Apco Africa (Pty) Ltd v Apco Worldwide Incorporated (372/07) [2008] ZASCA 64; [2008] 4 All SA 1 (SCA); 2008 (5) SA 615 (SCA) (29 May 2008)

About SAFLII
Databases
Search
Terms of Use
RSS Feeds
South Africa: Supreme Court of Appeal
SAFLII
>>
Databases
>>
South Africa: Supreme Court of Appeal
>>
2008
>>
[2008] ZASCA 64
|

|

Apco Africa (Pty) Ltd v Apco Worldwide Incorporated (372/07) [2008] ZASCA 64; [2008] 4 All SA 1 (SCA); 2008 (5) SA 615 (SCA) (29 May 2008)

Links to summary

REPUBLIC
OF SOUTH AFRICA
THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA
Reportable
Case Number :
372 / 07
In the matter between
APCO AFRICA (PTY) LTD
...
FIRST APPELLANT
ARCAY COMMUNICATIONS HOLDINGS (PTY) LTD
...
SECOND
APPELLANT
and
APCO WORLDWIDE INCORPORATED
...
RESPONDENT
Coram
: MPATI AP, CAMERON, VAN HEERDEN, PONNAN JJA
et SNYDERS AJA
Date of hearing
: 12 MAY 2008
Date of delivery
: 29 MAY 2008
SUMMARY
Companies
Act 61 of 1973 – s 344(
h
)
- winding up of a company on the basis that it is just and equitable
to do so.
Neutral citation: This judgment may
be referred to as :
Apco
Africa
v
Apco
Worldwide
(372/2007)
[2008] ZASCA 64
( 29
May 2008)
___________________________________________________________________
J U D G M E N T
___________________________________________________________________
PONNAN JA
[1] The question - an apparently simple one - that arises in this
appeal, is whether the first appellant, Apco Africa (Pty) Ltd (‘the
Company’), ought to be wound up on the ground that this course is
just and equitable within the meaning of s 344(
h
) of the
Companies Act 61 of 1973 or, more accurately, whether such an order
was properly granted by Boruchowitz J. In order to appreciate
the
issues involved, it is necessary to give a short history of the
Company and mention the salient facts emerging from the voluminous
affidavits placed before the Johannesburg High Court.
[2] The present respondent, Apco Worldwide Incorporated (‘Apco’),
is a company incorporated according to the laws of the State
of
Delaware (United States of America) with its global headquarters in
Washington DC. It describes itself as part of a leading international
group of companies with 24 operating entities across the globe. It
has been in the business of public affairs and strategic
communication
for more than two decades. According to Apco, it
provides its clients with high level strategic advice on how to
conduct their business
affairs in the world political and economic
environment.
[3] The nature of Apco’s business often renders it necessary for
Apco to secure expertise and services in various parts of the
world.
In order to meet the needs of its clients who sought exposure to the
African continent, Apco entered into what has been described
as a
joint venture-partnership type of arrangement with the second
appellant, Arcay Communications Holdings (Pty) Ltd (‘Arcay’),
a
private Johannesburg-based company. In anticipation of growing client
interest in South Africa and the rest of the African continent,
Apco
and Arcay concluded a memorandum of understanding on 26 August 1998,
the primary purpose of which was to: ‘draft and implement
a joint
business plan for the offering and expansion of public affairs
services in South Africa and the targeting of new business
opportunities for both companies’; ‘seek to refer business to one
another’; and ‘seek opportunities to jointly market the
services
of Apco and Arcay’. It was also agreed that the relationship
between the two would be referred to ‘ ... as “a strategic
partnership” with each having the right to refer to itself as a
“strategic partner” of the other’. Moreover, Arcay could
describe itself as ‘an Apco-affiliated company’.
[4] On 16 May 2000, Apco and Arcay decided to formalise their working
arrangement by concluding a shareholders’ agreement, thereby
incorporating the Company as a private company with a share capital
in accordance with the company laws applicable in South Africa.
The
provisions of the agreement, to the extent here relevant, are:
‘
2.1 Except as provided for in
Clause 9, the shareholders shall collectively hold all the shares in
the issued share capital of the
Company.
2.1.1 The shareholders shall hold the shares in the
issued share capital in the following proportion:
2.1.1.1 Arcay – 50% (fifty per centum);
2.1.1.2 APCO – 50% (fifty per centum;
. . . .
