IN THE HIGH COURT OF SOUTH AFRICA
(WESTERN CAPE DIVISION, CAPE TOWN)
Case No: 16514/2023
In the matter between:
THE TRUSTEES FOR THE TIME BEING OF Applicant
THE KROMRIVIER TRUST
and
THE TRUSTEES FOR THE TIME BEING OF First Respondent
THE HARTWIG FAMILY TRUST
CEDERBERG PARK (PTY) LTD Second Respondent
GEMINI MOON TRADING 536 (PTY) LTD Third Respondent
ERNST HARTWIG Fourth Respondent
Coram: Justice J Cloete
Heard: 10 and 14 October 2024 , supplementary notes delivered on 18 October
2024
Delivered electronically: 29 January 2025
JUDGMENT
CLOETE J :
Introduction
[1] This is an application for various grounds of relief , all based on the
Companies Act.1 The sections applicable to the determination of this matter
are s 31, s 61 and s 163. Properly construed , the applicant’s case is
underpinned by the protection provided to a shareholder (or director) of a
company against oppressive or prejudicial conduct, resulting from any act or
omission of the company (or a related person) as described in s 163. The
application is opposed by the first and fourth respondents. Without disrespect,
and for convenience only, I will refer to the two main protagonists by their first
names, as the parties did in the papers.
[2] In its amended form (provided by agreement as a draft order after the
conclusion of argument) the applicant asks for the following relief, namely:
(a) the second and third re spondents (“the companies”) be directed to provide
the applicant with copies of all financial statements filed with the CIPC,2
alternatively drafts thereof if not yet filed, for the period 2017 to date in terms
of s 31(1)(b) ; (b) the appointment of an ind ependent director (being a
chartered accountant with more than 10 years experience) to the board of
each company, and who shall, in addition to his or her ordinary powers as
director, be mandated to investigate (as set out hereunder) their financial
affair s, and thereafter produce a report with recommendations to the rest of
each board and shareholders in terms of s 163(2)(f)(i) ; and (c) declaring that
Mr Philip Nieuwoudt (“Pip”) was invalidly removed as a director of each
company in light of s 61(1) , coupl ed with attendant and/or consequential relief ,
including rectification of the share register s of these companies to reflect
equal shareholding by the applicant and first respondent.
[3] The envisaged investigation by the independent director to be appointed is to
include but not be limited to the following:
1 No 71 of 2008.
2 Companies and Intellectual Property Commission.
3.1 Whether an audit is required in relation to either or both of the
companies; and
3.2 The financing and financial arrangements made in relation to the
development of Cederberg Park, Kromrivier , which shall include all
resolutions passed by the companies, all loan agreements entered into
by the m, compliance or lack thereof with s 75 of the Companies Act,
the relationship between the companies and the first and fourth
respondents and their relate d entities, and net asset valuation s of the
companies , but ‘noting that this order shall have no effect on parties
other than the respondents in this matter’.
[4] The first and fourth respondents oppose this application on three main
grounds. The first is that it has been brought with ulterior motives, and not to
obtain the remedy provided for in s 163; to reinstate Pip as a director of the
companies w ill merely recreate the deadlock which existed before his removal
as director , and in any event no case has bee n made out for the appointment
of an independent director, let alone the envisaged investigation. Second, the
applicant must fail on the application of the Plascon -Evans rule. Third, and in
any event, the applicant knew, or ought to have known, that there would be
serious disputes of fact incapable of resolution on affidavit.
[5] The papers are replete with factual disputes in relation to the lengthy and
wide-ranging averments contained in the applicant’s founding papers. I will
accordingly endeavour to deal o nly with the evidence directly relevant to the
relief sought, firstly with reference to the relatively few undisputed facts, and
secondly with reference to the primary disputed ones .
[6] To this it must be added that although the initial notice of motion conta ined an
alternative prayer for a limited referral to oral evidence in the event of the
court being unable to determine the issue pertaining to rectification of the
share registers, this was abandoned by the applicant , it having been
submitted on his behalf in heads of argument that ‘there is no dispute of fact
in this regard, the Hartwigs do not allege any positive facts to cast doubt on
the [applicant’s] trustees’ version of events and, in fact, appear to admit the
invalidity’.
