argued, in the
context of the explanation proffered by Mr Fichardt from Webber
Wentzel. This complaint
resulted in the delay in the finalisation of
Valencia's 2015 AFS. Mr Cambanis initially refused to complete the
outstanding work
required on the audit and review of Valencia, MDS
International and MDS NDT, because of this complaint. He continued
that whilst
it was correct that Valencia's 2015 AFS were not prepared
within the statutory period provided in the
Companies Act, there
was
a justifiable reason for this. He pointed out that there was no
fictitious entry of a dividend in Valencia's 2015 AFS. The
resolution
to pay the R12.650 million dividend was passed on 1 April 2015. As
the dividend was declared before the completion of
the 2015 AFS the
declaration was reflected in the 2015 AFS. The payment of dividends
was made within three months of the date of
declaration. The
respondent thus only received payment of the dividend at the end of
June 2016.
[24]
He noted that the respondent has unnecessarily made defamatory and
insulting allegations about
the appellants, the attorneys and the
auditors and asserted that she is permitted to do this without having
to prove these allegations
and without justification. She persisted
with the second PAIA application despite the fact that the first PAIA
application, was
not first resolved. She joined parties to the second
PAIA application when there was no legally justifiable reason to do
so. She
did not apply for condonation and assumed condonation was
there for the taking and only made out a case for condonation in
reply.
In view of the aforementioned, he submitted that both PAIA
applications were abusive and put the appellants to an inordinate
amount
of time and money to deal with. He therefore sought costs on a
punitive scale in view of the defamatory and insulting assertions
made about them which are, to the respondent's knowledge, untrue.
[25]
He noted that the respondent's cross-appeal was
restricted to the costs order granted by the Court
a quo
wherein she sought an order that the costs be paid by all the
appellants jointly and severally as opposed to just Valencia, MDS
International and MDS NDT and Roditis. He argued that there was no
merit in the cross-appeal. There was no evidence in the papers
that
supported what the respondent set out as the grounds of her appeal.
[26]
Regarding the contempt appeal, counsel argued that it was a matter of
common sense, bearing in
mind the nature of the relief granted in
Modiba J's orders, namely, to hand over documentation to the
respondent, that to comply
with the orders whilst intending to appeal
them would have simply defeated an appeal. This was so because the
appeal, in view of
compliance with the orders, would have no
practical effect or result. The court ought to have dismissed the
contempt application
on this ground alone. He continued however that
attorneys, as a matter of practice, exercise a measure of
professional collegiality
to each other in situations such as this.
They generally afford the losing party the opportunity to consider
the merits of an appeal
when this indulgence is requested. Steps are
usually only taken to enforce compliance with an order after the
fifteen-day period
provided for in Rule 49(1)(b) of the Uniform Rules
of Court, had passed, alternatively, when informed that there will be
no application
for leave to appeal. This request for an indulgence
was ignored in the present matter.
[27]
Counsel continued that if the appellants had immediately complied
with Modiba J's orders, it
would have resulted in a future appeal
having no practical effect or result. Moreover, he submitted, the
appellants would have
been exposed to an argument of peremption. He
pointed out pertinently that Mr Kahn, who deposed to the founding and
replying affidavits
on the respondent's behalf, did not deny the
facts in the appellants answering affidavit. Thus in applying the
test formulated
in
Plascon-Evans
Paints Ltd v Van Riebeeck Paints (Pty) Ltd
[5]
,
the appellants’ version should have been accepted. He argued
that the appellants' conduct in requesting an indulgence to
consider
Modiba J's orders to decide on their course of action, did not
constitute a deliberate and
mala
fide
intention to defy the orders. They cannot be held to be guilty of
contempt or breach of the orders. He argued that it was not the
appellants' case that Rule 49(1)(b) afforded them with a
spatium
deliberandi
.
They merely sought an indulgence from Mr Kahn to consider Modiba J's
orders and in response to this request Mr Kahn agreed and
stated that
the appellants were entitled to take fuII advantage of the time
frames provided for in the Rules of Court within which
they may - if
they so wish - apply for leave to appeal.
