About SAFLII
Databases
Search
Terms of Use
RSS Feeds
South Africa: North Gauteng High Court, Pretoria
SAFLII
>>
Databases
>>
South Africa: North Gauteng High Court, Pretoria
>>
2019
>>
[2019] ZAGPPHC 515
|
|
Du Plessis v Bonnox Proprietary Limited and Another (A695/2016, 48111/2014) [2019] ZAGPPHC 515 (18 April 2019)
SAFLII
Note:
Certain
personal/private details of parties or witnesses have been
redacted from this document in compliance with the law
and
SAFLII
Policy
IN
THE HIGH COURT OF SOUTH AFRICA
(GAUTENG
DIVISION, PRETORIA)
(1)
REPORTABLE:
YES/
NO
(2)
OF
INTEREST TO OTHER JUDGES: YES/
NO
(3)
REVISED
APPEAL CASE NO. A695/2016
GP CASE NO. 48111/2014
18/4/2019
In
the matter between:
PIETER
DANleL DU
PLESSIS
APPELLANT
Identity
number [….]
and
BONNOX PROPRIETARY
LIMITED
1
ST
RESPONDENT
REG
NO. 1957/002963/07
ANITA
JULIA
GENT
2
ND
RESPONDENT
Identity
number [….]
JUDGMENT
INTRODUCTION
1.
The
genesis
of this appeal is the irretrievable breakdown in
the relationship between the shareholders of the First Respondent.
The First Respondent
is a private company with limited liability duly
registered and incorporated in accordance with the provisions of the
Companies
Act, No 71 of 2008 (hereinafter referred to as
"the
Act”).
1.1
The
Appellant (as Applicant) initiated an application in the Court a
quo
on 30 June 2014 in terms of which he
applied for an order that the First Respondent be finally wound-up,
alternatively directing
the Second Respondent to purchase 47% of the
issued share capital of the First Respondent consisting of 70
ordinary shares of R1,00
each from him at a price to be determined by
Prof Harvey Wainer, an independent expert, alternatively by such
independent expert
as may be nominated by the Court.
1.2
It is the Appellant's case that it is
just and equitable to liquidate the First Respondent, as envisaged in
Section 344(h) of the
old Companies Act, No 61 of 1973, as amended
(hereinafter referred to as
"the
old Act"),
read together with
item 9 of Schedule 5 of the Act, as a result of the following:
1.2.1
The First Respondent is a
"private domestic company",
the affairs of which have been
conducted in a manner akin to that of a partnership;
1.2.2
The relationship between the
members of the First Respondent, i..e himself and the Second
Respondent, has broken down irretrievably;
1.2.3
He has been excluded from the
management of the First Respondent and from the First Respondent's
board of directors;
1.2.4
A
"deadlock"
has arisen between the shareholders
of the First Respondent, which is incapable of resolution; and
1.2.5
The Second Respondent's conduct
is oppressive in nature in that it undermines his rights as the
minority shareholder of the First
Respondent.
1.3
In the alternative the Appellant applied
for an order in terms of which the Second Respondent is directed to
purchase his shares
in the First Respondent at a fair value to be
determined by an independent expert appointed by the Court.
2.
The Second Respondent opposed the
application on the following grounds:
2.1
The
First Respondent is a solvent company, as envisaged in Section 81 of
the Act, and that it will not be just and equitable for
the First
Respondent to be wound-up, as provided for in Section 81(1)(c)(ii) of
the Act;
2.2
The
"deadlock"
relied
upon by the Appellant is non-suited in the particular circumstances,
by virtue of the fact that:
2.2.1
The
nature of the First Respondent's affairs is not tantamount to that of
a partnership or a
quasi
partnership;
and
2.2.2
No
deadlock exists between the directors of the First Respondent.
2.3 The Appellant has failed
to make out a case in terms of which the affairs of the First
Respondent have been
conducted by the Second Respondent in a manner
oppressive and unfairly prejudicial to him as a shareholder, which
conduct has contrived
a cause of action calculated from excluding him
in participating in the management and the business of the First
Respondent, as
envisaged in Section 163 of the Act;
2.4
The Appellant's
"hands
are dirty"
in that his conduct
caused the irretrievable breakdown of the relationship between him
and the Second Respondent (hereinafter referred
to collectively as
"the parties");
and
2.5
lrresolutable factual disputes exist on
the papers, which disputes should have been foreseen, by the
Appellant.
3.
The Court
a
quo
(Hughes J) dismissed the
application on 30 March 2016 and referred the dispute with regard to
the ownership of the two machines,
namely the Hinge Joint No 250/1
and the Hinge Joint No 120, to trial. The Appellant was ordered to
pay the costs of the application,
including the costs of the
employees of the First Respondent who opposed the application and the
costs occasioned by an earlier
postponement on a party and party
scale.
4.
The
Appellant initiated an application for leave to appeal on 12 May
2016, which application was dismissed by the Court
a
quo
on 27 May 2016.
5.
The Appellant applied to the Supreme
Court of Appeal (hereinafter referred to as
"the
SCA") for leave to appeal, in
accordance with the provisions of
Section 17(2)(b)
of the
Superior
Courts Act, No 10 of 2013
. The SCA granted leave to appeal against
the judgment and the order of the Court
a
quo
to this Court on 13 September
2016.
6.
The Appellant was unfortunately unable
to file the record of appeal within the time period envisaged in
Rule
49(7)
of this Court's rules. The record was filed 15 days late. The
Appellant applies for the condonation for the late filing of the
appeal record.
7.1
The First and Second Respondents oppose the application for
condonation for the late filing
of the appeal record.
7.2
The First and Second Respondents also initiated an application on 10
March 2017, in which
they apply for an order declaring that the
appeal has lapsed. This application was. however, withdrawn in
accordance with a notice
of withdrawal dated 11 April 2017.
7.3
The First and Second Respondents'
attorney addressed a letter to the Appellant's attorney dated 22
August 2018 in terms of which
it is confirmed that the First and
Second Respondents have decided not to pursue their opposition of the
Appellant's application
for condonation for the late filing of the
appeal record.
7.4
The Appellant's attorney of record
informed this Court of the aforementioned developments in a letter
dated 29 August 2018. We were
requested not to read the
"voluminous
interlocutory applications"
which
forms part of the record. The costs of the interlocutory applications
are still alive and should be dealt with.
THE
DRAMATIS PERSONAE
8.
The
First Respondent was, as its registration number suggests,
established in 1957. The First Respondent's memorandum of association
and articles of association were registered by the Registrar of
Companies on 21 September 1957. The initial subscribers of the
First
Respondent were Mr Maurice Gavshon, a pharmacist, and Mr Paul Andries
Wojtowtiz, a production manager. On the papers before
us it is common
cause that the First Respondent was established by Mr Volker Harmen
Shadewaldt (hereinafter referred to as
"Mr
Shadewaldt”).
Mr Shadewaldt
was for the best part of his life the majority shareholder of the
First Respondent and he was furthermore the Managing
Director of the
First Respondent.
8.1
The
Second Respondent is Mr Shadewaldt's only child. She procured her
shareholding in the First Respondent from three sources, namely:
8.1.1
Her late grandmother (Mr
Shadewaldt's mother);
8.1.2
Her late mother (Mr Shadewaldt 's
spouse); and
8.1.3
Mr Shadewaldt.
8.2
At
the time when the application was initiated in the Court
a
quo
on 30 June 2014 the shareholding
in the First Respondent comprised of:
8.2.1
70 ordinary shares out of the 150
shares which represents 47% of the issued share capital of the First
Respondent belong to the
Appellant; and
8.2.2
80 ordinary shares out of the 150
shares which represents 53% of the issued share capital of the First
Respondent belong to the
Second Respondent.
8.3
The
parties are therefore the only shareholders of the First Respondent.
The Appellant describes himself as the
"minority
shareholder''.
8.4
The
Appellant was employed by the First Respondent in June 1986 as a
general technician and clerk. He was subsequently promoted
to the
position of a fitter and turner, whereafter he became the First
Respondent's general manager during 2010, upon Mr Shadewaldt's
resignation as general manager.
8.5
Mr
Shadewaldt became very fond of the Appellant and, according to the
Appellant's evidence, they
"operated
as a quasi-partnership to the benefit of the First Respondent,
consulting on a daily basis in regard to business
decisions which
were taken by consensus between them".