6 The object of the Company shall be to conduct business
as a provider of public affairs and strategic communications and
other related
services, and no other business shall be conducted by
the Company until such time as the shareholders unanimously resolve
otherwise.
. . . .
9 No further shares in the capital of the Company shall
be issued unless unanimously agreed to by the shareholders and other
than
by way of a pro rata rights offer to the holders of the existing
class of shares at the time. . . .
. . . .
10.1 No shareholder shall be entitled to dispose of any
of its shares in or claims against the Company, unless such
shareholder (referred
to in this clause as “the seller”) first
offers to sell such shares and an equivalent proportion of its claims
on loan account
against the Company (“claims”), if any, to the
other party.
. . . .
11.1 The Company shall have not less than 2 (two)
directors and not more than 4 (four) directors.
11.1.1 At all times at least one member of the board of
directors of the Company shall be nominated for appointment by Arcay,
which
director shall fulfil the function of managing director of the
Company. The managing director of the Company will be subject to
approval
by APCO. Robyn de Villiers shall be appointed as managing
director of the Company and Frederick Botha as a director until such
time
that the parties unanimously agree otherwise.
11.1.2 At all times at least one member of the board of
directors of the Company shall be nominated for appointment by APCO,
which
director shall fulfil the function of chairman of the Company.
Margery Kraus shall be appointed as chairman of the Company and Brad
Staples as a director until such time that the parties unanimously
agree otherwise.
. . . .
11.2 The chairman of the board of directors of the
Company shall not have a second or casting vote.
11.3.1 A quorum for any directors’ meeting of the
Company shall be constituted upon the director and/or the nominee
director of
each shareholder being personally present.
. . . .
11.6 The Company shall give 14 clear days notice by
facsimile or prepaid registered post to all its directors of a
directors’ meeting
of the Company at the addresses provided in
Annexure 1 hereto, unless all directors waive the notice period or
agree on a shorter
period.
. . . .
11.9 Should a deadlock arise at any meeting of the
directors of the Company, the matter in connection with which the
deadlock arose
shall not be proceeded with, provided that the matter
shall immediately be referred to a meeting of shareholders to try and
resolve
in good faith and failing resolution at such meeting of
shareholders or such other period of time or method of resolution as
the
shareholders may agree, any shareholder or group of shareholders
may call upon the other to submit to a Texas Auction within 14 days
of written notice. The Texas Auction shall be conducted as follows: .
. .
. . . .
13.1 The unanimous consent of directors appointed by
shareholders or where appropriate, the unanimous consent of
shareholders in general
meeting of the Company, shall be required for
a resolution to be of any force or effect if the resolution provides
for:
13.1.1 the Company to change the nature of or
discontinue its business;
13.1.2 the company to dispose of or otherwise deal in or
with the whole or any part of its assets or undertaking except in the
ordinary
course of business; . . . .
. . . .
18.1 The parties shall co-operate and consult with each
other regarding the activities of the Company in the utmost good
faith, the
affairs of the Company being administered and promoted
with the highest degree of integrity between the shareholders.’
[5] The Company has never had an infrastructure of its own. It does
not employ staff, nor does it occupy its own offices. Instead,
until
fairly recently, it occupied offices in Arcay’s building and relied
on Arcay’s staff and infrastructure to perform the
services
required by its clients. Since inception, all of the work performed
by the Company has, save for one instance, been as a
result of
referrals to it by Apco and its other international entities. In
practice, a client of Apco or any of its other international
entities
would advise Apco that it required work to be performed with an
African component. That request would, in turn, be submitted
to the
Company. Apco’s contribution to the Company was the referral of
work to it, thus providing the means for the generation
of its
income. Clients were however billed by the Company for the work done
by it. Apco and Arcay would submit invoices to the Company
for the
actual time committed to projects by their respective staff members,
the idea being that Apco and Arcay would share the residual
profit on
an equal footing. Apco complains that it came as a surprise to it to
learn on 11 July 2006 that Arcay had in fact been
appropriating for
itself 90% of the revenue generated by the Company. Furthermore,
according to Apco, it established that the remaining
revenue was
utilised by Ms Robyn de Villiers (De Villiers) and Mr Frikkie Botha
(Botha) to cover their management fees and travel
costs. Apco thus
asserts that it has never been remunerated for any of its referrals
to the Company as, since the commencement of
the shareholders’
agreement, the Company has not made a profit and, as a result, Apco
has not received any return on its investment.
