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[2017] ZASCA 168
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Media24 (Pty) Ltd v Estate of late Deon Jean Du Plessis and Another (169/2017) [2017] ZASCA 168 (1 December 2017)
THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Not
Reportable
Case
No: 169/2017
In
the matter between
MEDIA24
(PTY)
LTD
APPELLANT
and
ESTATE
OF LATE DEON JEAN DU PLESSIS
FIRST RESPONDENT
CHARLES
ARTHUR STRIDE
SECOND RESPONDENT
Neutral
citation:
Media24
(Pty) Ltd v Estate Late Du Plessis
(169/2017)
[2017] ZASCA 168
(1 December 2017)
Coram:
Bosielo and Saldulker
JJA, Plasket, Lamont and Mbatha AJJA
Heard:
21
November 2017
Delivered:
1 December 2017
Summary:
Appeal
─ Determination of the price of shares by an independent expert
─ appeal against the decision to enforce the
award made by an
independent expert ─ whether there was a manifest error in the
report of the independent expert in that
he went beyond the terms of
the mandate ─ whether the court a quo correctly found that
there was no manifest error.
ORDER
On
appeal from:
Western
Cape Division of the High Court, Cape Town (Allie J, sitting as court
of first instance):
‘
The
appeal is dismissed with costs.’
JUDGMENT
Mbatha
AJA (Bosielo and Saldulker JJA, Plasket and Lamont AJJA concurring)
[1]
This appeal emanates from the Western Cape Division of the High
Court, Cape Town where Allie J found in favour of the first
respondent (Estate Late Deon Jean du Plessis). The appellant
(Media24) appeals with the leave of the court a quo.
[2]
The second respondent (Mr Charles Stride) was appointed by the
appellant and the first respondent as an independent person and
given
a mandate to value certain shares owned by the first respondent
pursuant to a contract for the sale of the shares, on the
death of Du
Plessis, to the appellant. The second respondent valued the shares.
The appellant did not accept the valuation and
alleged that the
second respondent’s valuation was tainted by a manifest error.
The manifest error was submitted to be the
failure of the second
respondent to comply with the terms of the mandate pursuant to which
he was appointed.
[3]
It is necessary to briefly set out the factual background to the
dispute between the parties and the events leading to the institution
of the proceedings in the court a quo. The appellant and the deceased
(Mr Deon du Plessis) whose estate is the first respondent
in this
appeal, were the owners of the shares in a company known as Daily Sun
(Pty) Ltd (the company). The appellant owned 80 per
cent of the
shareholding and the deceased 20 per cent of the shareholding. The
appellant by reason of its shareholding was able
to control the
affairs of the company and derived the benefit of the bulk of the
revenue. At a point in time the appellant embarked
on a restructuring
exercise of the company which involved the expansion to other
provinces and also the outsourcing of printing
services rendered to
the company by a company which is a subsidiary of the appellant. This
restructuring resulted in an increase
of the costs charged to the
company. The increased charges were levied by the subsidiary of the
appellant. The restructuring significantly
impacted upon the direct
costs within the company and hence impacted upon the value of the
shareholding. The deceased protected
his interest in the company by
stipulating that upon his death the appellant would acquire the
remaining shareholding (10 per cent)
at a price which would be
calculated having regard to a formula which took account of the
company structure prior to the restructure.
The contract (referred to
as the third agreement) provided that the calculation of the purchase
price of the shares to be sold
in two tranches and be made by an
independent person.
[4]
When the deceased passed away the first respondent and the appellant
were unable to reach agreement on the purchase price for
the shares
owned by the deceased and agreed to the appointment of an independent
person (second respondent), a chartered accountant
by profession, as
contemplated by the contract. The appellant and the first respondent
instructed the second respondent by way
of a briefing document which
set out the terms of reference including the ambit of the powers
conferred upon him. The appellant
and first respondent in clause 4.8
of the briefing document undertook to be bound by the findings and
recommendations of the independent
person in the absence of any
manifest error. They also agreed that any dispute in relation to the
document would be resolved by
the independent person in accordance
with such procedure as the independent person prescribed and also
that the findings/decisions
of the independent person would, save for
any manifest error, be final and binding on the parties.