Eight
years after he became an employee of the First Respondent Mr
Shadewaldt, in recognition of his endeavours, gave the Appellant
15
shares in the First Respondent. This allegedly transpired during
1994.
8.6
Four
years later, during 1998, Mr Shadewaldt transferred a further 45
shares to the Appellant in recognition of his service to the
First
Respondent, which meant that the Appellant held 60 shares in the
First Respondent. At the same time Mr Shadewaldt transferred
80
shares to the Second Respondent. A further 10 shares were transferred
to the First Respondent's accountant, Mr SND Smith (hereinafter
referred to as
"Mr Smith"
).
The Second Respondent was
appointed as a non executive director of the First Respondent.
8.7
Later in the same year (1998) Mr Shadewaldt resigned as a director of
the First Respondent, but
he remained the general manager of the
First Respondent. Mr Shadewaldt's resignation resulted therein that
the Second Respondent
became the sole director of the First
Respondent.
8.8
Mr
Shadewaldt continued to fulfil the role of general manager from 1998
until 2010 when he went into semi-retirement and appointed
the
Appellant as the First Respondent's general manager. Although Mr
Shadewaldt withdrew from the active day-to-day management
of the
First Respondent, he nevertheless remained interested in the
activities of the First Respondent and the Appellant allegedly
sought
his advice and consulted with him when making decisions in relation
to the First Respondent. Mr Shadewaldt continued to
attend the First
Respondent's premises from time-to-time and he regularly met with the
Appellant at his home to discuss what was
happening in the business
and to keep abreast of all developments.
8.9
The
First Respondent flourished financially. The First Respondent's
turnover increased from R10,5 million in 2002 to nearly R23
million
in 2010. The Appellant alleges that one of Mr Shadewaldt's guiding
principles was to build up the First Respondent's cash
reserves. In
2002 the First Respondent's cash reserves were less than R3 million
and at the end of 2010 the First Respondent's
cash and investments
exceeded R20 million. At the same time the nett current assets
increased from R3,5 million in 2002 to approximately
R18,5 million at
the end of 2010.
8.10
The
Second Respondent informed the Appellant in November 2011 that she
had no interest in the First Respondent and she invited
the Appellant
to buy her shares. The parties jointly instructed the First
Respondent's auditors, namely BDO International, to calculate
a value
of the shares. The First Respondent's nett asset value based on
annual financial statements as well as the adjusted market
value as
at 30 June 2011 were determined by BDO International. These
negotiations, however, did not result in a sale.
8.11
The
Second Respondent resigned as the director of the First Respondent at
her own instance during January 2012 and the Appellant
was
subsequently appointed as the First Respondent's director. He
continued to run the First Respondent as before and remained
the
First Respondent's general manager.
8.12
The
First Respondent's financial results improved substantially from 2010
to 2012. During this period the First Respondent's annual
turnover
increased from approximately R23 million per annum to more than R29,5
million per annum. The First Respondent's cash and
investments
increased from more than R20 million to an amount exceeding R27
million. The nett assets remained constant.
8.13
Mr
Smith retired at the end of February 2012 and offered his 10 shares
to the Appellant
"as a gift".
The Appellant allegedly informed the
Second Respondent as a matter of courtesy that he was interested in
Mr Smith's shares. The
Appellant purchased Mr Smith's 10 shares at an
agreed nominal price of approximately R500,000,00, as he (the
Appellant) was not
prepared to take over Mr Smith's shares without
compensating him. Notwithstanding the fact that the shares were given
to the Appellant
as a gift, the Appellant did not feel comfortable
with this and therefore decided to pay Mr Smith a nominal value for
the shares.
The purchase of Mr Smith's 10 shares increased the
Appellant's shareholding to 70 shares, giving him 47% of the First
Respondent's
issued shares.
8.14
The
Second Respondent was subsequently re-appointed as a co director
of the First Respondent, together with the Appellant,
on 18 January
2013. The Second Respondent disseminated a request for a
shareholder's meeting on 8 February 2013, for purposes to
appoint her
husband , Mr Bruce Gent, as a co-director of the First Respondent. It
seems that the relationship between the parties
became extremely
hostile and volatile during the beginning of 2013. It is evident that
the parties were drifting apart and that
they were not pursuing the
same ideological views pertaining to the manner in which the affairs
of the First Respondent should
be attended to and conducted. The
battlefield was set.
THE FACTUAL MATRIX
9.
The
Second Respondent addressed a letter dated 20 February 2013 to the
Appellant in which she gave notice of an ordinary shareholders'
meeting scheduled to be held on 6 March 2013. The purpose of this
meeting was to table a resolution in terms of which the Appellant
is
removed as a director of the First Respondent. No reasons were
provided for the Appellant's removal as a director of the First
Respondent.
10.
The
Appellant sought legal advice from an attorney in Centurion. Counsel
was briefed and it was decided to initiate an urgent application
in
terms of which the First Respondent is placed under supervision and
commencing business rescue proceedings, as envisaged in
Section
131(4)(a) of the Act. This application to begin business rescue
proceedings was orchestrated by the Appellant. The Appellant
and his
legal representatives (the attorney and counsel) embarked on a
process to stifle the Second Respondent's attempt to remove
the
Appellant as a director of the First Respondent. Two employees of the
First Respondent, Messrs Russel Zietsman and Chari Daniel
de Beer,
were masqueraded as the Applicants in the business rescue application
that was initiated in this Court under case no.
10059/2013.\
11.
The
Appellant and the Applicants in the aforementioned application
(Messrs Russel Zietsman and Chari Daniel du Beer) were advised
not to
give notice of their intention to apply for an order in terms of
which the First Respondent is placed under supervision
and commencing
business rescue proceedings to any affected party, i.e. the First
Respondent or the Second Respondent. This Court
(Prinsloo J) made an
order on 5 March 2013 in terms of which the First Respondent was
placed under supervision, as provided for
in Section 131(4)(a) of the
Act. This order was made the day before the shareholders meeting was
to be held at the offices of the
Second Respondent's attorneys in
Centurion. The Appellant, for obvious reasons, did not attend the
aforementioned meeting on 6
March 2013.
12.
The
Second Respondent phoned the Appellant on his cellular telephone on 6
March 2013 to establish the reason why he was not present
at the
shareholders meeting. The Appellant informed the Second Respondent
that he was too ill and too stressed out to attend the
meeting. The
Appellant told the Second Respondent that
"he
cannot take it anymore".
12.1
The Appellant omitted to inform the Second Respondent that an order
was obtained the previous day (on 5 March 2013) in terms
of which the
First Respondent was placed under supervision. The Appellant
furthermore alleges that he decided not to attend the
shareholders
meeting by virtue of the animosity and the hostility between him and
the Second Respondent. The Appellant laboured
under the apprehension
that
"the
business rescue practitioner was in charge"
of
the First Respondent.
12.2
The Second Respondent, however,
continued with the shareholders meeting and the Appellant was removed
as a director of the First
Respondent in his absence. The Second
Respondent's husband, Mr Bruce Gent, was appointed as the First
Respondent's director.
12.3
The Appellant conceded in his founding
affidavit in the Court
a quo
that
the application to commence with business rescue proceedings was
fundamentally misconceived and ill-founded.
12.4
The Second Respondent initiated an
urgent application in this Court under case no. 16169/2013 in terms
of which she applied for
an order setting aside the order that was
made by Prinsloo J on 6 March 2013 and that the business rescue
proceedings be discontinued,
alternatively set-aside. This
application was enrolled and set-down for hearing on 2 April 2013.
The Appellant and Messrs Russel
Zietsman and Chari Daniel de Beer
opposed this application, which opposition seems to have been futile.
This Court (Vorster AJ)
made an order on 2 April 2013 as applied for
by the Second Respondent and, in addition, ordered Messrs Russel
Zietsman and Chari
Daniel de Beer to pay the costs of the application
on the scale as between attorney and own client.
12.5
The Appellant alleged in his founding
affidavit that he
"was extremely
disappointed"
when the business
rescue proceedings in relation to the First Respondent were set-aside
by Vorster AJ on 2 April 2013.
13.
The Second
Respondent scheduled a shareholders meeting on 20 May 2013, the
purpose of which was to appoint two additional directors
to the First
Respondent's board of directors, namely Mr Warren Gent, the Second
Respondent's brother-in-law, and Mrs Cornelia Elizabeth
van den Berg,
a former receptionist in the employ of the First Respondent who was
subsequently promoted to an executive sales director.
