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[2020] ZAGPPHC 37
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Elmos Services BV v Microsystems on Silicon (Pty) Ltd and Others (71201/2018) [2020] ZAGPPHC 37 (21 January 2020)
IN THE
HIGH COURT OF SOUTH AFRICA
(GAUTENG
DIVISION, PRETORIA)
Case Number: 71201/2018
In the matter between:
ELMOS SERVICES
BV
APPLICANT
And
MICROSYSTEMS ON
SILICON (PTY) LTD RESPONDENT
HELGARD
ROSS
1
ST
INTERVENING PARTY
ARTHUR WILHELM
SUNTKEN N.O
2
ND
INTERVENING PARTY
WOLFGANG MANFRED
SUNTKEN N.O
3
RD
INTERVENING PARTY
JUTTA INGRID SCHMIDT
N.O
4
TH
INTERVENING PARTY
JUDGMENT
Fabricius J,
[1] On 8
October 2019, I heard this application in which Applicants sought a
final winding-up of the Respondent
as a solvent company in terms of
the
2008 Companies Act, Act 71 of 2008
. The provisional
winding-up order had been granted on 12 March 2019. On 12 April 2019,
a counter-application was filed and on 3
September 2019, the Court
ordered that the Second and Third Respondents be joined as
intervening parties in this counter-application.
[2] In the
intervening parties’ counter-application the following relief
was sought:
“
1.
That the applicant be directed, in terms of
section 163
(2) of the
Companies Act, 71 of 2008
, to dispose of its shareholding in the
respondent, comprising 51% of the issued shareholding in the
respondent, to the intervening
parties.
2.
That the intervening parties be directed to pay the applicant the
amount of €149,529.00
(one hundred forty nine thousand five
hundred twenty nine Euro), on such terms as the Honourable Court
directs, as consideration
for the purchase of the shareholding of the
applicant in the respondent as set out in paragraph 1 above, which
amount shall be
paid by the intervening parties jointly and
severally, the one to pay to others to be absolved.
3.
In the
alternative
to paragraph 2:
3.1
The
intervening parties are directed to purchase the shareholding of the
applicant in the respondent at fair value, calculated pro-rata
to the
total issued share capital of the respondent, which amount shall be
paid by the intervening parties jointly and severally,
the one to pay
the others to be absolved;
3.2
The
fair value of the shareholding held by the applicant in the
respondent shall be determined by agreement between the parties,
or
failing agreement, such other method of calculating the fair value of
the said shareholding as the Court, in its sole discretion,
may
direct;
3.3
That
any costs which may reasonably be incurred in determining the fair
market value of the shareholding held by the applicant in
the
respondent, be borne by the parties in equal shares.”
[3] The
history of the dispute between the parties and the importance of
pending litigation in Germany is
fully set out in a written judgment
by Tuchten J delivered on 17 December 2018, under case number
32255/2018. This judgment must
be read in the light thereof,
particularly having regard to the orders that Tuchten J made, which
are the following:
“
1.
The second respondent (Elmos BV) is directed to abide by the process
pursuant to
s. 165
of the
Companies Act, 71 of 2008
initiated by the
applicants on 25 April 2018 (the
s. 165
process), subject to the
first respondent (MOS) pursuing that process to its conclusion within
a reasonable time from the date
of the undertaking.
2.
The shareholders and directors of MOS are directed to cooperate fully
and timeously in order
for MOS to fulfil its obligations under
paragraph 1 of this order.
3.
Elmos BV is directed to refrain from initiating or calling on its
appointed director to initiate
any process in either shareholders’
or directors’ board meetings calling for MOS to settle or
abandon the action brought
by MOS in the Landgericht Dortmund under
case no. 53002/17 (the Landgericht Dortmund action) prior to the
issuing of the report
in terms of
section 165
and the members of the
board having had two weeks to consider the report.
4.
