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[2014] ZAFSHC 203
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L v L and Others (917/2014) [2014] ZAFSHC 203 (6 November 2014)
SAFLII
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Certain
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IN
THE HIGH COURT OF SOUTH AFRICA
FREE
STATE DIVISION, BLOEMFONTEIN
Case
No.: 917/2014
In
the matter between:
F[…]
W[…] C[…] L[…]
….......................................................................................................
Applicant
and
A[…]
L[…]
….................................................................................................................
First
Respondent
J[…]
C[…] L[…]
…...................................................................................................
Second
Respondent
R[…]
L[…]
…................................................................................................................
Third
Respondent
KIRFOJHL
CC
…........................................................................................................
Fourth
respondent
HEARD
ON:
7 AUGUST 2014
JUDGMENT
BY:
N.M. MBHELE, AJ
DELIVERED
ON:
6 NOVEMBER 2014
[1]
This is an Application wherein the applicant prays for an order in
the following terms:
“
1.
An order interdicting and prohibiting the First Respondent from
disposing of her 17% member’s interest in the Fourth Respondent
without the consent of the Applicant, the Second Respondent and the
Third Respondent.
2.
An order directing that the First Respondent shall cease to be a
member of the Fourth Respondent forthwith, her member’s
interest be transferred to the Fourth Respondent immediately.
3.
An order directing that the Fourth Respondent shall purchase the 17%
member’s interest in the Fourth Respondent held by
the First
Respondent.
4.
An order directing that the price which the Fourth Respondent shall
pay to the First Respondent for the said member’s
interest
shall be determined as follows:
4.1
The Fourth Respondent shall pay the fair market-related value for
the member’s interest of the First Respondent,( taking
into
account that the member’s interest represents a minority
holding), less such amount as may be found by a competent court
to be
due by the First Respondent to the Fourth Respondent on loan account
or otherwise.
4.2
For the purpose of the said purchase of the First Respondent’s
member’s interest by the Fourth Respondent, the
fair value of
the member’s interest shall be determined with regard to the
financial condition of the Fourth Respondent as
at the date of 27
January 2013.
4.3
The parties are directed to endeavour to agree upon the appointment
of practising charted accountant of not less than 10 years
standing,
who shall not be the Fourth Respondent’s auditor nor have been
previously professionally engaged in any capacity
by any of the
parties, to undertake the valuation of the member’s interest in
accordance with the directions above, and to
determine the purchase
consideration.
4.4
In the event of the parties being unable to so agree within 10 days
of the date of this order, the valuation and determination
shall be
undertaken by a Bloemfontein-based practising chartered accountant of
not less than 10 years standing to be nominated
by the president of
South African Institute of Chartered Accountants.
4.5
The Applicant and the First, Second, Third and Fourth Respondents
are directed to furnish the person appointed in terms of
the
aforegoing prayers with all such information, appropriately vouched,
as he or she might reasonably require in order to undertake
the
valuation and determination, failing which the said person is
authorised to make application for such further directions and
relief
as might be appropriate.
4.6
The person appointed in terms of the aforegoing prayers shall
complete the valuation and determination and furnish each of
the
parties with a reasoned report thereon in writing within six weeks of
his or her appointment, or such extended period as the
parties may
agree to in writing, failing which he or she shall file a written
statement with the Registrar, a copy of which shall
be furnished to
each of the parties, setting out the reasons for the failure to
complete the valuation and setting out the period
within which and
the conditions subject to which he or she then expects to be able to
complete the work. Without limitation of
rights, any of the parties
shall be entitled in context of such statement to apply for such
further directions or relief as might
be appropriate.
4.7
The costs of the said valuation and determination shall be borne by
the First Respondent, and be deducted from the amount payable
to her
by the Fourth Respondent and paid over to the person undertaking the
valuation and determination.
5.
In the event of either the Applicant or the Second, Third and Fourth
Respondent being unwilling to accept the determination
of the person
so appointed, proceedings to obtain a judicial substitute valuation
shall be instituted by the dissatisfied party
or parties within 20
days of the valuation, failing which the independent determination
made in terms of this order shall be final
and binding on parties.