[5]
Paragraph 5 of the briefing document sets out the material terms of
the scope of work to be performed by the independent person:
‘
5.
Scope of the work to be performed by the independent person
5.1
. . .
5.2
The Independent Person shall be responsible for, and its report must
include─
5.2.1
the adjustment of annex 1, having regard to the intention, after
applying the contents hereof;
5.2.2
the calculations of the Net Profit After Tax (‘NPAT’),
showing any adjustments made, to be used for each of the
following
valuation calculations–
(a)
Tranche 1, and
(b)
Tranche 2 Part 1 (i.e. in relation to “b”); and
5.2.3
a description of the shared cost cap principles applied, and the
consequence of such application to annex 1; and
5.2.4
the determination of the purchase price for the first tranche sale
shares, as described in clauses 5.1 and 5.2 of the agreement
(it
being recorded that the Independent Person shall discharge the
function of the independent auditors contemplated in these clauses).
5.3
Conclusions should be drawn through establishing [the] contractual
intent of the parties as is apparent from the provisions
of the
agreement. It is apparent that annex 1 to the agreement does not
correctly reflect that factual situation which prevailed
at the
relevant time. Accordingly, in the circumstances, the true intention
of Deon du Plessis and Media24 (“the intention”)
in
respect of annex 1 must be gleaned from representations to be made by
the representatives of parties with reference to the agreement
and
other evidence constituting the written record of their
discussions/negotiations (if any) taking into account the then
factual
situation (i.e. having regard to the intention, what would
the contents of annex 1 have been had the Parties dealt with the
actual
and correct factual situation at the time of conclusion of the
Agreement).
5.4
Consider the calculations proposed by the parties during the
negotiations to date including their cost allocations, methods
of
splitting of costs between shared costs and direct costs and their
shared cost cap calculation. Then determine the calculations
to be
used such that─
5.4.1
there is a proper allocation of shared costs/increased charges to
Daily Sun in light of the specific illustrations and rights
and
limitations stipulated in Annexure 1, having regard to all relevant
facts and the intention;
5.4.2
the shared cost cap calculation protection and/any other agree
protections is/are achieved, having regard to the intention
and
taking into account the principles set out herein;
5.4.3
the intention of the parties in relation to annex 1 to the Agreement,
and the impact thereof on the NPAT calculations in relation
to which
annex 1 is relevant, is given effect to.
5.5
Related to Annexure 1 section titled “Basis of Contributing to
Shared Cost” ─ examine the cost allocations
methodologies, rights, obligations and limitations that are
stipulated, and examined which additional shared costs (if any) are
applicable as a result of the decision to outsource certain functions
to external parties and determine the impact thereof on the
determinations/calculations contemplated herein.
5.6
Consider and compare the structure of Annexure 1 and the management
accounts, examine the differences in structure due to the
costs that
have shifted among the various headings and determine an adjustment
(if any) to the relevant management accounts, necessary
to take the
impact of the adjusted annex 1 on such management accounts into
account, including the relation to the apportionment
of the costs
between the shared and direct costs to give effect to the intention
of the parties in respect of the agreement, including
the provisions
of Annexure 1 as read with the remainder of the agreement, and the
actual cost model which applied at the relevant
time.
5.7
Examine the new IT cost allocation methodology and decide what the
split between shared and direct costs should be in light
of intent of
Annexure 1 and how costs were allocated when Annexure 1 was
developed.
5.8
Printing and distribution costs.
5.8.1
Consider the effect on the shared cost cap calculation of moving the
majority of the operational costs to external suppliers,
and
simultaneously transferring these costs from the shared cost section
of the management accounts to the direct cost section.
5.8.2
Consider the effect on the shared cost calculation of the
implementation of the decision to outsource printing and distribution
to Paarl Coldset and On the Dot respectively on the NPAT, and whether
the printing and distribution costs charged by Paarl Coldset
and On
the Dot respectively have increased disproportionately since their
outsourcing.