[28]
He submitted that the Court
a
quo
erred in not dismissing the respondent's application because the
respondent sought declaratory orders without consequential relief
and
Courts do not have the power, under common law, to grant declaratory
orders without consequential relief.
[6]
The respondent merely required the Court to pronounce on the status
quo
of past events. This alone, he argued, was sufficient basis for the
Court
a
quo
to dismiss the application. The Court
a
quo
erred in this reasoning where it held at paragraph [30] of its
judgment, that a declaratory order can be granted where there is
an
infringement of the right that is the subject of the declaratory
order. This is so, he contented, because the respondent's right
to
enforce the order was not infringed. The very contempt application
the respondent launched was the exertion of the respondent's
right to
enforce the order. Insofar as any infringement existed, this came to
an end on 2 March 2017 when the appellants filed
their application
for leave to appeal.
[29]
He continued that the declaratory relief sought was academic or moot
since the appellant delivered
their Notice of Application for leave
to appeal Modiba J’s orders on 2 March 2017. In terms of
section 18(1) of the Superior
Court Act,
[7]
the operation and execution of a Court order which is the subject of
an application for leave to appeal or appeal is suspended
pending the
decision of the application or appeal. The operation of Modiba J's
orders was thus suspended on 2 March 2017. He submitted
that the
declaratory relief the respondent sought was hypothetical and
academic
[8]
and a waste of the
Court's time as the declaratory orders did not relate to an interest
in an existing, future or contingent right
or obligation because
there was no actual dispute between the parties.
[9]
Furthermore he argued, there was no case in the founding affidavit on
27 February 2017, to support the declaratory relief to prove
contempt
of Modiba J's orders or breach thereof. This onus to prove a breach
lay with the respondent to establish the requirements
on
a balance of probabilities when declaratory relief is sought. The
respondent failed to do so, he contended.
[30]
Moreover, he argued, the respondents founding and replying affidavit
do not demonstrate, on a
balance of probabilities, that the
appellants deliberately and intentionally violated the Court's
dignity, repute or authority.
An objective analysis of the facts does
not establish that the appellants' conduct was contemptuous or in
breach of the order he
submitted and whilst the Court
a quo
at
paragraph [27] found that the appellants,
"refusal to
comply with the order, or an indication when they would comply, at
least until the application for leave to appeal
was filed,
constitutes in my view wilfulness and mala fides on the part of the
respondents",
the
appellants did not refuse to comply with Modiba J's orders. He
reasoned that the appellants first requested an indulgence to
consider whether to appeal the orders. As soon as the decision was
made to appeal Modiba J's orders, the appellants communicated
this
decision to the respondent’s attorney on 20 February 2017. They
could not reasonably be expected to comply with a court
order they
had decided to appeal. Had the appellants complied with Modiba J's
orders, their appeal would have no practical effect
or result.
[31]
Counsel argued that the Court
a quo
at paragraph [5] found
that “
No time periods for compliance with the orders were
stipulated. It is that lacuna that is the subject matter of the
declaratory
orders sought."
. If this were so, he submitted,
this favoured the appellant’s position in not having complied
with the orders immediately
or within 7 days. Therefore, he
continued, the Court
a quo
ought not to have declared that the
appellants had breached the orders because they had not complied with
them on 27 February 2017.
In as much as the respondent sought to
amend or vary Modiba J's orders so as to clarify the time period
within which compliance
was to occur, she was required to do so by
utilising Rule 42. This is also the very reason why the Court
a
quo
could not order that the appellants must comply with Modiba
J's orders within 7 days of the date on which the application for
leave
to appeal is refused, alternatively, and in the event that
leave to appeal is granted, from the date upon which the appeal is
dismissed.
He submitted, there was no application before the Court
a
quo
in terms of Rule 42 and no was argument advanced on the
respondent's behalf for such relief. Thus, he submitted, the appeal
should
succeed with costs on a punitive scale.