Undisputed facts
[7] During 200 8 the Nieuwoudt family, represented by Pip, entered into
discussions with the Hartwig family, represented by the fourth respondent,
Mr Ernst Hartwig (“ Ernst ”), to develop the farm Kromrivier, and in particular
the existing rudimentary tourism facilities thereon, into a quality eco -tourism
destination. At the time, Kromrivier had been in the Nieuwoudt family for
generations and was registered in the name of APC Nieuwoudt & Seun
(Edms) Bpk (“APC” ).
[8] Thereafter, on or about 11 September 2008, APC represented by Pip, and
Ernst in both his personal capacity and as ‘trustee’ of a company to be formed
(“Newco” ) concluded a written agreement with regard to the proposed
development. It is not a model of clarity but the relevant terms for present
purposes were as follows:
8.1 Kromrivier would be developed in phases, each with its own objectives
and target dates;
8.2 The development would be subject to: (a) the required applications for
land use approval being successful; (b) Ernst having the sole and
exclu sive discretion as to the financial viability of the project from time
to time; and (c) : provided that (a) and (b) were met, Ernst in his
capacity as representative of Newco would have the irrevocable option
to purchase the property (together with certain livestock and
equipment) against payment of a purchase price of R10 million (incl.
VAT) until 15 December 2009, whereafter the purchase price would
increase in accordance with inflation until transfer of the property into
the name of Newco;
8.3 The target dates were: ( a) application s for land use approval by
15 December 2009; ( b) financial viability study by 15 December 2009;
(c) exercise of the option to purchase by 15 December 2009;
(d) formation of Newco by 28 February 2010; ( e) transfer of the
property to Newco pursuant to the exercise of the option by 30 June
2010; ( f) construction and upgrading of a maximum of 25 chalets for
purposes of sale on a “fractional title” basis, upgrading of the manor
house and development of other infrastructure by 30 June 2012; and
(g) conclusion of the first sale agreement in respect of the chalets by
30 June 2011 ( possibly this was meant to be 30 June 2012 but nothing
turns on it );
8.4 Ernst and/or Newco would finance the project until 15 December 2009 ,
subject to: (a) each party making a capital injection of R500 000 into
Newco once the property was transferred into its name; and (b) each
party making a cash loan to Newco of R5 million on te rms to be
agreed;
8.5 Provided that all suspensive conditions were fulfilled by the target
dates, each party would hold 50% of the shares in Newco and each
would nominate one director to Newco’s board; Newco would be
responsible for all other financing of the project as well as its
marketing , and would appoint Ernst as project manager and co -
ordinator; and Newco would give APC the first option to appoint a
manager of the property; and
8.6 The terms of the agreement would be the sole memorial thereof and
could only be amended if reduced to writing and signed by the parties
(the non -variation clause) .
[9] On 21 January 2010 the third respondent, Gemini Moon Trading 536 (Pty) Ltd
(“Gemini Moon”, the Newco) was established . On 12 March 2010 it purchased
Kromrivier in terms of a written deed of sale from APC for R10 million (incl.
VAT) . Gemini Moon paid R5 million with the balance of R5 million owing on
loan account by it. Gemini Moon serve s as the property owning company, and
at some stage the second respondent, Cederberg Tourist Park (P ty) Ltd
(“Cederberg Park”) was established as the operating company of the tourism
business. Ultimately the 50% shareholders of Gemini Moon were the
applicant (Pip’s family trust) and the first respondent (Ernst’s family trust).
Cederberg Park is the wholl y owned subsidiary of Gemini Moon. Pip and
Ernst were the only two directors of both companies until Pip’s removal which
I deal with later.
