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[2016] ZAGPPHC 871
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Booysen and Others v Kohrs and Others (59732/2016) [2016] ZAGPPHC 871 (22 September 2016)
IN
THE HIGH COURT OF SOUTH AFRICA
(GAUTENG
DIVISION, PRETORIA)
Case
number: 59732/2016
Date:
22 September 2016
Not
reportable
Not
of interest to other judges
In
the matter between:
ANTON
FRANCOIS
BOOYSENFIRST
APPLICANT
WILHELMUS
PETRUS VAN RHEEDE VAN
SECOND APPLICANT
OUDTSHOORN
CP
DE LEEUW (PRETORIA) (PTY)
LTD
THIRD APPLICANT
And
MAGDALENA
VASTI
KOHRS FIRST
RESPONDENT
CAREL
RUDOLPH
SERFONTEIN SECOND
RESPONDENT
ENSO
CONSULTING (PTY)
LTD THIRD
RESPONDENT
JUDGMENT
PRETORIUS
J ,
(1)
In this urgent application the applicants
seek an interim order preventing the
first
and second respondents from carrying on their profession as quantity
surveyors, through the third respondent, for a period
of two years.
(2)
The matter was set down as an urgent application for a day.
The length of time required for the hearing resulted
that the
court had to set it down for a special hearing.
(3)
The respondents launched a counterclaim for the following relief:
"1.
That the applicants
be compelled
to
provide
the first and second respondents
with
written consent
as
envisaged in
paragraph 24.2
of
annexure
"AB9"
to
the
founding affidavit to carry
on business
as
quantity surveyors
within
a
1OOkm radius
from
the main
place
of
business
of
the
third
applicant.
2.
That
the
applicants be
ordered
to
pay the
costs
of
this
counter-claim on
the
scale
as
between attorney and client."
(4)
In the nature of things restraints of trade challenges are normally
regarded as semi-urgent. This court decided to hear the
application
as an urgent matter after hearing counsel.
(5)
It is common cause that the first and second respondents are co
shareholders with the first and second applicants in the
third
applicant. It is further common cause that the first and second
respondents are the sole directors of the third respondent
and are
practising as quantity surveyors within a 1OOkm radius of the first
applicant. There is no dispute that the first
and second
respondents had signed restraint of trade agreements. The applicants
and the first and second respondents had
concluded a Sale of
Shares Agreement, a Delegation Agreement and the Shareholders
Agreement.
(6)
Both the first and second respondents resigned as directors and
employees of CP De Leeuw (Pretoria) (Pty) Ltd ("De Leeuw")
on 28 June 2016. It is conceded that, as directors of De Leeuw, the
first and second respondents were able to build a personal
relationship with De Leeuw's clients.
(7)
The respondents argue that although the applicants are only seeking
interim relief, the granting of such relief will be final
in effect
as it will prohibit the respondents from practising as quantity
surveyors and will lead to destruction of their business,
the third
respondent.
BACKGROUND:
(8)
The third applicant is one of the oldest quantity surveying firms in
the country and has as such built up, through decades,
a considerable
national and international reputation and standing. Most of the third
applicant's contracts with its clients are
executed within a 100km
radius of the third respondent's business premises at Corporate
Place, Block B, Ashlea Gardens, Pretoria.
(9)
According to the applicants the intellectual property of the company
consists of a building economics manual, building economics
software
which the company has developed, building contract manual, cost
manager developed by the company, model bill of quantities,
customised cost plan - Microsoft Excel Template, customisation to the
WinQ's programme used by quantity surveyors and a reference
library
of historical bills of quantity set up over years of executed
tenders.
(10)
Both the first and second respondents had made extensive use of the
model bill of quantities and the further intellectual property
of the
company. The first respondent was employed by the company from 1
April 2005 to 31 March 2008, but was re-employed on 1 July
2009. The
second respondent joined the company on 1 May 2010. On 8 May 2012 the
first and second respondents signed the shareholders
agreement,
the sale of share
agreement and the
delegation
agreement. As shareholders and directors the first and second
respondents were granted access to all the intellectual
property of
the third applicant. They were allowed to liaise with all the
company's clients without supervision and oversight.