6.
6.1 The price which the Fourth Respondent shall pay to the First
Respondent for the said member’s interest shall be payable
by
the Fourth Respondent on the date of the divorce order in the action
between the Applicant and the First Respondent under
case
number 637/2013 in this honourable Court being granted; alternatively
6.2
The date on which the extent of the accrual of the estates of the
Applicant and the First Respondent shall be determined for
purposes
of the implementation of the accrual system provided for in the
antenuptial contract between the Applicant and the First
Respondent
shall be the date of
litis contestatio
in the said action;
alternatively
6.3
The amount of the fair, market-related value of the member’s
interest of the First Respondent as determined above, but
without the
amount due by the First Respondent of the Fourth Respondent(if any)
being deducted therefrom, shall be taken into account
in calculating
the accrual in the estate of the First Respondent for purposes of
implementing the accrual system as provided for
in the antenuptial
contract between the Applicant and the First Respondent, regardless
of whether the First Respondent is at that
date still possessed of
the whole of such asset or the value thereof.
7.
An order interdicting and prohibiting the First Respondent from
applying for the winding-up of the Forth Respondent.
8.
The costs of the application shall be paid by the First Respondent
on a scale as between attorney and client.”
FACTS
NOT IN DISPUTE
1.
Applicant and First Respondent are married to each other out of
community of property with accrual.
2.
The Applicant and the First Respondent have pending divorce action in
this court.
3.
The Applicant, First, Second and Third Respondents are members of
Fourth Respondent, a close corporation.
4.
The Second Respondent and Third Respondent are children of the
Applicant and the Fourth Respondent conducts family business of
the
Applicant, First, Second and Third Respondents.
5.
The members’ interest of the Fourth Respondent is held as
follows:
Applicant
51%
First
Respondent 17%
Second
Respondent 16%
Third
Respondent 16%
6.
The first Respondent intends to dispose of her members’
interest in the fourth Respondent to a certain Mr Botha who is
not a
member of the fourth Respondent.
7.
The Applicant, Second and Third Respondents are opposed to the sale
of the First Respondent’s members interest to an outsider.
JURISDICTION
[2]
The First Respondent submits that the court lacks Jurisdiction to
adjudicate over this matter on the following basis:
i.
The First Respondent is not resident in the area of Jurisdiction of
this court. The First Respondent is resident in the Northern
Cape
Province.
ii.
The matter revolves around membership’s interest of a close
corporation which has its registered address in North West.
It is
further argued that the cause of action can only vest within the area
of Jurisdiction of the court where the members’
interest vest.
[3]
Mr Snellenburg on behalf of the First Respondent finds support for
his contention in
Dairy Board v John T Rennie & Co (Pty)
Ltd
1976 (3) SA 768
(W) and
Bisonboard Ltd v Braun
Woodworking Machinery (Pty) Ltd
[1990] ZASCA 86
;
1991 (1) S.A 482
(A) at 496.
[4]
He further argued that where a person is litigated against on the
grounds of residence, he must be sued in the area in which he
is
residing at the time when the proceedings is served upon him.
[5]
Mr Wagener on behalf of the Applicant contends that the First
Respondent’s plea that this court does not have the requisite
Jurisdiction to entertain this application is not in good faith. He
submits the following in support of his contention:
i.
The First Respondent stated in the divorce action that she is
domiciled within the area of Jurisdiction of this court. The said
allegation was made while she was already residing at her present
address.
ii.
The Second and Third Respondents are domiciled and resident within
the area of jurisdiction of this court.
iii.
The Fourth Respondent’s main place of business is located in
the area of Jurisdiction of this court and it has no presence
outside
of the said area of Jurisdiction.