[6] During November 2005 Ms Thomasine Kamerling (Kamerling), a
director of Apco, with extensive experience in media relations,
corporate
positioning and crisis communications, was seconded to the
Company. It would be fair to say that Kamerling’s secondment
provoked
resentment in De Villiers and Botha. Over time the
relationship between Kamerling, on the one hand, and De Villiers and
Botha, on
the other, became acrimonious and there were numerous
altercations between them. During June – July 2006, De Villiers and
Botha
informed Mr Brad Staples (Staples), head of Apco’s European
operations, that they wanted Kamerling to leave the Company by 15
August
2006 and return to Europe.
[7] As was to be expected, that request exacerbated the already
uneasy relationship between Apco and Arcay. According to Staples,
he
realised then that there was a breakdown in the business relationship
between Apco and Arcay and it was untenable for Kamerling
to remain
in the Company’s offices. Kamerling however could not leave South
Africa immediately as, according to Apco, the needs
of the Company’s
clients had to be catered for. As a result, in early August 2006,
Kamerling moved to an office in Sandton, whence
she continued to
service the clients of the Company for whom she was responsible. It
was envisaged that she would continue performing
her duties,
including invoicing the Company’s clients, until the dispute
between the shareholders could be resolved.
[8] Apco contends that there has been a serious and irretrievable
breakdown in the relationship between it and Arcay, in consequence
of
the:
(i) conflict between Kamerling and Arcay’s representatives;
(ii) poor service provided by Arcay to the Company’s clients;
(iii) lack of focus and interest in the business of the Company by De
Villiers and Botha which prejudiced the shareholders; and
(iv) fact that Apco was referring business to the Company, but was
receiving virtually no benefit from the partnership due
inter alia
to the fact that Arcay had been appropriating all the revenue of the
Company for itself.
[9] On 7 August 2006, Staples held a discussion with De Villiers
regarding the dissolution of the Company. He says that it was an
attempt to amicably negotiate the termination of what he describes as
the partnership relationship with Arcay. On 16 August 2006,
Staples
addressed an e-mail to De Villiers in anticipation of a scheduled
meeting between them to be held in Brussels on 5 September
2006. The
material portion of the e-mail reads:
‘
I do think that it is important
that we have a clear understanding about winding-up [the Company] and
how we will deal with ongoing
assignments and new business activity.
I do not want to jeopardise client service by Apco or Arcay
colleagues either as a consequence
of poor communication between us
or any possible misunderstandings. Thomasine is remaining in South
Africa and is presently working
from a separate location. She reports
directly to me and we are considering our options for establishing
Apco’s future operations
in South Africa. . . .
We should inform all other [Company] clients of the
change in circumstances in the light of our conversations on 5
September.
Again in order to avoid confusion or uncertainty
regarding our present situation internally or externally, the Apco
e-mail addresses
for Frikkie [Botha] and you have been closed and the
Apco internet access has been restricted.
I do welcome the opportunity for broader conversation on
5 September and also to confirm a simple and straightforward route to
winding-up
the present [Company] joint venture when we meet,
providing services to current and future Apco clients, arranging for
final account
payments and payment of monies owed to Apco Europe and
tying up other loose ends, including the mobile phone and car leasing
contracts
for Thomasine etc.’
[10] At the meeting on 5 September 2006, De Villiers handed Staples a
letter which blamed Kamerling for the breakdown in the relationship
between the shareholders and accused her of ‘hi-jacking’ the
business of the Company. De Villiers, who was highly emotional,
refused to discuss the dissolution of the ‘partnership’; instead
she wanted things to return to the way that they had been before
Kamerling’s secondment.
[11] On 6 September 2006, a day after the Brussels meeting, Arcay
launched an urgent
ex parte
application, to be heard
in
camera
, for an
Anton Piller
order against Apco and
Kamerling, apparently in order to secure alleged evidence that Apco
had been competing unlawfully with it.
That order was executed on 8
September 2006 and a number of documents and imaged copies of the
computer hard drives of Kamerling
and her personal assistant were
seized. On 12 September 2006, Apco’s attorney addressed a ‘without
prejudice’ letter to Arcay’s
attorney. It proposed that:
‘
[Apco] and Arcay waive the
requirement of a directors/shareholders meeting required in the
Shareholders’ Agreement on the basis
that they accept that a
deadlock already exists, and that any meetings going forward will
inevitably end in deadlock.