(11)
On 26 November 2014 the first and second respondents became entitled
to a dividend of R490 384.71, as per the agreement. Both
respondents
were paid 30% of the dividend and in accordance with the delegation
agreement the balance of 70% was paid to the first
and second
applicants as part payment of the purchase price of the shares. After
this payment the first and second respondents
were still indebted to
the first and second applicants in an amount of R2 206 730.72.
(12)
The Sale of Share agreements, concluded with the first and second
respondents, provided for the sale of 102 shares by Mr Booysen,
the
first applicant, and Mr van Rheede van Oudtshoorn, the second
applicant, at a purchase price of R2 550 000 to the first and
second
respondents respectively. The agreement provided that it would
be paid by the respondents by paying a deposit
of an amount of
R255 000 and the balance would be payable over a five year period.
On the same date a delegation of
payment was signed, which
provided for the delegation of first and second respondents' payment
obligations in terms of the Sale
of Share agreements to the company.
(13)
The delegation agreement records that the first and second
respondents are each indebted towards Mr Booysen and Mr van Rheede
van Oudtshoorn in the amount of R2 295 000. The board of the company
resolved to assist the respondents in the acquisition of the
shares
and that the first and second respondents delegate their obligations
in terms of the Sale of Share agreement to the company.
The agreement
provides that 70% of a declared dividend will be used to settle the
outstanding purchase price and will be paid over
a period of five
years. Should the dividends paid to the first and second respondents
not suffice to pay off the debt within five
years, the first and
second respondents would become personally liable for the debt.
(14)
On the same date a Shareholders agreement was concluded between
the first and second applicants and the first and second
respondents.
This agreement provided for the declaration of dividends and how it
would be distributed. According to the applicants,
it was
concluded with the understanding that all parties contemplated
staying at the firm until the age of retirement.
(15)
At
present
the
shareholding
in
the
company
is
Mr
Booysen
-
186
shares,
Mr
van
Rheede
van
Oudtshoorn
-
130
shares
and
the
first
and
second
respondents
102
shares
each.
Both
the
first
and
second
respondents resigned on 28 June 2016.
It
must be noted that on 8 May 2012 when
all
the relevant agreements
were
signed
by
all the parties, the
parties
were
under
the
impression
that
the
old
Companies
Act
[1]
was
still
applicable.
In
fact
the 2008
Companies
Act
[2]
commenced
on
1
May 2011
and
was
thus
applicable.
(16)
I cannot agree with counsel for the respondents that the provisions
of clause 24.2 of the shareholders agreement is vague and
embarrassing. It is clear from the reading of the relevant clause
that the respondents are prohibited to engage in practice, directly
or indirectly, and/or from executing contracts as quantity surveyors
within a 1OOkm radius of the company's business premises.
This point
in
limine
is thus dismissed.
(17)
On 28 July 2016 a meeting was held between the first and second
applicants and the first and second respondents. The main thrust
of
the meeting was to explore whether the first and second respondents
could continue to work with the company's clients and to
finalise the
projects that they were working on in the name of the company. This
was a follow-up meeting of the meeting on 27 July
2016 where it was
discussed how the projects could be completed and how the outstanding
fees would be divided between the
third applicant and the third
respondent. There is a dispute between the applicants and the
respondents whether they had reached
an agreement to this effect. It
was, according to the applicants, agreed that a written proposal
would be prepared on 1 August
2016 by the applicants.
(18)
If regard is had to the correspondence between the second respondent
and Mr Anastasiadis, one of the clients effected by the
respondents'
resignation, then the court cannot find that an agreement had been
reached. The second respondent replied to a query
from Mr
Anastasiadis on 2 August 2016 as to who he should pay and whether his
contracts must be terminated, as follows:
"Yanni
We
are busy formalizing it and I will send to you ASAP.
Regards,
Rudy"
(19)
It is clear that on 2 August 2016 nothing had yet been formalized,
but that negotiations were ongoing. The second applicant
denies
granting permission to the two employees, Claassens and Snyman, who
had resigned to join the third respondent, to do so.
(20)
The respondents dealt in detail with the events from 27 July 2016
until 2 August 2016. The first and second applicants
chose not
to respond to these detailed averments apart from denying that they
had seen the document setting out the outstanding
projects and
denying any permission that Claassens and Snyman were permitted to
start work at the third respondent.
These
disputes of fact are material in
the counterclaim. In any event the counterclaim
does not only
deal with the unfinished projects as contended by the respondents,
but go much further.