5.8.3
Determine the adjustment necessary to apportion the printing and
circulation costs between shared and direct costs to give
effect to
the shared cost cap calculation.’
[6]
It is apparent from the terms of the briefing document that extensive
input from both parties was required and that the parties
had the
right of clarification. The second respondent was entitled to hear
representations supported by expert advice engaged by
the parties
when it was deemed necessary for such advice to be obtained and that
a wide ranging set of powers was conferred upon
the second respondent
who was to exercise such powers as he determined in the course of
valuing the shares. The second respondent
was empowered to reach
decisions which would resolve conflicts, make decisions appropriate
to underlying principles, consider the
intent of the parties to the
contract, consider the impact of that intent on calculations, obtain
the relevant data to make the
calculations, and to make the
calculations necessary to value the shares, as well as generally to
take such steps as he deemed
appropriate to pursue the implementation
of the mandate conferred upon him.
[7]
The second respondent was to use the mandate which was conferred upon
him by the briefing document to determine the purchase
price for the
2 tranches of the sale shares.
[8]
The purchase price of the first tranche of shares was set out in
clause 5 of the contract:
‘
5.1
The purchase price payable by Media24 for the first tranche sale [of]
shares shall be calculated in accordance with the following
provisions:
pp
= [a x 6] x 2.5%
where:
pp
means the purchase price payable for the first tranche sale shares;
a
means the net attributable profit after tax (which shall be a
notional charge calculated at the statutory tax rate applicable
to
the financial year in question) of the newspaper division in respect
of the twelve month period immediately preceding the sale
date,
determined with reference to the audited financial statements of
Media24 in respect of that period, and subject to the provisions
of
5.4 below.
5.2
Media24 Du Plessis shall jointly instruct the auditors to determine
the purchase price within ten business days after the auditors
have
completed the audit of Media24 in respect of the numerals 12 month
period contemplated in “a” If for any reason
the auditors
refuse or fail to determine the purchase price within 14 days of
having been instructed to do so, the purchase price
shall be
determined by independent auditors appointed for this purpose at the
request of either Media24 or Du Plessis by the president
for the time
being of the Law Society of the Cape of Good Hope or its successor
body.
5.3
In determining the purchase price, the auditors or the independent
auditors (as the case may be) shall act as experts and not
as
arbitrators and their decision shall, in the absence of fraud,
manifest error or gross negligence, be final and binding on Media24
and Du Plessis.
5.4
The following provisions shall apply in relation to the determination
of the purchase price payable for the first tranche sale
shares:
5.4.1
the purchase price shall be not less than R1,250,000 and shall not
exceed R6,250,000;
5.4.2
in determining “a”, all extraordinary and non-recurring
gains and income and receipts shall be disregarded;
5.4.3
if “a” is greater than zero, and if the application of
the formula results in the purchase price being an amount
less than
R2,500,000, the purchase price shall be R2,500,000;
5.4.4
if “a” is less than zero, the purchase price shall be
R1,250,000.
5.5
The parties attached as annex 1 an illustration of the calculation of
“a” which is based on the 2008 business plan
financial
results extrapolated to 2011. The parties agree that in determining
“a” the description of shared cost items
as set out in
annex 1 shall apply to such determination.’
[9]
The purchase price of the second tranche of sale shares was set out
in clause 6:
‘
6.1.1
. . .
6.1.2
First tranche valuation’ means the value of the second tranche
sale shares as at the sale date determined in accordance
with the
valuation methodology utilised in respect of first tranche sale
shares set out in 5, duly adjusted to take account of
the difference
between the number of shares comprising the first tranche sale shares
and the number of shares comprising the second
tranche sale shares,
and provided that if the first tranche valuation is to be determined
for any period other than a completed
financial year, the valuation
concerned will be determined with reference to unaudited management
accounts.
6.2
. . .
6.3
The purchase price payable by Media24 for the second tranche sale
shares shall be the value thereof calculated in accordance
with the
provisions of this clause 6 on the basis that:
6.3.1
. . .