[Apco] and Arcay proceed directly to submitting
themselves to the Texas Auction procedure as set out in the
Shareholders’ Agreement.
Pending finalisation of the Texas Auction, Kamerling
will continue to service two of the clients of [the Company] and will
utilise
two of the Arcay employees to do so. All invoicing will be
done through [the Company]. This interim arrangement will be
concluded
in the best interests of the parties not to disrupt the
services being rendered to these clients.
In the event that Arcay wins the Texas Auction [the
Company] can pursue whatever damages claims it alleges it has and the
documents
attached in the Anton Piller application, to the extent
that they fall under the parameters of the order, will remain
attached.
In the event that [Apco] wins the Texas Auction, Arcay
irrevocably undertakes to waive the right to pursue any further
action against
[Apco] and Kamerling of whatsoever nature, and [Apco]
and Kamerling will have no further claims against Arcay arising out
of their
dealings in [the Company], and the Anton Piller application
will be withdrawn and the documents released.’
[12] On 13 September 2006, Arcay’s attorney rejected the offer. He
asserted that the only basis upon which Arcay would be prepared
to
settle the matter is if:
‘
[Apco] is to detail in writing how
it proposes to continue the relationship with [Arcay] and remedying
any damage caused to [Arcay],
through its unlawful conduct, whether
by means of monetary compensation or in an alternative form of
compensation suitable to [Arcay];
alternatively
[Apco] is to detail how it proposes “terminating”
the relationship with [Arcay] and in return for such “termination”,
[Apco]
is to compensate [Arcay] by means of paying [Arcay] for all
and any damages suffered by [Arcay] at the hands of [Apco].’‘.
Arcay also demanded that Apco hand over the computer hard drives from
its offices, return information that Kamerling had in her possession
and restore Arcay’s access to the Apco worldwide IT network. Arcay
further threatened to apply for a deportation order for Kamerling
and
to secure an interdict to prevent Apco from competing unlawfully with
it. Needless to say, all of Arcay’s proposals were rejected
by
Apco.
[13] On 14 September 2006, Apco, through its attorney, despatched to
Arcay’s attorney a formal notice for a directors’ meeting
to be
held at 16h00 on Friday, 29 September 2006. On 19 September 2006,
Arcay launched an urgent application seeking to interdict
Apco and
Kamerling from competing with it. That application was opposed by
Apco and Kamerling. On 27 September 2006, two days before
the
proposed directors’ meeting, De Villiers wrote to Apco on the
Company’s letterhead:
‘
We have recently received a copy
of a letter dated 14 September 2006, addressed to our attorney acting
in certain litigious matters
. . .. This letter contains a purported
notice to convene a directors meeting with reference to an attached
agenda. We draw your
attention to Clause 11.6 of the shareholders
agreement which reads: “The Company shall give 14 clear days notice
by facsimile or
prepaid registered post to all its directors of a
directors’ meeting of the Company .... “.
The practical purpose of the Clause is illustrated by
reason of the fact that the letter of purported notice … only came
to our
attention some time after purported sending and receipt
thereof. The effect of that is in any event short notice which we are
not
willing to accept.
Quite apart from that, the Company is required to give
notice of such meeting, obviously with the intention of taking into
account
the availability of all directors as opposed to the
unilateral notice by some directors of times that suit them only.
The notice is therefore defective, and we require you to
comply with the agreement accurately in all its terms.’
[14] On 27 September 2006, Apco sent a second formal notice for a
directors’ meeting, in terms of the provisions of the shareholders’
agreement. Both Botha and De Villiers were served with the notice on
29 September 2006. The notice informed them of a meeting of
directors
and shareholders of the Company which was scheduled for Monday, 16
October 2006. A copy of the notice was also sent by
facsimile to the
requisite address as required by the shareholders’ agreement. It
elicited the following written response from
Arcay’s attorney on 4
October 2006:
‘
Our client has handed to ourselves
a purported notice to convene a directors’ and shareholders’
meeting of [the Company].
Such purported notice, delivered to our client on 29
September 2006 via facsimile from your client and hand delivered by
yourselves,
is neither in accordance with the shareholders’
agreement nor in accordance with the articles of association.
Further to the above, our client has advised us that
they are in any event not able to “attend” the anticipated
meeting, unilaterally
scheduled for 16 October 2006, as they are away
on conference on that date.’
