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[2018] ZALMPPHC 54
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Sediba Electrical CC and Others v Letswalo and Others (1134/2018) [2018] ZALMPPHC 54 (21 September 2018)
REPUBLIC
OF SOUTH AFRICA
IN THE HIGH COURT OF
SOUTH AFRICA
LIMPOPO DIVISION,
POLOKWANE
CASE
NUMBER: 1134/2018
In
the matter between:
SEDIBA
ELECTRICAL CC & 02
OTHERS APPPLICANTS
And
THATHANE
EDWARD LETSWALO & 3
OTHERS RESPONDENTS
JUDGEMENT
KGANYAGO
J
[1]
The first applicant
Sediba Electrical CC is a Close Corporation. The second applicant
Martha Hermina Elizabeth Pieterse, third applicant
Gerhardus Van
Deventer and first respondent Thathane Edward Letswalo are all
members of the first applicant. The second applicant
is holding 39%
membership interest in the first applicant, third applicant holding
10% membership interest in the first applicant
and first respondent
holding 51% membership interest in the first applicant.
[2]
Second Respondent Thuso Le Kgwerano Projects (Pty) Ltd is a
registered company. Its directors are the third respondent Mmampopo
Precious Anna Letswalo and fourth respondent Tshelahale Julia
Letswalo. The third respondent is the daughter to the first
respondent,
whilst the fourth respondent is the wife to the first
respondent.
[3]
The first applicant is rendering electrical services and products of
an electrical nature. The second applicant is responsible
for the day
to day management of the first applicant’s finances, human
resources and client policies. The third applicant,
first respondent
and employees of the first applicant are responsible to attend to the
provision of electrical services to the
first applicant’s
clients.
[4]
On the 6
th
March 2018 the applicants brought an urgent
application against the respondents seeking an order that the first
respondent be interdicted
and restrained from alienating, sharing or
disposing certain information or documents relating to the trading of
the first applicant
to the second up to the fourth respondents; that
the first respondent’s membership interest in the first
applicant be transferred
to the first applicant; that the first
applicant be directed to purchase the first respondent’s 51%
membership in the first
applicant; that the first applicant pay a
market value of the first respondent’s members interest and per
the procedure they
have stipulated in that prayer; that in the event
the first respondent unwilling to accept the determination of the
person appointed,
proceedings to obtain a judicial substitute
valuation may be instituted by the dissatisfied party or both
parties, failing which
the independent determination in terms of this
order shall be final and binding on parties; and that the first
respondent shall
be paid the purchase price of his member’s
interest within 15 days of receipt of the valuation of his member’s
interest
in the first applicant.
[5]
On the 6
th
March 2018 the applicants’ obtained an
order in terms of prayer 2 of their notice of motion wherein the
first respondent
was interdicted and prohibited from alienating,
disposing of or sharing any information, documentation, trade secrets
or pricing
scales, being property of the first applicant with the
second to fourth respondents. The remainder of the prayers were
postponed
sine die. When the matter was heard on the 1
st
August 2018 in relation to the reminder of the prayers, counsel for
the applicants’ informed the court that the first applicant
has
ceased its trading operations with effect from the 31
st
May 2018, and that they are no longer pursuing prayer 2 which was
granted on the 6
th
March 2018, but are proceeding with the
reminder of the prayers in order to establish a protocol and
procedure of how they are
going to divide or pay the first
respondent’s 51% members interest.
[6]
The facts leading to this application are briefly as follows: On the
15
th
December 2017, the first respondent through his
attorneys addressed a letter to the applicants stating that he had no
knowledge
of how the Quickbus 101 CC was either funded or managed; he
was requesting access to financial statements, association agreements
and a list of assets of the Quickbus 101 CC,
[7]
According to the applicants, on 8
th
January 2018 they
together with first respondent attended a management meeting. At that
meeting they enquired from the first respondent’s
about his
unhappiness and he told them to speak to his attorneys. The
applicants were hurt by his response and they asked him whether
he
still wished to proceed with the business and he told them that he
wanted to proceed.
[8]
On the 30
th
January 2018 the applicants realised that
there was too much animosity on the part of the first respondent
towards them. As a result
of that they decided to go and consult with
their attorneys regarding the letters they received from the first
respondent. Their
attorneys advised them to furnish the first
respondent with the documentation he was requesting.