6.3.2
if the sale date is a date earlier than 31 March 2013, the purchase
price shall be an amount calculated in accordance with
the following
formula:
a
= b + (c x d/e)
where:
a
represents the purchase price payable;
b
represents the first tranche valuation
of the second tranche sale shares as at the sale date;
c
represents the positive difference (if
any) between the market value and the first tranche valuation of the
second tranche sale
shares as at the sale date;
d
represents the number of days
calculated from 1 April 2010 to the sale date;
e
represents the number 1096 being the
number of days between 1 April 2010 and 31 March 2013.’
[10]
It is apparent from the provisions of the contract that to perform
the work the second respondent would need to use his skill,
make
decisions and obtain the necessary data to which that skill and
decision-making were to be applied. The provisions in clause
5.2 to
5.5 of the contract underpinned the instructions which were given in
the briefing mandate and which have been more fully
set out above.
[11]
The second respondent implemented the mandate conferred upon him and
produced a detailed Report in which he deals with each
element which
he was required to consider in the process of reaching the valuation
of the shares. The second respondent’s
report displays in
detail the instructions, documentation, interpretation of the
contract, analysis of the contracts, review and
adjudication of
certain aspects of the agreements, the disclosed data, his comments
of NPAT, the deceased’s 10 per cent shareholding
and compliance
with the mandate and his opinion.
[12]
The appellant on the other hand submits that there has been a
manifest error in that the second respondent deviated from the
mandate. There is no submission that second respondent mistakenly
expressed himself otherwise than he intended. There is similarly
no
submission that to determine the error it is necessary to regurgitate
the individual facts comprising the decision-making process
thereby
rehearing the matter which was before the second respondent.
[13]
A manifest error is an error that is ‘plain and indisputable
and that amounts to a complete disregard of the controlling
law or
the credible evidence on record.’ See
Winfield v Dimension
Data Holdings Limited & others
2004 JDR 0307 (T) para 25:
‘
What
does “manifest error” really mean? According to Black’s
Law Dictionary 7
th
ed at 563, “manifest error” means “an error that is
plain and indisputable”. . . In the Chancery Division
of
Northern Ireland, Bowsher J in
Dixon
Group plc v John Andrew Murray-Oboynkski
86 BLR 32
, held that a manifest error was an error that may easily be
seen by the eye or perceived by the mind. The learned Judge adopted
the approach of Potter J in
Healds
Food Ltd v Hide Davies Ltd
(1
December 1994, unreported):
“
By
the use of the word manifest it is plain that the parties do not
thereby intend to widen the area of the court’s investigation
beyond the ambit of the determination itself and any reasoning within
it or discernible on its face.’”
[14]
The appellant submits that the second respondent in the process of
reaching his conclusion exceeded the mandate which was given
to him.
In addition the appellant challenges the determination made by the
second respondent of the price of the second tranche
of shares as
being inaccurately calculated. The appellant relies on a report by Mr
A Felet (Felet). Felet is an Australian accountant,
who reviewed the
second respondent’s report. Felet explained that there were
misdirections in the report of the second respondent
and adverts to
matters which have become irrelevant in this appeal save for his
discussion concerning the use by the second respondent
of Annexure 1.
[15]
The primary error alleged to have been perpetrated by the second
respondent was the reliance by him upon annex 1. The submission
was
that annex 1 was outdated and that the second respondent should not
have relied upon admittedly outdated information. Annex
1 is a
document which forms part of the third agreement regulating the sale
of the 10 per cent shareholding by the deceased. It
is common cause
that annexure 1 correctly reflected figures for the period 2007.
Those figures would be incorrect if applied without
adjustment to any
later period. The mandate to the second respondent recognised that
the figures contained in annex 1 could not
willy-nilly be applied
without adjustment. In terms of the mandate the second respondent was
instructed to take into account the
numerous factors set out in
clause 5 of the briefing document, the deceased’s concerns as a
minority shareholder regarding
the expansion of the business to other
provinces, the outsourcing of printing services to a company which
was a subsidiary of the
appellant and the impact of those decisions
upon the shareholding.