Although Apco was already of the view at that stage that deadlock had
been reached and that nothing stood to be gained by holding
a
meeting, it nonetheless – as requested by Arcay’s attorney in the
letter dated 4 October 2006 - proposed three alternative
dates for a
meeting, namely 8, 9 and 10 November 2006. That letter however failed
to elicit a response.
[15] Since 8 August 2006, Apco has ceased referring any work to the
Company. It states that it is no longer prepared to refer any
further
work to the Company. It contends that the relationship between Arcay
and it is so strained and has disintegrated to such
a degree that
there is no possibility of it being able to participate with Arcay in
the management of the Company or in the servicing
of the Company’s
clients. No clients are currently being serviced by the Company. The
Company’s source of revenue has ceased
and it is no longer able to
continue trading. Apco accordingly contends that the reason for the
Company’s existence, namely, to
service its international clients,
has fallen away. There is no prospect of its revenue stream being
restored as, according to Apco,
it will never refer any of its
clients to the Company in the future and would rather withdraw its
business interests from South Africa
than partner Arcay again in any
joint venture. Apco accordingly contends that the shareholders of the
Company have reached deadlock
and that the Company is no longer able
to function. Moreover, according to Apco, the deadlock has resulted
in the disappearance of
the substratum of the Company.
[16] Section 344 of the Act provides:
‘
A company may be wound up by the
Court if ─
. . . . .
(
h
) It
appears to the Court that it is just and equitable that the company
should be wound up.’
That subsection, unlike the preceding sub-paragraphs of s 344
postulates not facts, but only a broad conclusion of law, justice and
equity as a ground for winding-up (
Moosa NO v Mavjee Bhawan (Pty)
Ltd
and Another
1967 (3) SA 131
(T) at 136H). It is
well-settled that the subsection giving power to the court to wind up
a company on the just and equitable ground
is not confined to cases
in which there are grounds analogous to those mentioned in other
parts of the section (
Loch v John Blackwood
1924 AC 783
(PC)).
Nor, on the other hand, can any general rule be laid down as to the
nature of the circumstances that have to be borne in mind
in
considering whether a case comes within the phrase (
Davis & Co
Ltd v Brunswick (Australia) Ltd
[1936] 1 All ER 299
(PC) at 309).
It must also be recognised that there is no necessary limit to the
generality of the words ‘just and equitable’.
Section 344(
h
)
affords a court a wide judicial discretion in the exercise whereof,
however, certain other sections of the Act must be taken account
of
(
Erasmus v Pentamed Investments (Pty) Ltd
1982 (1) SA 178
(W)
at 181).
[17] The words ‘just and equitable’ ─
‘
. . . . are a recognition of the
fact that a limited company is more than a mere judicial entity, with
a personality in law 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 and by the articles of
association by which shareholders agree 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 … 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, of 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 members’ 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 also 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 (possibly 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.’
(Per Lord
Wilberforce in
Ebrahimi v Westbourne Galleries Ltd
[1972] 2
All ER 492
(HL) at 500
a-h
;
1973 AC 360
(HL) at 379B-380B.)
[18] The cases show that the just and equitable provision is not to
be limited to cases where the substratum of the company has
disappeared
or where there has been a complete deadlock. Where there
is in substance a partnership, in the form of a private company,
circumstances
which would justify the dissolution of the partnership
would also justify the winding-up of the company under the just and
equitable
provision (see
In re Yenidje Tobacco Co Ltd
[1916] 2
Ch 426
(CA) at 430; see also
Marshall v Marshall (Pty) Ltd and
Others
1954 (3) SA 571
(N
); Lawrence v Lawrich Motors (Pty)
Ltd
1948 (2) SA 1029
(W)). In the present case it seems clear
that Apco and Arcay came together on the basis, substantially, of a
partnership between
them. The Company can properly be designated a
small private company. It was at the instance of the partnership that
the Company
was formed. In other words, outside the Company, Arcay
and Apco were partners. In the Company, their shareholding was equal.
Both
were directors, albeit through representatives. No others were.