[6]
Section 7 of the close corporation Act 69 of 1984 (the Act) provides
the following:
“
For
the purpose of this Act any High court and any magistrate court
within whose area of Jurisdiction the registered office or the
main
place of the corporation is situated, shall have jurisdiction. “
[7]
The Fourth Respondent’s main place of business is situated in
the area of Jurisdiction of this court. Furthermore, the
member’s
interest that is the subject matter of this application is held at
the Fourth Respondent’s main place of business
which is
situated in the Jurisdiction of this court.
[8]
In
Diary Board v John T Rennie & Co (Pty) Ltd
1976
(3) SA 768
(W) it was considered that a company could reside for
Jurisdiction purpose at both the registered office and principal
place of
business. Based on the above, courts could have concurrent
Jurisdiction over a company. In my view, the above applies to close
corporations as well.
[9]
The First Respondent’s contention that this court lacks
Jurisdiction is without merit and it falls to be rejected.
INTERDICT
[10]
The applicant applies for a relief preventing the First Respondent
from disposing of her member’s interest to a third
party,
without the consent of the Applicant, the Second Respondent and the
Third Respondent.
[11]
Mr Wagener on behalf of the applicant finds support for his
contention that the First Respondent must be interdicted from
applying for winding-up of the Fourth Respondent from the following
cases:
Kalley
Flooring Co (Pty) Ltd v President Carpeting Manufactures Ltd
1982 (4) SA 681
(C);
Soundcraft
(Pty) Ltd t/a Advanced Audio v Daan Jacobs t/a Radio Spares and TV
1982 (4) SA 685
(W);
Alton
Coach Africa CC v Datcentre Motors (Pty) Ltd t/a CMH Commercial
2007 (6) SA 154
(D).
[12]
He further contends that the threats from the First Respondent that
she intends applying for Liquidation of the Fourth Respondent,
is an
abuse of court process. He further submits that it is not fair to
liquidate a domestic type lucrative business that has employees
just
because the other members refuse to be blackmailed by the First
Respondent.
[13]
Mr Snellenburg on behalf of the First Respondent submits that it is
the First Respondent’s right to seek liquidation
of the Fourth
Respondent if other members of the Fourth Respondent are making it
difficult for her to participate in the affairs
of the Fourth
Respondent. He further contends that the permanent relief sought by
the Applicant is unjust and cannot be sustained
in law.
[14]
He admits that the relationship between the members of the Fourth
Respondent has deteriorated to a level wherein parties cannot
continue to exist together within the Fourth Respondent.
[15]
In all the judgements mentioned
supra
, the court had an
application for liquidation before it. I have not been asked to
liquidate the Fourth Respondent.
[16]
An order restraining the First Respondent from applying for
liquidation of the Fourth Respondent in future would be unfair
and
unjust. The First Respondent has up to the date of the hearing of
this matter, not taken steps to apply for winding-up of the
Fourth
Respondent.
[17]
The First Respondent may in future have a host of valid reasons to
apply for winding-up of the Fourth Respondent. Taking away
that right
from the First Respondent would be unjust.
INTERDICT
(SALE OF MEMBER’S INTEREST)
[18]
The Applicant requests an order interdicting and prohibiting the
First Respondent from disposing of her member’s interest
in the
Fourth Respondent without the consent of the Applicant, Second
Respondent and Fourth Respondent.
[19]
Section 37 of the Act provides as follows;
“
Every
disposition by a member of a corporation of his interest, or a
portion thereof, in the corporation, shall be done
(a)
in accordance with the association agreement (if only);
(b)
or (b) with the consent of every other member of the corporation.”
[20]
Mr Wagener on behalf of the Applicant submits that in terms of
section 37 a right to alienate member’s interest in a
close
corporation to a third party does not arise. He submits further that
the First Respondent is prohibited to sell her member’s
interest to the third party without consent of the other members of
the Fourth Respondent.
[21]
Mr Snellenburg argues that the First Respondent cannot be compelled
to sell her member’s interest for a price less than
what she is
being offered by Mr Botha. Mr Snellenburg further argues that selling
First Respondent member’s interest to the
Fourth Respondent
will be prejudicial to the First Respondent. He further contends that
in terms of Section 29 of the Close Corporation
Act 69 of 1984; only
natural persons can be members of the Close Corporation. He contends
further that the Fourth Respondent is
in terms of the Act prohibited
from being a member of a close corporation.