The Appellant
and his former attorney, Mr David Barn, attended the shareholders
meeting on 20 May 2013 and opposed the appointment
of Mr Warren Gent
and Mrs van den Berg as directors of the First Respondent. The
Appellant submitted that he was not represented
on the First
Respondent's board of directors, notwithstanding the fact that he
owns 47% of the shares. Despite the Appellant's
aforementioned
opposition, Mr Warren Gent and Mrs van den Berg were appointed to the
First Respondent's board of directors.
14.
An
annual general meeting of the First Respondent's shareholders was
held on 17 April 2014. The Appellant attended this meeting
and
initiated an application to have himself re-appointed as a director
of the First Respondent. This application was unsuccessful.
15.
It
seems that the line in the sand was already drawn on 4 April 2013. A
meeting was held on this day which was attended by the Appellant,
the
Second Respondent and her former attorney. During this meeting it was
agreed that the Second Respondent would purchase the
Appellant's
shares. The Second Respondent suggested that the Appellant should
employ the services of an expert to valuate the shares
of the First
Respondent on condition that he should pay the costs occasioned by
the aforementioned valuation.
15.1
The Appellant instructed MFG Accountants
to conduct a valuation of the First Respondent's shares. MFG
Accountants prepared a valuation
report dated 14 August 2013 in terms
of which the nett asset value of the First Respondent was determined
at R64 464 612,00. The
Appellant's 47% shares would therefore be
worth R30 298 368,00.
15.2
The Appellant dispatched a written offer
to the Second Respondent in accordance with the provisions of clause
11(d) of the First
Respondent's articles of association, in terms of
which the Appellant communicated his intention to sell his 47%
shareholding to
the Second Respondent in an amount of R30 million.
15.3
The Second Respondent is firmly of the
view that R30 million is not a fair valuation of the Appellant's 70
shares and she is accordingly
not prepared to purchase the
Appellant's shares in such an amount. The Second Respondent is
furthermore afraid that the Appellant
will establish a new business
in competition with the First Respondent in the event that she
acquires his 70 shares. The Second
Respondent's concerns are premised
on the Appellant's contention that the value of his shares should be
higher if a restraint of
trade was imposed upon him. The absence of a
restraint of trade provides no comfort to the Second Respondent.
15.4
The Appellant played his hand and
disclosed his intentions in his founding affidavit in the Court
a
quo
regarding the disposal of the
parties' respective shareholding in the First Respondent. The
Appellant confirmed that he is willing
and able to buy the Second
Respondent's 80 shares if he is ordered to do so. The Appellant
furthermore confirms that it would not
be detrimental to the First
Respondent if he is ordered to purchase the Second Respondent's
shares.
15.5
The Second Respondent instructed her
counsel to make the following submission in his heads of argument:
"The fact remains that the
Second Respondent is not in a financial position to purchase the
Appellant's shareholding and cannot
afford to do
so."
15.6 It is
therefore inevitable that the only logical and sensible solution to
the current
impasse
is that the Appellant should be afforded
an opportunity to initiate a buy-out option in terms of which he is
ordered to purchase
the Second Respondent's 80 shares at a fair and
reasonable value.
16.
The Appellant was suspended on 27
September 2013.
16.1
A charge sheet was prepared and the
disciplinary hearing was set down for hearing on 16 October
2013. A notice to attend the
disciplinary hearing was provided to the
Appellant on 9 October 2013. The Appellant was charged with the
following transgressions:
16.1.1
Count 1
Gross misconduct : insubordination
and/or insolence.
16.1.2
Count 2
Gross misconduct : insubordination
and/or insolence.
16.1.3
Count 3
Gross misconduct : blatant and
deliberate disregard for company policies and procedures - leave.
16.1.4
Count 4
Gross misconduct: insubordination
and/or insolence - dishonesty.
16.1.5
Count 5
Gross misconduct : verbal abuse -
intimidation and causing disharmony at the company.
16.1.6
Count 6
Gross misconduct : theft and/or
fraud - dishonesty and misappropriation of company funds.
16.2
The
Appellant instructed Mr Barn to represent him in the disciplinary
hearing. Mr Barn was unavailable on 16 October 2013 and requested
for
the disciplinary hearing to be postponed. This request was refused.
16.3
The
disciplinary hearing, however, commenced on 21 October 2013. Shortly
after the commencement of the hearing the initiator, Adv
Goosen,
added a further charge of gross misconduct to the charge sheet,
namely:
16.3.1
Count 7
Gross misconduct : theft and/or
fraud - dishonesty and misappropriation of company funds.
16.4
As a result of the introduction of the
new charge (count 7) the disciplinary hearing was remanded to 4 and 5
November 2013.
16.5
As the Appellant exited the premises two
detectives of the SAPS apprehended him and requested him to accompany
them to the Erasmia
Police Station. The Appellant was informed that
the Second Respondent laid a charge of theft against him and that the
value of
the goods which were allegedly stolen by him was in excess
of R1 million. This charge was allegedly withdrawn after the
Appellant
and Mr Barn explained the situation to the members of the
SAPS.
16.6
The disciplinary hearing kick-off on 4
November 2013 and was conducted over a period of 7 days, being 4 and
5 November 2013, 9,
10 and 13 December 2013, 21 and 22 January 2014.
16.7
The disciplinary hearing was presided
over by a member of the Pretoria Society of Advocates, namely Adv
Delene Gianni. Adv Gianni
prepared a written ruling dated 4 April
2014, consisting of 75 pages. She found the Appellant guilty on
counts 1, 2, 4 and 7.
16.8
Adv Gianni invited the parties'
respective legal representatives to make submissions to her in
relation to an appropriate sanction
on the same day, i.e. 4 April
2014. Submissions were made in aggravation on behalf of the First
Respondent and the Appellant's
legal representative made submissions
in mitigation.
16.9
Adv Gianni prepared a written sanction
dated 4 August 2014 in terms of which she came to the conclusion that
the aggravating circumstances
outweighed the mitigating
circumstances. The Appellant was summarily dismissed on 4 August
2014.
16.10
The Appellant, in the meantime,
instructed his former attorney, Mr Barn, to initiate the application
for the First Respondent's
liquidation in the Court
a
quo
on 30 June 2014. It seems that
this decision was not a mere co-incidence.
16.11 It is evident from a
proper reading and interpretation of the papers that the Appellant
saw the writing on the wall.
The Appellant was effectively snookered
by virtue of the following:
16.11.1
He is the minority shareholder of the
First Respondent and owns 47% of the shares;
16.11.2
He was not represented on the First
Respondent's board of directors;
16.11.3
He was suspended on 27 September 2013
and eventually dismissed on 4 August 2014; and
16.11.4
He realized that the prospects of
resuscitating the relationship with the Second Respondent was
extremely slim, if not impossible.
16.12
An acrimonious
"divorce"
between the parties loomed. The fly
in the ointment was the manner in which an exit strategy was supposed
to be created or designed.
The First Respondent stood in the center
of the
"divorce proceedings",
by virtue of the fact that it was
the sole asset of the
"joint
estate".
16.13
The fact of the matter is that the
parties were unable to communicate effectively with each other and to
attend to the affairs of
the First Respondent as one would expect
from directors or shareholders in normal circumstances. The Appellant
deposed to a confirmatory
affidavit in support of the application to
begin business rescue proceedings, under case no. 10059/2013, in
which he declared as
follows:
"Mrs Gent and I have
irreconcilable differences relating to the manner in which the
Respondent company should be managed more
particularly the financial
management thereof."
And:
"I submit respectively
that it
is
not
in the best interests of the Respondent to be bled dry by reckless
and ill-considered financial decisions taken by the shareholders."
16.14
Regard being had to the aforementioned,
it is evident that the parties have reached the end of the road.
STATUTORY FRAMEWORK AND THE
APPLICABLE LEGAL PRINCIPLES
17.
Hoffmann
J, as he then was, made the following appropriate remark in the
Chancery Division in the matter of
In
Re a Company (No. 004377 of 1986)
[1987] BCLC 94
at 101:
"They often bear some
resemblance to divorce petition in the days before Wachtel v Wachtel
[1973] EWCA Civ 10
;
[1973] 1 ALL ER 829
,
[1973] Fam 72.
