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[2024] ZAKZPHC 120
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Daxmollie Bae (Pty) Ltd v Mimarkits Company (Pty) Ltd (1730/24P) [2024] ZAKZPHC 120 (8 November 2024)
IN THE HIGH COURT OF
SOUTH AFRICA
KWAZULU-NATAL
DIVISION, PIETERMARITZBURG
CASE NO: 1730/24P
In the matter between:
DAXMOLLIE BAE (PTY)
LTD
Applicant
and
MIMARKITS COMPANY
(PTY) LTD
Respondent
JUDGMENT
VAN ROOYEN AJ
[1]
The
applicant applies for final relief on motion based on the provisions
of Section 163 of the Companies Act, 71 of 2008 (“the
Act”).
Applicant’s counsel correctly accepts that the
PLASCON-EVANS
rule
finds application. The applicant can only succeed “in those
exceptional circumstances where the respondents’ version
of the
disputed facts can safely be rejected out of hand as far-fetched or
untenable.”
[1]
[2]
In
applications of this nature this court is not required to resolve
every factual dispute
[2]
and the matter is essentially to be decided on the respondent’s
version.
[3]
[3]
In summary, the applicant moves this court
for the following orders: -
3.1
Directing the respondent to provide financial statements for the
years ending 2022 and 2023, independently
reviewed by an agreed upon
or court appointed auditor in accordance with Generally Accepted
Accounting Principles, within one month
of the order;
3.2
Independently reviewed financial statements for the year ending
February 2024;
3.3
Inform the applicant whether audited financial statements exist for
the period preceding February 2024
and, if they do, to provide them
to the applicant;
3.4
Furnish the applicant, upon request within 30 days of the receipt of
the financial statements, with
invoices, bank statements, vouchers
and other source documents required to verify the financial
statements;
3.5
Provide the applicant’s “nominated appointed auditor”
(sic) with all source documents
required to produce audited financial
statements within one month of being notified of whom the appointed
auditor is and to co-operate
in the production of audited financial
statements;
3.6
Tender the cost of production of the audited financial statements;
3.7
Provide the minutes of the respondent’s AGM of 10 August 2023,
within 5 days of the order;
3.8
Provide the name and details of the respondent’s company
secretary; and
3.9
To pay the costs of the application “in the event of the
(respondent) opposing the relief.”
[4]
During argument, Mr. Oosthuizen, who
appeared with Mr. Pillay, abandoned the relief sought in paragraphs
3.6 to 3.8 above, in my
view correctly so.
[5]
The applicant announces in paragraph 5 of
the founding affidavit that the application is made in terms of
Section 163(1)
of the
Companies Act 71 of 2008
by it as a minority
shareholder of the respondent, holding 33 fully paid ordinary shares
issued on 10 February 2023.
[6]
The respondent asserts factually that,
during 2020, a shareholder extricated itself from the respondent and
that a director, Mr.
Platt, engaged in the market to find a
replacement investor which resulted in the shares being owned by four
entities, including
the applicant.
[7]
The respondent describes the applicant as a
“management shareholder”, to which description the
applicant takes umbrage.
I understand the description to suggest that
the applicant would have, through a director or more, a managerial
function in the
business of the respondent and be entitled to
participate in the conduct of the business.
[8]
The
respondent could rightfully be described as a company “
where
the shareholders enter into the venture on the basis of an informal
or tacit understanding or arrangement that each will contribute
something by way of capital or labour and each will play a role in
the running of the company, usually as a director but sometimes
as an
employee…”
[4]
[9]
The respondent asserts that Mr. Michael
Wade, the director of the respondent representing the applicant’s
interests, resigned
– a fact denied by the applicant baldly.
[10]
As a result of the resignation, the
applicant’s relationship with the respondent terminated and
this has led to arbitration
proceedings concerning provisions in the
shareholder’s agreement relating to disposal of the applicant’s
shares under
the circumstances. The respondent contends that the
applicant’s rights as a “management shareholder”
terminated
and that the applicant lacks
locus
standi
to pursue the relief sought.