[19] There are two distinct principles that guide a court in
exercising its discretion to wind up a domestic company which is in
the nature of a partnership. The first, enunciated in
Loch v John
Blackwood
(at 788), is that it may be just and equitable for a
company to be wound up where there is a justifiable lack of
confidence in the
conduct and management of the company’s affairs
grounded on conduct of the directors, not in regard to their private
life or affairs,
but in regard to the company’s business. That lack
of confidence is not justifiable if it springs merely from
dissatisfaction at
being out-voted on the business affairs or on what
is called the domestic policy of the company, but is justifiable if
in addition
there is a lack of probity in the director’s conduct of
those affairs. The second, usually called the deadlock principle, is
derived
from the
Yenidje Tobacco Company
case. It is founded
on the analogy of partnership and is strictly confined to those small
domestic companies in which, because of
some arrangement, express,
tacit or implied, there exists between the members in regard to the
company’s affairs a particular personal
relationship of confidence
and trust similar to that existing between partners in regard to the
partnership business. If by conduct
which is either wrongful or not
as contemplated by the arrangement, one or more of the members
destroys that relationship, the other
member or members is entitled
to claim that it is just and equitable that the company should be
wound up. (See also
Moosa
at 137;
Emphy v Pacer Properties
(Pty) Ltd
1979 (3) SA 363
(D) at 366H-367B.)
[20] The Company was formed for a specific purpose. The internal
disputes, mutual disillusionment and distrust and the consequent
breakdown of the relationship between the shareholders of the Company
have paralysed it. This is clear from Arcay’s own affidavits
and
the facts in Apco’s which it cannot deny. The Company is thus in a
state of dormancy and, given Apco’s assertion that it
will no
longer refer any work to the Company, that state of affairs is
unlikely to change. There is thus much to be said for Apco’s
contention the
raison d’ etre
for the Company has ceased.
[21] Actual deadlock is not an essential to the dissolution of a
partnership. All that is necessary is to satisfy a court that it
is
impossible for the partners to place that confidence in each other
which each has a right to expect and that such impossibility
has not
been caused by the person seeking to take advantage of it. But, says
Arcay, the impossibility that has arisen in this case
has indeed been
caused by the person seeking to take advantage of it, namely, Apco.
Moreover, to the extent that the substratum has
disappeared, that has
occurred in consequence of Apco’s conduct. Apco, so the argument
goes, comes to court with unclean hands.
And that, Arcay asserts, it
should be precluded from doing.
[22] In the opposing affidavits, Apco’s application to wind up the
Company is variously described as ‘frivolous’, ‘vexatious’,
‘an abuse’, ‘mala fide’ and part of a ‘stratagem to wipe
out [Apco’s] competition in an underhanded and dishonest fashion’.
It was furthermore asserted that there had been a ‘pre-determined’,
‘secret scheme to hijack and take over’ the Company and
that
‘Kamerling through her fraudulent conduct had created a springboard
to set up a business in direct competition’ with the
Company.
[23] The rhetoric of the affidavit that there was a ‘carefully
planned strategy’ by Apco to destroy the Company, which culminated
in the winding-up application, finds little support in the facts
which Arcay cannot deny. There plainly was no bad faith in Apco
seconding Kamerling to the Company. It occurred with the agreement of
De Villiers and Botha and on the understanding that her salary
and
travelling expenses were to be paid by Apco Europe and not the
Company. According to Apco, Kamerling’s secondment was partially
in
consequence of it having received complaints from their clients, in
particular about the conduct of Botha. It claims it conveyed
those
complaints to De Villiers.
[24] Nor, it seems to me, was Apco actuated by any ulterior purpose
in seconding Kamerling to South Africa. That much emerges from
the
following two emails despatched by her to Staples. In the first,
dated 3 March 2006 and entitled ‘Africa thoughts on moving
forward’, she postulated four possible future scenarios: (a)
maintaining the existing joint venture with Arcay; (b) phasing out
the joint venture; (c) creating an independent Apco Africa; and (d)
acquiring a local network/independent office. In the second,
dated 19
May 2006, she recorded her observations on the issues that had arisen
during the preceding 6 months. She alleged
inter alia
that:
clients’ deadlines were continuously missed; Arcay was charging
consulting fees which were not in line with the service provided;
the
standard of work being delivered by the Company was not what should
be expected of an Apco associate; there were various infrastructural
and skills deficiencies; Botha and De Villiers had not concentrated
on new business for the Company; meetings had been re-scheduled
an
average of five times; Botha had exhibited bullying behaviour and had
threatened that ‘if Apco acts like this we will just stop
the joint
venture’; De Villiers and Botha had been using Apco’s travel
budget to cover trips for other business; and Apco was
being charged
cancellation fees when Botha decided at the last minute not to attend
meetings.