Voluminous affidavit evidence is
served which tracks the breakdown of
a
business
relationship commenced in hope and expectation of profitable
collaboration. Each party blames the other but often it
is
impossible, even
after lengthy cross-examination , to
say
more than the
petitioner
says
in this case,
namely that there
was
a "clear
conflict in the personalities and management style". It
is
almost always
clear from the outset that one party will have to buy the other's
shares and it is usually equally clear who that
party will be. The
only real issue is the price of the shares.
"
18.
This
appeal is no exception. The entire record consist of 2 800 pages. It
is, on the papers, impossible to throw the blanket of
blame on the
shoulders of either the parties. Both parties are to blame. There is,
fortunately, a golden threat can runs through
the entire record. This
golden threat can be described as the
"irretrievable
breakdown of the trust relationship"
between
the parties. The parties are totally incompatible and their
relationship is dysfunctional.
19.
Section
81 of the Act underpins the winding-up of solvent companies by virtue
of a Court order. Section 81(1)(d) of the Act is for
purposes of this
appeal applicable:
"The company, one or more
directors or one or more shareholders have applied to the Court for
an order to wind up the company
on the grounds that
-
(i)
the
directors are deadlocked in the management of the company , and the
shareholders are unable to break the deadlock, and
-
(aa)
irreparable injury to the company is resulting, or may result, from
the deadlock; or
(bb)
the company's business cannot be conducted to the advantage of the
shareholders generally,
as
a result of the
deadlock;
(ii)
the
shareholders are deadlocked in voting power, and have failed for a
period that includes at least two consecutive annual general
meeting
dates, to elect successors to directors whose terms have expired; or
(iii)
it is otherwise just and
equitable for the company to be wound- up."
20.
The
Appellant is not a director of the First Respondent. The Appellant
is, however, a shareholder or member of the First Respondent,
as
envisaged in Section 346(c) of the old Act. The Appellant therefore
has
locus standi
to
initiate an application for the winding-up of the First Respondent.
21.
It
is the Appellant's case in his founding affidavit in support of the
application in the Court a
quo
that
it is just and equitable to liquidate the First Respondent, as
provided for in Section 344(h) of the old Act, read with Item
9 of
Schedule 5 of the Act, for the following reasons:
21.1
The
First Respondent is a private company, the affairs of which have been
conducted in a manner akin to that of a partnership;
21.2
The relationship between the parties has
broken down irretrievably;
21.3
The Appellant has been excluded from the
management of the First Respondent and from its board of directors;
21.4
A deadlock has arisen between the
parties as shareholders, which is incapable of resolution; and
21.5
The Second Respondent's conduct is
oppressive of the Appellant in his capacity as the minority
shareholder of the First Respondent
[1]
.
22.
The
Appellant furthermore applies for relief in accordance with the
provisions of Section 163 of the Act, by virtue of the fact
that the
Second Respondent allegedly acted in an unfairly prejudicial and
oppressive manner towards him and she (the Second Respondent)
has
disregarded his rights and interests as a shareholder of the First
Respondent
[2]
.
23.
This
Court is therefore confronted with the following two questions:
23.1
Is it
''just
and equitable"
to
wind-up a solvent company, and if it is found that it is just and
equitable to wind-up a solvent company, under what conditions
should
a Court exercise its discretion in this regard ?
23.2
Is it just and equitable to wind-up a
solvent company at the instance of a minority shareholder, or not ?
24.
An order for the winding-up of a solvent
company is a drastic and draconian remedy. It has been aptly
described as a
"bludgeon”
[3]
.
24.1
The Court's discretion to grant
"equitable or reasonable or
fair"
relief is not unbounded.
This discretion must be exercised judicially, on a principle basis,
and in recognition of the Court's disinclination
to interfere lightly
in the internal affairs of a private company.
24.2
The Appellant consequently bears a
formidable
onus
of
establishing that a winding-up order in relation to a solvent company
is warranted on the ground that such an order would be
just and
equitable.
24.3
The provisions pertaining to the winding
up of a solvent company on the just and equitable ground are
increasingly being tested
before the Courts. The question addressed
by the SCA in the matter of
Thunder
Cats Investments 92 (Pty) Ltd v Nkonjane Economic Prospecting &
Investments (Pty) Ltd
[4]
(hereinafter referred to as
"Thunder
Cats'')
provides much needed
guidance on the deadlock principle as well as the breadth and scope
of the
'just and equitable"
ground for winding up.
24.4
Thunder Cats Investments 92 (Pty)
Ltd
and
Turquoise Moon Trading 8 (Pty)
Ltd
,
together
with the Second and the Third Respondents, namely
Bosasa
Operations (Pty) Ltd
and
Bosasa Youth Development
Centers (Pty)
Ltd
were
the shareholders of
Nkonjane
Economic Prospecting & Investment (Pty)
Ltd
("the company''),
each
holding 25% of the issued shares. The shareholders appointed
directors who vote in blocks in proportion to their shareholding.
The
warring parties were equipollent at management and shareholding
level. The rights of the shareholders to dispose of their shares
were
limited so that a shareholder could not sell its shares without the
approval of the other shareholders. The company was solvent
and its
main asset is an 11% shareholding in
Ntsimbintle
.
Mining
(Pty) Ltd
which is worth some
R132 million
[5]
.
24.5 The Court a
quo
(Vermeulen
AJ) made an order in terms of which the company was wound-up on the
basis that it was
'Just
and equitable"
to
do so, as provided for by Section 81(1){d){iii) of the Act. He
founded his judgment on the general breakdown of the relationship
between the shareholders and, in exercising his discretion whether to
liquidate, said that the company was of the kind envisaged
in
Re
Yenidje Tobacco Co Ltd
[1916] 2 Ch 426
(CA),
that is, in
substance a partnership in the guise of a company
[6]
.
24.6
The Appellants in
Thunder
Cats
contended
that the application for winding-up is based on a
"deadlock"
between the parties at both
shareholder and director level, but that deadlock,
as
a
ground for liquidation, is
excluded by clause 8.2 of the shareholders agreement.
24.7
The Respondents had stated at various
places in their founding affidavit that the directors were not able
to operate and make decisions
commercially because of a deadlock at
both levels. They also alleged that the directors were deadlocked
concerning the management
of the company and that the shareholders
were unable to break the deadlock, given the terms of the
shareholders agreement.
24.8
The result of the deadlock at both
levels was that the business of the company could not be conducted
and its assets managed to
the advantage of the shareholders
generally.
24.9
The Appellants also submitted that there
was no evidence that the relationship between the parties had
irretrievably broken down
and that the Court
a
quo
erred in coming to that
conclusion. The further submission was made that a winding-up order
may not be made on the application of
a party responsible for the
situation giving rise to the application. The Respondents were, in
other words, not approaching the
Court with
"clean
hands"
[7]
.
24.10
The “
just
and equitable"
phrase is found
in a number of related pieces of legislation as well as in the
remedial provisions of the Constitution
[8]
.
24.11
If not ubiquitous, then the phrase is at
least exceedingly well travelled
[9]
.
24.12
The words
'just
and equitable"
are intended to
be elastic in their application to allow the Courts to intervene and
to relieve against an injustice or inequity
[10]
.
24.13
A Court retains a broad discretion
to make a winding-up order under Section 81(1)(c) and (d) of the Act
or any other order
it considers appropriate. In its application, the
just and equitable ground does not admit of a strict categorical
approach. As
Ponnan JA observed:
"There
is no necessary limit to the words 'Just and equitable".
"
[11]
24.14
A Court must therefore be careful not to
construe the authorities as setting out a series of restrictive
principles which would
confine the phrase
'Just
and equitable"
to rigid
categories
[12]
.
24.15
Each case depends to a large extent on
its own facts. The judicial enquiry must extend beyond an examination
of the legal rights
of the shareholder to include a broader spectrum
of equitable rights
[13]
.
25.
The decisive question therefore is: when
is it “
Just and equitable"
for the Court to order that a
company be wound-up on the
'Just and
equitable"
ground ?
26.
Messrs TC Maloka and S Muthugulu-Ugoda
are lecturers at the Nelson R Mandela School of Law, University of
Fort Hare. They published
a well reasoned and extremely handy
publication with the following title:
"The deadlock principle as
a
ground
for the just and equitable winding up of a solvent company :
Thunder Cats Investments 92 (Pty) Ltd v Nkonjane Economic
Prospecting
Investment (Pty) Ltd 2014(5) SA 1 (SCA)."
27.