[11]
Nothing turns on the dispute and I am
obliged to accept the respondent’s version that Mr. Wade
resigned as director and that
there can be no suggestion that there
has been an unfairly prejudicial exclusion of the applicant’s
representative from the
business affairs of the respondent.
[12]
I am equally obliged to accept that the
applicant remains a
de facto
shareholder
of the respondent.
[13]
The further contention by the respondent is
that, notwithstanding the disputes, the applicant’s
representatives were permitted
to attend, and did in fact attend, the
respondent’s AGM’s. The respondent appointed Finovo
Accountants, in the stead
of Mr. Wade, to attend to the accounting
and tax aspects of the respondent’s business, an issue admitted
by the applicant.
[14]
The respondent’s annual financial
statements were prepared by Finovo, “internally reviewed by the
firm (by a different
partner), approved at the AGM’s, signed
and submitted to SARS.” The applicant admits that it approved
the financial
statements for March 2022 to July 2023 and that it is
in possession of statements, approved by it, preceding that period.
[15]
The applicant asserts that it was
represented, by proxy, at the respondent’s AGM on 10 August
2023 and that pursuant thereto,
on 18 August 2023, it requested a
recording of what transpired at the meeting and the respondent’s
bank statements for 1
March 2022 to July 2023.
[16]
No response was allegedly received and a
repeat request was made in writing on 7 September 2023, which
included a request for the
provision of details regarding the company
secretary.
[17]
The applicant was told that Finovo performs
the function of company secretary at the 2021 AGM, another fact I am
bound to accept.
[18]
In reply, the applicant admits receiving
the recording on 11 August 2023. It failed to disclose this fact in
the founding affidavit.
[19]
It baldly denies the respondent’s
assertion that it is not entitled to the bank statements for the
period March 2022 to July
2023 as it had approved the financials
covering that period.
[20]
What then is the applicant’s
complaint?
[21]
The claim that the respondent has failed to
provide the minutes of the aforesaid AGM is devoid of substance. The
applicant had the
recording of the meeting which undoubtedly recorded
resolutions, if any were taken.
[22]
The respondent ignored the request for the
provision of bank statements, and thereby tacitly refused the
request.
[23]
In terms of Section 26(1)(c) of the Act, a
shareholder,
qua
a
person holding a beneficial interest in any securities issued by a
profit company, has a right to inspect and copy, amongst others
not
relevant to this application, the annual financial statements, as
mentioned in Section 24(3)(c)(i) and (ii) of the Act.
[24]
Sections 24(3)(c)(i) and (ii) refer to
reports presented to an AGM and annual financial statements, retained
for a period of seven
years.
[25]
Notably excluded from Section 26(1)(c) are
the accounting records of the company, retained for the required
period.
[26]
This
statutory restriction of access by shareholders to the accounting
records accords with the interpretation of the Companies
Act, 1973,
considered by the Supreme Court of Appeal in
Clutchco
[5]
,
where a shareholder applied for accounting records.
[27]
It was held that “
unless
the articles of association otherwise provide, he is not entitled to
inspect the books of first entry…That right is
reserved for
the directors.”
[28]
There are no articles of association before
me.
[29]
The
court did not, however, exclude that there may be a right to access
the information in terms of the Promotion of Access to Information
Act 2 of 2000 (“PAIA”) or under Section 252 of the
Companies Act, 1973.
[6]
[30]
“
In
enacting PAIA, Parliament could not have intended that the books of a
company, great or small, should be thrown open to members
on a whiff
of impropriety or on the ground of relatively minor errors or
irregularities having occurred. A far more substantial
foundation
would be required.”
[7]
[31]
The applicant makes no case for relief
under PAIA but squares its relief on the successor to Section 252,
being Section 163 of the
Act.
[32]
Mr.
Oosthuizen submitted, relying on
Crazy
Plastics
[8]
at
paragraph [28], that, notwithstanding the fact that no request for
information in terms of PAIA has been made, the applicant
is entitled
to the documents sought in this application as Section 26(7) of the
Act makes the remedy to be in addition to any PAIA
remedy.
