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in compliance with the law and SAFLII Policy
IN THE HIGH COURT OF SOUTH AFRICA
(WESTERN CAPE DIVISION, CAPE TOWN)
CASE NUMBER: 21184/2022
In the matter between
WASHIEF VOLKWYN FIRST APPLICANT
THE NETWORK COMPUTER SERVICES
WESTERN CAPE CC SECOND APPLICANT
and
ELVINA FREDERICKS RESPONDENT
JUDGMENT
Date of hearing: 4 November 2024
Date of judgment: 5 November 2024
BHOOPCHAND AJ:
1. The Second Applicant, Network Computer Services, Western Cape CC (“the
CC”), began trading in 1991, providing specialised network infrastructure and
fibre optic services to state -owned enterprises, government departments,
and private businesses in various industries such as telecommunications,
mining, and financial industries. The First Applicant acquired a 25% member’s
interest in the CC on 31 January 2013. In December 2017, the First Applicant
and Marthinus Cornelius Fredericks (“Martin”) acquired the 75% member’s
interest held by another individual. The Respondent is the wife of Martin. She
acquired Martin’s member’s interest in M arch 2020 to retain certain tax
considerations arising from the CC’s small business corporation status . The
First Applicant held 62.5% and the Respondent 37.5% of the member’s
interest in the CC.
2. This application commenced on 13 December 2022. The First Applicant
sought urgent relief , seeking, among others, an order to purchase the
member’s interest held by the Respondent in the CC. The First Applicant
alleged that the content of an email dated 20 September 2022 triggered the
application. In that email, the Respondent informed the First Applicant that the
Respondent had received an offer from a potential investor, which she was
seriously considering. The Respondent acknowledged the memorandum of
understanding (“MOU”) binding the First Applicant and Martin that obliged a
retiring member to offer his interest in the CC to the existing member before
offering it to any other potential buyer. The Respondent denied the MOU
bound her, alleging that it fell away when Martin transferred his membership to
her.
3. The Applicant state d that on 8 August 2022 , he sent the Respondent a
valuation of the CC performed by TdP Chartered Accountants . The report is
dated 8 June 202 2, and the valuation is as of 28 February 2022. The
Respondent’s email referred to in the preceding paragraph was a response to
the valuation report. The relationship between the First Applicant, the
Respondent and Martin had irretrievably collapsed by this time. Each party
alleges that the other was to blame for the breakdown of the working
relationship. It suffices to say, and to avoid burdening this judgment, that both
parties gave the other sufficient reason to conclude that they could not work
together. The First Applicant sought an order t o purchase the Respondent’s
member’s interest for R352 500 per the va luation, failing which he set out a
procedure to re -evaluate the CC . The Respondent acknowledged that the
First Applicant should purchase her member’s interest but declin ed the
valuation performed by TdP Chartered Accountants on various grounds,
primarily that it was a qualified valuation due to th e lack of proper and
complete financial information. The Respondent expanded the procedure set
out by the First Applicant to revalue the CC.
4. When the application came to be heard, the First Applicant had accepted the
procedure set out by the Respondent . The Applicant contended that the only
issues remaining between the parties concerned the costs relating to this
application and the costs of the propose d valuation. The Applicant asserted
that each party should pay its own costs arising from the application and the
counterapplication. The Respondent contended that the First Applicant pay
the costs of this application. As for the costs of the proposed valuation, the
Applicant contended that the parties bear the costs equally . In cont rast, the
Respondent contended in her written argument that the First Applicant bear
the valuation costs. The Court shall return to these aspects.
5. The parties sought to incorporate into their draft order a clause to the effect
that they would endeavour to agree to appoint a practising chartered
accountant to perform the valuation. The Court was not inclined to grant this
order, given the history of the matter and the inability of the First Applicant and
the Respondent to cooperate. The parties readily agreed to forego this
clause.
6. The parties had agreed that if they could not mutually appoint a valuator, then
that task would devolve to the president of the South African Institute of
Chartered Accountants (“the Institute”). The Court formed the impression that
the parties had not thought this provision through. The CC was a small
enterprise, and the allegations made in the papers suggeste d that its finances
were limited. If the president of the Institute preferred a big firm of accountants
to perform the valuation , it could compromise the finances of the CC or the
party that would be ordered to pay the costs of the valuation. Neither did t he
parties consider recommending or seeking the appointment of an accountant
from a previously disadvantaged group. The Court could not let this
opportunity to transform practitioners' and, ultimately, litigants' thinking on
selecting independent experts to perform specialised tasks slip.