[22]
It is not in dispute that the First Respondent intents to sell her
members interest in the Fourth Respondent. The First Respondent
is of
the view that the price offered by Mr Botha is market related and the
Fourth Respondent is in no position to match the price.
[23]
It is not in dispute that the Applicant, Second and third Respondent
are not willing to enter into a business relationship
with Mr Botha,
the potential buyer of the First Respondent’s interest due to
high levels of mistrust between the parties.
[24]
It is clear from evidence before me that Mr Botha, the Applicant and
the Second Respondent may never live together within a
business
relationship.
[25]
The first Respondent requires the consent of every other member of
the Fourth Respondent to have her members’ interest
transferred
to Mr Botha.
[26]
Section 37 of the Close Corporation Act 69 of 1984 does allow sale of
members’ interest to a close corporation in situations
where
the corporation has more than one or more other members.
[27]
Section 38 (c) further provides:
“
Any
member's interest acquired by the corporation shall be added to the
respective interests of the other members in proportion
to their
existing interests or as they may otherwise agree”.
[28]
In the absence of the association agreement between the members of
the Fourth Respondent, the disposition of the members’
interest
of the first Respondent must be done with the consent of every other
member of the Fourth Respondent.
CESSATION
OF THE FIRST RESPONDENT
[29]
The Applicant is requesting an order directing that the membership of
the First Respondent in the Fourth Respondent cease.
[30]
The basis for the Applicant’s claim for cessation of the First
Respondent is that she breached her fiduciary relationship
with the
Fourth Respondent in the Following manner:
1.
She insists on bringing an outsider into the Fourth Respondent whose
intentions are to destroy the Fourth Respondent.
2.
She stole monies from the account of the Fourth Respondent at the
time she had exclusive control of the account.
[31]
The First Respondent contends that the allegations contained above
are not true and that they are aimed at tarnishing her good
name. It
is the First Respondent’s contention that all the
monies claimed to have been expended were used towards
the communal
expenses.
[32]
It is not clear why the First Respondent continued to withdraw monies
from the Fourth Respondent’s account for communal
expenses when
she had already vacated the common household.
[33]
It is common cause that the First Respondent and other members of the
Fourth Respondent have irreconcilable differences and
the
relationship between them has irretrievably broken down.
[34]
The First Respondent attributes the total breakdown of relationship
to the Applicant and the Second Respondent.
[35]
Section 36 of the Close Corporation Act 69 of 1984 states the
following:
“
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)
Subject to the provisions of the association agreement (if any),
That
the member is permanently incapable, because of unsound mind or any
other reason, of performing his part in the carrying on
of the
business of the corporation;
(b)
That the member has been guilty of such conduct as taking into
account the nature of the corporation's business, is likely
to have a
prejudicial effect on the carrying on of the business;
(c)
That the member so conducts himself in matters relating to the
Corporation’s business that it is not reasonably practicable
for the other member or members to carry on the business of the
Corporation with him; or
(d)
That circumstances have arisen which render it just and equitable
that such member should cease to be a member of the corporation:
Provided
that such application to a Court on any ground mentioned in paragraph
(a) or (d) may also be made by a member in respect
of whom the order
shall apply.
(2)
A Court granting an order in terms of subsection (1) may make such
further orders as it deems fit in regard to-
(a)
The acquisition of the member's interest concerned by the
Corporation or by members other than the member concerned; or
(b)
The amounts (if any) to be paid in respect of the member's interest
concerned or 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 fit.”
[36]
Section 49 of the Act provides:
“
(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 him 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.
(3)
When an order under this section makes any alteration or addition to
the relevant founding statement or association agreement,
or replaces
any association agreement, the alteration or addition or replacement
shall have effect as if it were duly made by agreement
of the members
concerned.