[33]
The submission loses sight of the fact that
a shareholder is entitled to access financial statements, and if
there are audited statements,
it is entitled to those. The applicant
knows there are no audited financial statements.
[34]
This does not address the restriction
regarding accounting records. The view expressed in the judgement
that Moodley is entitled
to the source documents, used to compile the
financials, does not take
Clutchco
into
consideration.
[35]
Of
greater significance is that
Crazy
Plastics
is
authority for the proposition that, for the period preceding
Moodley’s resignation or removal as a director, he was only
entitled to have access to the statements in the form the company is
obliged to keep.
[9]
He appears
to have been excluded from the company’s affairs from that
date, a feature which distinguishes him from the applicant’s
position, which was to continue to attend AGM’s and approve
annual financial statements.
[36]
The reason given for the need for the
information is for the applicant to “
have
a proper understanding of Respondent’s income and
expenditure…of the valuation of its shares, and further, to
properly exercise its rights as a shareholder.”
The
applicant further asserts its alleged right to know whether audited
financial statements for the respondent exist.
[37]
The applicant does not suggest that the
respondent was required to have audited financial statements in terms
of Section 30(2) of
the Act, read with Regulation 28. The financial
statements, as they are, were reviewed by Finovo and approved by the
applicant.
[38]
The same process would have been applied
for the 2024 financial statements, which would be placed before the
AGM held between May
and August 2024, discussed and approved. There
is no supplementary evidence showing that this did not transpire.
[39]
Where
the applicant has approved financial statements, it cannot, through
the mechanism of this application, call them into question.
It has
accepted that they state the respondent’s financial position
accurately and are available to it to understand the
respondent’s
“income and expenditure.” By approving them, it accepts
that all underlying transactions were properly
captured and
dependably reported.
[10]
[40]
Section 163 of the Act permits a
shareholder or director of a company to approach a court for relief
where any act or omission of
the company, or a related person, has
had a result that is oppressive or unfairly prejudicial to, or
unfairly disregards the interests
of, the applicant; the business of
the company, or a related person, is being or has been carried on or
conducted in a manner which
has similar effect; or the powers of a
director or prescribed officer, or a person related to the company,
are being or have been
exercised in a manner which has similar
effect.
[41]
The
Section must be construed to advance the remedy, rather than to limit
it
[11]
and that the power of a court to grant relief is wide and not
restricted to the relief formulated by the applicant.
[12]
[42]
The
court’s jurisdiction to make an order does not arise until the
statutory criteria have been satisfied.
[13]
[43]
The
principles for the application of Section 163, set out hereunder, are
extracted from the SCA judgement in
De
Sousa
[14]
which
is, no doubt, the final word spoken on the application of Section 252
of the Companies Act, 1973.
[44]
It
is trite that regard may be had to authorities dealing with Section
252 in interpreting and applying Section 163 of the Act.
[15]
[45]
The relationship between a company and its
members, and the members
inter se,
is
contractual, and based primarily on the memorandum of incorporation
or other agreements concluded amongst shareholders. The minority
subjects itself to the lawful exercise of the will of the majority,
exercised in the interests of the company.
[46]
By statute the courts have been vested with
powers to override the majority’s exercise of their contractual
powers, in order
to remedy oppression and unfair prejudice suffered
by the minority.
[47]
A claim under Section 252 required proof of
the manner in which the affairs of the company were being conducted
and an identifiable
and discernible course of conduct, that was
unfairly prejudicial to the member. The Section concerned itself with
the effect of
the course of conduct, not the motives of those
responsible for it. Prejudice is commercial and not merely emotional.
[48]
The
word “unfairly” is emphasised. The remedy is only
available if the member is unfairly prejudiced. The applicant
must
establish a lack of probity or fair dealing or violation of
conditions of fair play.