LOCUS
STANDI:
(21)
The respondents attack the
locus
standi
of the first and second
applicants. The respondents rely on clause 24.2 and 24.3 of the
shareholders
agreement when arguing that the first and second
applicants cannot rely on these clauses to
cloak them with
locus standi.
(22)
Clause 24.2 and 24.3 provides:
"The
shareholders and
directors in
their
personal capacities
as
directors,
undertake
to
the
company
that,
for
so
long
as
they are
shareholders
or directors
in
the
company
and
for
a
period
of 2
(two) years
from
any
of
them
ceasing
to
be
a
director
or
shareholder of the
company
(the "CEASING
D
A
TE')
they and
any
of
the
directors,
will
not
anywhere within
a
100
(one hundred) kilometre
radius from the main
place
of business
of
the
company, whether
directly
or
indirectly, in
any
manner
whatsoever
and
whether
alone
or
jointly
with
or
as
agent
for
any other
person,
body corporate, partnership,
association,
firm or undertaking of
any
nature
whatsoever, be
engaged, interested or
involved,
in
any
way
whatsoever,
in
or
with
any
entity carrying
on
the
business
or
similar
business
activity
of
the
company
or
any
of
its
subsidiaries, except
with
the
written consent
of the
majority
of the shareholders
of the
company, which
consent shall
not
be
unreasonably
withheld."
(Court emphasis)
And
'The
shareholders
and
directors
undertake
to
the
company
that
they
will
not
at
any
time
whilst
they
are
shareholders
or directors
of the
company
and
for
a
period
of
1 (one) year
from the CEASING
D
A
TE, directly or
indirectly, solicit,
offer
employment to,
entice
or
endeavour to
entice
away,
or
employ or procure
the
employment
of
any
person
who
are
or
may
be
in the
employ
of
the
company as
at
the
CEASING
D
A
TE,
or
who
was
employed
by the
company
within
twelve (12)
months immediately
prior
to
the
CEASING
DATE."
(Court emphasis)
(23)
It is clear from the wording of these clauses that the directors and
shareholders are not included as the restraint clauses
relate to the
company, which is the third applicant. However the third applicant
has
locus standi
and I will deal with the matter on this
basis.
(24)
The further argument in this regard is that according to clause 19 of
the shareholders agreement no resolution will be passed
or action
taken in respect to various matters unless 75% of the shareholders
agree to the terms of the resolution. Both the first
and the second
respondents are still shareholders in the third applicant and
therefore 75% of the shareholders holding the company's
issued
capital did not agree to institute legal proceedings.
(25)
I must agree with the applicants' argument that in the present
circumstances it would have been impossible to obtain the first
and
second respondents' permission to institute proceedings against
themselves. I will deal with the application bearing in mind
that the
first and second respondents would not have granted permission under
these circumstances.
FINANCIAL
ASSISTANCE:
(26)
Section
44
of
the
Companies
Act
[3]
,
2008
provides:
"(1)
In
this
section, "financial
assistance" does
not
include
lending
money
in
the
ordinary
course
of
business
by
a
company whose primary
business
is
the
lending
of
money.
(2)
Except
to
the
extent
that
the
Memorandum of
Incorporation of
a
company
provides
otherwise, the
board
may
authorise
the company to
provide
financial
assistance
by
way
of
a
loan,
guarantee,
the provision of security or otherwise to any person for the
purpose of, or in connection with, the subscription
of any option, or
any securities, issued or to be issued by the company
or
a
related
or inter-related
company,
or for
the purchase
of
any
securities
of
the
company
or
a
related
or inter-related
company, subject
to subsections
(3)
and
(4).
(3)
Despite
any provision
of
a
company"s
Memorandum
of
Incorporation to
the
contrary,
the
board
may
not
authorise
any
financial assistance
contemplated in subsection (2), unless-
(a)
the particular
provision
of
financial
assistance
is-
(i)
pursuant
to an employee
share
scheme
that satisfies
the requirements
of section
97;
or
(ii)
pursuant to a special resolution of the shareholders, adopted
within the previous two years, which approved such assistance
either for the specific recipient, or generally for a category
of potential recipients, and the specific recipient falls
within that
category;
and
(b)
the board
is
satisfied
that-
(i)
immediately after providing the financial assistance, the
company would satisfy the solvency and liquidity test;
and
(ii)
the terms under
which the
financial
assistance
is
proposed
to
be
given are fair and reasonable
to
the company.
