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[2017] ZAGPPHC 423
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Hesslewood v Naidoo and Another (50937/2013) [2017] ZAGPPHC 423 (7 March 2017)
HIGH
COURT OF SOUTH AFRICA
(GAUTENG
DIVISION, PRETORIA)
Case
no. 50937/2013
In
the matter between:
P.D.
HESSLEWOOD
.................................................................................................
Plaintiff
and
N.
NAIDOO
...................................................................................................
First
Defendant
HTSA
POWER PTY
LTD
.........................................................................
Second
Defendant
JUDGMENT
RABIE,
J
1.
The plaintiff claimed from the first defendant payment of the amount
of R 556 189,12 being the balance due and owing to him for
the sale
of 16% of the total issued shares in the second defendant. The first
defendant denied being indebted to the plaintiff.
2.
During December 2008 the plaintiff was the holder of 40% of the
shares of the second defendant. The second defendant was part
of a
group of companies in the High Voltage industry. In order to
maximise the BEE credentials of the second defendant a number
of
changes in, inter alia, the shareholding, were made which included
the transfer of 16% of the shareholding of the plaintiff
in the
second defendant, to the first defendant. It is not necessary to
refer herein to the nature of the activities of the separate
companies nor to the manner in which their activities were
structured.
3.
It is common cause that the plaintiff was not amenable to sell the
aforesaid shares at the 2008 value thereof and wanted to
retain his
shareholding until 2010. That would have enabled the plaintiff to
build value into the company and consequently also
into the shares
thereof. The future of the second defendant appeared to be very
bright and had secured long-term contracts, inter
alia with Escom,
which the plaintiff wanted to benefit from. On the other hand the
parties realised that the second defendant would
significantly
benefit if the first defendant could purchase the shares immediately
to enable the company to proceed with its business
plan. After the
sale of the 16% shares, the first defendant would have possessed 51%
of the second defendant's shares.
4.
The plaintiff and the first defendant consequently agreed that the
sale and transfer of the 16% shares of the plaintiff would
be
effected forthwith and that, in order to compensate the plaintiff for
the loss of any benefit that may have accrued to him from
the value
of the 16% shares over this timing difference, he be compensated by
way of a deferred payment to him of the value
of the shares
equivalent to the value thereof calculated in terms of the
shareholders agreement as at the date of 31 May 2010.
5.
In order to give effect to the aforesaid agreement between the
parties the first defendant signed a written Acknowledgement of
Indebtedness dated 8 December 2008 which recorded the aforesaid
background and the indebtedness of the first defendant.
6.
According to the plaintiff a provisional valuation of the shares was
done during 2010 in the amount of R 1 205 445,49 which was
paid to
the plaintiff in the reduction of the purchase price for the sale of
the 16% shares. According to the plaintiff the value
of the shares as
at 31 May 2010 could not be finally determined on that date for the
reason that the net future value of orders
and future orders on
existing contracts including contracts with Escom, could only be
accurately determined at a later date.
7.
The value of the shares as at 31 May 2010 was finally determined on
1 November 2012 at R 1 761 634, 61. Having regard to the
aforesaid
payment made on the provisional valuation the first defendant is
consequently, according to the plaintiff, indebted
to the plaintiff
in the amount of R 556 189,12, which is the amount claimed in the
summons.
8.
The first defendant's case is that he was only liable to the
plaintiff in the amount of R 1 205 445, 49 which was the first
valuation, and which had been paid.
9.
The parties were in agreement that this court should only decide the
dispute as to whether the aforesaid payment to the plaintiff
constituted the full purchase price or only part of thereof. The
first defendant accepted the 2012 calculation with the result
that
this court only had to decide the issue of liability for the amount
of R556 189,12 and not the calculation thereof. Similarly,
the
parties were in agreement as to the date from which interest should
run in the event of the first defendant being ordered to
pay the
aforesaid amount.
10.
In support of the plaintiff's case the evidence of Mr David Tromans
was presented. The first defendant did not testify and
neither did
anybody testify on behalf of him.
11.
Mr Tromans is a qualified Chartered Accountant who joined High
Voltage Technology ("HVT"), one of the group of companies,
as a Director and shareholder on 1 March 2000. He was also the
financial director of this company. Mr Tromans testified to the
activities of the group of companies during the period concerned and
more particularly the decision that the first defendant would
purchase 16% of the shares of the second defendant from the plaintiff
to enable him to become a majority shareholder. He testified
that
the shares sold to the first defendant were transferred to him on 9
March 2010 and in terms of a back to-back agreement
same were
transferred to HVT. Although the aforesaid amount for the shares
was paid by HVT, the further negotiation and payment
for the shares
are not relevant for purposes of the present dispute.
12.
Mr Tromans testified that he was tasked by Mr G. Naidoo, the CEO and
majority shareholder of HVT, to see through the aforesaid
transaction
of the sale of shares and to do the valuation thereof. Mr G. Naidoo
is the father of the first defendant.
13.
Mr Tromans further testified that at the time the second defendant
held three- year contracts for the provision of high-voltage
equipment to Escom and that there were other contracts which had
not yet run their course. The issue was thus how the value
of the
company was to be determined. This issue affected not only the sale
of shares between the plaintiff and the first defendant
but also the
sale of shares by the plaintiff to other minority shareholders.
During February 2010 Mr Tromans made the required
valuation and
according to the written notes to his valuation, and also according
to his evidence, the valuation had to be reassessed
and adjusted with
reference to actual orders and audited accounts covering the
following year. In other words, the valuation had
to be done with
reference not to estimated orders but to actual orders which could
only accurately be done after expiry of the
relevant contracts.
