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
>>
2017
>>
[2017] ZAGPPHC 30
|
|
De Klerk v Ferreira and Others (35391/14) [2017] ZAGPPHC 30; 2017 (3) SA 502 (GP) (2 February 2017)
IN
THE HIGH COURT OF SOUTH AFRICA
GAUTENG
DIVISION, PRETORIA
CASE
NO.: 35391/14
2/2/2017
In
the matter between:
BJ
DE
KLERK
Plaintiff
and
MJ
FERREIRA
First
Defendant
PLANTSAAM
BESTUURSDIENSTE
CC
Second
Defendant
BENJO
EIENDOMME (PTY)
LTD
Third
Defendant
JUDGMENT
Murphy
J
1.
The plaintiff, Dr BJ de Klerk, ("De Klerk") and the first
defendant, Mr MJ Ferreira ("Ferreira"), hold equal
membership in the second defendant, Plantsaam Bestuurdienste CC,
("Plantsaam"), a close corporation, and equal shares
in the
third defendant, Benjo Eiendomme (Pty) Ltd, ("Benjo''), a
private limited company. They are the only members of Plantsaam
and
the only shareholders and directors of Benjo. The relationship
between De Klerk and Ferreira has broken down and is irreconcilable.
2.
Benjo is the owner of a farm known as Portion 14 of the farm
Vluytjeskraal 272, District Orania, Northern Cape Province ("the
farm"). The farm is located on the banks of the Orange River in
the Northern Cape, near the town Orania. It is 49,4 hectares
in
extent and forms part of a larger irrigation scheme. Approximately 42
hectares of pecan nut orchards have been established on
the farm. The
remaining 7 hectares have been used for maize and wheat. The pecan
nut trees have now reached the stage where they
are close to full
production. The farming operations are conducted through Plantsaam,
which also provides agricultural services
to other farmers in the
area. The precise relationship between the two entities is an issue
of some significance.
3.
The present proceedings are the culmination of litigation between De
Klerk and Ferreira commenced by motion proceedings in 2014
and
subsequently referred to trial in view of various disputes of fact.
De Klerk seeks orders, in terms of section 163 of the Companies
Act
[1]
("the Companies
Act") and section 49 or section 36 of the Close Corporations
Act
[2]
("the CC Act"),
compelling Ferreira to transfer his membership interest in Plantsaam
and his shares in Benjo to him against
payment of the amount
representing the value of such interests. De Klerk claims to be
entitled to subtract from any amount so payable
to Ferreira amounts
which should have been debited against Ferreira's loan account in
Plantsaam. De Klerk pleaded in the declaration
that it will be just
and equitable for Ferreira's membership interest and shares in
Plantsaam and Benjo to be transferred to him
upon the payment of the
sum of R429 727. This figure was arrived at on the basis that
Ferreira's membership interest and shares
were valued at R4 617 272.
From this he deducted two amounts: R2 987 545 being the amount by
which he maintained Ferreira's loan
account was understated; and R1
200 000 being the unpaid amount owed to De Klerk by Ferreira for his
acquisition in 2001 of the
shares and membership interest in the two
companies, including interest. The figures in the declaration changed
during the course
of the trial as concessions and adjustments were
made in the light of the fuller disclosure of information. The
essential principle
of calculation, however, remains the same. De
Klerk seeks a transfer of the shares and interest to him against
payment of their
value less amounts understated or not included in
the loan account and the unpaid purchase price for the shares and
interest.
4.
De Klerk instituted action for payment of the amounts owing for the
acquisition of the shares and member's interest in the Northern
Cape
High Court, Kimberley, under case number 934/14 ("the Kimberley
proceedings"). By agreement between the parties,
at the
commencement of the trial, I granted an order consolidating the
Kimberley proceedings with these proceedings.
5.
Ferreira denies that De Klerk is entitled to the relief he seeks. He
nonetheless concedes that the relationship has broken down
and
accordingly in the plea seeks orders for the winding-up of Plantsaam
and Benjo as contemplated in section 344(f) of Act 61
of 1973 ("the
previous Companies Act"), read with Item 9 of Schedule 5 of the
Companies Act and section 66(1) of the
CC Act. He also filed a
counterclaim (conditional upon a finding that the winding-up of
Plantsaam and Benjo is not appropriate)
requesting an order directing
De Klerk to transfer his members' interest in Plantsaam and his
shares in the Benjo to him, against
payment of the fair and
reasonable value of the members' interest and shares.
Legislative
framework
6.
Section 163(1) of the Companies Act reads as follows:
"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, 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."
7.
Upon considering an application under section 163(1), the court, in
terms of section 163(2), may make any interim or final order
it
considers fit, including an order directing an exchange of shares
[3]
and an order to pay compensation to an aggrieved person, subject to
any other law entitling that person to compensation.
[4]
8.
Thus, before De Klerk can succeed in his claim for an order
compelling Ferreira to transfer his shares in Benjo to him, he is
obliged to establish that: i) an act or omission of Benjo, or a
related person, (possibly Ferreira or Plantsaam}, has had a result
that is oppressive or unfairly prejudicial to him; ii) an act or
omission of Benjo or a related person has unfairly disregarded
his
interests; iii) the business of Benjo or a related person is being or
has been carried out or conducted in a manner that is
oppressive or
unfairly prejudicial to him; iv) the business of Benjo or a related
person is being or has been carried out or conducted
in a manner that
unfairly disregards his interests; v) the powers of a director of
Benjo, or a person related to the company, (Ferreira),
are being or
have been exercised in a manner that is oppressive or unfairly
prejudicial to him; or vi) the powers of a director
of Benjo, or a
person related to the company are being or have been exercised in a
manner that unfairly disregards his interests.
9.
The term "related person" in section 163, and its
application to the relationship between Plantsaam and Benjo, in my
opinion, is of importance in the determination of relief in this
case. It is defined in section 1 and 2 of the Companies Act. The
word
"related" is defined in section 1 to mean "persons who
are connected to one another in any manner contemplated
in section
2(1)(a) to (c)". The relevant part of section 2 provides:
"(1) For all
purposes of this Act
(a).......
(b) an individual is
related to a juristic person if the individual directly or indirectly
controls the juristic person as determined
in accordance with
subsection (2);
(c) a juristic person is
related to another juristic person if -
(i) either of them
directly or indirectly controls the other, or the business of the
other, as determined in accordance with subsection
(2);
(ii) either is a
subsidiary of the other; or
(iii) a person directly
or indirectly controls each of them, or the business of each of them,
as determined in accordance with subsection
(2).
(2) For the purpose of
subsection (1), a person controls a juristic person, or its business,
if
(a) in the case of a
juristic person that is a company -
(i) that juristic person
is a subsidiary of that first person...
(ii) that first person
together with any related or inter-related person, is
(aa) directly or
indirectly able to exercise or control the exercise of a majority of
the voting rights associated with securities
of that company, whether
pursuant to a shareholder agreement or otherwise; or
(bb) has the right to
appoint or elect or control the appointment or election of, directors
of that company who control a majority
of the votes at a meeting of
the board;
(b) in the case of a
juristic person that is a close corporation, that first person owns
the majority of the members' interest,
or controls directly, or has
the right to control, the majority of members' votes in the close
corporation;
(c) in the case of a
juristic person that is a trust, that first person has the ability to
control the majority of the votes of
the trustees or to appoint the
majority of the trustees, or to appoint or change the majority of the
beneficiaries of the trust;
or
(d) that first person has
the ability to materially influence the policy of the juristic person
in a manner comparable to a person
who, in ordinary commercial
practice, would be able to exercise an element of control referred to
in paragraph (a), (b) or (c).
10.
The question of whether Plantsaam is a person related to Benjo for
the purposes of section 163 of the Companies Act and the
relevance of
that question will become clearer after reviewing the evidence of the
conduct of the various role players. The resolution
of the issue
depends on whether Ferreira directly or indirectly controls the
companies or their businesses as contemplated in section
2(1)(c)(iii)
read with section 2(2)(d) of the Companies Act by having the ability
to materially influence the policy of the companies
in a manner
comparable to a person who, in ordinary commercial practice, would be
able to exercise an element of control as contemplated
in section
2(2)(a) to (c) - a matter I will address fully later.
11.
Substantially similar remedies to those in section 163 of the
Companies Act are available in respect of close corporations in
the
CC Act. The relevant part of section 36 of the CC Act reads as
follows:
(1) On application by any
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)....
(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 of the business;
(c) that the member so
conducts himself or herself in matters relating to the corporation's
business that it is not reasonably practicable
for the other member
or members to carry on the business of the corporation with him or
her; or
(d) that circumstances
have arisen which render it just and equitable that such member
should cease to be a member of the corporation:
(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 members' interest concerned or the
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
12.
Hence, insofar as De Klerk seeks an order in terms of section 36(1)
of the CC Act that Ferreira shall cease to be a member of
Plantsaam,
and a further order in terms of section 36(2) of the CC Act acquiring
his member's interest against payment of an amount,
he is obliged to
establish that: i) Ferreira is guilty of such conduct as is likely to
have a prejudicial effect on the carrying
on of the business; ii)
Ferreira has conducted himself in matters related to Plantsaam's
business that it is now not reasonably
practicable for De Klerk to
carry on the business of Plantsaam with him; or iii) circumstances
have arisen which render it just
and equitable that Ferreira should
cease to be a member of Plantsaam.
13.
Section 49 of the CC Act augments section 36 as follows:
"(1) Any member of a
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 her, or to some members including her
or her, or that the affairs
of the corporation are being conducted in
a manner unfairly prejudicial, unjust or inequitable to him or her,
or to some members
including him or her, may make an application to a
court for an order under this section.
(2) If on any such
application it appears 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 or for the purchase
of the interest of any member of the corporation by other
members
thereof or by the corporation."
14.
Thus, if it appears to the court that particular acts or omissions by
Ferreira in relation to Plantsaam are unfairly prejudicial,
unjust or
inequitable or that Plantsaam's affairs have been conducted
prejudicially, unjustly or inequitably, the court may make
such order
as it thinks fit, including an order compelling the sale of his
membership interest, provided the court considers it
just and
equitable to do so.
15.
The onus on De Klerk, as just described, will apply
mutatis
mutandis
to Ferreira under the counterclaim.
16.
The common thread running through all these provisions, section 163
of the Companies Act, and sections 36 and 49 of the CC Act,
is that
they confer on the court a wide discretion to compel a transfer of
shares or interests in order to deal with prejudicial,
oppressive,
unjust and inequitable conduct by a company, director, shareholder or
member against other members etc.
The
factual background
17.
The relationship between De Klerk and Ferreira commenced in 1994. De
Klerk then lived in Dendron in Limpopo, where he practised
as a
medical doctor. He wanted to farm in Orania and had the means to do
so. He acquired the land now owned by Benjo for that purpose,
but as
he did not want to farm himself at that stage he preferred to appoint
a farm manager. He therefore concluded a written employ
ment
agreement with Ferreira with effect from 1 March 1994 in terms of
which the latter was paid a salary and enjoyed additional
benefits.
Ferreira in exchange undertook to establish and commence with farming
activities. The land making up the farm was an
undeveloped piece of
land initially leased and later purchased by Benjo for R582 654 in
1997. It is now fully developed to the
point where it is valued at
R25 700 000.
18.