RESPONDENT’S
SUBMISSIONS
[32]
Counsel for the respondent submitted that the respondent, represented
by Brian Kahn Inc. BKI,
lodged, with Valencia, a request for access
to records under PAIA under cover of a letter dated 11 December 2014.
The respondent
required:
32.1 the loan
account ledger of Valencia for Armitage for the year ended 28
February 2014, including all entries reflecting
debits and credits on
such account;
32.2 copies of
documents supporting and/or justifying the credits and debits raised
against the account referred to in paragraph
37.1 hereof;
32.3 the loan
account ledger of the company for each of the shareholders, other
than Armitage, reflecting the details of credits
and debits for the
year ended February 2014;
32.4 copies of all
documents supporting and/or justifying the debits and credits raised
in the accounts referred to in paragraph
32.3 hereof;
32.4 the audited
financial statements of Valencia for the year ended 28 February 2014
or, if not approved, the latest draft
financial statements for such
period.
32.5 Valencia and
its directors would have known that the annual financial statements
had been approved and reviewed by the
time that it received this
demand.
[33]
Valencia was obliged to advise the respondent whether or not it would
provide the above documents
by 11 January 2015. It did not, instead
it apologised for the delay and stated that Valencia's response to
the request would be
due on Monday, 23 February 2015. When Valencia
failed to meet the deadline, the respondent, as applicant, commenced
the first PAIA
application. The documents were provided, more than
two and a half months after the PAIA demand, and were less than what
was requested
and comprised:
33.1 the annual
financial statements which had been approved and reviewed by 18
November 2014;
33.2 a single page
document recording the opening and closing balances for the loan
accounts of Armitage, Green, Smith, Hoy
and Stanbridge for the year
ended 28 February 2014;
33.3 a single page
document reflecting the trial balance for Valencia for the year ended
28 February 2014 with less than 25
lines of entries.
This
was accompanied by an apology and an indication that it comprised
"... all the documents (pertaining to your client PAJA
request)
that is (sic) in the possession of Valencia.”
[34]
Counsel submitted that the first PAIA application was issued prior to
the receipt by BKI of the
documents and the accompanying excuse for
the failure or refusal to deliver all of the documents requested. It
was for this reason
that the founding affidavit did not address this
issue. Accordingly, the respondent delivered a supplementary
affidavit deposed
to by an attorney at BKI, Steffenini, with a
confirming affidavit by an accounting expert, Danheisser. The
founding affidavit,
he continued, specifically recorded that the
respondent, as executrix, required access to details concerning the
loan account of
the other shareholders to determine whether the
debits that had been raised against Mr Armitage's loan account were
correct and
in this regard, whether there was "like treatment"
by Valencia of the other shareholders in respect of similar
expenditure
that took place. The affidavit specifies, by way of
illustration, and refers to the fact that the debits of premiums on
the insurance
policies should not have been raised against the
individual loan accounts, for purposes of tax efficiency, but paid by
Valencia.
[35]
He continued that the affidavit of Steffenini addressed the issues
such as: -
35.1 the need on
the part of Valencia to have advised the respondent, as requested,
under section 55 of PAIA, if the documents
sought could not be found
or did not exist; and
35.2 why, if
Valencia sought to contend that it was excused from producing the
documents because certain of the documents
were under the control or
in the possession of one or other of the subsidiaries, such
contention was unfounded.
The
respondent required the explanation after noting the changes
in
the loan accounts of each of the remaining shareholders and the
improbability that could have occurred other than by way of
transactions that involved the creation of documents; and the opinion
of Danheisser as an expert in the accounting field that, where
expenditure was incurred by a holding company, such as Valencia, and
documents evidencing that expenditure are generated within
one of its
subsidiaries, those documents are required to be retained and
available to Valencia.