7. This Division has endeavoured to expand the practitioner base to promote the
interests of previously disadvantaged practitioners to act as curators. Practice
directive 24G requires applicants seeking the appointment of curators to file
the written consent of three potential curators on the roll of legal practitioners
regarding transformation imperatives. There is no reason why the Court
should not enga ge litigants and their legal representatives to promote the
tenets of transformation when they seek orders to appoint experts to perform
specialised tasks . This application provided the opportunity to appoint a
valuator from the ranks of previously disadvantaged accountants to perform
the valuation. The Court records with appreciation the willingness of the
parties to participate and incorporate this imperative in the order. The
Judiciary s hould coerce all litigants to inculcate the principles of
transformation in practice where appropriate and applicable . This objective is
even more compelling where p arties benefit from transformation legislation
but make little effort to advance or enable others. The First Applicant alluded
to securing lucrative work through the broad-based Black economic
empowerment policy.
8. The second consideration that should inform the President of the Inst itute’s
choice of chartered accountant relates to th e CC's financial turnover. It would
be counterproductive for the Institute's President to select a large accounting
firm to perfor m the valuation of a small enterprise. The parties have included
these considerations in the orders that they have agreed to.
9. The Court then turns to the issue of costs. The parties could not agree on this
aspect of the application, leaving the Court the insalubrious task of doing so.
The Court asked the Applicant’s Counsel at the outset why the CC should not
bear the costs of the proposed valuation. Counsel for the Applicant seemed
receptive to the idea , provided the costs were included in the valuation of the
enterprise. The Respondent seemed more recep tive to the idea. The parties
stalled on reaching an agreement when invited to prepare the draft order for
the Court’s consideration. Apart from baldly asserting their respective Client's
interests, the parties would not compromise on this aspect. Neither did they
provide any cogent argument for the position each held. The MOU did not
address the costs o f the CC's valuation upon a member's retirement. It is
unclear whether the CC shouldered the costs of the valuation performed by
the First Applicant. In the circumstances, t he Court is at large to order the
most pragmatic means to resolve this is sue. The CC shall bear t he costs of
the valuation.
10. There are other considerations relating to the costs of this application and the
counterapplication. The First Applicant raised the application urgently,
contending that the Respondent’s intention to surrender her member’s interest
to a potential investor, contrary to the provisions of the MOU, precipitated the
urgency. T he First Applicant had valued the CC before receiving the
Respondent’s email. The Respondent admit ted that there was no investor
and that she was not entitled to resile from the MOU. The email was sent to
the First Applicant to extract a reaction as he had ignored her requests for
information.
11. The counterapplication sought to enforce the arbitration clause in the MOU
and obtain the information that the First Applicant had denied the Respondent.
Similarly to the Applicant, the Respondent did not pursue the main thrust of
the counterapplication. The Respondent argued that although the First
Applicant had sought an interim interdict on an urgent basis, he failed to
pursue the application, meaning that he no longer sought urgent relief.
Respondent contends that the First Applicant created his own urgency. There
is merit in the Respondent’s assertion . The email was sent on 20 September
2022. The application was filed on 13 December 2023. Respondent argues
that the launch of the counterapplication corresponded with the time that the
issue of bonuses would have arise n. Respondent refer s to irregular bonuses
awarded to the First Applicant and his wife when the finances of the CC could
not support the perk.
12. The Court has considered the conduct of both parties . In the final analysis,
and for the reasons provided in the preceding paragraph, it would be equitable
for each party to pay its own costs in the application and the
counterapplication. The valuation costs are included in the valuation of the
CC. Any costs incurred by the First Applicant and paid by the CC in litigating
this application and the counterapplication will be excluded from the valuation.
Neither party requested in their papers that the Court consider the costs of the
initial valuation conducted by the First Applicant.
13. In the premises, the Court makes the following orders, largely confirming the
terms agreed upon by the parties. The Court has amended certain terms and
timeframes to render them more coherent and realistic. The valuer has been
given forty-five days to perform the valuation and the First Applicant sixty days
to purchase the Respondent’s member’s interest , including the loan account ,
fairly valued, in the CC.
ORDER
1. The First Applicant is directed to purchase the Respondent's member’s interest
and loan account in the Second Applicant at a fair value as specified in
paragraphs 2 to 9 below.