De Klerk's interest in farming pecan nuts was kindled by an article
in an agricultural magazine. He consulted an expert from
Brazil and
sought advice about the feasibility of establishing pecan nut
orchards under irrigation in Orania. The trees from which
the pecan
nuts grow are on the farm owned by Benjo. Plantsaam harvests the
pecan nut crops and runs a nursery situated upon the
farm. In order
to conduct its nursery business Plantsaam procures from the trees on
the farm the seed to grow seedlings and the
wood to inoculate the
small plants. Other persons also acquired land in the area and
established, or wanted to establish, pecan
nut orchards. Many of
these other persons were not full time farmers who thus needed help
to establish and manage their pecan nut
orchards. Plantsaam renders
such a service for which it earns fees.
19.
De Klerk put up the initial capital and in the beginning held all the
equity in Plantsaam and Benjo. He was therefore the sole
director and
shareholder of Benjo and held all the members' interest in Plantsaam
from 1997, when the farm was purchased, until
2001 when Ferreira
acquired equity in the two companies. Clause 12 of the contract of
employment between De Klerk and Ferreira
gave Ferreira an option to
purchase a 50% interest as a partner in the farming business against
payment of R1.00, but only once
the farming operation had become
profitable and De Klerk was first repaid the capital invested to fund
the establishment, the extension
and operation of the farming
enterprise.
20.
The first 7 years of farming were difficult. In the early years the
operations encountered set-backs. Some doubt existed about
the
feasibility of pecan nut farming: the trees grew slowly and farmers
in the area expressed pessimistic views on the economic
viability of
pecan nut farming. De Klerk continued to consult experts and explored
other options to earn income, such as farming
with tomatoes, onions
and melons.
21.
By 2001 Ferreira had become pessimistic about the prospects of the
enterprise. He began to think about terminating his involvement
in
the venture. De Klerk saw Ferreira as a very good farmer and he
wanted to keep him in service. He thus wanted to find incentives
to
satisfy Ferreira who had not been able to exercise the option in his
employment contract as it had not been possible to repay
De Klerk's
capital investment. The parties then met with a firm of agricultural
consultants - Proper Boer - in Bloemfontein, who
recommended that
Ferreira be given a 50% interest in the operation in order to
motivate him. De Klerk agreed and three agreements
were entered into
on 7 November 2001 to give effect to the proposed new arrangement.
22.
The first agreement consisted of an acknowledgment of debt signed by
Ferreira - Annexure C to the particulars of claim - in
which he
acknowledged liability in favour of De Klerk for a capital amount of
R633 000.00 being the debt owing for the acquisition
of half of the
interests in Plantsaam and Benjo. The capital amount accrued interest
at the prime rate charged by ABSA Bank, minus
3%, with effect from 1
March 2001. The debt had to be repaid by annual payments of 20%, with
the first instalment to be made on
28 February 2004 and thereafter
annually on or before the last day of February. It is common cause
that Ferreira has not made any
payments in terms of this agreement.
He disputes his liability to do so. De Klerk thus has not received
consideration for the sale
of the 50% interest in Plantsaam and Benjo
to Ferreira. This agreement formed the subject matter of the
Kimberley proceedings now
consolidated with the present proceedings.
23.
Secondly, a co-operation agreement (samewerkingooreenkoms) was
entered into in order to regulate the affairs and dealings of
Plantsaam - Annexure D to the particulars of claim. This agreement
dealt with the governance of Plantsaam. Clause 9.1 provided
that for
as long as Plantsaam had only two members the affairs of the
corporation would be managed on the basis of consensus. In
the event
that membership increased beyond two members, then a meeting of
members would be required to appoint a managing member.
The
membership of Plantsaam at all times has remained De Klerk and
Ferreira and hence no managing member has ever been appointed.
24.
Clause 12 of the co-operation agreement governs loans by members to
the corporation. Clause 12.2 provides that amounts loaned
to the
corporation by members will be credited to their respective loan
accounts and shall bear interest and be calculated against
such a
rate as may be determined by the managing member from time to time
and credited to the loan accounts. The clause does not
expressly deal
with the determination of a rate of interest where no managing member
has been appointed.
25.
The third agreement is a shareholders agreement relating to Benjo -
Annexure E to the particulars of claim.
26.
Over the years of farming, Ferreira lived in Orania, Van der Kloof,
Bloemfontein and on the farm. The operation struggled to
become
profitable. In addition to the pecan nuts, Plantsaam grew other crops
such as spanspek and vegetables. In approximately
2008 Ferreira
decided to lease nearby farms for his exclusive benefit at which he
established maize and wheat under irrigation.
He farmed two farms in
the vicinity - Sanddraai and Uitsoek. De Klerk initially thought that
this enterprise would be part of the
joint venture. However, Ferreira
wanted to do the farming of the cash crops for his own benefit in
order to increase his income.
De Klerk maintains that he reluctantly
agreed to Ferreira farming the cash crops for his own account and to
utilise Plantsaam's
farming equipment for this purpose. Plantsaam
acquired much of its farming equipment from the estate of De Klerk's
deceased father.
27.
There is a centre pivot irrigation system on land of the farm of
approximately 7 hectares. Cash crops, maize and wheat are currently
established by Plantsaam on this land. Ferreira maintained that
during the financial years from 2010 to 2014 he also leased this
land
from Plantsaam as part of his personal farming enterprise. De Klerk
disputed this and contended that the irrigation land had
to be farmed
by Plantsaam. Ferreira claimed to have paid rental in an amount of
R35 000.00 per annum to utilise the irrigation
land. There is
accordingly a dispute about whether Ferreira in fact leased this land
or simply utilised it for his own personal
benefit without a lease.
The relevant financial statements do not reflect any rent for the
utilisation of the land for the financial
years 2010, 2011, 2013 and
2014. There is merely a journal entry for R17 500, half of the
alleged rent, in the books of Plantsaam
for the 2012 financial year.
I will revert to this issue and consider its significance more fully
later.
28.
De Klerk works part of the year as a medical practitioner in Canada
and is often out of the country. He visited the farm occasionally
but
left the day to day running of the farm to Ferreira, who therefore
exclusively managed Plantsaam and Benjo. They nonetheless
maintained
regular telephonic contact, initially speaking almost daily. Ferreira
eventually became bothered by the frequent long
telephonic
discussions and requested De Klerk to phone less. De Klerk felt
excluded as time progressed, especially when he realised
that
Ferreira had made a number of important business decisions in
relation to the farming operation without first consulting him.
Over
the years the yield produced by the pecan nut trees began to increase
and the farm was on path to make profits.
29.
Ferreira conceded in cross-examination that he had the responsibility
to ensure that accurate books and financial records were
kept in
respect of Plantsaam and Benjo and to keep and preserve the source
documents necessary for accounting purposes. The services
of a
bookkeeper in Bloemfontein were utilised to maintain the accounts.
The bookkeeper was initially a Mrs De Vries. Later Mr Alexis
du Preez
became the bookkeeper.
30.
The relationship of trust between the parties began to deteriorate in
2011. Pecan nuts are harvested annually during July and
August. After
the 2011 harvest Ferreira reported to De Klerk that Swiss Pekanhoek
CC, a close corporation that purchased nuts from
Plantsaam, had
failed to make full payment to Plantsaam in respect of pecan nuts
delivered. As will become apparent later, the
manner in which
Ferreira dealt with the financial aspects of the transactions with
Swiss Pekanhoek contributed significantly to
a breakdown in trust
between de Klerk and Ferreira.
31.
With a view to litigating against Swiss Pekanhoek, De Klerk and
Ferreira took legal advice and jointly attended a consultation
at the
chambers of counsel in Bloemfontein. Ferreira prepared a bundle of
documents for counsel to consider. He testified that
he gave a copy
of the set of documents to De Klerk. This was not put to De Klerk
when he testified and as I discuss later there
may be some doubt
about its truth. Counsel advised that the contemplated litigation
against Swiss Pekanhoek lacked prospects of
success. The evidence Mr
Werner Erasmus, the CEO of Swiss Pekanhoek, was that the nuts did not
meet with the contractual requirements.
32.
De Klerk testified that either during 2012 or 2013 he refused to sign
the financial statements in respect of Plantsaam because
he had
concerns about certain items. There was, in comparison with the
previous financial year, an unusually sharp increase in
expenses, in
particular fertiliser, fuel and the purchase of crops. He suspected
wrongdoing on the part of the Ferreira and feared
that Ferreira was
funding his own private farming activities through Plantsaam. It was
shown ultimately that his concerns related
to the financial
statements of 2013.
33.
At more or less the same time, Ferreira decided that he wanted to
purchase a neighbouring farm. In order to do so he had to
furnish
security. Despite not having paid for them in terms of the
acknowledgment of debt, Ferreira regarded his interests in Plantsaam
and Benjo as good security. He accordingly asked De Klerk to give his
consent for his interests in the two companies to be used
as security
for the proposed purchase of the farm. De Klerk refused. De Klerk was
also dissatisfied with the manner in which the
nursery was being run
and insisted on the appointment of a dedicated manager for the
nursery. He was uneasy about Ferreira spending
too much time on his
private farming activities and neglecting the nursery. He then at his
own expense appointed Mr Faan Erasmus
to run the nursery and to
safeguard his interests in the farming enterprise. These issues,
according to De Klerk, annoyed Ferreira
and led to negotiations for a
possible buy-out. The parties could not reach agreement.
34.
In late 2013 De Klerk and Ferreira reached a deadlock and the
relationship broke down. In March 2014, after he coincidentally
met
Werner Erasmus from Swiss Pekanhoek at an agricultural event, Faan
Erasmus contacted De Klerk and suggested that he phone Werner
Erasmus
who had important information in relation to the dealings regarding
the 2011 pecan nut crop. De Klerk then contacted Werner
Erasmus who
told him that substantial payments were made to Ferreira's personal
bank account by Swiss Pekanhoek during 2011. The
information
reinforced De Klerk's suspicions arising from the 2013 financial
statements. He decided at that point to engage the
services of
attorneys and a forensic auditor, Mr Johan Ferreira ("the
auditor").
35.
With this De Klerk requested Ferreira, through his attorneys, to
furnish him with relevant financial documents including the
bank
accounts of the companies. Ferreira refused to comply with the
request. This prompted De Klerk on 16 May 2014 to bring, as
a matter
of urgency, a two-pronged application, referred to in the evidence as
the first application. It was divided in two parts.
Part A sought
urgent relief to force Ferreira to make available the documents and
other information required for the forensic audit.
Part B of the
application sought the cessation of Ferreira's membership of the
companies and an exchange of shares in terms of
section 163 of the
Companies Act and was to be postponed
sine die
pending the
conclusion of the forensic audit. Prayer 5 of the notice of motion
sought an order putting interim arrangements in place
for the
governance of Plantsaam pending the finalisation of Part B. These
permitted Ferreira to continue the day to day running
of Plantsaam,
but significantly restricted his authority. Ferreira henceforward
would be required to obtain the consent of either
De Klerk or Faan
Erasmus to withdraw funds from any bank account of Plantsaam, to
purchase goods in excess of R50 000, to harvest,
supply and dispose
of all agricultural products produced by Plantsaam and to utilise any
proceeds or income derived from the sale
of products by Plantsaam.
Ferreira opposed the urgent application.
36.
The matter came before Vorster AJ who granted the interim relief.