The
aforementioned article was published on 17 May 2016 under the
editorship of Prof C Rautenbach. The learned authors of the
aforementioned
article came to the following well-reasoned
conclusion:
"The judgment of the
SCA
in Thunder Cats
is welcomed for three obvious reasons:
-
First, it has provided a much needed clarification on the breadth and
scope of the 'Just
and equitable ground" in terms of Section
81(1)(d)(iii) of the Act.
-
Second, it has elucidated the extent to which the clean hands
doctrine may bar the granting
of just and equitable relief.
-
Finally, the SCA spared the evolving just and jurisprudence the
confusion inherent in
the conflicting opinions held by different
divisions of the High Court
as
to whether the
just and equitable relief in Section 81(1)(d)(iii) was as wide as it
had been under Section 344(h) of the old Companies
Act, No 61
of
1973, or was limited by subparagraph (i) and (ii) so as to preclude
all other grounds of deadlock.
[14]
28.
Levine
J, as he then was, provided a succinct statement of the types of
situations in which it will be just and equitable to order
a
winding-up on the grounds of
"deadlock":
"Some of the circumstances
.....
that
will lead to a finding that it is just and equitable to wind-up the
company because of deadlock are:
-
There
are no other effective and appropriate remedies;
-
There
is
an
equal split or nearly equal split of shares and control;
-
There
is a serious and persistent disagreement as to some important
questions respecting the management or functioning of the
corporation;
or
-
There
is
a
resulting
deadlock and the deadlock paralyzes and seriously interferes with the
normal operations of the
corporation.
[15]
29.1
The shareholder feud and
impasse
in
Thunder
Cats
is not too dissimilar to
the corporate stalemate in
APCO
Africa,
cited in footnote 11. In
Thunder Cats
shareholders were hopelessly at
loggerheads. The shareholder relationship was strained from the
moment the Respondents gave notice
of their intention to extricate
themselves from
Nkonjane.
They could not do so because the
provision in the shareholder agreement dealing with the disposal of
shares required that all other
shareholders consent thereto in
writing. The Appellants were unwilling to consent to the Respondents
selling their shares or to
meet to discuss a reasonable basis for
their leaving the company. The Appellants considered disinvestment
before
Ntsimbintle
began
mining and disposing of its minerals as likely to diminish the full
value of their long term investment. The strain on the
parties'
relationship intensified as time went on.
29.2
The obstructive conduct of both sides
did little to help the situation. Mediation efforts floundered due to
the confrontational
attitude of the warring shareholders. The
internal wrangling, mutual disillusionment and distrust, and the
consequent breakdown
of the relationship between the shareholders
paralyzed the company. The shareholder agreement could not provide a
resolution to
the stalemate as there was no deadlock breaking method.
If there was a reasonable hope of tiding over the period of deep
conflict
and of
Nkonjane
emerging
from its malaise to carry on at a profit, there may well have been
insufficient reason for a Court to wind-up the company
on the just
and equitable provision.
29.3
However, the evidence demonstrated a
justifiable breakdown of mutual trust and confidence between the
shareholders regarding the
conduct and management of the company's
affairs. In particular, the state of animosity precluded all
reasonable hope of co-operation
in the attainment of the company's
financial goals.
30.
The
facts and issues for determination by the SCA in
APCO
Africa
,
cited
in footnote 11, appropriately capture the problem of
"deadlock".
The somewhat simple question
confronting Ponnan JA was whether the First Appellant, APCO Africa
(Pty) Ltd
("the company" ),
ought to be wound-up on the ground
that this cause was just and equitable within the meaning of Section
344(h) of the old Act, or
more accurately, whether such an order was
properly granted by the Court
a quo.
30.1
The company was set-up as a joint
venture partnership between the Second Appellant, Arcay
Communications Holdings (Pty) Ltd
("Arcay")
and the Respondent, APCO Worldwide
Inc. The Appellant and the Respondent held a-n interest in the
company in the same proportion.
APCO was to refer client's work
required to be performed on the African continent to the company. The
residual profit generated
by the company was to be shared on an equal
footing while the directors seconded by Arcay were to manage the
affairs of the company.
30.2
The parties disagreed from the outset on
important corporate decisions and Arcay's response to matters
relating to performance and
accountability. There were complaints
from disgruntled clients concerning the services rendered by the
company.
30.3
Another bone of contention was the fact
that Arcay had been appropriating for itself 90% of the revenue
generated by the company.
A director seconded by APCO to help salvage
matters was met with hostility by the local directors of the company.
30.4
As a result of the animosity and
altercation with the company's local directors, she had to operate
from another office until the
dispute between the shareholders could
be resolved. The flurry of Court applications involving shareholders
underscored the failure
of the business relationship.
30.5
Several attempts by the Respondent to
convene a shareholders meeting in order to discuss its exit proved
futile. As a result, the
company lost its ability to function and the
board became unable to take decisions. The state of affairs
prevailing in the company
would compel any Court to exercise its
discretion to wind-up the company on the just and equitable basis.
31.
In
our view there must be a serious and persistent disagreement on some
important questions respecting the management or functioning
of the
First Respondent and deadlock which has the effect of paralysing or
seriously interfering with its normal operations, for
a winding-up
order to be justified on the grounds of
"deadlock"
or
'just
and equitable ".
32.
This
brings to focus the partnership analogy, that is, circumstances in
which it may be appropriate to apply the kind of equitable
considerations that govern the dissolution of partnerships to
applications to wind-up the business of a company.
32.1
Where the relationship between the
parties resembles a partnership between more than arm's length
shareholders such that it can
be said that the entity is, in
substance, a partnership in the guise of a private company, Courts
have been prepared in some circumstances
to liquidate a corporation
on the same grounds that would justify the winding-up of a
partnership.
32.2
In determining to apply the partnership
analogy in the famous English case of
Ebrahimi
v Westbourge G tllerles Ltd,
Lord
Wilberforce made it clear in his judgment that it was a fact of
"cardinal importance"
to
the determination of that case that, prior to its incorporation, the
business had been carried on by the shareholders as a
partnership, with
each other partner equally sharing the
management and profits of the firm
[16]
.
32.3
The equitable intervention of the Court
on the
"partnership analogy"
ground requires the satisfaction of
two conditions:
32.3.1
Firstly, the existence of an undertaking that it is in substance a
partnership in the guise
of a private company; and
32.2.2
Secondly, a breakdown of the mutual trust and confidence upon which
the original undertaking
was founded
[17]
.
33.
It is in this regard that the judgment
of the Court a
quo
in
Thunder Cats
is
instructive for applying the partnership analogy to the shareholder
relationship that had been clearly marred by difficulty and
disagreement.
33.1
According to the Court a
quo
the application of the just and
equitable ground does not require a finding that the company was in
fact a partnership or quasi-partnership,
but rather requires a
finding that it has some of the attributes that also describe a
partnership.
33.2
In importing the partnership analogy to
Nkonjane
the
Court
a quo
took
into consideration the fact that the company comprised of only four
members, each having the right to appoint a director. Each
of the
shareholders had the right to participate in the management of the
company.
33.3
Furthermore, there was no body of
shareholders separate from the board. In the view of the Court
a
quo
no deep analysis was required
but rather the bare facts spoke for themselves.
33.4
Not surprisingly, the SCA concluded that
the disagreement between the shareholders affected the operation of
the company so as to
impair the attainment of its economic ends. In
those circumstances it seemed just and equitable to dissolve the
company pursuant
to the relevant legislative provision
[18]
.
34.
There
can be no dispute that the contribution of the contending parties to
the breakdown of the relationship is a weighty factor.
Thus the
question arises : to what extent is the degree of the moral turpitude
attributable to the Applicant for winding-up material
to the enquiry
whether it is just and equitable to liquidate the company?
35.
This
leads squarely to the argument pressed by the Appellant's in
Thunder
Cats
in
their challenge against the granting of the winding-up order. It was
contended that as the Respondents were the
causa
causans
of the management paralysis,
they could not insist upon the company being wound up.
36.
It
is a cardinal principle that in the interpretation of the
'Just
and equitable"
ground, general
rules regarding equitable remedies apply such that a person seeking
relief must come to Court with
"clean
hands".
It is a principle that
Lord Mildew expressed equally well, if less decorously:
"A dirty dog will get no
dinner from the Courts.
"
[19]
37.
Trite
and obviously necessary as this equity principle may be, it must not
be thought of as being of universal application. If the
rigid
application of the clean hands principle would work manifest
unfairness on one of the parties, a departure would be justified
on
the grounds that
"public policy
should properly take into account the doing of simple justice between
man and man.”