[36]
Valencia opposed the first application on the basis that the
respondent was not entitled to the
records sought for the reasons
indicated above. Counsel for the respondent argued that by the time
that the answering affidavit
had been delivered, Valencia had
complied with most of its obligations, but not all of the documents
relating to the loan accounts
of the other shareholders were
furnished. Counsel submitted that the reason furnished that Valencia
does not have control over
the documents, is not supported when
regard is had to the factual basis, which is not disputed. This, he
argued, was that Valencia
does not have its own bank account, and any
payments made directly to shareholders of Valencia or any payments
made to third parties
on the shareholders' behalf, are paid out of
the bank account of a subsidiary company. Consequently, they form
"part of that
subsidiary company's cashbook and general ledger";
and in the circumstances, the documents supporting the debits and
credits
recorded in the loan accounts of the shareholders do not
belong, nor are they in the possession or under the control of
Valencia,
but in the possession of the subsidiary company.
[37]
He pointed out the consequences that follow from this set of facts
that are material, namely:
the subsidiary making the payment to the
shareholder or on behalf of the shareholder for the holding company,
Valencia will be
acting as an agent for Valencia and, as agent, be
obliged to provide the documents to Valencia. If there was a dispute
between
one of the shareholders and Valencia as to a payment, how
would Valencia be able to resolve that dispute without having
unrestricted
access to the document which would be either in the
physical possession of the subsidiary held on behalf of Valencia or,
at worst,
held by the subsidiary jointly with Valencia; and how would
a review, let alone an audit, of Valencia's affairs be able to take
place if the auditor or reviewer was not entitled to have
unrestricted access to the documents in question. This submission was
reinforced by his argument that an auditor or reviewer must have
unrestricted access to the records concerning the payments of
all the
shareholders' loan accounts. The aforesaid, he continued, was
reinforced by Valencia's own challenge to the respondent
to access to
the information referring to the loan accounts of the remaining
shareholders as she has the right to be given annual
financial
statements, where it is expressly stated that: -
"The
financial statements of Valencia are reviewed at the end of every
financial year by an independent auditor.” and
"Valencia's
financial statements have never been qualified in any respect. “The
appellants meet these facts and the
opinion of the expert,
Danheisser, a bald denial, where an explanation was required”.
[38]
Counsel maintained that the financial statements revealed, that the
debit loan account as at
February 2013 to February 2014 had increased
for Smith from approximately R5.8 million to R8.9 million; and
Hoy from
approximately R5.6 million to R8.6 million. The respondent
considered this course of action, which was persisted with as conduct
as contemplated by section 163 which was oppressive, prejudicial or
contrary to the interests of the respondent as reflected in
the
second PAIA application. Furthermore, he argued, it amounted to a
breach by the shareholders/directors of their duties as directors;
as
the respondent's legal representatives saw it. It appeared that the
shareholders/directors were carrying out their functions
as directors
of Valencia to advantage themselves, contrary to the interests of
Valencia and in all probability (if they were advised
properly) , in
bad faith, to avoid disclosure of the details of their misconduct.
Still, he submitted, Valencia and the subsidiaries
did not provide
the documents requested under the second PAIA request. In this second
application, their conduct was aided by and
they were under the
control of Roditis.
[39]
He disputed that the delivery of the second PAIA notices had rendered
the first PAIA application
"academic". Furthermore, he
submitted that it was not appropriate for the respondent, as
applicant, to withdraw the first
PAIA application and tender
Valencia's costs as recorded by the appellants. He contended that the
applications would not have been
necessary had Valencia and the
subsidiaries provided the records sought which were the subject
matter of the first PAIA application.
This would have rendered the
first PAIA application academic, except for the issue of costs; and
if there were further proceedings,
the declaratory relief. The Court
would not have heard the matter if it would have no practical result.
This in itself indicated
that the matter was not moot.
[40]
Counsel referred to further conduct by the appellants to obstruct the
respondent from obtaining
the relevant information regarding
Valencia. He referred, in particular, to the irregularities
identified by Danheisser regarding
the annual financial statements
for Valencia for the year ended 28 February 2015, which should have
been prepared and reviewed
by 31 August 2015, but had not occurred.