[10] The property was developed but this took far longer , and cost far more, than
expected. At a point t he relationship b etween the Nieuwoudt and Hartwig
families soured, and matters came to a head during the latter part of 2022,
resulting in this application being launched on 26 September 2023. Pip’s
complaints are summarised in the founding affidavit as follows:
‘19. As th e court will note from the contents of this affidavit, the Trust
[i.e. the applicant] as minority shareholder has clearly been
subject to oppressive and unfairly prejudicial conduct at the
hands of Ernst, the Hartwig Trust and the Companies (through
Ernst’ s directorship and the Hartwig Trust’s majority
shareholding). There has been a concerted effort by the Hartwig
Trust, Ernst and the management of the Companies to make our
family’s lives difficult for at least the last year and given that the
applicant in this matter is our family trust and we are the trustees
and beneficiaries thereof, the actions taken against various
family members is certainly oppressive and unfairly prejudicial to
our interests. This, when coupled with an almost complete lack
of required information about the financial affairs of the
Companies and our exclusion from key decision making and the
offer to buy the remainder of our shares for R2 million (which is
less than our shareholder loan account) is, I submit, clear
evidence of conduct which entitles us to protection under
section 163 of the Companies Act, 2008 (“the Companies Act”).’
[my emphasis]
[11] In early 2011, Pip’s (separate) farming business operated on ano ther farm,
Hantamsdrif, was experiencing cash flow problems, and he asked Ernst to
loan him money to tide him over. Ernst did not agree to a loan but proposed
that Pip’s trust (the applicant) should rather sell some of its shares in the
companies to the fi rst respondent. Pip accepted. The net result was that Pip’s
trust transferred 48 of its shares in Cederberg Park, and 12 of its shares in
Gemini Moon, to the first respondent. The circumstances surrounding the
transaction and the sum paid by the first resp ondent for the shares are dealt
with later in this judgment under the section dealing with the disputed facts.
[12] During 2022, Pip shot dead two baboons which he considered to be
‘problematic’ animals at the tourist park. They are a protected species and
when Ernst discovered this he was outraged. A meeting took place between
Ernst, Pip and Pip’s wife, Rinda, on 21 June 2022 at which this issue,
amongst others, was raised by Ernst, who called for a follow -up meeting on
21 July 2022 which Pip decided he would not attend. On 15 July 2022, Ernst
made an offer on behalf of the first respondent to acquire the balance of the
shares held by Pip’s trust for R2 million, and that as one of the conditions of
the share purchase Pip resign as director of both companies. Pi p refused. On
17 August 2022, Ernst addressed an email to Pip asking him to resign as
director of both Ced erberg Park and Gemini Moon as a result of the baboon
incident, which Pip refused to do. On 11 October 2022, Ernst sent a further
email to Pip attachi ng notices, purportedly from the boards of both companies,
of a shareholders meeting to be held on 26 October 2022 for resolutions to
remove Pip as director.
[13] The two grounds contained in the notices were: (a) gross insubordination for
failing to comply wit h instructions from Ernst and to follow ‘the management
structures’ of each company when making decisions; and (b) gross
negligence as a result of the baboon incident. Pip did not attend the
shareholders meeting. On 11 November 2022, Pip was informed by Er nst that
he had been removed as a director of both companies.
[14] Pip’s wife, Rinda, who had worked in various capacities at the tourist park,
had her employment terminated by Cederberg Park’s general manager, Mr
Duane Miller, on 30 September 2022 with effect from the end of October
2022. She took this issue to the CCMA and the dispute was settled on
23 March 2023, in terms of which Cederberg Park, amongst other matters , re-
employed her in a different capacity (as “wine representative”) with effect from
2 May 2023.
Primary d isputes of fact
[15] The first pertains to the nature of the business relationship. Pip alleges that
Ernst proposed they ‘partner together to upgrade our tourist park’ because
Ernst had money whereas the Nieuwoudts had Kromrivier but no funding or
access to capital required to upgrade the tourist park. They discussed that it
would establish a legacy for the future generations of their respective families;
and it was ‘understood’ that the Nieuwoudts would manage the day -to-day
operations on the fa rm, with the Hartwigs handling ‘the financial side of things
as Ernst was considered to be a businessman after managing the Cape Gate
development in Cape Town’. Accordingly ‘the central reason and idea’ behind
entering into a business relationship with Ernst was to partner together to
improve Kromrivier to the mutual benefit of both families.