Ferreira filed a notice of intention to make application for
leave to
appeal. De Klerk in response brought an implementation application,
based upon the now repealed provisions of rule 49(11).
On 25 August
2014 Vorster AJ dismissed the application for leave to appeal and
granted the implementation order. Ferreira did not
comply with the
order on the ground that the documents required in terms of the court
order were not in his possession as they
were with Alexis du Preez,
the bookkeeper. De Klerk made repeated requests to both Ferreira and
du Preez for the production of
the documents and information required
in order to do the forensic investigation. During September 2014, Du
Preez gave the auditor
what later came to be referred to as "the
first set of books". These documents were insufficient and
unhelpful to the
auditor. Numerous repeated requests were made to Du
Preez for the production of a complete set of books. He failed to
provide what
was asked of him.
37.
This impelled De Klerk to bring an application against Du Preez,
referred to in the evidence as the second urgent application,
in the
Free State High Court, Bloemfontein. On 25 November 2014 an order was
granted compelling Du Preez to provide the documents
and books
referred to in that application. Du Preez took time in complying with
the order and provided the auditor with a second
set of books on 5
January 2015, which differed markedly from those provided in
September 2014. The auditor testified that numerous
adjustments were
made in the second set of books, produced on 5 January 2015. These
adjustments had the effect of sharply reducing
the value of
Ferreira's liability to Plantsaam as reflected in his loan account.
38.
On 29 January 2015 a meeting was held in Bloemfontein between De
Klerk, assisted by his auditor, Ferreira and the bookkeeper,
Du
Preez. During this meeting the auditor expressed the opinion that the
financial dealings and affairs of Ferreira and Plantsaam
were
intertwined to the extent that it was difficult to separate
Plantsaam's farming expenses from those incurred by Ferreira for
his
own farming operations. Ferreira then suggested that the auditor
employ the figures used in a guide published by the Griekwaland
Wes
Kooperasie ("GWK"), which standardises the costs of
particular farming activities. Using the guide it was possible
to
proportion expenses between Ferreira and Plantsaam on an averaging
basis for the different kinds of farming activity.
39.
The auditor thereafter prepared his report on this basis. The report
was furnished to Ferreira and he was invited to comment
on what was
contained in it. When no meaningful response was received from
Ferreira, De Klerk filed supplementary papers on 23
April 2015 and
proceeded with Part B of the application alleging wrongdoing and
misappropriation on the part of Ferreira.
40.
In May 2015 De Klerk registered Plantsaam as a member of the
Afrikaanse Handelsinstituut Employers Organisation. This organisation
set up a disciplinary hearing into the conduct of Ferreira which
commenced on 14 May 2015. Following the hearing, Ferreira was
dismissed from his employment with Plantsaam on 19 May 2015. Ferreira
disputed the regularity of his dismissal on the basis that
De Klerk
could not by himself have registered Plantsaam at the AHi. He carried
on running the farm. A third urgent application
was necessary in
September 2015 to prevent him exceeding the spending limits imposed
by the order of Vorster AJ.
41.
In June 2015 the Ferreira filed an answering affidavit. He disputed
the allegations of misappropriation of company funds and
sought to
explain and justify his actions. He also engaged a firm of auditors
to assist him, namely Mazars in Bloemfontein. Although
his auditors
did not file a comprehensive report, they filed a short written
response commenting upon the report of De Klerk's
auditor, and
criticising it in various respects.
42.
In view of potential factual disputes, De Klerk proposed that the
matter be referred to trial, or for the hearing of oral evidence.
Ferreira refused to agree with that proposal. Arrangements were
accordingly made for the set-down of the application in the special
motion court, the so-called third court. When the matter came before
Thlapi J, she urged the parties to agree, in light of the
many
factual disputes, to refer the matter to trial. The parties did so.
This resulted ultimately in the trial before me.
43.
Shortly before the commencement of the trial, Ferreira, through du
Preez, produced a third set of books. In this third set of
books the
deductions made in Ferreira's loan account in the second set of books
were reversed, altering and reducing the amount
of his debt.
44.
De Klerk averred in the declaration that the forensic investigation
had ascertained that Ferreira had acted unfairly prejudicially
towards him, Plantsaam and Benjo and had unfairly disregarded their
interests. The declaration makes various claims in this regard,
alleging
inter alia
that Ferreira: i) paid himself a double
salary in June 2014; ii) withdrew funds from the bank account of
Plantsaam and utilised
a portion of the funds to pay his own private
and domestic expenses; iii) bought goods on account at GWK and OVK
for his private
use; iv) caused the proceeds of produce produced by
the farming enterprise to be "siphoned off'' to his personal
bank account
instead of paying such amounts into Plantsaam's bank
account; v) utilised the credit facilities of Plantsaam to purchase
goods
and services for his own private farming enterprise; vi)
utilised assets of Plantsaam to conduct a transport business for his
own
benefit; vii) sold saplings from the nursery before they had
reached an appropriate age and misappropriated the proceeds; viii)
sold scrap metal belonging to Plantsaam and misappropriated the
proceeds; and ix) abused the insurance policy of Plantsaam by adding
his personal and private assets onto the insurance schedule resulting
in an increase in the premium payable. In what follows I
will focus
on the more serious allegations with a view to determining if there
has been unfairly prejudicial, oppressive or inequitable
conduct
justifying the relief sought by De Klerk against Ferreira.
The
evidence of alleged irregularity
45.
Detailed evidence was given in court about alleged irregularities in
the bookkeeping and financial statements of Plantsaam.
The purpose of
the evidence was twofold. It sought firstly to establish that the
affairs of Plantsaam had been conducted by Ferreira
in a manner
unfairly prejudicial, unjust or inequitable to De Klerk; and secondly
it aimed at setting the basis for determining
the value of the loan
account of Ferreira for the purposes of valuing Plantsaam and his
interest in it.
46.
Mr Johan Ferreira, the auditor, testified with regard to the forensic
audit he conducted. After receiving the second set of
financial
statements and source documents, he carried out a financial statement
overview, an income and expenditure reconciliation
and analytical
procedures. He did not carry out a full audit in accordance with
generally accepted auditing standards as there
was no need to do so.
He later, after receiving a third set of books in May 2016, made
various additional adjustments.
47.
Both auditors (Mr Johan Ferreira and Mr G Oberholster of Mazars,
appointed by Ferreira) accepted that it would be correct to
regard
the different financial records for the relevant years as three
different sets of books. The various versions required a
number of
amendments to be effected to the loan account of Ferreira, most
notably the entries in relation to the Swiss Pekanshoek
transaction
and certain others reflected in paragraph 8 (iii) and (iv) in the
joint minute of the auditors prepared for trial ("the
joint
minute").
48.
Ferreira conceded during his testimony that the intervention by De
Klerk, to appoint an auditor and to request a re-examination
of the
books, brought clarification and accuracy in relation to the books.
It is therefore undisputed that proper books were not
in fact kept
and that, before De Klerk's intervention, the books of Plantsaam did
not accurately reflect its affairs. Ferreira
attempted to attribute
the mistakes to the bookkeeper, Du Preez. What follows will
demonstrate that not to be entirely factual.
49.
Ferreira could give no explanation why, coincidentally, all the many
mistakes in the books benefitted him and not De Klerk.
There is only
a single mistaken entry in the books which benefitted De Klerk. The
auditor contended that this alone leads to a
legitimate inference
that the books were manipulated to the advantage of Ferreira. A
closer examination of some of the auditor's
misgivings supports that
conclusion.
50.
The forensic audit identified serious problems, including
misstatements or misrepresentation of financial information. The
general ledger was unreliable in a number of respects. It is not
necessary to review each irregularity or misrepresentation. A few
of
the more serious examples will suffice.
51.
In the original version of the 2012 financial statements revenue was
recorded as R682 514. In the second version of the 2012
financial
statements prepared by Du Preez in 2014-2015, handed to the auditor
after enquiries were made about the apparent irregularities,
the
revenue figure was adjusted to R 2 888 094. The original financial
statements had not recorded R2 216 580 pecan nut sales.
The
adjustment was made in January 2015 after the court order compelling
disclosure was obtained by De Klerk. The incorrect statements
of 2012
thus constituted a significant misrepresentation. This irregularity,
together with others, casts light upon the concerted
refusal by
Ferreira in 2014 to disclose and make available the relevant
financial information to De Klerk, resulting in the urgent
application to obtain it.
52.
Moreover, the investigation confirmed that Swiss Pekanhoek CC
(referred to in evidence as "Swiss Gourmet"), on the
instruction of Ferreira, had in June-July 2011 paid an amount of R1
745 202 into the personal bank account of Ferreira instead
of the
bank account of Plantsaam. According to De Klerk he only became aware
of this when he spoke to Werner Erasmus in March 2014
three years
after the payments were made.
53.
Ferreira maintains that De Klerk would have been aware of the
payments into his personal bank account by reason of the documents
handed to him in the consultation with counsel in Bloemfontein when
Plantsaam was considering taking action against Swiss Pekanhoek.
As
mentioned earlier, this was never put to De Klerk in cross
examination. Moreover, De Klerk's lack of knowledge is corroborated
by the evidence of Werner Erasmus who confirmed that he had told Faan
Erasmus of the payments at the agricultural event in March
2014 and
that De Klerk had then contacted him. De Klerk responded to this
information by taking action, resulting ultimately in
the present
litigation. I am accordingly persuaded on the probabilities that De
Klerk only became aware that payments were made
by Swiss Pekanhoek
into the personal bank account of Ferreira almost three years after
they were in fact made, when he spoke to
Werner Erasmus. Werner
Erasmus confirmed in his testimony that he had no relationship with
De Klerk and had dealt mainly with Ferreira
who had at all times
conducted business with Swiss Pekanhoek on behalf of Plantsaam.
Moreover, as will appear presently, a portion
of those payments were
retained by Ferreira and contributed to the significant
understatement of revenue from pecan nut sales in
the 2012 financial
statements.
54.
Swiss Pekanhoek made three payments into Ferreira's personal bank
account, which are reflected in the forensic report against
specified
dates: R798 000 on 14 June 2011; R447 202 on 18 July 2011; and R500
000 on 25 July 2011. These total R1 745 202. In the
period between 8
July 2011 to 12 August 2011, Ferreira made six payments from his bank
account to the bank account of Plantsaam
totally R828 500. On the
assumption that these payments were made from the funds received from
Swiss Pekanhoek, the auditor concluded
that Ferreira owed Plantsaam
R916 702 from the proceeds of pecan nut sales, which amount he had
not disclosed and was not reflected
in his loan account.
55.
In his testimony, Ferreira admitted that the funds had been
transferred into his account but offered an unconvincing explanation
for doing that. He claimed that he had entered into an arrangement
with Swiss Pekanhoek to supply it with additional pecan nuts
sourced
from other farmers in his area. He claimed the monies paid into his
account were to be used to pay the farmers from whom
he acquired the
nuts. Fluctuations in the market price of pecan nuts resulted in the
enterprise becoming less attractive. There
was also a dispute about
the quality of the nuts and the relationship with Swiss Pekanhoek
ended in 2011. According to Ferreira,
Werner Erasmus then instructed
him to use any balance in his account which had not been used to
source nuts from other farmers
to pay Plantsaam for deliveries from
Plantsaam. I was referred to no source documentation that confirmed
this arrangement.