He submitted that the respondent’s attorney referred the
appellants to a dividend
irregularity and specifically demanded the
shareholders/directors the annual financial statements for the year
ended 28 February
2015, which should then already have been prepared
and reviewed, alternately to provide the latest draft thereof,
whether approved
or unapproved by the directors. The attorney also
referred to other matters that called for explanations. He argued
that the “dividend
irregularity" arose in regard to the
financial statements for the year ended 28 February 2013 which
reflected, a discrepancy
of R4 554 330 between the amount of the
dividends supposedly declared by the subsidiaries and that received
by Valencia. The response
received was that Valencia was currently in
the process of preparing financial statements for the year ended 28
February 2015 and
estimated that they would be finalised by 30
November 2015, they offered to ensure that copies thereof would be
received by the
respondent when they were complete. They still stated
that they "remain desirous" of purchasing the respondent's
late
husband's shares at a commercial value and looked to the
respondent for a suggestion as to how that should be achieved. What
followed
was a withdrawal of negotiations. The appellants were aware
at this stage that the respondent, in order to negotiate on the issue
of a share price, required financial information concerning Valencia.
The first PAIA application was opposed and was yet to be
heard.
Furthermore, no information or records pursuant to the second PAIA
requests had been furnished. The respondent was in possession
of
statements that were more than 18 months old.
[41]
Counsel argued that if the shareholders/directors genuinely intended
to negotiate with the respondent
to acquire the estate's shares in
Valencia, they would have co-operated and approved the provision of
the information requested
before the launch of the PAIA applications
as it would have served their interests as directors/shareholders and
was not contrary
to the interests of Valencia. The attorneys were
aware of the benefits. He argued moreover that the information
available to Cambanis
which he had promised, should have been given
which would have rendered the first PAIA application academic and the
second PAIA
application or this appeal as well as the contempt
/declaratory application would not have commenced. He submitted that
the respondent,
as applicant, specifically relied, in the second PAIA
application, upon the refusal by Cambanis to give information in
accordance
with the undertaking and referred to the undertaking in
her founding affidavit referring to the letter and citing the very
words
appearing in the letter from Webber Wentzel. The respondent
noted in her affidavit that the refusal to give this information was
as a result of instructions given by Anderson of Bowmans. She
consequently questioned Cambanis' independence as an auditor and
his
integrity in light of the fact that he had undertaken to give the
information and thereafter had simply followed the instructions
of
Anderson on behalf of the shareholders/directors of Valencia. She
also, under advice, questioned the conduct of the directors
and their
refusing access to this information, and concluded that it called
into question their integrity.
[42]
Counsel submitted that there were discrepancies surrounding the
financial statements and what
emerged was that there were two further
versions of these financial statements that (differed in material
respects):
42.1 Valencia had
made an operating loss during that financial year and had an
accumulated loss of R56 602.00 as at the end
of the year (the effect
of which was that it was insolvent); and
42.2 yet, the interest
free loans of the shareholders/directors had increased and, in
particular, those of Smith from R8.9 million
to 10 million and Hoy
from R8.6 million to R 11.2 million.
[43]
In the second PAIA application, the respondent sought further
documents from Valencia as well
as from the subsidiaries, MDS and MDS
NDT. An extension was requested by the appellants attorneys so that
"consultations amongst
divisions of our clients as well as
between our respective clients are necessary and desirable in order
to decide upon the various
requests ". Valencia and the
subsidiaries waited for almost a further month before responding to
the request on 7 July 2016
and then informed the respondent that: -
“
172.1
the consolidated financial statements for Valencia for the financial
years ended 28 February 2012, 28 February 2013 and 28 February 2014;
172.2
the draft financial statements or management accounts reflecting
the
financial position of Valencia for the year ended 28 February 2015 or
any portion thereof;
172.8
and all directors’ valuations, calculations and other
documents
evidencing or referring to the value of Valencia’s shares in
the subsidiaries for the periods referred to in paragraphs
172.1 and
172.2.1 (and the equivalent documents for the subsidiaries) do not
exist or are not in their possession”
Counsel
argued that it was evident that those in control of Valencia, namely
the shareholders/directors (and possibly the three
BEE directors) and
Roditis, took a period of more than two months to decide on the two
defences that had already been raised in
the first PAIA application,
namely that no case had been made out for the ledgers and supporting
documents for the loan accounts
and that such documents were not in
the possession of Valencia. Furthermore, that the disclosure of both
the ledgers and the supporting
documents would be an unreasonable
disclosure of personal information and a breach of a duty of
confidence owed to the relevant
shareholders. A further claim that it
had no value and if it did, was in possession of the auditors which
they could not pursue
in two months.