[9]
The attorneys of both parties arranged a meeting for the 9
th
February 2018 to be held at 9h30 in Pretoria at the chambers of the
first respondent’s counsel. On the 9
th
February 2018 the applicants and their attorney drove from Lephalale
to Pretoria and arrival were informed that the meeting has
been
cancelled and that an e-mail was sent the previous day to notify them
about the cancellation. That e-mail did not come to
their attention.
[10]
According to the second applicant, on the 6
th
February 2018 whilst trying to locate the financial statements
requested by the first respondent on the applicant’s server,
she came across certain documents and printed them. When she went to
collect them at the printer, she came across an invoice in
the name
of the second respondent. The invoice was made to Trioflex for
rendering of electrical services. The contact person according
to the
invoice was the first respondent. The cell phone numbers that appears
on that invoice was that of the first respondent.
She found that the
invoice originated from the first respondent’s e-mail address.
[11]
Upon searching of the applicant’s server she found an e-mail
dated 14
th
May 2017. That e-mail related to a workshop
that was held during May 2017. This e-mail was sent from the
applicant’s server
to the second respondent’s e-mail
address. She also found a second and third e-mail which were a
request for an Eskom contract.
Both e-mails were dated 2
nd
March 2017 and addressed to the second respondent’s e-mail
address. She also found further e-mails which were sent to the
applicant for the applicant to tender for various electrical
contracts, and those e-mails were forwarded to the second respondent.
The applicant’s risk assessment report in microsoft excel
format was sent from the applicant’s e-mail server to the
second respondent on the 30
th
January 2018. She also found
a number of reports like a completed application for registration in
the supplier’s database
for Limpopo Government completed in the
name of the second respondent. According to the applicants the first
applicant’s
pricelist of charges for costing for a tender done
in respect of contracts which the first applicant tendered were
forwarded to
the second respondent. She also found the second
respondent’s business profile which was sent to the second
respondent from
the applicants e-mail address.
[12]
Based on what has been mentioned in paragraph 11 above, the
applicants are of the view that the first respondent is acting
in
breach of his fiduciary duty to the first applicant. They are further
of the view that he is not acting in the best interest
of the first
applicant and further that he is having a material conflict of
interest between the first applicant and second respondent
which is
run by members of his own family.
[13]
The first respondent deposed his answering affidavit in his personal
capacity and also on behalf of the second, third and fourth
respondents. According to the first respondent, he and the second and
third applicants registered the first applicant for the purpose
of
qualifying for tenders in terms of the relevant BEE requirements and
that is the reason he had the majority interest. He is
a qualified
electrician and did not have the real experience of running a
business. He was never involved in the running of the
business nor
was he invited to attend to any management meetings. On occasions he
was requested to sign cheques mostly for petty
cash when the second
applicant was not available. He had trusted other members to attend
to the financial side of the business
and he will just sign financial
statement when requested. He did not have the knowledge to really
understand financial statements,
but was made to understand that they
are done by financial people in order to comply with tax laws.
[14]
He started to be concerned in the manner in which the business was
run and when he seek clarity he was met with hostility and
evasive
answers. He then engaged the services of his attorney and that is
when his problems with the applicants started. The reason
for
engaging his attorney was to bring other members of the closed
corporation to the table so that full disclosure could be obtained,
and also that all issues that were unclear to him could be addressed.
In his opinion the applicant has launched this application
with the
sole purpose of preventing him from obtaining information of the two
closed corporations and to prevent a possible investigation
on the
closed corporations.
[15]
According to the first respondent, the second respondent is a small
business run by third and fourth respondents and has no
capacity. He
contends that his personal computer was hacked and documents were
falsified in an attempt for the applicants to obtain
the relief they
are seeking. The second respondent has no employees and also does not
qualify for tenders that the first applicant
was tendering for. He
further stated that the documents found in his computer were either
falsified or innocent, and has no reference
to the first applicant
nor is it prejudicial to the first applicant. He was assisting the
third respondent as a father will assist
a daughter with general
advice and generic material to motivate and teach her. None of the
material was of a secret nature or was
it material that could be used
by second respondent to the prejudice of the first applicant. As a
majority member of the first
applicant he would never act contrary to
his fiduciary obligations to the first applicant. The first applicant
was his only source
of income, and acting to its detriment would also
be acting to his own detriment.