56.
Werner Erasmus cast significant doubt upon Ferreira's version. He
testified that in 2009-2010 he had purchased pecan nuts from
Plantsaam and usually paid one week after delivery. In 2011 Ferreira
approached him for an advance payment in order to buy a tractor
because De Klerk had put a restriction on Plantsaam's co-op account.
He agreed to make an advance payment into Ferreira's personal
account. Although the contract referred to Plantsaam, De Klerk and
Ferreira, Erasmus understood the contract for delivery of nuts
to
have been between Swiss Pekanhoek and Plantsaam. He denied that he
made an arrangement for Ferreira to use the money to pay
farmers or
that he instructed him to use the balance to pay off Swiss
Pekanhoek's debt to Plantsaam. In his view, he paid the money,
some
of it in advance, for the total amount of pecan nuts he would receive
from Plantsaam after harvesting in July-August, regardless
of the
source of the nuts. Plantsaam was invoiced for the nuts.
57.
Shortly before the commencement of the trial, as mentioned, Ferreira,
through Du Preez, produced the third set of books. In
this third set
of books the deductions made on the Ferreira's loan account in the
second set of books were reversed resulting in
his loan account again
having a substantial credit value. Mr Johan Ferreira, the auditor,
testified that he then analysed the second
and third sets of books,
electronically and identified in what respects the third set of books
contained adjustments. He discovered
that the reversals made in
Ferreira's loan account in the second set of books (to correctly
reflect his true liability to Plantsaam)
had been removed and the
original position in the first set of books reinstated, giving the
loan account a greater credit value
against Plantsaam. The two
auditors (Johan Ferreira and Mr G Oberholster) then corrected the
third set of books by reversing the
reversals made in the third set.
Paragraph 8(iii) of the joint minute deals with transactions
incorrectly done in the third set
of accounts by Du Preez. The
auditors agreed to reverse what they described as a
"batch of
deleted transactions"
in the amount of R1 180 211.
58.
How the amount of R1 180 211 was arrived at is explained in the
expert summary of the auditor, which indicates that the amount
of R 1
745 202 received from Swiss Pekanhoek (excluded in the third set of
books) was again credited for the benefit of Plantsaam
in the general
ledger. This amount was added to other excluded amounts from which
were deducted other legitimate amounts favouring
Ferreira to give the
total of R1 180 211. An analysis of the items clearly indicates that
the amounts paid into Ferreira's personal
bank account by Swiss
Pekanhoek were utilised as the starting point and from those amounts
were then subtracted the amounts paid
from Ferreira's account into
Plantsaam's account.
59.
Ferreira's own auditor, Oberholster, conceded in his testimony that
the amounts ought not to have been paid into Ferreira's
personal bank
account, but should have been paid into Plantsaam's bank account. He
was thus also forced to admit in cross
examination that Ferreira
was responsible for the financial affairs and bookkeeping matters of
Plantsaam and had failed in his
duty. Ferreira himself accepted that
it was his obligation to ensure that correct and accurate financial
records be kept. The manner
in which the Swiss Pekanhoek transaction
was handled, if not a breach of the fiduciary duty to act in good
faith and in the best
interests of Plantsaam, was at the very least a
breach of the duty to ensure proper financial disclosure and to
maintain accurate
accounts.
60.
A further instance of doubtful accounting involved a payment for the
benefit of Ferreira in July 2012. The auditor testified
that on the
instruction of Ferreira, GWK paid an amount of R897 670 incorrectly
in the GWK account of Ferreira, instead of into
the bank account of
Plantsaam. Of this amount R647 912 was paid into the personal bank
account of Ferreira, and R249 758 remained
to the credit of
Ferreira's GWK account. An amount of R149 000 was deducted from this,
presumably for Ferreira's personal farming
operations, and the
remaining approximately R100 000 was transferred into Ferreira's
personal bank account. In other words, an
amount of R897 670 payable
to Plantsaam was utilised to pay R149 000 of Ferreira's personal
expenses, with the balance of approximately
R750 000 being
transferred to Ferreira's bank account. During July 2012 and January
2013 Ferreira transferred R450 000 in three
payments to Plantsaam. In
the result, Ferreira owed Plantsaam R447 670. The auditor adjusted
his loan account accordingly. Had
the forensic audit not been
instigated by De Klerk, Ferreira would have illegitimately benefited
by this amount. It was also necessary
to adjust the loan account to
account for the VAT on this transaction for which Plantsaam would
have been liable in the amount
of R110 240.
61.
There were various other instances of payments of smaller amounts due
to Plantsaam into the bank account of Ferreira which have
been
adjusted by agreement between the auditors to reflect properly in
Ferreira's loan account. These adjustments would not have
occurred
and would have prejudiced De Klerk had he not approached the court to
obtain the relevant financial information and the
forensic report not
been conducted.
62.
The auditor further testified that there was considerable
entanglement of the expenses incurred by Ferreira in his own farming
activities (on Sanddraai, Uitsoek or on the 7 hectares of the farm he
claimed to have leased from Benjo) with those of Plantsaam.
By
failing to maintain proper books that accurately separated expenses
for the two enterprises Ferreira was probably unfairly advantaged.
In
addition, it will be re-called, De Klerk disputed that he had agreed
to a lease of part of the farm to Ferreira and thus maintained
that
the profit for that farming should be for the account of Plantsaam.
63.
Ferreira's testimony about his use of the 7 hectares of the farm
where maize and wheat were cultivated raises further questions
of
propriety in his financial dealings and his fiduciary relationship
with Plantsaam and De Klerk. The credibility of his evidence,
in
addition to determining the probabilities, has bearing upon the
question of fairness and the practicability of a continued
association. He initially maintained that he leased the land for the
period covered by the financial years 2010 to 2013. In the
answering
affidavit opposing the first application, he stated that he paid rent
and in particular that he paid rent of R35 000.00
for 2013. The
financial statements revealed that no rent was in fact paid for 2010
and 2011. In fact the only entry for rent in
the books is an amount
of R17 500 for 2012. This figure equates to rent for half the year.
When asked in cross-examination about
this, Ferreira explained that
he had only leased the land for a period of that year, as his farming
operations ceased. Under further
cross examination it became apparent
that this explanation was false in that he in fact had utilised the
land for the full period
of 2012 and also for the full period covered
by the 2013 financial year.
64.
The truth therefore is that Ferreira used the land for his own
benefit in the financial years of 2010 to 2013 and paid no rent.
The
only item resembling the payment of rent was the journal entry for
half the value of the rent in the financial statements of
2012. The
absence of any rental payment in the accounts suggests that Ferreira
had inappropriately farmed the area for his own
benefit to the
detriment of Plantsaam. The unfairness of the situation, disregarding
the interests of De Klerk, is exacerbated
by the probabilities that
the expenses of this enterprise were partly subsidised by Plantsaam.
The failure of Ferreira to pay the
rent which he himself accepted he
owed, if his version of a lease was true, coupled with his earlier
false allegations that he
paid for all the rent, casts doubt upon his
integrity to the extent that the continuation of a relationship with
De Klerk will
be difficult, if not intolerable. His actions clearly
disregarded the interests of De Klerk, are unfairly prejudicial and
an abuse
of his position of trust.
65.
I pause to interpose an accounting issue at this point. If one were
to accept that there was no lease and that the farming on
the 7
hectares for the relevant period should accrue to the benefit of
Plantsaam, then the profits should be debited to Ferreira's
loan
account. The auditors have provided for such an eventuality using the
GWK tables. These profit calculations are open to some
doubt.
Accordingly, it may be fairer and less complicated to simply charge
Ferreira rent for the relevant period.
66.
Ferreira failed to properly separate the farming expenses of
Plantsaam from those attributable to his farming operations on
Sanddraai, Uitsoek and the 7 hectares of land "leased" from
the farm. In the meeting between all the role players in
Bloemfontein
in January 2015 it was agreed that the auditor would use the GWK
tables to do a cost analysis. He commenced his calculation
by taking
the hectares of all the operations farmed by Ferreira in 2012 and
2013, including those on the farm. At that time there
were 96,15
hectares of pecan nuts (which figure includes the 42 hectares of the
farm and more than 50 hectares of Plantsaam's external
clients) and
71 hectares of grain (wheat and maize farmed exclusively by
Ferreira). According to the GWK analysis, the cost of
farming pecan
nuts per hectare was R19 876 and the cost of farming grain was R35
565. The cost of farming 96,5 hectares of pecan
nuts was therefore R1
911 050 and the cost of farming 71 hectares of grain was R 2 525 109,
giving a total cost of R4 436 159,
of which total cost the cost of
farming the pecan nuts represented 43.08% and the cost of grain
56.92%. The auditor then applied
those percentages to the total costs
incurred in the separate farming operations by Plantsaam and by
Ferreira in 2012 and 2013
and concluded that Plantsaam overspent and
Ferreira under spent R138 438 for 2012 and R533 036 in 2013. These
figures were adjusted
in the joint minute to be R188 159 for 2012 and
R557 890 for 2013 respectively. The parties remain in dispute about
whether the
expenses were in fact entangled, and accordingly could
not reach agreement about whether these figures should be debited to
Ferreira's
loan account - a matter to which I will return in due
course. The problem nonetheless, at the very least, remains
indicative of
the poor management of the affairs of Plantsaam.
67.
One expense item was particularly contentious and Ferreira's
testimony in relation to it once again raised questions about his
integrity. De Klerk in his evidence produced invoices from the OVK
(Exhibit B) which indicated that Plantsaam had been debited
with
electricity payments made to Eskom, whereas in fact Plantsaam was
supplied with electricity by the Orania municipality. Eskom
supplied
electricity to Sanddraai where Ferreira farmed for his own account.
De Klerk thus believed that such payments should have
been for
Ferreira's personal account. When the issue was raised with Ferreira
during cross-examination he was adamant that the
payments by OVK were
for Plantsaam's consumption and in respect of a property occupied by
one of the farmworkers in Orania. He
added that OVK itemised and
described payments to the Orania municipality for electricity as
payments to Eskom. He denied that
Plantsaam had paid the electricity
bills owed by him to Eskom in respect of his farming operations,
except on one occasion in August
2011 which he had done with the
permission of De Klerk.
68.
Ferreira was then asked whether he could produce the actual Eskom
accounts. He intimated that he would do so. The following
day he
failed to produce the accounts, but presented extracts of a general
ledger, which took the matter no further. He was asked
why he did not
bring the Eskom accounts themselves. He could give no acceptable
explanation. Meanwhile the legal representatives
of De Klerk had
procured the actual accounts (Exhibit F) which unambiguously verified
that Sanddraai accounts were sent to Ferreira
by Eskom and that OVK
had paid them and debited Plantsaam. When confronted with these
accounts Ferreira was compelled to concede
that his earlier evidence
was false and that he had actually used the Plantsaam OVK account to
pay Eskom in respect of Sanddraai's
electricity.
69.
It thus became apparent that Ferreira had been dishonest and had
attempted to mislead the court by claiming that the reference
to
Eskom in the OVK account was intended to be a reference to
electricity supplied by the municipality. He avoided the questions
put to him by counsel regarding this misrepresentation and sought to
rationalise his falsehoods. Counsel urged him to desist in
justifying
his blatantly false evidence and to apologise to the court. He then
did so, effectively admitting his dishonesty. His
performance in
court on this issue left no doubt that he is willing to lie,
prevaricate and mislead in order to advance his own
financial
interests. His conduct attests to a proclivity for deceit in his
dealings generally, not only with the court, but also
with De Klerk
and their associated companies.