It is declared that if there is a shareholders’ vote in MOS for
the removal of either
the minority directors, and the minority
directors do not support the removal of their directors, the removal
of the minority directors
for the purpose of obstructing or
interfering with the
section 165
process or the progress of the
Landgericht Dortmund action shall not be good cause for so doing in
terms of
s. 5.2.2.2
of the shareholders’ agreement referred to
in paragraph 1 of this judgment.
5.
Elmos BV is directed to refrain from acting in conflict with the
provisions of 4 of this
order.
6.
The costs of this application are reserved for later adjudication.
Any party to this application
may set the matter down for
adjudication on notice to all the other parties.”
[4] Having
heard the application, I issued a directive on 11 October 2019, in
which I requested the parties
to provide me with a draft order to the
following effect:
“
3.1
The provisional order is extended to 11 December 2019, when Fabricius
J will preside on the proceedings;
3.2 The
counter-application is postponed to 11 December 2019;
3.3 One of the
3 persons proposed by the Applicant in the letter of 20/05/2018 he
requested to report as
provided in
s. 165
(4) (a). Fabricius J leaves
the proper and concise formulation of this part of the order to
Counsel.
3.4 Costs of
the proceedings of 7 October 2019 are reserved.”
[5] Having
considered the arguments and also especially the judgment of Tuchten
J and the orders that he
issued, I deemed it appropriate to have made
a draft order that was handed to me an order of Court, and this order
reads as follows:
“
1.
The provisional winding up order granted on 12 March 2019 is hereby
extended to 11 December 2019
before Fabricius J.
2.
The counter application is postponed to 11 December 2019.
3.
The second and third respondents (the provisional liquidators of the
first respondent) are
directed to instruct Dr Franz Tepper as an
independent party to prepare a report in terms of section 165 (4) (a)
of the South African
Companies Act 71 of 2008
.
4.
In the event Dr Tepper is unavailable or unable to prepare a report
in sufficient time for
the next hearing on 11 December 2019, the
second and third respondents shall without delay instruct Dr Andree
Dignas and, failing
him, Mr Dieter Schmitz.
5.
The Intervening Parties’ attorneys will forthwith deliver the
documents listed in paragraph
6 below, to the second and third
respondents to transmit forthwith to Dr Tepper. The Intervening
Parties’ attorneys will
simultaneously deliver a copy to the
Applicant’s attorney.
6.
The second and third respondents will instruct the German Attorney by
delivering to him:
6.1
a
copy of this order;
6.2
a
copy of
section 165
of the
Companies Act 71 of 2008
;
6.3
the
demand in terms of
section 165
dated 24 April 2018;
6.4
the
resolution of the board of respondent dated 24 July 2018, a copy of
which is attached hereto as “X”;
6.5
the
documents provided for in paragraphs 3.3, 3.4 and 3.5 of the
resolution, save that no draft “Replik” or consequential
draft “Duplik” shall be delivered to the German attorney.
7.
The terms of reference for the German attorney will be set out in
paragraph 1.1 of the resolution
and the German attorney will have the
powers provided for in paragraph 3.7 of the resolution.
8.
In the event that the first respondent, Microsystems on Silicon (Pty)
Ltd, has insufficient
funds to pay the German Attorney’s fees,
any unpaid balance shall be paid to the liquidators at their request
and in the
following proportions:
6.1
51%
by the applicant; and
6.2
49%
by the intervening parties.
9.
The second and third respondents are directed to obtain the report in
terms of
section 165
(4) by the German Attorney before the hearing
date of 11 December 2019, and immediately deliver a copy to all
parties’ attorneys
and to the Court.
10. Costs of
the proceedings on 7 and 8 October 2019 are reserved.”
[6] The
hearing resumed on 11 December 2019, and the written report of Dr F.
Tepper had become available
and had been considered.
[7] Counsel
handed up draft orders dealing with the final winding-up order on the
one hand, and on the other
dealing with the sale of shares, providing
detail as to how “fair value” would be determined.