[16]
He stated that the invoice that was found on his computer was sent by
the third respondent for him to print as she was attending
a course
and did not have time or opportunity to print it. He printed it and
gave it to her after work. He had previously given
her his template
to use it as an invoice, and that was innocent with nothing
underhand.
[17]
The first respondent stated that the invitation to the workshop which
he had forwarded to the third respondent was to notify
her about the
workshop so that she can decide whether to attend or not, and there
was no conflict of interest with the first applicant.
[18]
With regard to the invitations to tender, the first respondent states
that he could have been naïve but never thought
that he was
acting incorrectly or contrary to his fiduciary duty towards the
first applicant. What he did was to motivate the third
respondent to
continue with the business, to expand and grow it. If the applicants
did not have any hidden agenda, they could have
had a discussion with
him and he would have stopped if they felt uncomfortable.
[19]
With regard to the application for registration in the suppliers’
database of Limpopo Provincial Government the first
respondent states
that it relates to catering services. With regard to the email of the
8
th
February 2018 it relates to documents explaining the
standard conditions of Eskom tendering and related documents. Any
person can
obtain those documents and he was merely assisting the
third respondent. With regard to the other document dated 8
th
February 2018, it is a tender for R4 000 000-00 to R6 500 000-00. The
second respondent could tender up to approximately R250 000-00
and he was just motivating her.
[20]
According to the first respondent, the risk assessment report was a
template which has no private or confidential information
on it
regarding the first applicant. The nature of the risk assessment
document is largely generic in nature and wanted to show
the third
respondent how it looks. He had no malice in sending her the
document. The quotation relates to catering services which
in no way
conflict with the first applicant’s business.
[21]
The first respondent has stated that the price list is a generic
template which was drafted to compile a quotation. The price
would
fluctuate depending on the condition and work entailed and it is not
a price list of the first applicant. It has no reference
to any
specific company or work and was merely forwarded as an example.
[22]
With regard to the costing for a tender done in respect of contract
which applicant tendered, according to first respondent
it has been
falsified. He would never have forwarded that document to any person
without due authorisation as he indeed regard
it to be private and
confidential. The applicants have used a covering page of the email
of the 30/01/2018 which was for a catering
quote and attached it to
the costing tender as if it was sent by him.
[23]
The first respondent contends that with regard to the business
profile of the second respondent, there is nothing sinister
about it.
The third respondent merely forwarded it to him to study it, and
where applicable make recommendations as to amendments
or
improvements. The only interest he had in the second respondent was
that as a father and husband, he wanted to assist by way
of guidance
and advice. He shall not in future assist the third respondent with
advice or documentation that could possibly be
construed as acting
contrary to the interest of the first applicant.
[24]
The applicant’s application for the first respondent cessation
of his member’s interest in the first applicant
has been
brought in terms of section 36 of the Close Corporation Act 69 of
1984 (“the CCA”) read with the provisions
of section 42
and 49 of the CCA. The applicants were initially seeking an interdict
against the first, second and third respondent.
However, since the
first applicant is no longer in trading, they are no longer seeking
that order as it has now become moot. Since
that applicants have
conceded that the interdict order is now moot, I will not take the
matter any further.
[25]
Section 36 of the CCA provides that:
“
(1) On
application by a member of a corporation a Court may on any of the
following grounds order that any member shall cease to
be a member of
the corporation:
(a)
Subject to the provisions of the
association agreement (if any), that the member is permanently
incapable, because of unsound mind
or any other reason, of performing
his part in the carrying on of the business of the corporation
(b)
That the member has been guilty of such
conduct as taking into account the nature of the corporation’s
business, is likely
to have a prejudicial effect on the carrying on
the business;
(c)
That the member so conducts himself in
matters relating to the corporation’s business that it is not
reasonably practicable
for the other member or members to carry on
business of the corporation with him; or
(d)
That circumstances has arisen which render
it just and equitable that such member should cease to be a member of
the corporation;
Provided that such application to a Court on any
ground mentioned in paragraph (a) or (b) may also be made by a member
in respect
of whom the order shall apply.