[44]
He submitted that in the face of such evasive responses, the
respondent was entitled to prevent
further misuse of Valencia and its
subsidiaries (in which Valencia had a proper legal and commercial
interest) for obstructing
her in litigation. She sought loan account
ledgers of the other shareholders (including the
shareholders/directors) and the supporting
documents were sought.
This was to enforce a claim under
section 163
of the
Companies Act;
to
establish that in framing the loan accounts, there was "like
treatment" of Mr Armitage when compared with the other
shareholders,
in particular the shareholders/directors; the
invalidity of the payment of amounts to shareholders who are also
directors; and
the unreliability of the financial statements of
Valencia (and possibly the subsidiaries).
[45]
He submitted that the appellants offered no explanation why the
ledger accounts reflecting each
payment made to or on behalf of each
of the shareholders (other than Mr Armitage), which would involve the
disclosure of anything
of a personal nature, could not be redacted so
as not to cause embarrassment to the shareholder in question. And
assuming that
by choosing to have the relevant company pay the debt,
the shareholder has not waived the right to privacy, it may be
arguable
that a particular debit should not be disclosed. He argued
that making the bald claim that there is an unreasonable disclosure,
the factual substantiation therefor is not presented.
[46]
He conceded that the respondent did not ask for condonation for
failing to bring the second PAIA
application within 180 days of the
notices. This was addressed by the respondent in her replying
affidavit where she set out the
basis for that application, and
invited the appellants, as respondents in the application, to address
it. The appellants responded
by way of a supplementary affidavit. She
explained that as a date for the hearing of the first application had
been assigned to
the matter, it was determined that the respondent
should await the outcome of the first PAIA application. In that
application,
certain matters of principle relevant to the second PAIA
application could be decided which would avoid the need for the
second
application. The second application was partially argued and
postponed (as a result of the appellants' conduct) and, ultimately,
in January 2016, the acting Judge hearing the matter chose to recuse
herself. He submitted that the facts show that the respondent
acted
reasonably and properly in withholding the commencement of the second
PAIA application. The Court
a quo
exercised its discretion
correctly in granting the application as it was clearly in the
interests of justice to grant condonation.
[47]
Regarding the question of costs, the respondent, as a shareholder of
Valencia, suggests a substantial
order of costs against Valencia
would diminish the value of her shares not only by the order of costs
against Valencia, but also
by the fact that Valencia (and its
subsidiaries) would have incurred costs in opposing the application.
The respondent contended
it had a proper basis, thus for asking for
costs to be paid by the shareholders/directors.
ANALYSIS
[48]
In considering the submissions of both counsel, it is apparent that
when the first PAIA application
was lodged, the documents requested
from Valencia were overdue at law
[10]
,
and had not been provided in accordance with their undertaking. The
annual financial statements for February 2014 and two further
documents had not been provided, and Valencia refused to provide
further documents on the basis that they were not in its possession
or control. Furthermore, in view of the dividend irregularity and the
unsatisfactory explanation in relation thereto as well as
the lack of
disclosure of information regarding the interests of shareholders and
directors, I am of the view that the Court
a
quo
exercised its discretion properly to grant condonation in relation to
the second PAIA application. In addition, the Court
a
quo
was correct in ordering that the documents relating to the loan
accounts of the other shareholders be provided, albeit that the
respondent contended (as she still does) that the appellants were not
entitled to withhold the documents allegedly containing personal
information
[11]
. Whilst
certain documents were furnished, there were documents that were
required and which the respondent as the executrix and
shareholder
was entitled to. There was no plausible reason to withhold such
information from her. Moreover, that certain documents
may already
have been furnished is of no consequence when she was directed to MDS
and MDS NDT, the subsidiaries. It cannot be said
that the second PAIA
application was unwarranted when this information was withheld from
her and she was directed to MDS and MDS
NDT to obtain the
information.