2. The valuation of the Second Applicant shall be undertaken by a practising
chartered accountant of not less than 10 years standi ng, to be nominated by
the President or Chairman of the Cape Town Regional Association of the South
African Institute of Chartered Accountants (“SAICA”). The President or
Chairperson shall consider the following factors when appointing the valuer:
2.1 The appointed valuer is to be a member of a previously dis advantaged
group in line with the principles of transformation and any transformation
objectives of SAICA and,
2.2 The Second Applicant is a small business with an annual turnover of
approximately R3 million (three million rand).
3. The valuer is to make the determination per the provisions of paragraphs 3 to 7
of this order in respect of the fair value of the member’s interest and loan
account within 45 (forty-five) calendar days from the date of this order and shall
communicate in writing the fair value of the member’s interest and loan account
of the Respondent in the Second Applicant.
4. In determining the aforesaid fair value, the valuer shall act as an expert and not
an arbitrator and:
4.1 the fair value of the member’s interest and loan account shall be
determined with regard to the financial condition of the Second Applicant
as at the date that this application was issued (i.e. 13 December 2022 ),
being the value at which the member’s inter est and loan account would
have exchanged between a willing buyer and willing seller, neither being
under compulsion, each having full knowledge of the relevant facts and
with equity to both;
4.2 All costs relating to the valuation shall be borne by the S econd Applicant,
i.e., the Network Computer Services, Western Cape CC. The costs shall
be included in the valuation. All legal costs relating to this application paid
by the Second Applicant shall be excluded from the valuation.
5. The First Applicant and the Respondent shall fully and timeously cooperate with
the valuer and furnish all information, appropriately vouched, and all
documentation required by him or her to undertake the valuation and
determination, failing which the valu er is authorised to make an application
through the chamber book to a judge for such further directions and relief as
may be appropriate. The valuer shall have the following further powers:
5.1 the right to conduct all investigations necessary and, in par ticular, to
obtain from the parties or any third party or entity all information and
documentation considered by the valuer reasonably necessary for the
valuer’s determination, including but not limited to bank statements,
paychecks, deposit books and pers onal statement of affairs and liabilities
which the valuer considers relevant for the determination; and the right to
make physical inspection of assets and take inventories;
5.2 the right to obtain information regarding the financial affairs from any
bank, financial institution or other entity where monies may have been
invested or to which/whom monies may be owed by any of the entities
relevant to the determination;
5.3 the right to question any person or party and obtain explanations deemed
necessary fo r making the determination; to do anything or to take any
such steps as may reasonably be considered by the valuer to be relevant
to the valuer’s determination, including the appointment of an expert
valuer to value the commercial property of the Second Applicant situated
at 6 […] W[…]l Street, Sunbird Park, Cape Town (“the immovable
property”);
5.4 to be entitled to apply to this court for any further direction that the valuer
shall or may consider necessary to perform his determination; and
5.5 to consider any matter the valuer considers relevant to determining what
the valuer considers a fair value as of 13 December 2022.
6. The First Applicant and the Respondent shall be entitled to forward any
documents or make representations to the valuer and shall be entitled to copies
of any documents or representations made available by the other party and in
respect of which the other party is entitled to comment to the valuer.
7. The valuer's determination shall be final and binding on the parties.
8. The First Applicant shall pay the Respondent the fair value of the member’s
interest and the loan account determined within 60 (sixty ) calendar days of
such determination.
9. Upon the full payment by the First Applicant, the Respondent shall transfer her
member’s interest to the First Applicant.
10. The First Applicant shall take all reasonable steps to procure the release of the
Respondent from any liability which she may have under any guarantee that
she may have given for th e Second Applicant’s obligations (including the
suretyship that she signed in favour of the First Rand Bank Limited) and that,
until such release is procured, each of the First and Second applicants shall be
jointly and severally liable to indemnify the respondent against such liability.
11. Each party shall pay its own costs arising from this application and the
counterapplication.
________________________
Ajay Bhoopchand
Acting Judge of the High Court
Western Cape Division
Cape Town
Judgment was handed down and delivered to the parties by e -mail on 5 November
2024
Applicant’s Counsel: Advocate M Holland
Instructed by SB Attorneys Inc
Counsel for the Respondents: Advocate Lee Gabriel
Instructed by Dixon Attorneys Michael Dixon Attorneys Inc