[25] In my view those emails hardly seem like those of a saboteur
bent on the destruction of the Company. Of the second email, Botha
in
his answering affidavit states, ‘I admit the email … makes the
allegations as set out … but deny that all these allegations
are
true’. One would have expected an unequivocal denial of all of
Kamerling’s allegations. Instead, the partial denial, without
further elaboration, that has been advanced seriously undermines the
charge levelled against Apco that it was actuated by bad faith
in
seconding Kamerling to the Company. The conclusion on the acceptable
evidence is thus inescapable that, in seconding Kamerling
to the
Company, Apco was motivated by genuine concern for its own business
interests and had a legitimate basis for doing so. The
rather bold
proposition that there was a carefully planned strategy, in which
Kamerling played a pivotal role, to destroy the Company
finds no
support in the evidence and is, in truth, unsustainable.
[26] Arcay contends that in the light of Apco’s breach of the
shareholders agreement, it has a claim for specific performance
against
Apco which it will in due course seek to assert. It
accordingly argues that the corporate form of the Company should be
preserved
for that purpose. The relief envisaged by Arcay would be
something in the nature of an order compelling Apco to continue
referring
its clients to Arcay in terms of the shareholders’
agreement. Apco’s response is that a referral of that kind would,
ordinarily
at any rate, constitute a recommendation by it. That it
cannot do as it has lost all faith in Arcay. Moreover, according to
Apco,
an order of the kind envisaged by Arcay can hardly be enforced
against its clients who may, in spite of Apco’s referral, be
unwilling
to do business with the Company. These assertions cannot be
gainsayed. They render the remedy of specific performance illusory.
Arcay,
it bears noting, is not entirely remediless. It would, were it
in due course to prove the breach complained off, have a claim for
damages against Apco. Such a remedy would, in my view, afford Arcay
with more than adequate relief should it in the fullness of time
succeed in establishing the alleged breach. There thus does not
appear to be any ineluctable advantage in preserving the corporate
form of the Company.
[27] Ultimately though, the parties envisaged the possibility of a
deadlock in their future dealings with each other and sought to
regulate their relationship by stipulating a deadlock-breaking
mechanism in their agreement. Despite Arcay’s belief that Staples’
decisions to terminate its network access and to wind up the Company
─ which, it complained, had been presented to it as a
fait
accompli
─ were unlawful, the Arcay directors were not entitled
to simply refuse to attend the meetings (or tender patently flimsy
excuses
for such refusal). For, in the final analysis, it is really
that refusal that has brought about the deadlock which cannot be
resolved
in the manner prescribed by the very agreement to which they
had bound themselves. As Boruchowitz J stated in the court below:
‘
I am in agreement with the
submission made by counsel for [Apco] that the inference to be drawn
is that [Arcay], De Villiers and Botha
had no intention of attending
such meeting, and they have frustrated [Apco’s] attempts to convene
the necessary directors’ meeting
to discuss the continuance of
their relationship. . . . In circumstances such as the present, where
the directors refuse to attend
a board meeting, clearly designed and
called for by the other director or shareholder, it is clear that
such company cannot be managed
in accordance with the provisions of
the shareholders’ agreement. The obstructionist behaviour adopted
by [Arcay] in regard to
the calling of the directors’ meeting has
had the effect that [Apco] has been excluded from participating in
the management of
the Company. Having regard to the circumstances
that I have described, I am satisfied that there is a literal
deadlock which cannot
be resolved. The events that I have described,
and which are common cause or not in dispute, relate to [Apco’s]
failed attempts
to engage [Arcay] [and] are not affected in any way
by the clean hands principle upon which [Arcay relies]. If anything
at all it
is they who have adopted an obstructionist attitude.’
In that the learned Judge was undoubtedly correct.
[28] The true factual position, however that may have arisen, is that
there is deadlock and a complete breakdown in relationship
which
makes the Company unable to function in its current configuration. If
there were a reasonable hope of tiding over the period
of deep
depression and of the Company emerging from its current 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. But that is not what one encounters here. Here, the
parties are hopelessly at loggerheads. The flurry of litigation by
Arcay did little to help the situation. It added further to the
disintegration of what was by then an already fragile relationship,
prompting Apco to describe the
Anton Piller
proceedings as the
‘final nail in the coffin’. It does not end there. On 3 November
2006, in a letter addressed to Apco’s attorney,
Arcay’s attorney
stated
‘
Having touched on the conduct of
your clients, and in particular that of Thomasine Kamerling, briefly
set out above, our clients are
of the view that such conduct as
carried out by Ms Kamerling is tantamount to fraud. In this regard
particular reference is made
to the diversion of funds from our
client to Apco Europe in the sum of US$ 12 000. It is our
instructions to institute criminal proceedings
against your clients.