[49]
In granting the condonation, it is correct that the application ought
to have been made in the
founding affidavit. Having regard to the
conduct of the shareholders and directors who withheld information
and purported to be
interested in purchasing the shares, the issue
the respondent wished to take up regarding the interest free loans to
shareholders/
directors where the entity was insolvent, it is
plausible to see why the Court
a quo
would have granted
condonation to enable the respondent to address the issues she raised
which included the personal expenses which
were being covered. This
is especially where the respondent sought to resolve issues with the
first application and explains this.
It is certainly in the interests
of justice that she be permitted to pursue the matter.
[50]
The appellants laboured under the erroneous assumption that the
respondent was not entitled to
information from the subsidiaries. I
agree with counsel for the respondent on this aspect. Where the
subsidiaries are in possession
of documents that are relevant for the
exercise or protection by the respondent of her rights under
section
163
of the
Companies Act against
Valencia, she is entitled to those
documents from the subsidiaries. They had repeatedly referred her to
the subsidiaries to obtain
the information and could not complain
when she eventually approached the subsidiaries in the second
application. When regard is
had to the dictum relied upon in the
Clutchco
case,
it is evident that it is simply caution: -" that one must guard
against forcing corporates to throw open their books
on claims of
alleged minor errors or irregularities. "
[12]
This is simply not the case in the present matter. Moreover, having
regard to the
Companies Act, a
shareholder is entitled, as of right
and with proving nothing further, to annual financial statements of a
company. The respondent,
as the executrix (shareholder) is entitled
to the documents and under PAIA is entitled to further documents once
she meets the
requirements. There was no suggestion that she did not
meet the requirements of PAIA. I was referred to no contrary
authority to
indicate that the provisions of PAIA do not permit of
access beyond the limitations under the
Companies Act.
>[60]
Given the manner in which the appellants acted in response to the
demands for compliance with the
order, the respondent was compelled
to approach the Court to seek further relief; to obtain a declaratory
order. The respondent’s
application was not for contempt but
for declaratory orders. Section 18 of the Superior Courts Act states
that on lodging of an
application for leave to appeal, the operation
of an order is suspended pending the decision on the application for
leave to appeal
or the appeal. A litigant, against whom a judgment
has been granted, is not entitled to a stay thereof to consider
whether or not
it wishes to appeal. The appellants appeared to labour
under the view that they were entitled to consider the matter and not
required
to perform the obligations under the orders. It is clear
from the communications that until receipt of the e-mail, the
appellants,
through their attorneys, insisted on an entitlement and
did not seek any indulgence as they suggest. They continued to
disregard
the orders of Court, without filing any application for
leave to appeal until the respondent brought the declaratory
application.
At the time that the application was brought, no
application for leave to appeal was filed. The application was only
delivered
on 2 March 2017. For this reason, the application was
necessary. The order, once granted, was immediately enforceable and
would
only be stayed and be unenforceable if a notice of Application
for leave to Appeal was delivered. The appellant had the option of
either delivering a Notice of Application for leave to Appeal
immediately and, if successful, could at a later stage elect not
to
pursue the appeal or withdraw it. Alternatively, the appellants could
request an indulgence from the respondents not to enforce
the order
immediately or indicate when they would comply.