[16] Ernst denies this to be the case. He maintains it was never discussed (nor
even intended) that the purpose of the projec t would be to establish a legacy
for the future generations of their respective families. It was a fundamental
aspect of the agreement that ownership of Kromrivier would change hands,
and the farm would be sold to a corporate entity. Put simply, Pip knew t hat his
family would no longer own Kromrivier. He also knew there was no certainty
as to whether, and if so, when and in what capacity, any member of Pip’s
family would be employed (and only employed) by the corporate entity which
would eventually conduct business on Kromrivier (i.e. Cederberg Park). This,
Ernst contends, is borne out by a letter dated 8 February 201 0 from Pip’s own
attorney (Mr Albertus Erasmus who is also one of the trustees of the applicant
along with Pip and his wife, Rinda) in which it was confirmed that
consideration would be given to the appointment of Pip’s wife as park
manager , and possibly Pip and/or one Dewald as farm manager(s) on a
contract basis.
[17] According to Ernst, from his perspective he certainly intended to create a
legacy, by means of the successful completion of the project and
establishment of an eco -tourism destination, in a nature reserve. But this
would be a legacy for the inhabitants of the greater Cederberg area, and
future generations in general. The paramount consi deration, from both their
perspectives, was to create ‘an exceptional tourism desti nation in the unique
Cederberg area’. At the time it was a sound business decision and would
have been a good investment.
[18] It is also Ernst’s version (not denied by Pip in r eply) that Pip’s decision to
enter into their business relationship was driven mainly by financial
considerations. He knew that a project of this nature should eventually over
time yield a good return on investment. At that stage Pip had already sold off
other portions of his family land. The initial net proceeds of the sale of
Kromrivier to Gemini Moon, i.e. R5 million in Pip’s pocket, coupled with the
potential of future employment for some of his family members, was very
attractive. Both men knew, and un derstood from the outset, that Gemini Moon
would be established and registered as a vehicle for the project; Gemini Moon
would be the developer entity undertaking and executing the project; and that
whoever might in future become involved in the venture wo uld do so as
employee or representative of the relevant corporate entity (i.e. Gemini Moon
or Cederberg Park) . It was therefore not a case of the two families entering
into a business relationship, with the m assuming certain roles or being
assigned certain main functions. Pip is therefore incorrect to contend that the
relationship between the Nieuwoudt and Hartwig families in relation to the
development of Kromrivier was a quasi -partnership .
[19] Ernst also points out that in the founding affidavit, Pip failed to disclose that he
(Ernst ) had vast experience and knowledge as an architect as well as a
property developer, particularly in the context of the design and construction
of the infrastructure and buildings of the intended tourism facilities on
Kromrivier; and that Ernst was never paid for his substantial efforts and
contribution towards the development and ongoing operations of the
businesses. These allegations were also not disputed by Pip in the replying
affidavit. According to Ernst, certainty in respect of an equal partnership only
existed in relation to one aspect, namely the shareholding of the new
company that would be incorporated as a vehicle for the development
(i.e. Gemini Moon). Any involvement by any member of the Nieuwoudt family
in the tourism business would be strictly on the basis of an employee of that
entity (i.e. Cederberg Park).
[20] The second main area of dispute relates to Pip’s complaint about the length of
time and increased costs to complete the project, in respect of which he
maintains he was kept in the dark by Ernst, including key decision -making.
Ernst emphatically denies this to be the case. According to him, Pip knew full
well, at all relevant times, what had caused major delays and how much
money had been spent on the project.
[21] This included Pip knowing that before the project could commence approval
had to be obtained for the building plans, as well as environmental
authorisation from the relevant government d epartment which was only
granted on 25 November 2010. He also knew it was only thereafter that the
installation of basic services (roads, water and sewerage) could commence,
which took a year; this was followed by the upgrading and restoration of the
existing buildings such as the farmstead, whereafter construction of the new
buildings could commence, with the first (the visitors’ centre) only being
completed in 2016.