[20]
38.
Where
all the parties lack clean hands, the policy behind the clean hands
doctrine is not applicable. It should always be remembered
that at
stake here is the best interests of the company. Where a company is
effectively deadlocked and paralysed, the granting
of an order for
dissolution coupled with the appointment of a liquidator may be
the only viable option for bringing an end
to the paralysis and
securing the company's best interests
[21]
.
39.
This
Court finds solace in the following sentiment expressed by Binns-Ward
J:
"It
is
clear that the
legislature has recognized that the liquidation of companies more
frequently than not occasions significant collateral
damage, both
economically and socially, with attendant destruction of wealth and
livelihoods. It is obvious that it is in the public
interest that the
incidence of such adverse socio-economic consequences should be
avoided where reasonably possible."
[22]
40.
Since
the application before the Court
a
quo
was initiated by the Appellant
under the auspices of Section 344(h) of the old Act, we were invited
to consider the a pproach that
was adopted by Coetzee J in the matter
of
Rand Air (Pty) Ltd v Ray Bester
Investments (Pty) Ltd
[23]
in which the following was
postulated:
"Since the time that the
grounds for winding-up which now appear in Section 344 of the
Companies Act were introduced, the 'Just
and equitable" basis
referred to in Section 344(h) has become
a
rather special
ground under which only certain features of the way in which
a
company is being
run can be questioned.
It is an independent ground for
winding-up and it is no longer necessary that the circumstances
should be analogous to those which
justify an order on one or more of
the specific grounds preceding it in Section 344.
Consequently new kinds of cases
may be brought under this head by judicial interpretation. However,
five brought categories of cases
may be isolated under the 'Just and
equitable" ground:
1.
Disappearance
of the company's substratum;
2.
Illegality
of the objects of the company and fraud in connection therewith;
3.
A
deadlock in the management of the company's affairs which can only be
resolved by winding it up;
4. Grounds
analogous to those for the dissolution of partnerships; and
5
.
Oppression.
While these categories do not
constitute any kind of numerus clausus, the Courts have, for a number
of decades, not found it necessary
to devise further categories and
it is difficult to think of anything else which might fall into the
existing genus of categories.
The 'just and equitable" ground is
not
some
"catch
all" ground for winding-up
a
company."
41.
We
align ourselves with the principles alluded to by Coetzee J in the
matter of
Rand Air (Pty) Ltd v Ray
Bester Investments (Ptv) Ltd
.
On a proper interpretation and
analysis of Coetzee J's judgment the following is evident:
41.1
The First Respondent's substratum is
still intact;
41.2
The objects of the First Respondent are
not illegal;
41.3
No deadlock exists pertaining to the
management of the First Respondent's affairs. The Appellant is not a
director of the First
Respondent;
41.4
The evidence does not support the
submission that the relationship between the parties resembles a
partnership between more than
arms length shareholders such that
it can be said that the First Respondent is, in substance, a
partnership in the guise of
a private company; and
41.5
The
"oppression"
alluded to and compliant of by the
Appellant does not justify the winding-up of the First Respondent.
42.
In
the premise we answer the questions, referred to and contained in
paragraph 23
supra,
as
follows:
42.1
Question 1
Logic and common sense dictate
that it is not just and equitable to wind-up a solvent company. It
furthermore doesn't make business
sense to wind-up a solvent company.
A solvent company should, in our view, only be wound-up in the
following circumstances:
i)
Where
the company's
substratum
has
disappeared or fallen away completely;
ii)
Where
the company's entire board of directors resign or are dismissed, and
the shareholders are unable to appoint a new board of
directors;
iii)
Where
the company has committed a serious criminal offence, such as theft,
fraud, racketeering or money laundering, or that the
income which the
company derives originates from criminal activities;
iv)
Where
the company's entire client base (income) has been eroded and the
company is unable to make a profit (its income is insufficient
to
satisfy its expenses) for a period of more than 6 months,
notwithstanding the fact that the company has sufficient investments
or cash reserves;
v)
Where
a complete deadlock in the management of the company's affairs is
present, which deadlock cannot be resolved by means of alternative
mechanisms;
vi)
Where
the minority shareholder is oppressed by the majority shareholder and
no alternative remedy is available to the parties, i.e.
the majority
shareholder is not prepared or cannot afford to purchase the minority
shareholder's shares or
visa versa;
vii)
Where
a situation analogous to those for the dissolution of partnerships is
present; and
viii)
Where
it is evident that the company is in a financial meltdown and will
soon experience significant financial turmoil.
42.2
Question 2
A solvent company should only be
wound-up at the instance of a minority shareholder in exceptional
circumstances. Exceptional circumstances
mean there are no
alternative remedies available to the shareholders to salvage the
company from being wound-up.
43.
This
is, however, not the end of the matter. It is furthermore the
Appellant's case that the affairs of the First Respondent have
been
and continue to be conducted by the Second Respondent in a manner
oppressive and unfairly prejudicial to him as a shareholder
of the
First Respondent. The Appellant furthermore suggests that the Second
Respondent has contrived a cause of action calculated
to exclude him
from participating in the management and the business of the First
Respondent. The Appellant is therefore "a
passive
shareholder
in
the First Respondent".
[24]
44.
The
Appellant relies in this regard on the provisions of Section 163(1)
of the Act, which provides for relief in certain instances
from
oppressive or prejudicial conduct or from abuse of the separate
juristic personality of a company. Section 163(1) of the Act
provides
for the following:
“
A
shareholder or
a
director
of a company may apply to a Court for relief if
-
(a)
any
act or omission of the company, or a related person, has had a result
that is oppressive or unfairly prejudicial to, or that
unfairly
disregards the interests 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 a director or prescribed officer of the company, or a
person related to the company, are being or have been exercised
in a
manner that is oppressive or unfairly prejudicial to, or that
unfairly disregards the interests of, the applicant".
45.
The
provisions of Section 163 of the Act are similar to the provisions of
Section 252 of the old Act. The SCA (Ponnan JA) pronounced
in this
regard as follows:
"[21]
The wording of the section indicates the conferment of a very wide
discretion upon the Court. The Court
has the power to do what is
considered
fair and equitable
in all the circumstances of the
case, to put right and cure the unfair prejudice which a minority
shareholder has suffered at the
hands of the majority of the company.
'The foundation of it all lies
in the words ''just and equitable" and, if there is any respect
in which some of the cases may
be open to criticism, it is that the
Courts may sometimes have been too timorous in giving them full
force. The words are a recognition
of the fact that a limited company
is more than
a
mere judicial
entity, with a personality in Jaw of its own : that there is room in
company law for recognition of the fact that
behind it, or amongst
it, there are individuals, with rights, expectations and obligations
inter se which are not necessarily submerged
in the company
structure. That structure is defined by the Companies Act 1948 and by
the Articles of Association by which shareholders
are to be bound. In
most companies and in most contexts, this definition is sufficient
and exhaustive, equally so whether the company
is large or small. The
"just and equitable" provision does not, as the respondents
suggest, entitle one party to disregard
the obligation he assumes by
entering a company, nor the Court to dispense him from it. It does,
as equity always does, enable
the Court to subject the exercise of
legal rights to equitable considerations; considerations, that is, o(
a personal character
arising between one individual and another,
which may make it unjust, or inequitable, to insist on legal rights,
or to exercise
them in a particular way.
It would be impossible, and
wholly undesirable, to define the circumstances in which these
considerations may arise. Certainly the
fact that a company is a
small one, or a private company, is not enough. There are very many
of these where the association is
a purely commercial one, of which
it can safely be said that the basis of association
is
adequately and
exhaustively laid down in the articles. The superimposition of
equitable considerations requires something more,
which typically may
include one, or probably more, of the following elements:
i)
An
association formed or continued on the basis of a personal
relationship, involving mutual confidence. This element will often
be
found where
a
pre-existing
partnership has been converted into a limited company;
ii)
An
agreement, or understanding, that all, or some (for there may be
"sleeping" members), of the shareholders shall participate
in the conduct of the business;
iii)
Restriction
on the transfer of the member's interest in the company.
So
that if confidence is lost, or one
member is removed from management, he cannot take out his stake and
go elsewhere.