70.
De Klerk also called Mrs Mariaan Ferreira as a witness. She is the
previous spouse of Ferreira. She testified that she had assisted
in
the business by selling some of the pecan nuts harvested to a retired
judge in Bloemfontein, who paid cash. No VAT invoice was
issued for
these cash transactions; nor was VAT charged, despite Plantsaam being
registered as a VAT vendor. In the majority of
instances she returned
the cash to Ferreira, but on occasion he told her to utilise the cash
to purchase groceries and personal
necessities. In cross-examination
it was put to her that the Ferreira did not deny that the cash was so
utilised to acquire goods
for the household, but that the amounts
were then debited to her salary. She denied ever receiving a salary
from Plantsaam. When
Ferreira was questioned in cross
examination about these irregularities he contradicted the version
which was put on his behalf
to Mrs Ferreira. He explained that the
cash utilised by Mrs Ferreira was accounted for as part of the petty
cash. No supporting
documents were tendered to support this new
version. Yet again these sales were for the benefit of Ferreira and
unfairly prejudiced
De Klerk in that they were not brought into
account in the revenue of Plantsaam.
71.
Other complaints of unfairly prejudicial conduct include allegations
that Ferreira drew a double salary during June 2014; made
several
cash withdrawals out of Plantsaam's banking account; paid the cell
phone account of his fiancee with Plantsaam funds; bought
dog food,
funky boots, car tyres, diesel through Plantsaam's co-op accounts;
used a Nissan truck belonging to Plantsaam to conduct
a transport
business; sold saplings and paid the proceeds into his own bank
account; sold assets, in particular scrap metal, of
Plantsaam; and
abused Plantsaam's insurance policy by adding personal items to the
policy. In light of my earlier findings it is
unnecessary to decide
the validity of them all. Suffice it to say that Ferreira offered
explanations of varying degrees of credibility
for these
expenditures.
The
application of section 49 of the Close Corporations Act and section
163 of the Companies Act
72.
In the premises, I am persuaded that the actions of Ferreira in
relation to Plantsaam were unfairly prejudicial and that he
conducted
the affairs of Plantsaam in a manner unfairly prejudicial to De Klerk
as contemplated in section 49 of the CC Act, permitting
me to make
any order I think fit, if I consider it just and equitable to do so.
Moreover, given the fundamental breach of trust
and confidence by
Ferreira, it is no longer reasonably practicable for De Klerk to
carry on the business of Plantsaam with Ferreira
in the sense
envisaged in section 36(1)(c) of the CC Act. It is thus appropriate
to make an order that Ferreira shall cease to
be a member of
Plantsaam in terms of section 36 of the CC Act and a further order
for the acquisition of his interest in terms
of either section
36(2)(a) or 49(2) of the CC Act.
73.
It appears from the preceding analysis that the questionable conduct
of Ferreira was mainly in relation to the affairs of Plantsaam.
None
of the complaints relate directly to Benjo. This is not surprising
considering it is a property holding company. Mr Rossouw
SC, who
appeared for Ferreira, accordingly submitted that no case had been
made out in terms of section 163 of the Companies Act
justifyi ng an
order compelling the acquisition of Ferreira's shares in Benjo.
Ferreira, he contended, is not a person related
to Benjo as
contemplated in section 163(1) read with section 2 of the Companies
Act because Ferreira does not control Benjo as
contemplated in
section 2(2). He argued further that De Klerk failed to show any act
or omission by Benjo that had a result that
was oppressive or
unfairly prejudicial to or unfairly disregarded the interests of De
Klerk; nor was the business Benjo carried
on or conducted in a manner
that was oppressive or unfairly prejudicial to or unfairly
disregarded the interests of De Klerk. Nor,
he asserted, were the
powers of a director or prescribed officer of Benjo exercised in a
manner that was oppressive or unfairly
prejudicial to or unfairly
disregarded the interests of De Klerk.
74.
In my view, Mr Rossouw initially stated the jurisdictional
requirements of section 163(1) of the Companies Act too narrowly.
A
shareholder of Benjo (De Klerk) may apply for relief under section
163(1) of the Companies Act if any act or omission of Benjo,
or
a
related person,
has a result that is oppressive, unfairly
prejudicial or unfairly disregards the interests of De Klerk.
Alternatively, relief may
be sought where the business of Benjo,
or
a
related person,
has been carried out or conducted in a
manner that is oppressive, unfairly prejudicial or unfairly
disregarded the interests of
De Klerk. In determining whether the
jurisdictional requirements have been met it need not necessarily be
shown that Ferreira is
a person related to Benjo. It will be
sufficient if Plantsaam is a person related to Benjo. If Plantsaam is
a related person, once
it is established that its business (rather
than Benjo's) was carried out in a manner that was unfairly
prejudicial or unfairly
disregarded De Klerk's interests that alone
will permit an order directing an exchange of Benjo's shares under
section 163(2)(e)
of the Companies Act.
75.
Mr van der Merwe SC, who appeared for De Klerk, presented detailed
submissions arguing that the affairs of the two companies
are so
inextricably intertwined that any conduct of Ferreira in relation to
Plantsaam, falling within the ambit of section 49 of
the CC Act,
leads ineludibly to such conduct being hit under section 163 of the
Companies Act in relation to Benjo. Such an approach,
he submitted,
will advance the remedy that section 163 provides rather than limit
it. He contended that it is clear from the evidence
that the affairs
of Plantsaam and Benjo were inextricably intertwined and, although
registered as two companies, they effectively
functioned as one unit.
76.
The argument is unsustainable because it proceeds from the false
premise that an intertwined relationship between the two companies
will be sufficient for the application of section 163. The
jurisdictional requirements for the application of section 163 are
clearly set out in the section. The correct enquiry, as will become
more evident presently, is whether Plantsaam is a "related
person", and that ultimately depends on whether Ferreira had the
ability to materially influence the policy of both Plantsaam
and
Benjo in a manner comparable to a person who could exercise control
through a majority vote at a board or general meeting.
That said,
some of the factual elements upon which Mr van der Merwe relied to
advance his argument have relevance to the factual
determination of
whether Ferreira could indeed materially influence the policy of the
two companies.
77.
Mr van der Merwe further submitted that the power of the court in
section 49 of the CC to make any order it deems fit, on finding
that
Plantsaam has acted unfairly, is so wide and unconstrained that it
can be invoked to order Ferreira to sell his shares in
Benjo to De
Klerk. This proposition is also not sustainable. The CC Act applies
to close corporations only and not to companies.
More particularly,
the wording of section 49 read as a whole makes it clear that the
legislature refers in this section only to
corporations and members,
not to companies and shareholders. I therefore agree with Mr Rossouw
that there is no basis to stretch
the ordinary, grammatical meaning
of the words in the CC Act to make the remedies there applicable
available also to the shareholders
of private companies, especially
where the Companies Act has its own provisions dealing with unfairly
prejudicial and oppressive
conduct in the form of section 163 read
with section 2.
78.
The provisions of section 1 and 2 of the Companies Act (set out in
paragraph 9 above) include within the ambit of a "related
person" juristic persons who are connected to one another in any
manner contemplated in section 2(1)(a) to (c) of the Companies
Act.
In terms of section 2(1)(c)(iii) a juristic person (Benjo) is related
to another juristic person (Plantsaam) if a person (Ferreira)
directly or indirectly controls each of them, or the business of each
of them, as determined in accordance with section 2(2) of
the
Companies Act. Section 2(2)(d) provides that a person (Ferreira)
controls a juristic person (Benjo and Plantsaam), or its business,
if
that first person (Ferreira) has the ability to materially influence
the policy of Benjo and Plantsaam in a manner comparable
to a person
who, in ordinary commercial practice, would be able to exercise an
element of control as contemplated in section 2(2)(a)
to (c) of the
Companies Act.
79.
What the situations referred to in section 2(2)(a) to (c) have in
common is that the controlling person is able to exercise
the
majority of votes in the controlled juristic person such as where the
controlling person: i) is a holding company (section
2(2)(a)(i)); ii)
has a majority of the voting rights pursuant to a shareholder
agreement or controls the appointment of directors
with the majority
of voting rights of the board (section 2(2)(a)(ii)); iii) owns the
majority of the members' interest, or controls
directly, or has the
right to control, the majority of members' votes in a close
corporation(section 2(2)(b)); or iv) in the case
a trust, has the
ability to control the majority of the votes of the trustees or to
appoint the majority of the trustees, or to
appoint or change the
majority of the beneficiaries of the trust (section 2(2)(c)).
80.
The question for determination under section 2(2)(d), therefore, is
whether in the present case Ferreira had the ability to
materially
influence the policy of Benjo and Plantsaam in a manner comparable to
a person who would be able to exercise the element
of control in the
majoritarian situations envisaged in the other sub paragraphs of
section 2(2). The provision takes "control"
beyond the
ordinary corporate law principles of voting control. The purpose of
the provision is to provide
inter
a/ia
for
a circumstance where the controlling person does not have majority
voting power but has an element of control comparable to
a person who
would. Whether a person has control will depend on the circumstances.
The question is unavoidably a factual one. It
can include the
situation where the controlling person, a minority or equal
shareholder, has
de
facto
control
to materially influence the policy of the company, akin to a person
who has
de
jure
majority
control. Thus, it is possible for a person to control a juristic
person despite not having
dejure
control
or the majority of controlling votes in the company.
[5]
81.
In short, and to recap, if Ferreira had the ability to materially
influence the policy of Benjo and Plantsaam in a manner similar
to a
controlling shareholder, despite not being a controlling shareholder,
it may be concluded that Plantsaam is a person related
to Benjo; with
the result that the conduct of Plantsaam's business in a manner
unfairly prejudicial or unfairly disregarding of
De Klerk's interests
will permit De Klerk to seek relief against Benjo in terms of section
163(1)(a) or (b) of the Companies Act.
82.
The key relevant words in the phrase "the ability to materially
influence the policy of the juristic person" used
in section
2(2)(d) of the Companies Act are not defined in the statute. They
should therefore be given their ordinary meanings.
The "policy"
of a company is the general plan or course of action it adopts and
follows. To "materially influence"
denotes a capacity or
power to effect the development or execution of the policy
substantially or in an important degree.
83.
With regard to the factual question of whether Plantsaam is a related
person in the meaning of that phrase as used in section
163 of the
Companies Act, it can be accepted that Plantsaam could not have
functioned and conducted its business without Benjo.
There is a lease
agreement between Plantsaam and Benjo, in terms of which Plantsaam
rented the immovable property from Benjo. The
rent payable under the
lease agreement is not market related and has not increased since
2012, notwithstanding the fact that there
was in that period a very
substantial increase in the value of the immovable property. In his
management of the financial affairs
of both companies Ferreira
considered it to be in the best interests of Plantsaam not to pay a
market related rental for the land.
He was thus able to materially
influence the policy of Benjo. The business of Benjo was impacted
negatively while Plantsaam gained
in profitability. This is a clear
indication that Ferreira controlled the business of both companies
and was able to assert material
influence on the policy of both.
84.