By virtue of the above and your client’s unlawful
appropriation of our clients’ information, our client has suffered
the damages
which our client continues to attempt to mitigate however
which continue to escalate. At present without an exact
quantification
of such damages, our clients believe the figure runs
into millions of Rands.
In the interim, it is our instructions to demand from
your clients, which we hereby do, payment in the sum of US$12 000,
together
with interest thereon at the rate of 15.5% from 7 August to
date, which payment is to be made on or before the close of business
of 10 November 2006, failing which, legal action for the recovery of
such amount shall be made.
In addition, we are instructed that the affidavits filed
on behalf of your clients contain several patently false allegations
(quite
apart from your client’s prospect of success) amounting to
perjury. Our clients regard these allegations as criminally injurious
and will equally pursue criminal charges in respect thereof.’
[29] It is plain that a relationship of trust and integrity between
the shareholders is integral to the success of the business of
the
Company as well as the continuation of that relationship. That much
is evident from the nature of the Company’s business as
well as the
fact that the parties are all privy to sensitive and confidential
information. When one of two partners threatens civil
and criminal
action, including prosecution for fraud, is it reasonable to suppose
that those two partners can work together in the
manner in which they
ought to work in the conduct of the partnership business? Can they do
so when things have reached such a pass
as we have here? Commonsense
seems to dictate that the answer has to be a resounding no. In those
circumstances it seems to me that
it is just and equitable that a
court should intervene, for plainly this is not what the parties
contemplated by the arrangement
into which they entered. On the
contrary they assumed that each would conduct itself reasonably and
with basic courtesy towards the
other. Having regard to the fact that
the directors and shareholders cannot communicate with each other and
that no business of the
Company can be carried on, one is inclined to
the conclusion that if ever there were a state of deadlock, it exists
here. If, as
Arcay claims, there was fraud by Kamerling and a
calculated design to wreck the Company and it can establish that in
due course,
it will have a remedy in damages. In those circumstances
there can be no reason to seek to protect Arcay’s rights, as it
sought
to contend, by sustaining the corporate form.
[30] But it is perhaps not necessary to go that far. It suffices, on
the analogy of partnership law, to state that the Company is
now in a
state which could not have been contemplated by the parties when it
was formed and that it ought to be terminated as soon
as possible. It
is, after all, contrary to the good faith and essence of the
agreement between the parties that the state of things
encountered
here should be allowed to continue. As it was put in
In re Yenidje
Tobacco Co Ltd
(at 430):
‘
In those circumstances, supposing
it had been a private partnership, an ordinary partnership between
two people having equal shares,
and there being no other provision to
terminate it, what would have been the position? I think that it is
quite clear under the law
of partnership, as has been asserted in
this Court for many years and is now laid down by the Partnership
Act, that that state of
things might be a ground for dissolution of
the partnership and for the reasons which are stated by Lord Lindley
in his book on Partnership
... and which, I think, is quite justified
by the authorities to which he refers: “Refusal to meet on matters
of business, continued
quarrelling, and such a state of animosity as
precludes all reasonable hope of reconciliation and friendly
co-operation have been
held sufficient to justify a dissolution. It
is not necessary, in order to induce the Court to interfere, to show
personal rudeness
on the part of one partner or the other, or even
any gross misconduct as a partner. All that is necessary is to
satisfy the Court
that it is impossible for the partners to place
that confidence in each other which each has a right to expect, and
that such impossibility
has not been caused by the person seeking to
take advantage of it.“‘
.
In my opinion the proved facts bring the present case well within
this passage. The result may well have been the same even if the
analogy with the partnership were to have been ignored as, in my
view, the papers also disclose that the substratum of the company
has
disappeared.
[31] In the result the appeal is dismissed with costs, such costs to
include those consequent upon the employment of two counsel.
V M PONNAN
JUDGE OF APPEAL
CONCUR:
MPATI
ADP
CAMERON
JA
VAN
HEERDEN JA
SNYDERS
AJA