It is these, and analogous,
factors which may bring into play the just and equitable clause, and
they do so directly, through the
force of the words themselves. To
refer,
as so
many of the
cases
do, to "quasi
partnerships" or "in substance partnerships" may be
convenient but may
a/so
be·
confusing. It may be convenient because it
is
the law of
partnership which
has
developed the
conceptions of probity, good faith and mutual confidence, and the
remedies where these are absent, which become relevant
once such
factors
as
I
have mentioned are found to exist : the words 'just and equitable"
sum
these
up in the law of partnership itself And in many, but not necessarily
all, cases there
has
been
a
pre-existing
partnership the obligations of which it
is
reasonable to
suppose continue to underlie the new company structure. But the
expressions may be confusing if they obscure, or deny,
the fact that
the parties (possible former partners) are now co-members in a
company, who have accepted, in law, new obligations.
A company,
however
small,
however domestic
is
a
company
not
a
partnership or
even
a
quasi
partnership and it
is
through the just
and equitable clause that obligations, common to partnership
relations, may come in.'
[22]
The
same
reasoning,
I dare
say,
must
apply to the concept of unfairness encompassed by Section 252.
Fairness, according to Lord Hoffmann, is the criterion by which
a
Court must decide whether it has jurisdiction to grant relief.
Generally speaking, an application of this kind, based upon
partnership
analogy, cannot succeed if what is complained of is
merely a valid exercise of the powers conferred on the majority. To
hold otherwise
would enable a member to be relieved from the
consequences of a bargain knowingly entered into by him. For, as
Trollip JA put it
in Samuel and others v President Brand Goldmining
Co
Ltd:
'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
....
That principle of
the supremacy of the majority is essential to the proper functioning
of companies.'
[23]
The
combined effect of subsections (1) and (3) is to empower the Court to
make such order as it thinks fit for the giving of relief,
if it is
satisfied that the affairs of the company are being conducted in a
manner that is unfairly prejudicial to the interests
of the dissident
minority. The conduct of the minority may thus become material in at
least the following two obvious ways. First,
it may render the
conduct of the majority, even though prejudicial to the minority, not
unfair. Second, even though the conduct
of the majority may be both
prejudicial and unfair, the conduct of the minority may nevertheless
affect the relief that a Court
thinks fit to grant under subsection
3. An applicant for relief under Section 252 cannot content himself
or herself with a number
of vague and rather general a/legations, but
must establish the following: that the particular act or omission has
been committed,
or that the affairs of the company are being
conducted in the manner alleged, and that such act or omission or
conduct of the company's
affairs is unfairly prejudicial, unjust or
inequitable to him or some part of the members of the company; the
nature of the relief
that must be granted to bring to an end the
matters complained of," and that it
is
just and equitable that such relief
be granted. Thus, the Court's jurisdiction to make an order does not
arise until t e specified
statutory criteria have been
satisfied.”
[25]
46.
The
Appellant relies on the following grounds in support of the relief he
applies for as provided for in Section 163 of the Act:
46.1
The
Second Respondent has excluded him from the management of the First
Respondent;
46.2 The Second
Respondent refused to provide him with management and financial
information in relation to the
First Respondent;
46.3
The
Second Respondent refused to engage in a
bona
fide
manner with him in relation to
the sale of his shares;
46.4
The
Second Respondent removed him as a director of the First Respondent
and replaced him with her husband and her brother-in-law;
46.5
The
Second Respondent unlawfully and unfairly dismissed him from the
employment with the First Respondent;
46.6
The
Second Respondent excluded him from any decision making within the
First Respondent;
46.7
The
Second Respondent ignored his requests for a shareholders meeting and
convened a contrived disciplinary enquiry to dismiss him
as an
employee; and
46.8
The
Second Respondent actively blocked the purchase of his shares by
inter alia
offering
to purchase it through Court papers simply to directly thereafter
withdraw such offer.
47.
The
Court
a quo
found
that the Appellant has failed to demonstrate that the Second
Respondent's conduct towards him was oppressive, unfairly prejudicial
or that his interests have been unfairly disregarded. In support of
this finding the Court
a quo
relied
upon the judgment of
Graney
Property & another v Manala & others
2013(3) ALL SA 111 (SCA).
48.
The
grounds relied upon by the Appellant, referred to in paragraph 46
supra,
do
not fall within the ambit of Section 163(1) of the Act. This finding
is bolstered by the following objective facts:
48.1
The Appellant has been removed as a
director of the First Respondent, as provided for in Section 71 of
the Act;
48.2
The Appellant is at liberty and entitled
to apply for the management and financial information pertaining to
the First Respondent,
as provided for in Section 26 of the Act;
48.3
The Appellant is entitled to dispose of
his shares, in accordance with the provisions of paragraph 11(d) of
the First Respondent's
Articles of Association;
48.4
The Second Respondent indicated that she
is not in a financial position to purchase the Appellant's shares and
cannot afford to
do so;
48.5
The Appellant was dismissed as a
consequence of him being found guilty on four counts of misconduct in
a disciplinary hearing presided
over by Adv Gianni. The Second
Respondent did not dismiss the Appellant from his employment; and
48.6
The Appellant had no right or
entitlement to participate in the decision making process within
the First Respondent, by virtue
of him being dismissed as a director
of the First Respondent.
49.
Mr
Schadewaldt deposed to an affidavit on 26 September 2014 in which he
stated the following:
49.1
He fully supports the Second Respondent
in all her endeavours, including but not limited to her attempt to
oppose the liquidation
application initiated by the Appellant against
the First Respondent; and
49.2
He denies that the First Respondent was
ever run
as a
quasi
partnership. According to him the
First Respondent has at all time been run as a private company in
accordance with the provisions
of the Act.
[26]
50.
We
are therefore not persuaded that it is just and equitable to wind the
affairs of the First Respondent up in the hands of the
Master of this
Court. Common sense and logic dictates that the First Respondent
should not be wound-up.
CONDONATION
51.
The
Appellant applies for condonation for the late filing of the appeal
record. The First and Second Respondents opposed the application
for
condonation and have initiated an application for an order declaring
that the appeal have lapsed. The First and Second Respondents
decided
to withdrew the aforementioned application on 11 April 2017, by way
of a notice of withdrawal.
52.
Condonation
is not to be had merely for the asking. This Court may, upon good
cause shown, condone the late filing of the appeal
record, as
envisaged in Rule 49(7)(a)(ii) of this Court's rules.
52.1
The Appellant is required to furnish a
full, detailed and accurate account of the causes of the delay and
their effects so as to
enable this Court to understand clearly the
reasons and to assess the responsibility.
52.2
If the non-compliance is time related,
the date, duration and extent of any obstacle on which the Appellant
placed reliance must
be spelled out.
53.
The
principle
"upon
good cause shown"
has
been held to be firmly established that, in all cases of time
limitation, whether statutory or in terms of the rules of Court,
the
High Courts have an inherent right to grant condonation where
principles of justice and fair play demand it and where the reasons
for noncompliance with the time limits have been explained to
the satisfaction of this Court.
54.
The overriding consideration is that the
matter rests in the judicial discretion of this Court, to be
exercised with regard to all
the circumstances of the matter.
55.
It is well settled that, in considering
applications for condonation, this Court has a discretion, to be
exercised judicially upon
a consideration of all the facts, and that
in essence it is a question of fairness to both sides. In this
enquiry, relevant considerations
may include the degree of
non-compliance with the rules, the explanation therefore, the
prospects of success on appeal, the importance
of the case, the
Respondents interest in the finality of the Court
a
quo's
judgment, the convenience of
this Court, and the avoidance of unnecessary delay in the
administration of justice.
56.
The aforementioned factors are not
individually decisive but are inter-related and must be weighed one
against the other. Thus a
slight delay and a good explanation may
assist to compensate for prospects of success which are not strong.
This Court is empowered,
on sufficient cause shown, to excuse parties
from compliance with its rules. What constitutes good or sufficient
cause must be
decided upon the circumstances of each particular
matter.
57.
The appeal record was filed 15 days late
and a proper explanation was provided for this delay. We are
therefore inclined to grant
condonation to the Applicant for the late
filing of the appeal record.
58.
The general rule that costs follow the
event is not applicable to successful applications for the grant of
an indulgence by this
Court. In respect of such applications the
general rule is that costs do not follow the event. The general rule
is that the Applicant
(in casu
the
Appellant) should pay the costs of the application for condonation.