[22] Ernst also alleges that although Pip spent most of his time on Hantamsdrif, he
regularly visited Kromrivier. Ernst also discussed the various stages of the
development with Pip. That Pip was excluded from key decision -making is,
according to Ernst, a downright falsehood. He always involved Pip in the
important decisions which had to be taken i n the course of the project until its
completion in 2019, and thereafter, and Pip was regularly present at site
visits. In support of his version Ernst annexed a number of supporting
documents and correspondence spanning the period 2010 to 2021, including
minutes of meetings at which Pip was present.
[23] Ernst also maintains that in addition, Pip’s purported ignorance that the
development costs would far exceed the initial capital contribution is a lie .
Already in August 2008, and to Pip’s knowledge, they obtai ned a report from a
quantity surveyor who costed the development based on the site development
plan, and calculated that the total building costs would amount to
approximately R60 million. In this regard it is noted that in terms of clause 7.4
of the 2008 agreement, it was specifically provided that Newco (later Gemini
Moon) would be responsible for procuring external finance for the project,
which accords with Ernst’s version. Pip also alleges that except for the
financial information received by his attor ney (and co -trustee) on 21 June
2022, all that Ernst had provided to him since 2016 were: (a) the draft annual
financial statements for Gemini Moon, which Pip signed off in 2016; and (b)
the draft financial statements for 2022. What Pip did not disclose is that: (a)
he had signed off all the previous financial statements of Gemini Moon before
2016; and (b) he only signed the 2016 financial statements in 2018, at a time
when he knew the project had not yet been completed and that further,
substantial costs n eeded to be incurred in order to do so. Careful perusal of
Pip’s replying affidavit demonstrates that he failed to engage squarely with
any of these material allegations.
[24] The third main area of dispute pertains to the 2011 share sale agreement.
According to Pip, that agreement pertained only to Gemini Moon, and the
agreed purchase price was R700 000 paid in two tranches of R350 000 each
on 2 February 2011 and 8 March 2011. He only remembers signing ‘a short
document’ on the bonnet of Ernst’s vehicle. He wa s never given a copy of this
document, and nor was he provided with updated share certificates or
registers until 2022. He maintained he could not even recall the exact number
of shares in Gemini Moon that the applicant sold to the first respondent.
--
[25] Pip’s version is further that at the time he did not understand trust law nor the
requirement of obtaining the approval of his co -trustees for any decisions he
made. This he only came to learn in 2019 when he wished to sell more of the
applicant’s shares to the first respondent, and was advised by Ernst’s son that
he needed to obtain the written approval of his co -trustees. It is noted that, on
his own version, Pip came to realise this some 3 years before he and Ernst
fell out in 2022. He did nothing about it unt il then. His excuse is that this was
‘for various reasons, including the fact that our family’s relationship with the
Hartwig family had not yet collapsed and at the time I wished to keep our
relationship on good terms’. He also blames Ernst for not inform ing him of
what was required of him, despite his own attorney being one of the
applicant’s co -trustees. It is noted that the excuse proffered by Pip is
contained in the very same affidavit in which he alleges the delays and
increased costs of the project w ere exacerbated by alleged nepotism on
Ernst’s part as well as ‘years of incoherent and poor project management’. It
is difficult to fathom how both can be correct.
[26] It is Ernst’s version that in 2011 , Pip requested a loan of R1 million, not
R700 000, and that it was thereafter agreed the applicant would sell some of
its shares in both Gemini Moon and Cederberg Park to the first respondent for
R1 million. He and Pip discussed what would constitute a fair market value for
the shares. Based on the initial cap ital contribution of R10 million, and 120
shares in each company, they agreed that 12 shares in each would represent
such a value. Due to an earlier administrative error in the company register of
Cederberg Park, which was picked up by its auditors due to the 2011 share
sale, it s share register had to be rectified, hence the transfer of 48 shares
(i.e. 60 less 12) in Cederberg Park and 12 in Gemini Moon to the first
respondent . In his replying affidavit Pip again failed to deal squarely with
Ernst’s allegat ions.