[61]
I have had regard to the judgment of Modiba J where she conceded that
the order in 2b may not
be necessary. Having regard to the
submissions of counsel and the draft order that was furnished,
counsel conceded that the orders
in 2b in case 7995/2015 were not
necessary as it was not relief requested. Furthermore, the relief in
3a, 3b, 5 and 6 of case 4280/2016
were similarly not necessary. The
usual costs order follows upon the relief granted.
ORDER
[62]
For the reasons above, I propose the following order:
1
T
he
appeals are upheld in respect of
1.1
Paragraph 2b of the Court
a quo
’s
order in case no. 07995/2015; and
1.2
Paragraphs 3a, 3b, 5 and 6
of the Court
a quo
’s
order in case no. 04280/2016.
2
The orders of the Court
a
quo
are amended by the
deletion of:
2.1
Paragraph 2b of the Court
a quo
’s
order in case no. 07995/2015; and
2.2
Paragraphs 3a, 3b, 5 and 6
of the Court
a quo
’s
order in case no. 04280/2016.
3
The appeals are dismissed
with costs in respect of the remaining relief granted by the Court
a
quo
.
S
C MIA
JUDGE
OF THE HIGH COURT OF SOUTH AFRICA
GAUTENG
DIVISION, JOHANNESBURG
I
agree
C
LAMONT
JUDGE
OF THE HIGH COURT OF SOUTH AFRICA
GAUTENG
DIVISION, JOHANNESBURG
I
agree
A
MAIER-FRAWLEY
JUDGE
OF THE HIGH COURT OF SOUTH AFRICA
GAUTENG
DIVISION, JOHANNESBURG
Appearances:
On
behalf of the appellant
:
Adv JC Blou SC &
P Cirone
Instructed
by
: Knowles
Hussain Lindsey
On
behalf of the respondents :
Adv AC Botha SC
Instructed
by
: Brian Kahn Inc
Date
of hearing
:
24 August 2021
Date
of judgment
:
29 September 2021
[1]
Swissborough
Diamond Mines (Pty) Ltd & Others v Government of the Republic of
South Africa & Others
1999
(2) SA 279
(T) at 324 – 325; see also
President
of the Republic of South Africa and Others v M&G Media Limited
2011 (2) SA 1
(SCA) para 15 –18.
[2]
Supra
.
[3]
AsIa
Construction (Pty) Ltd v Buffalo City MetropoIitan Municipality
2017 (6) SA 360
(SCA) at 365A-366 B;
Van
Wyk v Unitas Hospital & Another
(
Open
Democratic Advice Centre as Amicus Curiae)
[2007] ZACC 24
;
2008 (2) SA 472
(CC) para 22.
[4]
Volume 9, PAIA Appeal, RA, p 830 par 29.19.
[5]
[1984] ZASCA 51
;
1984 (3) SA 623
(A) at 634E-635C
[6]
Geldenhuys
and Neethling v Beuthin
1918
AD 426
at 439 – 41;
Softex
Mattress (Pty) Ltd v Transvaal Mattress and Furnishing Co Ltd
1979 (1) SA 755
(D) at 757D;
Preston
v Vredendal Co-operative Winery Ltd
2001 (1) SA 244
(E) at 247H – I.
[7]
Act 10 of 2013.
[8]
SA
Mutual Life Assurance Society v Anglo-Transvaal Collieries Ltd
1977 (3) SA 642
(A) at 658H.
[9]
Van
Deventer v Ivory Sun Trading 77 (Pty) Ltd
2015 (3) SA 532
(SCA) at 541A – B.
[10]
S 50 of PAIA requires that “(1) A requester must be given
access to any record of a private body if- (a) that record is
required for the exercise or protection of any rights; (b) that
person complies with the procedural requirements in this Act
relating to a request for access to that record; and (c) access to
that record is not refused in terms of any ground for refusal
contemplated in Chapter 4 of this Part.”
[11]
The
respondent’s view was that personal expenses need to be
assessed for relevance when they are being paid by the company
[12]
Company
Secretary, Arcelormittal South Africa Ltd & another v Vaal
Environmental Justice Alliance
2015 (1) SA 515
(SCA) para 80.