(2) A court granting
an order in terms of subsection (1) may make such further orders as
it deems fit in regard to-
(a) The acquisition of
the member’s interest concerned by the corporation or by
members other than the member concerned, or
(b) The amounts (if
any) to be paid in respect of the member’s interest concerned
or claims against the corporation of that
member, the manner and
times of such payments and the persons to whom they shall be made; or
(c) Any other matter
regarding the cessation of membership which the Court deems fit.”
[26]
Section 42 of the CCA provides:
“
(1) Each member
of a corporation shall stand in a fiduciary relationship to the
corporation.
(2) Without prejudice
to the generality of the expression ‘fiduciary relationship’;
the provisions of subsection (1)
imply that a member-
(a) Shall in relation
to the corporation act honestly and in good faith, and in particular-
(i) Shall exercise
such powers as he may have to manage or represent the corporation in
the interest and for the benefit of the
corporation; and
(ii) Shall not act
without or exceed the powers aforesaid; and
(b) Shall avoid any
material conflict between his own interest and those of the
corporation, and in particular –
(i) Shall not derive
any personal economic benefit to which he is not entitled by reason
of his membership of or service to the
corporation, from the
corporation or from any other person in circumstances where that
benefit is obtained in conflict with the
interest of the corporation.
(ii) Shall notify
every other member, at the earliest opportunity practicable in the
circumstances, of the nature and extent of
any direct or indirect
material interest which he may have in any contract of the
corporation; and
(iii) Shall not
compete in any way with the corporation in its business activities.
(3) (a) A member of a
corporation whose act or omission has breached any duty arising from
his fiduciary relationship shall be liable
to the corporation for-
(i) Any loss suffered
as a result thereof by the corporation; or
(ii) Any economic
benefit derived by the member by reason thereof.
(b) Where a member
fails to comply with the provisions of subparagraph (ii) of
paragraph (b) of subsection (2)and it
becomes known to the
corporation that the member has an interest referred to in that
subparagraph in any contract of the corporation,
the contract in
question shall at the option of the corporation, be voidable:
Provided that where the corporation chooses not to
be bound a Court
may on application by any interested person, if the court is of the
opinion that in the circumstances it is fair
to order such contract
shall nevertheless be binding on the parties, give an order to that
effect, and may make any further order
in respect thereof which it
may deem fit.
(4) Except as regard
his duty referred to in subsection (2) (a) (i), any particular
conduct of a member shall not constitute a breach
of a duty arising
from his fiduciary relationship to the corporation, if such conduct
was preceded or followed by the written approval
of all the members
where such members were or are cognisant of all the material facts.”
[27] Section 49(1) and
(2) of CCA provides:
(1) Any member of the
corporation who alleges that any particular act or omission of the
corporation or of one or more other members
is unfairly prejudicial,
unjust or inequitable to him, or some members including him, or that
the affairs of the corporation are
being conducted in a manner
unfairly prejudicial, unjust or inequitable to him, may make an
application to court for an order under
this section.
(2) If on any such
application to the court that the particular act or omission is
unfairly prejudicial, unjust or inequitable as
contemplated in
subsection (1), or that the corporation’s affairs are being
conducted as so contemplated, and if the court
considers it just and
equitable, the court may with a view to settling the dispute make
such order as it thinks fit, whether for
regulating the future
conduct of the affairs of the corporation by other members thereof or
by the corporation.”
[28]
It is the applicants’ contention that the first respondent has
breached the fiduciary duty towards the first applicant
by divulging
certain information and documentation to the third respondent. The
applicants further contends that the first respondent
has a material
conflict of interest between the second respondents’ business,
run by members of his own family and in respect
of which he is the
relevant contact person, and the business of the first applicant. The
first respondent on the other hand dispute
that he had breached the
fiduciary duty towards the first applicant and also that he had no
conflict of interest between the second
respondent and the first
applicant. According to the first respondent, the applicants have
launched this application to prevent
him from obtaining information
of the two closed corporations and also to prevent a possible
forensic investigation of the closed
corporations.
[29]
A member of a close Corporation has a fiduciary duty to act in the
best interest of the close corporation, to prevent a conflict
of
interest and to act in good faith. Any situation that might result
with the member acting in conflict with the close corporation
should
be avoided. For a member of the close corporation to be held to be in
breach of his fiduciary duty, it must be shown that
he deliberately
withheld or released information of confidential nature to outside
people which information are material to the
affairs of the close
corporation.