[27] Ernst also annexed documentation reflecting how the 2011 sale transaction
was implemented, including: (a) a resolution signed by both himself and Pip
on behalf of Gemini Moon for the transfer of 12 shares from the applicant to
the first respondent d ated 21 January 2011; (b) the securities transfer form
(Form CM42) in respect of the transfer of these shares, signed by Pip; and
(c) two share certificates issued by Cederberg Park and Gemini Moon to the
applicant in respect of these share transfers, agai n signed by both Ernst and
Pip and also dated 21 January 2011.
[28] Ernst annexed copies of the relevant bank statements of the first respondent,
reflecting that payment of the purchase price of R1 million occurred by means
of four electronic fund transfers, as follows: (a) R350 000 on 1 February 2011;
(b) R350 000 on 8 March 2011; (c) R200 000 on 1 April 2011; and (d)
R100 000 also on 1 April 2011. The first two payments were made to APC
Nieuwoudt & Seun at Pip’s instruction. The last two payments were made to
Gemini Moon and credited to the loan account of APC. This occurred by
agreement between Ernst and Pip as is evidenced by the company’s annual
financial statements for that period which were also signed by Pip.
[29] According to Ernst, a second share transactio n was concluded in June 2012,
when Pip again approached him for a loan of R1 million. He declined this
request since he was concerned about the prospect of repayment. Instead
they concluded a further agreement of sale in respect of the shares held by
the a pplicant in the companies. Given the increased scope of the works since
the previous share transactions and the fact that the first respondent alone
financed the development and assumed all of the risks associated therewith,
they agreed that 18 shares (ins tead of 12) in each company would represent
a fair market value for a purchase price of R1 million. Pip and Ernst therefore
entered into a further agreement of sale on behalf of their respective family
trusts, in terms of which the first respondent purchas ed from the applicant a
further 18 shares held by it in each of the companies for that total sum. The
transactions were implemented by means of similar resolutions, securities
transfer forms and the issue of share certificates, all of which were signed by
Pip as well. Payment of the purchase price occurred by means of two
electronic fund transfers of R550 000 and R450 000, both on 1 July 2012.
Again, Ernst annexed a copy of the first respondent’s bank statement
reflecting these payments. Again, Pip did not deal squarely with any of these
allegations in his replying affidavit, and, on close scrutiny, appears to have
retreated to the position that he sold them without the consent of his co -
trustees .
Application of the Plascon -Evans rule to the s 163 portion o f the relief sought
[30] On a conspectus of Pip’s affidavit evidence his complaint of oppressive
conduct is underpinned mainly by the above material factual disputes. He can
only succeed if the allegations of the first and fourth respondents, taken
together wit h those he admits, justify the granting of his s 163 relief , unless
the version of these respondents is so far -fetched and untenable that it falls to
be rejected on the papers as they stand.
[31] Although I am mindful that both Pip’s co -trustees deposed to con firmatory
affidavits that they had no knowledge of the only share sale transactions
which Pip disclosed in his founding papers, and Rinda also deposed to such
an affidavit in support of Pip’s averments in reply, it is concerning that neither
took the court into their confidence about how this was reasonably possible,
particularly given that there must have been financial records kept for the
applicant which would have reflected these transactions , given that it was a
trading trust due to its involvement in the business of both Gemini Moon and
Cederberg Park . It is also perturbing that Rinda confirmed under oath Pip’s
version in his founding affidavit that he specifically discussed with her his wish
to sell shares in Gemini Moon in 2019 , but she was not in fa vour of this and
he decided not to pursue it. She was accordingly aware of his intentions in her
capacity as one of his co -trustees. In my view all of this should have been
properly explained in the founding affidavit for this court to be persuaded that
the share sale transactions were not authorised and therefor they are invalid;
but in any event, this has nothing to do with any alleged oppressive conduct
on the part of Ernst .
[32] On only the primary materially disputed facts (leaving aside the plethora of
allegations about how Ernst apparently treated members of Pip’s family), and
applying the Plascon -Evans rule, I am persuaded that the relief sought in
terms of s 163 cannot be granted. However, even if I am wrong in this regard,
there is a further reason why it should be dismissed. It is clear that when Pip
launched this application he must have foreseen the existence of material
disputes of fact not capable of resolution in motion proceedings. If for some
inexplicable reason he was not, he could have been und er no illusion that this
was the case once the answering affidavit was filed. It was Pip’s election not
to seek a referral to trial or for oral evidence on specified issues, even at that
stage, and he must bear the consequences. It follows that all the rel ief he
seeks pertaining to s 163 must be dismissed. This includes the appointment
of an independent director, the envisaged investigation, and rectification of the
share registers of both Cederberg Park and Gemini Moon . I now turn to deal
with the remaining issues.