Applicant’s Counsel
also handed up a letter with prejudice
which made various proposals of settlement to the Respondents which
were however not accepted.
[8]
Applicant’s Counsel also handed up a Supplementary argument
which dealt with the report of the
German Attorney Dr Tepper. I had
been provided with a copy of that report in German which I read, and
the English translation thereof
which I obviously also read. Before I
deal with aspects of that report, it must be remembered that the
Respondents’ and the
Intervening Parties’ case was that
the alleged sole purpose of the winding-up application was to deprive
MOS of the ability
to further pursue adjudication of the relevant
dispute which was pending in Germany. It was contended on behalf of
Applicant that
the German report was detailed and balanced and
considered the problem from all parties’ perspectives without
entirely adopting
or rejecting any of them. From my reading of the
reports, I agree with that conclusion. At this stage it is convenient
to briefly
state what the issues are that are pending in the German
Court:
1.
Prayers
1 and 2 are for orders declaring that Elmos AG’
s 7
June and 31
August 2017 terminations of the Co-operation Agreement are invalid
and that the Co-operation Agreement persists. Details
of this
cancellation are contained in the judgment of Tuchten J.
[9] Prayer 3
was for specific performance of the Co-operation Agreement. Prayer 4
was that in translation
“the Defendant [Elmos AG] should
reimburse the Plaintiff [MOS] for all damages that arose and will
arise from non-continuation
of the Co-operation Agreement”, and
its additional agreement.
[10] Dr Tepper’s
opinion was that MOS’s claim 1 declaring Elmos AG 7 June 2017
termination invalid, had
reasonable prospects of success with the
qualification that it remains valid as ordinary notice effective on
31 December 2017.
Dr Tepper also reached a similar conclusion on
MOS’s claim 2: relating to the 31 August 2017 termination, save
that it becomes
effective as ordinary notice on 31 December 2018. On
this basis the Co-operation Agreement probably did not persist after
31 December
2017, limiting damages to that date. His other opinion
was that a third claim, for specific performance, could not be upheld
owing
to the passage of time. His opinion was that if Elmos AG
terminations were ineffective, MOS suffered damages as a result of
the
premature termination of its co-operation with Elmos AG.
Self-evidently, damages for premature termination could not exceed
the
termination date on normal notice, i.e. 31 December 2017.
[11] The German
Attorney also pointed out that MOS’s proposed settlement of
€5318,182 related to unpaid
commission and revenue shares from
the sales of MOS’s products, and does not fall under the
pending Dortmund action which
was concerned only with claims for
damages.
[12] Dr Tepper then
also considered the high cost of litigation and the time it would or
could take for litigation
to be concluded. In Germany litigation
costs are assessed on the basis of a tariff depending on the brackets
into which the value
of a claim falls.
[13] Dr Tepper then
also made certain recommendations to MOS on further procedures taking
into account particular
risks. The legal dispute could take a couple
of years if all appeals were pursued. The proceedings would incur
significant costs.
MOS might be entirely unsuccessful if the Dortmund
Court concludes that Elmos AG 7 June 2017 termination was effective.
[14] Dr Tepper then
recommended a settlement and, as I have said on the day of the
hearing on December, settlements
could not be concluded.
[15] Mr Kemack SC
therefore argued that in the light of the persistent failure to
settle the matter sensibly,
and if I discharged the provisional
winding-up order, the company would still remain in a state of
managerial deadlock because
the minority directors had taken unlawful
control of the Board and had obstructed attempts to remedy this
through normal corporate
governance. It would also be unjust and
inappropriate to respond to this deadlock by ordering a sale of
shares under the counter-application.
The effect of this would be an
endorsement of intentionally unlawful conduct inasmuch as the
directors had at all times refused
to attend any meetings of whatever
nature. Without agreement by the minorities to the lodging of an
amended memorandum of incorporation
giving effect to the relevant
provisions of the Shareholders’ Agreement regarding directors
votes, the only appropriate remedy
for the deadlock was a final
winding-up order.