[30]
In
Ghersi and Others v Tiber Developments (Pty) Ltd and Others
2007(4) SA
536 (SCA)
at para 9 the Court said:
“
It does not
follow that because a person is a director of a company which engages
in property development, such person is automatically,
in the absence
of an agreement to the contrary, obliged to offer all property
developments of whatever nature to the company, on
pain of being held
to have breached his or her fiduciary duty to the company and being
required in consequence to hand over profits
made from the
developments not so offered. As Bristowe AJA held in Robinson v
Randfontein Estates Gold Mining Co Ltd:
‘
To establish that the
defendant’s purchase in 1906 was covered by his fiduciary
relation or his agency or an implied mandate
(I do not think it makes
much difference which term is employed) it would not be enough to
show that the purchase was within the
company’s power or that
the property might have been to it. Burland v Earle is against this.
Besides it would be intolerable
if a director, even though occupying
the defendant’s position, could be held accountable for any
private purchase of property
merely because his company might
conceivably want it!
That the ambit of the
duty can change from time to time, appears from the decision of this
court in Bellairs v Hodnet. In summary,
as this court held in Philips
v Fieldstone Africa (Pty) Ltd:
‘
The existence of [a fiduciary
duty] and its nature and extent are questions of fact to be adduced
from a thorough consideration
of the substance of the relationship
and any relevant circumstances which affect the operation of that
relationship.”
[31]
The first applicant was established during 2002 for purposes of
qualifying for tenders. The first respondent become a member
of the
closed corporation for the purpose of complying with the BEE
requirement. For the past 15 years there is no evidence that
the
parties were encountering any problems. The problems started when the
first respondent engaged his legal representative to
communicate with
the applicants. The whole issue was triggered by a letter dated 13
th
December 2017 from the first respondent’s attorneys to the
applicants. In that letter the first respondent wanted some
information
regarding Quickbus 101 Close Corporation and the first
applicant.
[32]
What thereafter aggravated the whole situation seems to be the
aborted meeting of the 9
th
February 2018 in Pretoria which
was called by the first respondent’s attorney’s as this
application was launched immediately
after that trip. The applicants’
and their attorney had to travel about 300km single trip and when
they arrive in Pretoria
were told that the meeting has been
cancelled. From the applicants’ founding affidavit it is clear
that they did not take
kind of that. After this failed meeting that
is when the issues of alleged breach of fiduciary duty and alleged
conflict of interest
arose.
[33]
According to the first respondent, he was not involved in the day to
day running of the business and has no experience in the
running of
the business. He wanted to be involved in the running of the
business, but it seems the applicants wanted to side-line
him hence
as a last resort he had to engage his attorney.
[34]
Except for the costing for tender done in respect of contract which
the first respondent had tendered, the first respondent
admit the
allegations against him but dispute that the documents were
confidential in nature or that there was any conflict of
interest.
With regard to the costing tender, the first respondent has filed an
affidavit by Trevor Boltan an expert who did an
investigation in
relation to that specific document. His conclusion was that the
document seems to have been fraudulently sent.
The applicants did not
file any report by their own expert to counter this report and
therefore the first respondent’s version
on his aspect remain
unchallenged, and on this aspect the matter will decided on the first
respondent’s version.
[35]
With regard to the remainder of the allegations levelled against the
first respondent, since the first respondent is not disputing
them,
the question is whether they are so serious to justify the cessation
of the first respondent’s membership interest
in the first
applicant.
[36]
In
Da Silva and Others v CH Chemicals (Pty) Ltd
[2008] ZASCA 110
;
2008 (6) SA 620
(SCA)
at para 19 the court said:
“…
While
any attempt at an all-embracing definition is likely to prove a
fruitless task, a corporate opportunity has been variously
described
as one which the company was actively pursuing (Canadian Aero Service
v O’ Malley(1973) 40 DLR (3d ) 371 SCC at
382) or one which can
be said to fall within the company’s existing or prospective
business activities ( Davies, Gower and
Davies ‘Principles of
Modern Company Law 7ed at 422) or which related to the operations of
the Company within the scope of
its business’(Bellars V Hodnett
1978 (1) SA 1109
(A) at 1132H) or which falls within its line of
business (More Camera Company (Pty) Ltd v Van Wyk
[2003] 2 All SA 291
CC ) at 308 b; 313 d-e). Ultimately, the inquiry will involve in each
case a close and careful examination of all the relevant
circumstances, including in particular the opportunity in question,
to determine whether the exploitation of the opportunity by
the
director, whether for the director’s own benefit or for that of
another, gave rise to a conflict between the director’s
personal interests and those of the company which the director was
then duty bound to protect and advance.”