[16]
The second respondent interpreted the contract with the assistance of
senior counsel to ascertain the intention of the appellant
and
deceased. He calculated the NPAT in line with the terms of the
contract and calculated the cost allocations in the business
in the
manner provided for in the contract which was designed not to
prejudice the deceased. Once the second respondent had taken
all
those factors into account he concluded what the NPAT would have been
and made the relevant adjustments required to calculate
the purchase
price. When he relied upon annex 1 he was acutely aware of its
shortcomings and took account of them.
[17]
In performing these activities the second respondent was in his view
implementing the mandate conferred upon him. If he was
implementing
the terms of his mandate the first respondent and appellant would be
bound by his findings whether or not there were
errors contained
therein unless there was a manifest error. It is presumably for this
reason that the appellant’s submission
was confined to a claim
that the second respondent was in manifest error by reason of his
failure to apply the mandate conferred
upon him.
[18]
The briefing document contained a clause which bound the parties to
the findings and recommendations of the independent person
in the
absence of any manifest error:
‘
Clause
4.8
‘
4.8
The parties undertake to be bound by the findings and recommendations
of the appointed Independent Person [Second Respondent]
in the
absence of any manifest error.’
The
briefing document also contained a clause relating to the procedure
to be followed by the independent person in resolving the
dispute.
An
unnumbered clause that followed clause 5.10 provided as follows:
‘
Any
dispute in relation to this document shall be resolved by [the
Independent Person] in accordance with such procedure as the
Independent Person may prescribe. The findings/decisions of the
Independent Person in terms of this document shall, save for any
manifest error, the final and binding on the Parties.’
[19]
The main complaint in this Court was that the second respondent had
applied annexure 1 which, it was common cause, a factually
incorrect
document. It is apparent from a consideration of the manner in which
the second respondent applied annex 1 that he considered
the facts
contained within the annexure on a proper basis and in accordance
with the mandate. He was entitled to have regard to
all documents
which were referred to him to interpret the documents and to make use
of the documents to reach his conclusion. There
is no attack upon the
way in which the second respondent used the document, the complaint
is that he made use of it to base his
calculations. The second
respondent implemented the mandate which was given to him and reached
a conclusion pursuant to the mandate.
There was no manifest error.
This complaint in my view is unfounded.
[20]
The appellant submitted that the market value of the second tranche
of shares had never been determined. The price of the second
tranche
of shares was to be determined in accordance with the provisions of
clause 6. The formula upon which the purchase price
was to be
calculated is set out in clause 6.3.2 of the third agreement. As
appears from the formula the purchase price payable
is equal to the
first tranche valuation plus the positive difference between the
market value of the first tranche valuation and
the second tranche
sale shares adjusted to reflect the number of days calculated from a
date to the sale date as against the number
of days calculated from
the date to the 31 March 2013. It is immediately apparent that the
purchase price of the second tranche
is represented by the valuation
of the first tranche plus a positive amount. The first respondent
abandoned the calculation in
respect of the positive amount and
sought only a purchase price based on
the
valuation of the first tranche shares. This being so the purchase
price of the second tranche sale of shares is constituted
by the
valuation of the first tranche sale shares. The valuation of the
first tranche sale of shares is not the capped amount which
was the
purchase price payable in respect of those shares. It is the
valuation of the shares. The second respondent valued the
shares on
that basis and correctly determined what the share price was for the
second tranche.
[21]
There was accordingly no manifest error in the way in which the
second respondent reached the purchase price payable for the
second
tranche.
[22]
Accordingly, the appeal is dismissed with costs.
__________________
Y T Mbatha
Acting
Judge of Appeal
Appearances
For
Appellant:
S F Burger SC
Instructed by:
Werksmans, Cape Town
Lovius Block Attorneys,
Bloemfontein
For
Respondent:
A Subel SC
Instructed by:
Baker & McKenzie,
Sandton
McIntyre Van Der Post,
Bloemfontein