(4)
In
addition
to
satisfying
the
requirements of
subsection (3), the
board must ensure that any conditions or
restrictions
respecting
the granting
of financial
assistance
set
out in
the
company's
Memorandum
of
Incorporation
have
been
satisfied.
(5)
A decision
by
the
board
of
a
company to
provide financial
assistance
contemplated
in
subsection
(2), or an
agreement
with
respect
to
the
provision of
any
such
assistance,
is
void
to
the
extent that the provision of that assistance would be inconsistent
with-
(a)
this section;
or
(b)
a
prohibition,
condition or
requirement
contemplated in subsection
(4)."
(27)
It is common cause that the share agreement, the purchase and
delegation agreements were signed simultaneously. It is
quite
clear that section 44(1) is not applicable in the present
circumstances as it did not land
"money
in
the
ordinary
course
of
business".
It is common cause that no Memorandum of
Incorporation existed at the time.
(28)
The respondents had from the outset argued that the agreements were
void as they were intrinsically tied with one another and
that the
delegation agreement constituted the giving of financial assistance
with regard to the purchase of the shares. This is
disputed by the
applicants as according to them, the direct purpose of the delegation
was not the provision of financial assistance
by the company for the
purpose of or in connection with the purchase of its shares by the
first and second respondents, but to
effect direct payment by the
company of the purchase price to the first and second applicants out
of the declared dividends
which would be due
to the first and second respondents.
According to the
applicants this was a mere mechanism utilized so
that the company could pay the first and second applicants. The
argument is that
the first and second respondents were still
ultimately responsible for the purchase price to the company.
(29)
In the agreement of delegation it is set out:
"In
execution
of
and
pursuant
to
the
CONTRACT
it
is
common cause between
the
parties
that Serfontein is indebted to Booysen
in
an
amount of
R2 295
000.
00
(two
million two hundred
and
ninety
five
thousand
rand)."
And
"The
payment obligations and liabilities of Serfontein to Booysen as
contained in the CONTRACT shall pass to the Company on
the effective
date."
The
agreement of delegation pertaining to the first respondent is exactly
the same, except that the first respondent's liabilities
to the
second applicant
"shall
pass to the company on
the effective date".
(30)
In clause 6.1 of the delegation agreement it was recorded that the
first applicant consents to the second respondent's delegation
of his
obligations in terms of the purchase agreement to the company with
immediate effect. The same applied in the case of the
second
applicant.
(31)
In clause 6.2 of the delegation agreement, it was stated that from
date of signature of the agreement the payment obligations
of
the respective first and second respondents in favour of the
respective first and second applicants shall be deemed
to be the
payment obligations of the company.
(32)
In clause 6.3 it is recorded:
"The
company undertakes in favour of Booysen to be bound by and to perform
the obligations in terms of the CONTRACT in accordance
with its terms
and conditions."
Once
more the same applies in respect to the second applicant.
(33)
Christie, The Law of Contract in South
Africa, 6
th
edition, page 480 makes it clear
that a delegation so accepted leads to a substitution of the debtor
as is stated by the learned
author that
"Delegation
is
a
form of novation
by
which, by
agreement
between
all
concerned
a
third party
is
introduced
as
debtor
in
substitution
for
the
original
debtor,
who
is
discharged".
In this instance the
company stepped into the shoes of the first and second respondents
respectively.
(34)
Section 44(2) provides that the board may authorise
the company to provide financial assistance
for the purchase of the shares
in the company subject to the provisions of subsections
3
and 4.
(35)
In
Gardner
and
Another
v
Margo
[4]
Van
Heerden
JA
found:
"In
Lipschitz NO v UDC Bank Ltd,26 this court appears to have accepted
the distinction drawn by Schreiner JA in Gradwell
(Pty)
Ltd v Rostra Printers Ltd between the 'ultimate goal' of the
transaction in question and its 'direct object, and
to accept
that it is
only
the direct
object
of
the
transaction
that is
relevant.
If
the
direct
object
is
not
the provision
of
financial
assistance
by the
company for the
purpose of
or
in connection with
a
purchase
of its
shares,
then
it
is
irrelevant
that
the
ultimate
goal of the transaction
was
to enable
a
person
to
purchase
such shares.