It is common cause that over the years Ferreira had exclusive control
of the financial affairs, the management and day to day
running of
the two companies. The history of the dispute between De Klerk and
Ferreira places it beyond doubt that De Klerk had
minimal access to
the financial records, source documents and correspondence of both
companies and played a limited role in their
functioning and
performance. He invested capital and gave advice and direction, but
control of the daily operations of both companies
was vested
primarily in Ferreira over a period of years. While both De Klerk and
Ferreira had equal
de jure
control, it is evident that
Ferreira had
de facto
control and the greater capacity to
materially influence the policy of both companies.
85.
Moreover, the nursery business of Plantsaam is conducted upon the
land of Benjo. Employees of Plantsaam also render services
for Benjo,
in that the trees planted on Benjo's property are nurtured, cared for
and fertilised by Plantsaam employees. Plantsaam
procures from the
trees the necessary wood to do the inoculation of small plants in the
nursery, for which no separate compensation
is paid to Benjo. And
finally Ferreira resides in a house on the land of the farm without
paying rent.
86.
In the final analysis, I am satisfied that Plantsaam is indeed a
"related person" as contemplated in section 163(1)
of the
Companies Act with the consequence that De Klerk is entitled to
relief in terms of section 163(2)(e) in relation to Benjo.
Appropriate
relief
87.
In his plea and conditional counterclaim Ferreira pleaded that by
virtue of the deadlock between the parties, the appropriate
relief
would be the liquidation of Plantsaam and Benjo in terms of section
344(f) of the Companies Act 61 of 1963, read with item
9 of Schedule
5 of the Companies Act and section 66(1) of the CC Act. The reference
to section 344(f) is mistaken. That provision
applies only when the
company is unable to pay its debts. There is no evidence that either
company is unable to pay its debts.
The correct provision is section
344(h) which permits a court to grant an order of liquidation where
it appears to the court that
it is just and equitable that the
company should be wound-up.
88.
In the event that liquidation is considered inappropriate, Ferreira
requested an order in terms of section 49 of the CC Act
and section
163 of the Companies Act directing De Klerk to transfer his member's
interest and shares to him against payment of
the fair and reasonable
value of such, on the grounds that de Klerk had acted and exercised
his powers in a manner that is oppressive
or unfairly prejudicial.
89.
Ferreira did not pursue the claim for liquidation with any vigour
during argument, and specifically abandoned it in relation
to Benjo.
The application is in any event defective because various peremptory
requirements, contained in Chapter 14 of the now
partially repealed
Companies Act,
[6]
have not been
complied with. Section 346(3)
requires
that an application to the court for the winding-up of a company
shall be accompanied by a certificate by the Master to
the effect
that sufficient security has been given for the payment of all fees
and charges as contemplated in the subsection. No
such certificate
has been produced. Furthermore, section 346(4A) of the Companies Act
provides that an application for winding-up
must be served on the
Master, the employees of the entity to be liquidated, SARS, and if
the employees are represented by trade
unions, then also trade
unions. There is no evidence that this has occurred. The provision
also requires an applicant for liquidation
to furnish to the court an
affidavit prior to or at the hearing in order to prove that the
application was in fact delivered to
the entities and parties to whom
delivery of the application must be made. No affidavit has been
filed. The requirements of section
346(3) and section 346(4A) are
peremptory.
[7]
Hence, the
application for liquidation in the plea and the counterclaim is
fatally defective.
90.
It is therefore not necessary to consider the winding-up application
on its merits. Suffice it to mention that De Klerk wishes
to continue
with the farming activities. Where there is a satisfactory
alternative to winding-up available, it should usually be
followed.
The mismanagement by Ferreira, in my assessment, is the cause of the
deadlock and his interests can equitably, justly
and effectively be
addressed under section 163 of the Companies Act, and sections 36 and
49 of the CC Act. Furthermore, the company
and the close corporation
are not factually insolvent, and can pay their debts. Were a
winding-up order to be granted, the liquidators
would simply realise
the assets. The farm has a high value and the liquidators would be
generously remunerated in accordance with
a tariff calculated at a
percentage of the kind of assets realised. An auctioneer also would
need to be appointed to sell the assets.
He too would charge
commission or fees for the sale of the assets. Accordingly,
substantial unnecessary administration costs will
be incurred in a
winding-up. Finally, there will be practical difficulties in giving
effect to a winding up order. The liquidators
will struggle to get
instructions from a meeting of the two members who are deadlocked.
The request for winding-up is therefore
inappropriate and ill
conceived.
91.
As regards Ferreira's claim for relief under section 49 of the CC Act
and section 163 of the Companies Act, I am not persuaded
that De
Klerk acted in a manner unfairly prejudicial or oppressively towards
Ferreira, nor did he conduct the business of the companies
in a
manner unfairly disregarding the interests of Ferreira. It is true
that after learning in 2014 of the manner in which the
amounts paid
by Swiss Pekanhoek had been appropriated by Ferreira in 2011, De
Klerk acted aggressively to protect his interests,
and more so when
Ferreira stymied his legitimate attempts to obtain the relevant
financial information. In my view, he did no more
than any reasonable
person similarly situated would do. But even were one to conclude
that both parties had acted unfairly or oppressively
it would not
follow that the transfer of equity in both companies to Ferreira
(pursuant to the court's power to make an order it
considers fit)
would be the appropriate means of breaking the deadlock. There are
practical considerations that militate against
that result.
92.
I agree with Mr Rossouw that one should not lose sight of the big
picture. The capital amount of De Klerk's contribution is
principally
the R 3 332 938 credit balance of his loan account (his investment
plus interest) in Plantsaam and the capital employed
to acquire the
farm. Ferreira by contrast has to date never paid for his equity in
the companies, despite having concluded an acknowledgment
of debt. He
refuses to make the payment, as will appear later, on the grounds
that the debt in respect of the shares and member's
interest has
prescribed.
93.
Ferreira continues to manage the farming operation, notwithstanding
the attempts to have him dismissed and evicted. He has managed
the
farming business for at least 15 years. And when one considers that
the latest pecan harvest produced a crop worth more than
R6 million,
it must be said that he has done so successfully. Plantsaam also owns
the nursery worth R2 million and assets of R2,5
million. In terms of
the big picture, therefore, it is indisputable that Ferreira has made
a huge contribution. However, it is
unlikely he could have done so
without the capital and vision of De Klerk.
94.
There are furthermore two sound moral and practical reasons why the
conditional counterclaim cannot succeed. As I have explained,
and as
appears from the foregoing analysis of the evidence, the deadlock was
caused principally by Ferreira and not De Klerk. He
has mismanaged
the financial affairs of Plantsaam and breached his fiduciary duties
to act in good faith and to make full and proper
financial disclosure
to De Klerk. The continuation of the relationship of the members of
the companies has become unworkable and
intolerable because of the
manner in which Ferreira conducted their affairs. Undeniably, it
takes two to tango. De Klerk admitted
as much. But any transgression
on the part of De Klerk, or any harm caused by him to the
relationship, is far outweighed by the
gravity of Ferreira's
misconduct. It would be inequitable and unjust to allow Ferreira to
benefit from his wrongdoing at the expense
of De Klerk.
95.
Secondly, Ferreira simply does not have the financial means to
purchase De Klerk's interests. It is common cause that Ferreira
does
not earn an income other than what he might earn at the farm. During
his re-examination Ferreira produced a letter from a
bank in order to
prove that he had applied for funding to enable him to buy De Klerk's
interest and shares. The bank assessed his
credit application and
standing by regarding the two companies as a single unit. The letter
of the bank quite evidently does not
establish that Ferreira has the
financial means to perform in terms of a buy-out. Firstly, it does
not confirm that the facility
has been granted. Secondly, it contains
numerous conditions, including an evaluation by a credit committee.
The application for
finance is still under consideration.
96.
Furthermore, any contemplated possible future finance, envisaged in
the bank's letter, is not for Ferreira but for a joint enterprise
described in the letter as "a group of companies". The
agreement of both companies to provide security will be required
before finance can be procured. The property of both companies, in
particular the farm of Benjo, would have to serve as security
for any
possible loan. It is doubtful whether the bank has full appreciation
of the interests and claims of De Klerk. Given that
he only has half
of the interests in the companies, Ferreira cannot validly bind them
as co-applicants in the application for finance
to the bank.
97.
The success of Ferreira's application for finance thus looks more
than doubtful. In the result Ferreira has not proved that
he has the
means to finance a buy-out or an exchange of shares and interest. The
conditional counterclaim accordingly cannot succeed.
By contrast, De
Klerk earns a substantial income as a medical doctor in Canada. His
evidence that he has procured the necessary
finance for a buy-out is
undisputed. A transfer of Ferreira's shares and interest to De Klerk
is in fact the only practical means
of resolving the deadlock between
the members and will be in the best interests of both companies in
the continuation of their
business operations. The relief should and
will be granted on that basis.
Valuation
of Plantsaam, Benjo and the parties' interests
98.
Much of the evidence was taken up with the valuation of the companies
for the purpose of calculating the compensation payable
in the event
of an exchange of shares and interests. After negotiations and
discussions, the experts agreed that the value of Benjo
is R17 243
998. The valuation of Plantsaam was more contentious as there are
numerous disputes about what should be debited and
credited to the
parties' loan accounts. The evidence in this regard was presented to
the court in an at times incoherent and confusing
manner, as
concessions and adjustments were made as the trial progressed. The
heads of argument in relation to these matters are
also wholly
insufficient, lacking both clarity and intelligible presentation. Be
that as it may, it is necessary to hazard an attempt
at computation.
99.
In the amended calculations handed up during argument ("the
amended calculations"), the agreed value of Plantsaam,
excluding
the current crops and Ferreira's loan account, is stated to be R280
406. The assets of Plantsaam, taken into account
in this calculation,
amount to R6 141 322. They include the net fixed assets, the nursery,
the loan account in Benjo, cash and
cash equivalents, trade
receivables, suppliers and investments. During the trial the parties
reached an agreement as to the value
of the current crop, which was
placed on record. Plantsaam has been paid an amount in excess of R6
million for the pecan crop,
which amount is not included in the
valuation. The parties agreed that the proceeds of the crop must be
split equally and paid
to them after the deduction of the harvesting
costs and the relevant taxes. The calculation will be done by the
parties' accountants.
The liabilities, including De Klerk's loan
account, accounts payable to OVK and various tax liabilities payable
to SARS, amount
to R5 860 917. The difference of R280 406, as said,
is the value of Plantsaam excluding the loan account of Ferreira and
the current
crops.
100.
It has always been common cause between the parties that the capital
amount of De Klerk's loan account in Plantsaam was R1
821 437. His
auditor calculated interest at the
mora
rate for the years
2012-2016 and restated the balance as at 29 February 2016 as R3 332
938. There was a dispute between the parties
about whether interest
was payable on loan account balances. The amended calculations handed
up during argument record this latter
figure as the "agreed
"credit balance on De Klerk's loan account. If that is correct
the dispute about interest falls
away. However, that was not my
recollection. The heads of argument are cryptic on the issue. Be that
as it may, I am persuaded
on the evidence that interest is indeed
payable. Such is clearly stated in the relevant agreements governing
the loan accounts.
Insofar as inadequate provision is made in the
agreements for an applicable rate, the prescribed rate should apply.