Whether Gemini Moon and Cederberg Park must provide the applicant with
copies of their annual financial statements
[33] In terms of s 31(1)(b) of the Companies Act, a person who holds or has a
beneficial interest in any securities issued by a company is entitled ‘on
demand to receive without charge one copy of any financial statements of the
company required by this Act’. It is not in dispute that the applicant is a
shareholder in Gemini Moon and that Cederberg Park is Gemini Moon’s
wholly owned subsidiary. It is also common cause that demand was made by
the applicant in terms of s 31(1)(b) on 10 May 2023, and the demand has not
yet been complied with. In addition neither Gemini Moon nor Cederberg Park
opposed the granting of this relief.
[34] It was submitted on behalf of the first and fourth respondents that this relief is
inextricably linked to that under s 163 and for a collat eral purpose, namely to
exert pressure on the first and fourth respondents in relation thereto. However
it is not for the first and fourth respondents to put up a defence which neither
Gemini Moon nor Cederberg Park have raised, and the provisions of the
subsection are peremptory. During argument I raised with counsel for the
applicant my concern that the statements sought may not yet be in existence,
and he suggested a compromise that in those instances where they are not,
ones in draft form would suffice.
[35] I will grant this relief with the qualification that it will pertain only to drafts
already in existence, since I do not understand s 31(1)(b) to impose an
obligation on a company to create such a statement when it does not yet
exist. It remains open to t he applicant to avail itself in due course of the
mandatory provision in s 30(1) of the Companies Act, namely the obligation
imposed on a company to prepare financial statements annually within six
months of the end of each financial year.
Whether Pip was invalidly removed as a director of Gemini Moon and
Cederberg Park
[36] As previously stated on 11 October 2022 , Ernst despatched two notices to
Pip, purportedly on behalf of the boards of both Gemini Moon and Cederberg
Park, of a shareholders meeting to be held on 26 October 2022 for the
purpose of passing a resolution in terms of s 71(1) of the Companies Act for
Pip’s removal as director.
[37] Section 61(1) of that Act provides that the board of a company, or any other
person specified in its memorandum of incorpora tion or rules, may call a
shareholders meeting at any time. It is common cause that there is no
provision in the memoranda of association permitting only Ernst or the first
respondent (or indeed anyone else) to call such a meeting. It is also, of
course, c ommon cause that at the time the only other board member was Pip,
and Ernst admits that Pip in his capacity as a member of both boards did not
consent to the calling of either shareholders meeting.
[38] According to Ernst, given the deadlock between Pip and him self at that stage,
no purpose would have been served by attempting to obtain Pip’s consent. In
other words, both companies lacked an effective board of directors. He
submitted that, given this state of affairs, the first respondent as majority
shareholder enjoyed the inherent power to exercise those of the boards
concerned. In the alternative Ernst seeks, by way of a conditional counter -
application, an order in terms of s 61(12) of the Companies Act to commence
the process for Pip’s removal afresh.
[39] In Heat herview3 it was held that:
‘[20] In the general notes to section 61 in Henochsberg on the
Companies Act 71 of 2008 , volume 1 published by LEXIS -NEXIS it is
stated in relation to section 61(1) that:
"General meetings are ordinarily convened by the director s, and
a majority shareholder cannot usurp this power."
[21] In Commentary on the Companies Act of 2008 , JL Yeats et al,
Vol. 1, Juta, at 2 -1231 [Original Service, 2018] the learned authors
state:
“If a company fails to convene a meeting for any reason other
than those contemplated in s 61(11) . . . the Act gives a
shareholder the power to apply to the court for an order
requiring the company to convene a meeting . . . . ”
[22] It seems therefore that whilst shareholders or members may in
terms of section 61(3) request the board to convene a meeting, it is the
board that must in fact do so and where the shareholders or members
convene the meeting themselves, it is unlawful. Their remedy, where
the directors refuse or fail to convene a meeting on re quest in terms of
s61(3) lies in subsection (12) i.e. to approach a court. ’
[Section 61(11) does not apply in the present case].