(4)
A copy of an order made under this section which-
(a)
alters or adds to a founding statement shall within 28 days of the
making thereof be lodged by the corporation with the Registrar
for
registration; or
(b)
alters or adds to or replaces any association agreement, shall be
kept by the corporation at its registered office where any
member of
the corporation may inspect it.”
[37]
The first Respondent intends to divest herself of the Fourth
Respondent. The First Respondent has not actively participated
in the
day to day running of the affairs of the Fourth Respondent since her
departure from the common home on 27 January 2013.
[38]
It is argued on behalf of the First Respondent that she is entitled
to a winding up order against the Fourth Respondent due
to total
destruction of mutual trust owing to Applicant’s vindictiveness
although an application to that effect has not been
filed with the
court.
[39]
What the first Respondent desires the most is a fair and competitive
market related price for her members’ interest.
The fair market
value in the First Respondent’s view is R1 900 000. 00 as
offered by Mr Botha.
[40]
It is common cause that the parties are not able to agree on the
value of the assets of the Fourth Respondent, making it difficult
to
determine what the real value of the First Respondent ‘s
members’ interest is. The Applicant obtained sworn
valuation of the immovable property of the Fourth Respondent which
was utterly rejected by the First Respondent and the valuator
recommended by the First Respondent was likewise rejected by the
Applicant.
[41]
It is evident that the only way the issue relating to valuation can
be resolved, is through appointment of an independent valuator.
Fourth Respondent is a family business designed to run as a domestic
corporation from its inception. Involving an outsider who
has not
earned trust from the other members of the corporation will in no way
be in the interest of the business itself.
[42]
I have no doubt that Section 37 of the Act was aimed at discouraging
‘forced’ marriages between business partners
who from the
beginning are not able to exist together in the same entity. It is
clear it was aimed at protecting the remaining
members of the close
corporation and to safeguard the interests of the close corporation
itself.
[43]
In
De Franca v Exhaust Pro CC (De Franca Intervening)
1997 (3) 878 (SE) it was said:
“
Section
49 deals with the situation where conduct (an act or an omission) of
the close corporation or of one or more of its members,
or where the
manner in which the affairs of the close corporation are being
conducted, is unfairly prejudicial, unjust or inequitable
to a member
of the close corporation. When this occurs such member may make
application to the Court for an order that will have
the effect of
“settling the dispute” (s 252 of Act 61 of 1973 provides
for an order having the effect of “bringing
to an end the
matters complained of”) . . . The Court has a wide discretion
with regard to the order that it decides to make
to bring about the
required result . . . Such order can, however, only be made “if
the Court considers it just and equitable”
to do so.”
[44]
Section 36 of the Act also deals with an application to Court by a
member of a close corporation, but such member is not required
to
establish conduct of the nature referred to above when discussing s
49 of the Act, namely conduct affecting him. It is the carrying
on of
the business of the close corporation that must be affected, either
by the existence of circumstances envisaged by ss (1)(a)
or by
conduct as described in ss (1)(b) and (1)(c). Subsection (1)(d),
however, gives wide and virtually unlimited scope for the
application
of s 36 of the Act, the only limitation being the “just and
equitable” requirement. The order that a Court
can make in
terms of s 36(1) of the Act is circumscribed, namely an order that a
member shall cease to be a member of the close
corporation. Once a
Court decides that an order for such cessation of membership should
be made, it has a discretion to make further
orders as referred to in
s 36(2) of the Act. While a Court could, applying the provisions of s
49 of the Act, make an order compelling
one member to purchase the
interest of another, which would have the effect of such member's
membership in the close corporation
ceasing, that which would have to
be established before this is done is quite different to what would
have to be established under
s 36 of the Act.
[45]
A corporation is for all intents and purposes a partnership between
the members. The only difference between a close corporation
and a
common law partnership is that it is a separate legal entity from its
members. Sound relationship and trust between
members is at the
heart of a thriving close corporation.