Ferreira's
reliance on two documents suggesting to the contrary
provide an insufficient factual basis. In an email in 2013 De Klerk
referred
to his investment being "rentevry" (interest
free). I accept his explanation that he was in fact complaining that
he
had invested capital and had to date, after 20 years, received no
return on it. The second document, a handwritten note to Proper
Boer
in 2001, mentioned that historically the initial capital had been
invested interest free. I accept that such changed with
the
conclusion of the agreements to transfer of the shares and interest
in the companies to Ferreira in 2001. The interest calculation
is
only in relation to the balance from 2012.
101.
In the initial expert report, De Klerk's auditor stated Ferreira's
loan account as having a debit balance of R2 234 621, while
his own
auditor gave it a credit balance of R20 301. In the amended
calculations, I was asked to commence determining the value
of
Ferreira's loan account with the closing balance as per the financial
statements of 29 February 2016, being a credit balance
of R1 491 577.
The auditors agreed that this figure had to be reduced by two debits
(paragraph 8(iii) of the joint minute) in respect
of transactions
incorrectly done in the records of Plantsaam by Du Preez. These
amounts are R1 180 211 described as "batch
of deleted
transactions reversed" and R32 180 described as "wages
journal reversed". These debits leave the loan
account with a
credit balance of R279 186. The auditors further agreed that
additional debits in the amount of R258 885 were required
in terms of
paragraph 8(iv) of the joint minute in respect of other irregular or
mistaken payments or credits. These include a
reversal of VAT,
deposits of revenue from pecan nut sales deposited in Ferreira's
personal bank account, wages and other credits
recorded twice. These
adjustments result in a credit balance of R20 301, being the amount
Ferreira's auditor stated as the correct
balance.
102.
The opening credit balance of R1 491 577 includes an amount of R523
479 (paragraph 8(i) of the joint minute) being amounts
Ferreira
claims he was entitled to credit to his loan account in respect
mainly of medical expenses for the period 1999 to 2015.
No documents
were produced to support these expenses. Ferreira claimed he was
entitled to such as part of his employment benefits.
His claim is not
credible, if only because he did not claim such until he came into
dispute with De Klerk. They amount to an
ex post facto
adjustment
in an illegitimate attempt to inflate the credit value of his loan
account. I agree with De Klerk's auditor that a debit
should be
passed to reverse them. This gives a debit balance on the loan
account of R503 178.
103.
Initially there was dispute about whether payments in the amount of
R102 000 from the OSK Bank, included as a reversal in the
opening
balance, were for the account of Plantsaam or Ferreira. In the
amended calculations, the auditors reflect that only R10
000 remained
in dispute in respect of a payment Ferreira made to "Kambro"
for a tractor for his personal use. I am satisfied
that the evidence
supports a debit in this amount, giving a debit balance of R513 178.
104.
In paragraph 8(v) of the joint minute, De Klerk's auditor reversed
transactions included in the opening balance, being payments
allegedly made by Ferreira, on the grounds that Ferreira was unable
to produce source documents indicating that they were made
on behalf
of Plantsaam. They total an amount of R183 675. De Klerk was prepared
to concede that two of the payments to Peltzer
and Boschoff,
totalling R84 589, were for pecan nuts received by Plantsaam.
Ferreira has produced no documentation or sufficient
evidence
supporting the other payments. Hence, a debit in the amount of R99
086 is justified, giving a debit balance of R612 264.
105.
One may add to that an amount of R122 500 for rental of the 7
hectares of the farm by Ferreira which was never debited to his
loan
account over the period in which he supposedly leased the farm or
enjoyed its benefit for his personal profit - paragraph
8(vi) of the
amended calculations. This gives a debit balance of R734 764. The
evidence confirms that Ferreira stopped his farming
operation in mid-
2013, yet the income from that was still credited to him. The profit
from the operation for 2014, after expenses,
was R196 468 paragraph
8(vii) of the amended calculations. That amount must accordingly be
debited to the loan account giving a
total of R931 468.
106.
Ferreira adjusted his salary for 2015 and 2016 in the amount of R49
200 (paragraph 8(xi) of the joint minute) without authorisation,
in
that De Klerk did not agree to the increase. It too must be reversed,
giving a total of R980 432.
107.
Paragraph 8(viii) of the joint minute provides for an amount of R169
183. This was income recorded in the personal account
of Ferreira
which De Klerk believes was truly income for the account of
Plantsaam. It is made up of six sub-items: sale of scrap
metal;
insurance, sale of bins; sale of "skedulerings buise"; sale
of planter units; and the sale of diesel. The total
amount received
in respect of these items was R148 406; with VAT the total is the
R169 183 which De Klerk claims should be debited
to Ferreira's loan
account. De Klerk gave limited evidence in relation to these amounts.
The auditor was also not able to offer
much clarity about the precise
nature of these items and could say only that their nature suggested
that they were items rightly
belonging to Plantsaam. Ferreira
provided photographic evidence which showed that the scrap metal
which De Klerk claimed was his
had not been sold and remained on the
farm. He testified that the scrap he sold came from defective
equipment he had used on Uitsoek.
The insurance item he testified was
reimbursement for a premium he had paid out of his personal account
at OVK for hail insurance
on behalf of Plantsaam. He was not
questioned further on the other items, nor was he cross examined in
relation to them. Neither
counsel addressed these amounts in their
written or oral submissions. Although legitimate questions might be
raised about Ferreira's
credibility in general, Ihave no basis for
rejecting his evidence about this income. De Klerk has not discharged
the onus to prove
that these entries in Ferreira's accounts justify a
debit to his loan account in Plantsaam.
108.
Paragraph 8(ix) of the joint minute deals with the amounts for
entangled farming expenses for the 2012 and 2013 financial years.
As
explained earlier, the auditor testified that Ferreira had failed to
properly separate the expenses of his farming operations
from those
of Plantsaam. At the meeting in Bloemfontein with Du Preez it was
agreed that the auditor should use the GWK guide provided
to him by
Du Preez to do a proper matching and allocation. I have set out the
methodology applied by the auditor earlier in this
judgment. I accept
that the methodology is legitimate and it was, initially at least,
agreed to by the parties. The method was
not challenged by Ferreira
in any meaningful way which would justify not debiting his loan
account with the expenses carried by
Plantsaam. Ferreira's loan
account must accordingly be debited with R188 159 for 2012 and R557
890 for 2103, being R746 049.
109.
After adding the debit for entangled expenses the total to be debited
to the loan account is the amount of R1 726 481. To that
total figure
may be added interest for the period 2012 to 2016 which has been
calculated by the auditor in the amended calculations
to be R1 013
815, giving a final balance of R2 740 296.
110.
De Klerk further submitted that Ferreira's loan account should be
adjusted with a debit repaying the salary (R320 000) he withdrew
for
the 8 month period between July 2015 and 29 February 2016. The basis
of this claim is that Ferreira was dismissed by AHi in
May 2015 and
was thus not entitled to a salary. I agree with Mr Rossouw that the
purported dismissal of Ferreira was a nullity.
Neither De Klerk nor
AHi had the capacity to dismiss Ferreira; only Plantsaam could do so,
and that was practically impossible
because of the deadlock.
Moreover, Ferreira has continued working on the farm and has produced
a substantial crop for the benefit
of all concerned. It would be
unjust and illegal to deny him his salary.
111.
In conclusion then, Ferreira's loan account is an asset in Plantsaam
valued at R2 740 296, to which must be added the R280
407 (the net
asset value of Plantsaam excluding Ferreira's loan account and the
current crops). The value of Plantsaam at 29 February
2016 is then R3
020 703. The parties agree that this figure must be reduced by a
provision for dividends tax, calculated in the
amended calculations
to be an amount of R411 044, giving a total value for Plantsaam of R2
609 658.
112.
Ferreira's shares and interest in the two companies are thus valued
at: Benjo - RB 621 994 (half of R17 243 988) and Plantsaam
- R1 304
829 (half of R2 609 658). His total interest in the two companies is
accordingly R9 926 823, from which may be deducted
his debit loan
account in Plantsaam, R2 740 296, leaving R7 186 527. De Klerk
requires this to be further reduced by R1 266 000
being the amount
payable (as capital and
in duplum
interest) under the
acknowledgement of debt in respect of the purchase price for the
shares and interest in the two companies which
De Klerk has never
paid. Before this amount can be deducted, I am required to determine
the Kimberley action which was consolidated
with the main action.
The
Kimberley action
113.
The action in the Kimberley High Court was instituted on 10 June
2014. De Klerk's claim arises out of the acknowledgement of
debt
signed by Ferreira on 7 November 2001. Ferreira initially raised
substantive defences to the claim, but before this court
he relied
only on the defence of extinctive prescription.
114.
In terms of the acknowledgement of debt the full amount of R633 000
together with interest calculated at ABSA Bank's prime
rate minus 3%,
calculated annually in arrears, was due and payable on or before the
last day of February 2009. The acknowledgement
of debt provides
clearly that the last payment, to extinguish any balance of capital
and interest then still outstanding had to
be made,
"voor of
op die laaste dag van Februarie 2009".
115.
The applicable prescription period in terms of section 11(d) of the
Prescription Act
[8]
is three
years. Ferreira contended that the debt would normally have
prescribed on the last day of February 2012, three years after
that
due date stipulated in the acknowledgment of debt.
Prima
facie,
therefore,
the claim had already prescribed by 10 June 2014 when the action was
instituted.
116.
De Klerk submitted that prescription was interrupted by an
acknowledgement of liability before the expiry of the prescription
period. In terms of section 14(1) of the Prescription Act the running
of prescription shall be interrupted by an express or tacit
acknowledgement of liability by the debtor. If the running of
prescription is interrupted, prescription commences to run afresh
from the day on which the interruption takes place.
[9]
117.
De Klerk pleaded in paragraph 7.2 of the particulars of claim:
"On the 61 of
November 2013, the Defendant, in an e-mail sent to the Plaintiff,
acknowledged his indebtedness to the Plaintiff.
A copy of the e-mail
is attached hereto as annexure B, and the Plaintiff pleads that the
contents thereof be incorporated herein
as if specifically pleaded."
118.
The relevant part of Annexure B, the email, reads:
"Die betaling van my
aandeel het ons al ook in die verlede bespreek en my antwoord aan jou
was dat ek dit alleenlik kan betaal
uit die winste wat uit die
boedery gegenereer word".
119.
In his plea Ferreira denied that Annexure B constituted an
acknowledgement of liability for the unpaid debt. However, even
if it
were, he submitted that since the acknowledgement was made after the
prescription period had expired, the acknowledgement
was of no effect
and did not interrupt the running of prescription in
terms
of s 14(1) of the Act.
[10]
120.
In his replication, De Klerk pleaded that the debt had arisen out of
a partnership relationship, that the partnership was only
dissolved
during 2015, that there was consequently a delay in the completion of
prescription by virtue of the provisions of section
13(1)(d) of the
Prescription Act, which provides that if the creditor and debtors are
partners and the debt is a debt which arose
out of the partnership
relationship, and the relevant period of prescription would be
completed before or within a year of the
partnership being dissolved,
the period of prescription shall not be completed before a year has
elapsed after the dissolution
of the partnership. If this is true,
then the debt would not have prescribed before summons was issued on
10 June 2014, which in
turn would have interrupted prescription in
terms of section 15(1) of the Prescription Act. It was pleaded
further in the replication
that the Ferreira expressly or tacitly had
acknowledged the debt by virtue of the contents of annexure "B".