This principal has been formulated· as follows:
"Die pasvermelde algemene
reel dat koste die resultaat volg, is egter nie so algemeen in
gevalle waar 'n party kondonasie vir
nie-nakoming van die hofreels
vra nie. In die geval waar 'n litigant weens sy versuim 'n vergunning
vra, is hy aanspreeklik vir
alle koste redelikerwys aangegaan,
insluitende koste van redelike opposisie tot sy aansoek.”
[27]
59.
The First and Second Respondents
withdrew their application for an order declaring that the appeal has
lapsed. This application
was withdrawn by way of a notice of
withdrawal dated 11 April 2017. The costs of this application should
follow the result.
CONCLUSION
60.
The
business affairs of the First Respondent are managed by and under the
control of its board of directors and not its shareholders.
61.
No
deadlock exists between the First Respondent's board of directors and
there is accordingly no deadlock at the management of the
First
Respondent.
62.
The
fair and reasonable value of the Second Respondent's shares should be
determined. This cannot be achieved by means of the mechanism
suggested by the Appellant in paragraph 2 of the notice of motion.
This Court is not in a position to determine the value of the
Second
Respondent's shares in the First Respondent on the basis as suggested
to us during argument. We were invited to give consideration
to the
regime implemented by Binns-Ward AJ, as he then was, in the matter of
McMillan NO v Pott
[28]
.
63.
The
Court in the
McMillan-
matter
had sufficient information at it's disposal to design a mechanism
which formed the basis upon which the Sixth Respondent
was ordered to
buy the Applicant's shareholding in the Seventh Respondent. We,
unfortunately, are not privy to the necessary information
which could
have enabled us to follow the same methodology. The only fair,
reasonable and equitable solution is for the Appellant
to be directed
to purchase the Second Respondent's 80 shares.
64.
We
were furthermore invited to consider the relief that was granted by
this Court in similar circumstances, i.e. in the situation
where two
members in a close corporation were unable to pursue the best
interests of the close corporation. They were also the
only
shareholders and directors of a private company. This Court (Murphy
J) made an order in terms of which the Plaintiff was directed
to pay
an amount of more than R5,9 million to the First Defendant upon and
as consideration for the transfer of his members interest
and shares
as provided for in the order.
[29]
65.
We
are, unfortunately, not in the privileged position that Murphy J was
when he made the appropriate order in the matter referred
to in
paragraph 64
supra.
It
is impossible to determine the fair and reasonable value of the
Second Respondent's shares on the papers before us. Various
contingencies may come into play in the determination of the value of
the Second Respondent's shares, which determination can only
be done
if all the relevant evidence is placed before a Court. This can only
be achieved in a trial.
66.
We
are therefore satisfied that it is not just and equitable to grant an
order in terms of which the First Respondent is wound-up.
The Court a
quo
exercised
its discretion in this regard correctly. The manner in which the
Court a
quo
arrived
at this decision cannot be criticized.
67.
To
dismiss the appeal in its entirety does not assist the parties in the
prevailing circumstances. This Court is duty bound to design
or to
formulate a mechanism which will achieve a clean break between the
parties. The relationship between the parties has broken
down
irretrievably and it is not in their best interest to remain
"in
the same bed".
It is therefore
appropriate to direct the Appellant to purchase the Second
Respondent's shares at a fair and reasonable value.
68.
Apart
from dismissing the application the Court a
quo
made ancillary cost orders in
relation to certain procedural aspects. We are satisfied that the
Court
a quo
exercised
its discretion correctly in granting the aforementioned cost orders
and we do not intend to interfere therewith.
69.
The
Court a
quo
furthermore
made an order in terms of which the dispute regarding the ownership
of the two machines, referred to in paragraph 3
supra,
is referred to trial. We endorse the
Court a
quo's
approach
in this regard and we do not intend to interfere therewith.
70.
The
Appellant is therefore partially successful, specifically to the
extent that we are persuaded that a proper case has been made
out in
terms of which he should be directed· to purchase the Second
Respondent's shares.
WHEREFORE
an order is made
in the following terms:
1.
Condonation
is granted to the Appellant for the late filing of the appeal record,
in accordance with the provisions of Rule 49(7)(a)(ii)
of the Uniform
Rules of this Court;
2.
The
Appellant is ordered to pay the costs of the condonation application;
3.
The
First and Second Respondents are ordered to pay the costs of the
application in which they applied for a declarator that the
appeal
has lapsed, which application was withdrawn on 11 April 2017;
4.
The
appeal is upheld and the Court
a
quo's
order is set-aside and
substituted with an order in the following terms:
"1. Prayer
1 of the notice of motion dated 30 June 2014
is
dismissed with
costs, including the costs consequent upon the employment of senior
counsel;
2.
The
Applicant
is
directed
to purchase the Second Respondent's 80 shares in the First Respondent
at a fair and reasonable value;
3.
The
determination of the fair and reasonable value of the Second
Respondent's 80 shares in the First Respondent is referred to trial;
4.
The
notice of motion stands as simple summons;
5.
The
Second Respondent's opposing affidavit stands as her notice of
intention to defend;
6.
The
Applicant is directed to file and deliver his declaration within a
period of 30 days from date hereof·,
7.
The
Second Respondent is directed to file and deliver her plea and
counterclaim, if any, within a period of 20 days thereafter;
8.
The
provisions of the Uniform Rules of the High Court shall regulate the
process thereafter, with specific reference to requests
for further
particulars, discovery, experts, etc.;
9.
The
Applicant is ordered to pay the costs incurred by the First
Respondent's employees in opposing the application; and
10.
The
Applicant is ordered to pay the costs occasioned by the postponement
of the application to enable him to serve the application
on the
First Respondent’s employees”.
5.
The costs of this appeal are costs in
the trial.
F
W BOTES
ACTING
JUDGE OF THE HIGH COURT OF SOUTH AFRICA
I
agree.
N M MAVUNDLA
JUDGE
OF THE HIGH COURT OF SOUTH AFRICA
N P MALI
JUDGE
OF THE HIGH COURT OF SOUTH AFRICA
[1]
See: par 13 of the founding affidavit - pages 11 to 14
[2]
See: par 15 of the founding affidavit - page 14
[3]
See: Re Levine Developments (Israel) Ltd
1978 5 BLR 164
at 172
[4]
2014(5) SA 1 (SCA)
[5]
See: par 1 of Thunder Cats
[6]
See: par 2 of Thunder Cats
[7]
See:
par 6 of Thunder Cats
[8]
Section 172(1)(b) of the Constitution of the Republic of South
Africa, 1996 provides that following upon a declaration of
constitutional
in validity a Court
"may make any order
that is just and equitable".
[9]
Section 8(1) of the Human Rights Act, 1998 (UK) provides that where
the Court finds that an act of a public authority is unlawful,
it
"may grant such relief or remedy, or make such order, within
its powers as it considers just and equitable".
[10]
See: Moosa v Mavjee Bhawan (Pty) Ltd 1967(3)SA 131 (T) at 136 H - I
[11]
See: Apco Africa v Apco Worldwide Inc 2008(5) SA 615 (SCA)
[12]
See: Sweet v Finbain 1984(3) SA 441 (W)
181
C - H
[13]
See: Erasmus v Pentamed Investments (Pty) Ltd 1982(1) SA 178 (W) at
[14]
See:
par 6 of the Article
[15]
See: Palmieri v AC Paving Co Ltd 1999 48 BLR (2d) 130 (BCSC)
[16]
See: Ebrahimiv Westbourne Galleries Ltd 1972 2 ALL ER 492 (HL)
[17]
See: Ebrahimi v Westbourne Galleries,
supra,
at 495
[18]
See also Muller v Lilly Valley Ltd 2012(1) ALL SA 187 (SGJ)
[19]
See: French Plays Ltd v The Mayor of Hackney 1910 2 KB
[20]
See: Jajbhay v Cassim 1939 AD 537
[21]
See: Thunder Cats at par 28
[22]
See: Koen v Wedgewood Village Golf & Country Estate 2012(2) SA
378 (WCC) at par 14
[23]
1985(2) SA 345 (WLD)
[24]
See par 10 of the founding affidavit - pages 9 to 10
[25]
See: Lauw v Nel 2011(2) SA 172 (SCA)
[26]
See: Mr Schadewaldt's affidavit - page 1272 to p 1274
[27]
See: Maloney' s Eye Properties BK v Bloemfontein Board Nominees Bpk
1995(3) SA 249 (0) at 257 G - H
[28]
2011(1) SA 511 wee
[29]
See: De Klerk v Ferreira & others 2017(3) SA 502 (GP)