Moreover, financial assistance
within the
meaning
of s 38(1) is given only when the
direct object of the transaction is to assist another financially
-
the s 38 prohibition is not contravened when the direct object
of the transaction is merely to give another that to which he or she
is already entitled."
(Court
emphasis)
(36)
This court has to decide what the direct object of the transaction
was. In the present case the direct object falls outside
the scope of
the legitimate operations of the company. Here the company became
surety to the sellers, the
first
and second applicants, for the
purchasers, the first and second respondents'
obligations to pay the
price to secure the obligation. I find that in this instance the
direct object of the transaction was to
assist the first and second
respondents financially and therefor section 44(2) applied.
(37)
Section 44(3) provides,
inter
alia,
that the
board may not authorise any financial assistance unless the
particular provision of financial assistance was pursuant to
a
special resolution of the shareholders, adopted within the previous
two years approving such assistance to specific recipients
generally.
In this case no resolution was taken to comply with section
44(3)(a)(ii) and the applicants fall foul of this provision.
(38)
It has, in any event, been shown that the board could not and did not
satisfy the solvency and liquidity test immediately after
providing
financial assistance. It must be mentioned that actual (objective)
solvency and liquidity is not the test. The test is,
as set out in
Henochsberg on the
Companies Act, 71 of 2008
in the commentary to
section 44(3)
'The test
is
also
as
to
the
solvency
and
liquidity
immediately
after
providing
the
financial
assistance.
Insolvency (factual)
or
illiquidity
outside
this
moment
would
be
irrelevant".
Section 44(3)(b)
further provides that
in addition thereto the board must be satisfied that immediately
after granting the financial assistance,
the company was solvent and
liquid and that the terms of the financial assistance are fair and
reasonable to the company.
(39)
Section 44(5)
provides,
inter
alia,
that
an agreement for financial assistance is void to the extent that the
provision of any such assistance is inconsistent with
section 44
or
falls under a prohibition in terms of
section 44(4).
(40)
Furthermore the respondents set out in the answering affidavit that
the company failed the solvency and liquidity test as
the
financial statements for the year ended 29 February 2012 showed
an accumulated loss of R904 716.00 and at the end
of the financial
year ended on 28 February
2013 had
an
accumulated loss of R1 518
208.00. The applicants' response is set
out by the first applicant
where he states: "
I
deny
that
the
Shareholders
Agreement
is void either
on
the basis
alleged
by
the
Respondents
or
at
all"
and
"The further
allegations
are
noted".
One would have expected the applicants
to reply to the allegations and arguments related to the provisions
of
section 44.
At the time the company's
liabilities exceeded its assets and the position of the company
did
not comply with the provisions of
section 44(2)
and
section 44(3)(b).
The applicants do not even
attempt to deal with the respondents' averments that the
company did not comply with
the provisions of
section 44(3).
The
court finds that therefore
section 44(5)
applies. Under
the circumstances
section 44
is applicable and the result of
the applicants' not complying with
section 44
as set out above is
that the agreements are all void. As the restraint of trade is part
of the shareholders agreement it has to
be declared void.
(41)
Due to my finding that the agreements are void it is not necessary
for me to deal with the enforceability of the restraint
of trade as
it forms part of the shareholders agreement. I will not deal with the
question of unlawful competition, as the applicants
did not pursue
this.
COUNTERCLAIM:
(42)
It follows that if the shareholders agreement is void, that the
court cannot deal with the counterclaim and
compel the
applicants to consent as referred to in paragraph 24.2 of the
shareholders agreement.
(43)
In the result I make the following order:
1.
The application is found to be urgent;
2.
The application is dismissed with costs;
3.
The applicants to pay the costs jointly and severally, the one to pay
the other to be absolved;
4.
The counter-application is dismissed with costs.
Case
number :
59732/2016
Matter
heard on :
5 September 2016
For
the Applicant :
Adv. BC Stoop SC
Instructed
by :
KR Attorneys
For
the Respondent : Adv DM Leathern SC
Instructed
by :
Friedland Hart, Solomon
& Nicolson
Date
of Judgment : 22
September 2016
[1]
Act 61 of
1973
[2]
Act 71 of 2008
[3]
Supra
[4]
2006(6) SA 33 (SCA) at paragraph 47