The replication
thus relies on two grounds: delay of completion under
section 13(1)(d) of the Prescription Act and an interruption of
prescription
by virtue of an acknowledgement of liability in Annexure
B.
121.
The onus to allege and prove a delay in the completion of
prescription and/or interruption of prescription is on De Klerk.
[11]
122.
It was alleged in the declaration in the main action that through the
structures of the two companies De Klerk and Ferreira
"conducted
a farming enterprise akin to that of a partnership from 1994 until
2015". The allegation is incorrect. Plantsaam
is a close
corporation conducting the farming operations and hires the land from
Benjo, a property owning company, for that purpose.
Ferreira was
employed by De Klerk and later Plantsaam as farm manager until
November 2001. They thereafter became equal shareholders
and members
in the two companies. It is true that in their capacity as members of
Plantsaam they might be thought to be akin to
partners but in fact
and in law no partnership was ever constituted between them through
which they conducted the "combined
business". Their
business relationship in respect of the two companies was regulated
initially by a contract of employment
and later by the association
agreement in Plantsaam and the shareholders' agreement in Benjo.
123.
A partnership is a legal relationship between two or more persons,
who carry on a lawful business or undertaking to which each
contributes something with the object of making a profit and of
sharing it between them. The term "business" means any
activity for the purpose of making a profit and there must be
continuity in the exercise of these activities. In an ordinary
partnership
each member of the partnership is liable
in
solidum
for
the debts and obligations of the partnership.
[12]
De Klerk and Ferreira are not liable
in
solidum
for
the debts of the Plantsaam or Benjo. There is no partnership between
De Klerk and Ferreira, nor has there ever been. Consequently,
section
13(1)(d) of the Prescription Act finds no application and the
completion of prescription was not delayed.
124.
With regard to the fact that Ferreira had acknowledged liability for
the debt, thus interrupting prescription, De Klerk testified
that he
and Ferreira had discussed the debt annually when they considered and
signed the financial statements of that particular
year. On each
occasion Ferreira acknowledged the debt but intimated that he was not
in a position to repay it.
125.
Ferreira under cross examination conceded that De Klerk's version was
true after he had been referred to the sentence in Annexure
B (his
email of 6 November 2013) which appeared to confirm that there had
been prior acknowledgement of the debt. In Annexure B
Ferreira
stated: "Die betaling van my aandeel het ons al ook in die
verlede bespreek." Mr van der Merwe asked him what
it was that
was so discussed ("bespreek") and it was put to him that it
was in fact the acknowledgment of the debt, upon
which Ferreira
conceded by answering in the affirmative. He was then reminded about
Dr De Klerk's evidence that the debt had been
discussed annually, to
which he replied: "Ek kan nie my daarop, maar ons het dit
bespreek." He then acknowledged that
during these discussions he
had informed De Klerk that he was unable to pay the debt. It was then
put to him that by necessary
implication he admitted the debt. He
agreed with that proposition.
126.
On the basis of this evidence it was submitted on behalf of De Klerk
that the debt had not prescribed by the time Ferreira
acknowledged
liability in writing on 6 November 2013 in Annexure B or when the
summons was issued in June 2014. The difficulty
facing De Klerk
though is that this version was not pleaded. The replication was
limited to a claim of a delay of completion under
section 13(1)(d) of
the Prescription and an alleged interruption under section 14(1) by
means of Annexure B. De Klerk did not seek
to amend his pleadings to
introduce any other express or tacit acknowledgements of liability
interrupting the running of prescription.
Mr Rossouw accordingly
argued that De Klerk was restricted to relying upon Annexure B,
insofar as reliance upon section 14(1) of
the Prescription Act is
concerned. Absent earlier acknowledgments of liability the one in
Annexure B came too late. He submitted
that in the circumstances the
special plea of prescription should be upheld and the action should
be dismissed with costs.
127.
Although the factual basis of Mr Rossouw's argument is correct, in
the final analysis it is formalistic. It is trite that the
object of
pleading is to define the issues; and the parties normally should be
kept strictly to their pleadings, especially where
any departure
would cause prejudice or deny the other party a fair enquiry. But the
court has a wide discretion to make findings
on the evidence in
relation to issues not fully foreshadowed in the pleadings. For
pleadings are made for the court, not the court
for the
pleadings.
[13]
Both parties
had a full opportunity to place the facts before the court in this
case. The case of De Klerk on prescription became
clear during his
evidence and was reiterated in cross examination, where Ferreira had
an opportunity to deal with it, which he
did by conceding it to be
correct; which concession he might have qualified in re-examination,
something he did not do. In the
premises, I am satisfied on the
evidence that prescription was indeed interrupted annually and thus
commenced running afresh on
each occasion, with the consequence that
the debt had not prescribed when summons was issued. It follows that
the special plea
of prescription must be dismissed and Ferreira
remains indebted to De Klerk in the amount of R1 266 000 for the
purchase of the
shares and interest in the companies and that this
amount may be set-off against any compensation payable for the
exchange of shares
and interest which I propose order. The final
amount payable by De Klerk to Ferreira therefore is R5 920 527 (R7
186 527 minus
R1 266 000). De Klerk has made proposals regarding the
modalities of payment, some of which I take into account in the order
I
will issue.
Costs
128.
The costs of various proceedings in the litigation between the
parties need to be addressed. De Klerk is entitled to the costs
reserved by Vorster AJ on 10 June 2014 when he granted part A of the
first application. The application succeeded and the documentation
disclosed pursuant to the order was necessary for the audit.
129.
The costs reserved (which include the costs of the third urgent
application interdicting the bank from allowing Ferreira to
withdraw
money) in respect of part B of the first application, enrolled for
hearing in the third motion court must also be awarded
to De Klerk.
Ferreira argued that the factual disputes were foreseeable, and that
in the prevailing circumstances the De Klerk
ought not to have
launched an application. However, in the initial founding affidavit
De Klerk intimated that after relief had
been granted under Part A,
Part B should perhaps be referred for the hearing of oral evidence or
to trial. Ferreira filed an opposing
affidavit only in June 2015 for
the first time engaging with the merits and the forensic report.
Before De Klerk filed a replying
affidavit, he intimated to Ferreira
that given what was stated in the answering affidavit, factual
disputes may arise. He proposed
that the matter be referred for trial
or for the hearing of oral evidence. Ferreira refused that reasonable
request and insisted
that the matter be dealt with on application. In
the result De Klerk had no choice but to file a reply. In the
circumstances De
Klerk's conduct of the application was reasonable
and the reserved costs relating to part B of the first application,
which would
then include the costs of the third urgent application,
ought to be part of the costs in the trial.
130.
De Klerk is also entitled to the costs of the Kimberley proceedings
including the costs in the summary judgment application
and the
application opposed by Ferreira to transfer of the action to this
court.
131.
There is no reason to deviate from the normal rule that costs should
follow the result in respect of the trial, including the
costs
consequent upon the employment of senior counsel. The matter's
complexity justified the employment of senior counsel.
The
orders
132.
The following orders are made:
132.1 The membership of
the First Defendant in the Second Defendant (Plantsaam) is ordered to
cease or terminate with immediate
effect.
132.2 The shareholding
and membership of the First Defendant in the Third Defendant (Benjo)
is ordered to cease or terminate with
immediate effect.
132.3 The First Defendant
is removed as a director of the Third Defendant.
132.4 The First Defendant
is ordered to transfer his member's interest in the Second Defendant
and his shares in the Third Defendant
to the Plaintiff.
132.5 The First Defendant
is ordered to sign all documents and to take all steps necessary to
effect transfer of the aforementioned
member's interest and shares.
Should he fail or refuse to do so within 10 days of this order, the
Sheriff for the district of Pretoria
East is authorised to do what is
necessary to give full effect to the order in paragraph 132.4.
132.6 Judgment is entered
in favour of the Plaintiff in case no 934/2014 of the High Court,
Northern Cape Division Kimberley, which
was consolidated in these
proceedings, in the amount of R1 266 000. This amount is set-off
against the amounts due by the Plaintiff
to the First Defendant in
respect of the compensation payable for the transfer of his member's
interest and shares as provided
in this order.
132.7 The Plaintiff is
directed to pay an amount of R5 920 527 to the First Defendant upon
and as consideration for the transfer
of his member's interest and
shares as provided in this order.
132.8 The Plaintiff is
entitled to take full charge of all the affairs and business of the
Second and Third Defendants with immediate
effect.
132.9 The First Defendant
is ordered to surrender and deliver all movable assets of the Second
and Third Defendants to the Plaintiff
within three days of this
order.
132.10 The First
Defendant is ordered to pay the Plaintiff's costs of this action
instituted under case no, 35391/2014, such costs
to include the costs
of senior counsel and the following:
132.10.1 the costs
reserved by Vorster AJ on 10 June 2014;
132.10. 2 the costs
pertaining to the third urgent application reserved on 30 September
2015;
132.10.3 the costs
reserved on 24 November 2015 by Thlapi J;
132.10.4 the costs of the
action instituted in the High Court, Northern Cape, Kimberley under
case no. 934/2014, consolidated with
these proceeedings, including
the costs of the opposed summary judgment application and the opposed
application to transfer the
matter to this court; and
132.10.5 the qualifying,
preparation and attendance fees of the Plaintiff's expert witness, Mr
Johan Ferreira, as well as the qualify
and preparation fees of the
valuators in respect of whom the Plaintiff had given expert notices.
_______________________
JR
MURPHY
JUDGE
OF THE HIGH COURT
Date
Heard:
8-25 August 2016; 9 September 2016;
9 November 2016 and 28
November 2016
For
the Plaintiff:
Adv MP van der Merwe SC
Instructed
By:
Stemela & Lubbe Inc.
For
the First Defendant:
Adv PF Rossouw
SC
Instructed
By:
Honey Attorneys
Date
of judgment:
2/2/2017
[1]
Act 71 of 2008
[2]
Act 69 of 1984
[3]
Section 163(2)(e) of the Companies Act
[4]
Section 163(2)0) of the Companies Act
[5]
See Delport et al: Henochsberg on the
Companies Act 71 of 2008
at
30(3) regarding the interpretation of similar language used in
section 12(2)(g)
of the
Competition Act 89 of 1998
.
[6]
Act 61 of 1973
[7]
EB Steam Company (Ply) Ltd v Eskom Holdings SOC Ltd
2015 (2) SA 526
(SCA) at par.9 and 23
[8]
Act 68 of 1969
[9]
Section 14(2) of the Prescription Act
[10]
Miracle Mile Investments 67 (Ply) Ltd and Another v. Standard Bank
of SA Ltd
2016 (2) SA 153
(GJ); Lipschitz v. Dechamps Textiles GMBH
and Another
1978 (4) SA 427
(C), at 430F-G; and Standard General
Insurance Co Ltd v. Verdun Estates (Pty) Ltd and Another
[1990] ZASCA 27
;
1990 (2) SA
693
(A), at 699F-J.
[11]
ABSA Bank Bpk v. De Villiers
2001 (1) SA 481
(SCA), at 486G-487D
[12]
Rhodesia Railways and Others v. Commissioner of Taxes
1925 AD 438
,
at 465
[13]
Robinson v Randfontein Estates GM Co Ltd
1925 AD 173
; and Shill v
Milner
1937 AD 101