[46]
In
De Franca v Exhaust Pro CC (De Franca Intervening)
supra
Nepgen J said
“
In
fact, it is my view that it is highly probable that by enacting s 36
of the Act one of the purpose of the legislature was to
create a
mechanism whereby the inevitability of winding- up can be avoided
where a ‘deadlock’ situation exists between
members. Even
if that was not the specific intention of the legislature, s 36
clearly has such result.”
[47]
I agree with the above statement. The above section empowers the
court to dissolve the association between the members without
winding- up the corporation, if the court is satisfied that it is
just and equitable to do so.
[48]
The Applicant bears onus of proving that he is entitled to an order
in terms of section 36. It is incumbent on the Applicant
to place
before me evidence sufficient evidence to justify and order in terms
of the provisions of section 36 of the Act.
[49]
I am of the view that it is just and equitable for the First
Respondent to cease to be a member of the Fourth Respondent. It
is
also just and equitable for the First Respondent to be rewarded
fairly for her interests.
[50]
I, therefore, make the following order:
ORDER
1.
The First Respondent is interdicted and prohibited from disposing of
her member’s interest without the consent of the Applicant,
Second Respondent and Third Respondent;
2.
First respondent’s to cease to be a member of the Fourth
Respondent forthwith;
3.
Fourth Respondent to purchase the First Respondent’s member’s
interest in the Fourth Respondent;
4.
The first Respondent’s member’s interest to be
transferred to the Fourth Respondent;
5.
Member’s interest acquired by the Fourth Respondent to be
allocated to the remaining members of the Fourth Respondent in
proportion to their existing interests within 30 days of such
acquisition.
6.
The price which the Fourth Respondent is to pay to the First
Respondent for the said member’s interest is to be determined
as follows:
6.1
The Fourth Respondent to pay the fair market-related value for the
member’s interest of the First Respondent;
6.2
For the purpose of the purchase of the First Respondent’s
member’s interest by the Fourth Respondent, the fair
value of
the member’s interest is to be determined with regard to the
financial condition of the Fourth Respondent as at
the date of this
order.
6.3
The parties to endeavour to agree upon the appointment of practising
charted accountant of not less than 10 years standing,
who shall not
be the Fourth Respondent’s auditor nor have been previously
professionally engaged in any capacity by any of
the parties, to
undertake the valuation of the member’s interest in accordance
with the directions above, and to determine
the purchase
consideration.
6.4
In the event of the parties failing to so agree within 10 days of
the date of this order, the valuation and determination shall
be
undertaken by a Bloemfontein-based practising chartered accountant of
not less than 10 years standing to be nominated by the
president of
South African Institute of Chartered Accountants.
6.5
The Applicant and the First, Second, Third and Fourth Respondents
are directed to furnish the person appointed as stated above
with all such information, appropriately vouched, as he or she might
reasonably require in order to undertake the valuation and
determination;
6.6
The person appointed as stated above shall complete the
valuation and determination and furnish each of the parties with
a
reasoned report thereon in writing within six weeks of his or her
appointment, or such extended period as the parties may agree
to in
writing, failing which he or she shall file a written statement with
the Registrar, a copy of which shall be furnished to
each of the
parties, setting out the reasons for the failure to complete the
valuation and setting out the period within which
and the conditions
subject to which he or she then expects to be able to complete the
work.
6.7
The costs of the said valuation and determination shall be borne by
the Fourth Respondent.
7.
The fourth Respondent to pay the purchase price of the First
Respondent’s member’s interest to the First Respondent
within 30 days from the date of submission of valuation report;
8.
The First Respondent to pay the costs of this application on party
and party scale.
_______________
N.M.
MBHELE, AJ
On
behalf of applicant:
Adv Wagener SC
Instructed by:
Prinsloo Inc
c/o Symington
& De Kok
BLOEMFONTEIN
(Ref. Sonette
Visser/nl/mm/1295)
On
behalf of first respondent: Adv
N. Snellenburg
Instructed by:
Honey
Attorneys
BLOEMFONTEIN
(Ref. RJ
BRITZ/AR/122403)