[37]
Some of the emails sent from the first respondent’s email
address to the second respondent relates to catering services.
The
first applicant was not in the business of catering, and catering
does not fell within its scope of business. Registering on
the
government’s database, anybody is free to register of the
government database as long as the requirements for registering
are
met. Sending that information to the second respondent as information
which it can use to register on the government database
can in no way
constitute conflict of interest or amount to releasing documents of
confidential in nature. Anybody can access those
documents from the
government website. Forwarding to the second respondent a document
about a workshop will not constitute a conflict
of interest or breach
of a fiduciary duty. For a father assisting her daughter in compiling
a company profile in the circumstances
of this matter in my view will
not constitute a conflict of interest or breach of fiduciary duty.
[38]
As I have already pointed out above, the applicants and the first
respondents have been members of the first applicant for
the past 15
years without problems. In my view 15 years in a relationship is a
long time, and by then they knew each other very
well. If a member
had encountered problems with each other, the first thing they would
have done was to confront the other party
for an explanation. In this
case the applicants did even try to find out from the first
respondent as to what was happening, but
they immediately launched an
application without giving the first respondent an opportunity to
explain himself. In my view, this
gives credence to the first
respondent’s contention that he was not involved in the running
of the business and that this
application was launched to prevent him
from obtaining information of the two closed corporations and to also
prevent a possible
forensic investigation of the closed corporations.
[39]
It is undesirable that the first respondent use the resources of the
first applicant in assisting the second respondent. However,
in my
view, even if the first respondent did that, the breach is so slight
that it will not be just and equitable to order the
first
respondent’s member’s interest to be transferred to the
first applicant. (See
Bellairs v Hodnett
1978 (1) SA 1109
(A)).
Taking into consideration the years of the relationship of the
members of the first applicant have been, in my view, this issue of
the applicants finding documents on the first applicant’s
server could have resolved by confronting the first respondent
to
explain himself, unless the applicants had some ulterior motives
which seems to be the case in this matter. The applicants’
intention was to prevent the first respondent from obtaining
information about the two closed corporations and how they were run.
They were comfortable with the first respondent been a salaried
director and not knowing how the closed corporation which he was
the
majority shareholder was run.
[40]
Members of the closed corporation have a fiduciary duty to act in
good faith and in the interest of the closed corporation.
They are
not allowed to place themselves in a position where their fiduciary
duties conflict that of their personal interest. The
only breach that
I find that the first respondent has committed, is to print the
invoice sent by the third respondent. He had used
the first
applicant’s resources in assisting the third respondent without
the consent of other members. However, that breach
is so slight and
does not justify the relief the applicants are seeking. With the
remainder of the other complaints, I don’t
find any facts to
conclude that the first respondent has breached his fiduciary duty or
that he had a conflict of interest. If
the main issue for the
applicants is to determine a protocol and procedure of how they are
going to divide or pay the first respondent’s
51% members
interest, since the first applicant is no longer trading but still
have some assets, the proper remedy is to wind it
up rather than
follow the procedure which they have ventured into.
[41]
In the result I make the following order:
41.1 The applicants’
application is dismissed with costs.
MF.
KGANYAGO J
JUDGE OF THE HIGH
COURT POLOKWANE, LIMPOPO DIVISION
APPEARANCE:
COUNSEL
FOR THE APPLICANT: Mr Lewies
INSTRUCTED
BY: Lewies & Associstes
COUNSEL
FOR DEFENDANT: Adv PJ Coetsee
INSTRUCTED
BY: Phukubye Attorneys
DATE
OF HEARING: 1
st
August 2018
DATE
OF JUDGEMENT: 21
st
September 2018