14.
In regard to the valuation of the 16% shares sold to the first
defendant and the shares sold to the other minority shareholders
an
agreement was reached on 15 July 2010. It was agreed that a
reassessment of the share price will be made on 31 May 2011 and
that
an adjustment will be made either positive or negative to the
interim price. This course was decided upon to avoid the valuation
being done on the basis of an estimation of the value of future
contracts and to rather revisit the issue a year later when the
actual figures would be known after the contracts had been completed.
Mr G Naidoo who represented HVT, which had purchased the
shares from
the first defendant, was not prepared to go along with this agreement
and left the meeting without making any proposal
as to the finai
settlement in respect of the 16% shares originally purchased by the
first defendant.
15.
The valuation was done, according to Mr Tromans, by using the formula
set out in paragraph 1.1.1.13 of the shareholders agreement
which
relates to the "net asset value" of the company and
also having regard to paragraph 10. Paragraph
1.1.1.13 reads
as follows:
"'
net asset value' - for the purposes of clause 10 - the net asset
value of the Company as at the relevant date determined
in accordance
with the audited financial statements of the Company as at the
financial year end immediately preceding the date
when the net asset
value is required to be determined as certified by the auditors and
which shall comprise -
1.1.1.13.1 the
total market value of the fixed assets, current assets, other assets
of the Company, the net future value of orders
on hand and work in
progress on a going concern basis at such time (excluding goodwill
and other intangible assets) less
1.1.1.13.1.
1 the total of all provisions (made in terms of generally
accepted accounting practice) in respect of such assets;
and
1.1.1.13.1.
1 the current and long-term liabilities (including shareholders
loans) of the company including the primary loan
account;
"net
future values of orders on hand" - shall mean the gross sales
value, less: 1.1.1.13.1.3 direct costs and;
1.1.1.13.1.4
a relevant portion of indirect overheads and; 1.1.1.13.1.5 Company
Tax."
16. Paragraph
10 reads as follows:
"10.1.1
in determining the valuation of any shareholder's equity for the
purpose of any sale or disposition thereof whether
to the remaining
shareholders or to any third party, the valuation shall not be less
than:
10.1.2 the
net asset value of the company as at the date of the valuation.
(Refer to definitions 1.1.1.13)
10.1.3 the
value of the shareholder's equity as determined in terms of this
clause constitutes the fair value there of for the purposes
of this
agreement and for determination of the purchase price of thereof as
at the date of departure, or sale as the case may be.
10.1.4 should
any of the parties dispute the valuation in terms of 10.1.1, such
dispute shall be resolved in terms of the provisions
of clause 21
hereof."
17.
Clause 21 provides that disputes should be referred to arbitration.
18.
As stated before, there is no dispute between the parties regarding
the correctness of the valuations by Mr Tromans. This means
that the
parties accept that the value of the company and that of the shares
as at 31 July 2010 was correctly valuated by Mr Tromans
in 2012 when
he had regard to the actual figures and not estimations.
19.
The minority parties paid the share prices as calculated by Mr
Tromans but, as stated before, the first defendant refused to
do so.
20.
The evidence of Mr Tromans was that a contract such as the second
defendant had with Escom is to be regarded as an asset of
the
company. It is however not the gross income that constitutes the
asset but the net value thereof after deduction of inter alia
operating expenses and tax. It is for this reason as well as for the
reason that actual orders are only known at the expiration
of a
particular contract, that the correct valuation of the shares in
terms of the provisions of the shareholders agreement, can
only be
done at such a time. To do so instead of applying estimations is,
according to Mr Tromans, in line with accepted commercial
practice.
There is furthermore nothing in the shareholders agreement that
militates against that this approach.
21.
Clause 1.1.1.13 also makes mention of the net future value of orders
on hand which must be used in the calculation of the value
of the
company. The reference to the "future value" similarly
indicates that future orders which would emanate from existing
contracts should be considered in the valuation process. This in my
view is the only commercially sensible construction to be given
to
this clause.
22.
I agree with the approach of the plaintiff. The payment made to the
plaintiff during 2010 was not a final payment or a payment
made in
respect of a final calculation. There was going to be a deferred
payment. The parties were also at all times aware of the
value of the
contracts which had not yet expired and the fact that accurate
calculations could only be done of the value of such
contracts once
they had expired. In doing so the value of the particular asset
could be established with reference to the correct
facts instead of
with reference to estimations and guesswork. The evidence of Mr
Tromans is to the same effect and so are the notes
made by him on his
valuation documentation. It is also of significance that there had
been no doubt with any of the other minority
shareholders as to what
the shareholders agreement provides in respect of the calculation of
the value of the shares of the company.
23.
The acknowledgement of debt signed by the first defendant also did
not stipulate when the valuation had to take place. It only
had to be
made with reference to the 31 May 2010. Nothing precluded the actual
valuation to be done at a later date. This was done
with reference to
accurate facts and the valuation of Mr Tromans complied with the
intention of the parties as expressed in the
acknowledgement of
indebtedness.
24.
Consequently the plaintiff should succeed with his claim. I have been
informed that the parties have agreed that interest should
run as
claimed from 24 February 2013 to date of final payment.
25.
In the result the following order is made:
1. The first defendant is ordered to
pay to the plaintiff the sum of R556189,10 together with interest
thereon at the rate of 3%
above the prime rate charged by the First
National Bank from the 24 February 2013 to date of final payment.
2. The first defendant is ordered to
pay the plaintiff's costs of suit which costs shall include the costs
of senior counsel.
_______________________
C.P.
RABIE
JUDGE
OF THE HIGH COURT