[40] The applicant opposes the counter -application , while at the same time relying
on the self -same passage in Heatherview as authority for its contention that
3 Heatherview Estate Extension 24 Home Owners Association (NPC) v Mahlatse Trading Enterprise
CC and 101 Others [2019] JOL 44922 (GP).
the shareholders meetings were not lawfully convened which resulted in Pip’s
removal as director . I agree with the last submission, but by the same token,
the applicant c annot have it both ways. In my view the s 61(12) remedy is not
only available to the first respondent, it also presents a sensible and practical
solution. There is more than enough on the papers before me to demonstrate
that the relationship between Pip an d Ernst has effectively irretrievably broken
down, and the deadlock between them will not likely be resolved.
[41] The only other option would be for one of them to apply for the liquidation of
both companies on the basis that it is just and equitable in the c ircumstances.
However this is not something that either has suggested. Although neither
Ernst nor Pip have proposed any conditions for the court’s consideration in
respect of the shareholders meeting to be convened (as envisaged in
s 61(12)), it is my view that the terms I shall include in the order that follows
are the best I can do in the circumstances. Given the conclusion I have
reached, it would be premature to grant the applicant the relief sought
pursuant to his ‘reinstatement’ as director (for conve nience, this is contained
in paragraph 9 in the initial notice of motion and carried over into the amended
relief at paragraph 7).
Costs
[42] The applicant has obtained very limited relief. The papers run to 628 pages,
excluding heads of argument, and the matte r ultimately had to be argued over
two days. In addition, regrettably, both the applicant’s papers and heads of
argument filed on its behalf contained numerous unwarranted ad hominem
attacks on Ernst which he had to deal with. In the circumstances it is my view
that the applicant should be liable for 90% of the costs of the first and fourth
respondents. These respondents sought costs on the attorney and client
scale, but I shall inste ad order party and party costs on Scale C.
[43] The following order is made:
1. The second and third respondent s (“the companies”) are directed,
within 60 calendar days from date of this order, to provide the
applicant with copies of:
1.1 The annual financial stateme nts of each of the companies filed
with the Companies and Intellectual Property Commission
(“CIPC”) from 2017 to the end of each’s last financial year; and
1.2 To the extent that annual financial statements have not been
finalised and filed with the CIPC durin g the above period, then
the draft annual financial statements to the extent they have
been prepared, for those years;
2. The remainder of the relief sought by the applicant in its notice of
motion as amended in terms of the draft order provided after the
conclusion of oral argument is dismissed;
3. The first respondent, in its capacity as majority shareholder of the
third respondent (the second respondent being the third
respondent’s wholly owned subsidiary) shall cause shareholders
meetings to be convened in r espect of the second and third
respondents , in terms of section 61(12) of the Companies Act 71 of
2008 , within 60 calendar days from date of this order and subject to
the following terms:
3.1 Each of the shareholder representatives, namely Mr Philip
Nieuwoudt and Mr Ernst Hartwig, shall be entitled to have a
legal representative of their choice present who shall not
participate in the business of the meeting but shall be permitted
to furnish advice to the representative at whose request he/she
attends ;
3.2 The fir st respondent shall ensure that the proceedings are
recorded by an independent third party and that a written
transcript of the meeting is provided to each shareholder
representative within 7 calendar days thereafter ; and
4. The applicant shall pay 90% of the party and party costs of the first
and fourth respondents in respect of both the main application and
the conditional counter -application on Scale C, and including the
fees of one senior counsel.
_________________
J I CLOETE
For applicant : Adv C. Fehr
Instructed by : Oosthuizen & Co. (Mr J. Rutgers)
For first and fourth respondents : Adv P. Vivier SC
Instructed by : Potgieter Joubert Inc. (Ms A. Joubert)
For second and third respondents : no opposition and no appearance