[16] It is of course true
that the claim in Germany is one based for damages as a result of an
early termination of
an agreement, and not a claim for specific
performance for commissions on products sold, and that claim would
have to follow its
own course.
[17] It was argued
that the Applicant’s tender of the payments recommended by Dr
Tepper, was inconsistent
with the minorities’ allegations that
the Applicant’s ulterior motive for this application was to
stifle MOS’s
Dortmund claims. The minority shareholders
initiated the
s. 165
process and Applicant had fully co-operated with
it and on the basis of my order, this process had now been concluded.
Accordingly,
there was merit in the Respondents’ allegations
that the sole purpose for the winding-up proceedings was to stifle
the German
litigation process.
[18] During the
proceedings in Court, I mentioned to the parties that the conflict
between them for a number of
years reminded me to a large extent to
certain divorce proceedings over which I had to preside in the past,
but at the same time,
expressing my view that if a sensible and
practical approach be adopted, the result may well be to the
advantage of all the litigants.
The German process has not been
completed and if the claim for damages is pursued successfully, a
different outcome may most probably
result other than the one
presently sought by the parties hereto.
[19] There is no doubt
that the provisions of s. 81 of the
2008
Companies Act
give
me a wide discretion based on the relevant facts to make an
order that is fact-related, appropriate and fair.
[20] It is my view that
the proceedings in Germany ought to run their course, and that it is
at this stage premature
to grant a final winding-up order. There is
little doubt upon a proper reading of the judgment of Tuchten J that
he was of the
same view, albeit that he obviously did not know what
the conclusions of a German Referee would be. Nevertheless, having
regard
to the report of Dr Tepper in its totality, there seems to be
reasonable prospects of success in the context of the validity of
the
termination of the Co-operation Agreement on the one hand, and on the
other hand, the claim for damages if that is properly
pursued. In my
view therefore, a final winding-up order would at this stage be
premature.
[21] I also have a
wide discretion in the context of the counter-claim, and I am of the
view that, having regard
to the basis upon which it was lodged,
should not be granted, and in any event not at this stage. I do not
believe that the provisions
of s. 163 of the
2008 Act
can in law support the counter-claim, but it is not necessary to
express a final view thereon now. On the facts of the case, reliance
thereon is not justified. I agree with Applicant’s Counsel that
there can be no “oppressive conduct” by the Applicant
when it has fully co-operated with the Intervening Parties’ s.
165 process.
[22] The parties have
engaged in their conflict on a commercial battle field of their own
choosing. It is not necessary
at this stage to decide which party
holds the higher – and which party holds the lower ground, and
whether this is of any
importance at this stage in any event. There
is in my opinion, no reason to grant the orders sought and a final
winding-up order
is premature on the present facts.
[23] During the hearing in
December 2019, I invited the parties to make further written
representations if they so wished
on the topic of what the probable
factual results would be if I discharged the provisional winding-up
order and refused the counter-application,
or alternatively, made no
order. Representations were received and considered. Counsel were ad
idem that these proceedings should
be finalized. I agree.
Accordingly the following order is
made:
1.
The
provisional winding-up order is discharged;
2.
The
counter-application is dismissed;
3.
There
is no order as to costs.
JUDGE
H.J FABRICIUS
JUDGE OF
THE HIGH COURT GAUTENG DIVISION, PRETORIA
Case number: 71201/18
On behalf of the
Applicant:
Adv A. Kemack SC
Adv M. Nieuwoudt
Instructed
by: WerthSchröder Inc
Counsel for the 1
st
Respondent &
Intervening Parties:
Adv H. Fourie SC
Adv H. Struwig
Instructed by: Spellas Lengert Kubler
Braun Inc
Dates of
Hearing: 8 October 2019 & 11
December 2019
Date of Judgment:
At 10h00 on 21 January 2020