[16]
[49]
The breadth of the powers vested in a court
are not an invitation for courts to intervene in the affairs of a
company at the behest
of a disgruntled member. Dissatisfaction and
disagreement with, or disapproval of, the conduct of the business
does not of itself
mean that the member has suffered unfair
prejudice. The fact that there are irreconcilable differences between
shareholders may
in some circumstances justify an order for winding
up the company, but it is not, without more, unfair prejudice.
[50]
Conduct is oppressive, unfairly prejudicial
or unfairly disregards the interests of a shareholder, if objectively
viewed, it has
that effect.
[51]
“
Oppressive
conduct” has been accepted to include unjust or harsh or
tyrannical conduct; burdensome, harsh or wrongful conduct;
or conduct
which involves at least an element of lack of probity or fair
dealing.
[17]
[52]
The
onus of proving the conduct has the effect envisaged by the Section,
falls on the applicant. “
A
high degree of specificity is required… The threshold is an
extremely onerous threshold to achieve in motion proceedings…”
[18]
[53]
The applicant has failed to even emerge
from the starting blocks in discharging the onus of establishing that
the effect of conduct
by the company or directors is prejudicial, let
alone unfair.
[54]
Its director resigned as director of the
respondent. It cannot therefor be said that it was excluded from the
business and affairs
of the respondent, other than on its own
volition.
[55]
It was permitted to and in fact attended
annual general meetings, through a proxy, and participated in the
approval of the annual
financial statements. On request, it received
a transcript of the proceedings at the 2023 AGM.
[56]
The vast majority of these facts, now
admitted, are not disclosed in the founding affidavit.
[57]
It raises no material objection to the
content of annual financial statements approved by it, nor how the
provision of bank statements,
will result in further clarity and
understanding of the respondent’s financial position – a
position confirmed by it
in approving the annual financial
statements.
[58]
It makes no case for suggesting that the
financial statements provided to it, which were, incidentally,
independently reviewed,
did not comply with the standard of
accounting imposed on the respondent by the Act. The complaint that
the reviewer is not independent
is opportunistic and unrelated to the
fact that the applicant independently approved the financials.
[59]
It does not explain the need for audited
financial statements when the financials were approved in their
current form. The relief
sought in paragraph 3 of the notice of
motion, requiring the respondent to be directed to disclose whether
audited financial statements
exist is disingenuous, when the
respondent represented its financial affairs to shareholders and SARS
through approved unaudited
statements.
[60]
The
respondent, in applying for the aforesaid order, unjustifiably
latches on to the finding in
Bester
[19]
to
the effect that, in that case, the value of shares could only be
determined through a forensic audit. It lays no foundation for
the
need for an audit.
[61]
Section
163 provides an equitable remedy. No facts were placed before me in
order to determine what the impact of the cost of an
audit, on the
respondent, would be.
[20]
Fortunately this relief was abandoned.
[62]
It is common cause that the parties are
engaged in arbitration proceedings involving the applicant as
shareholder of the respondent.
Such proceedings appear to involve a
determination of the basis for the applicant’s exit as
shareholder of the respondent.
The process will, of necessity,
involve the mutual discovery of documents and records relevant to the
enquiry.
[63]
The applicant has a clear alternative
remedy.
[64]
Should I exercise an equitable jurisdiction
to override the lawfully exercised contractual powers of the majority
on the basis that
it has been established with “a high degree
of specificity” that the business of the respondent has been
conducted
in a manner that, objectively, has the effect of lacking
probity, fair dealing, violating conditions of fair play or unfairly
disregarding
the interests of fairplay?
[65]
To do so on the facts before me would be to
improperly intervene in the affairs of the respondent “at the
behest of a disgruntled
member.” A far more substantial factual
foundation is required.
[66]
The view I take is that this application
was ill-advised and completely bereft of any facts which from which
it could objectively
be concluded that the conduct complained of,
falls within the ambit of Section 163. The paucity of information
provided in the
founding affidavit, together with material facts
omitted therefrom (and subsequently admitted in reply) calls into
stark question
the applicant’s
bona
fides
and motives for making the
application.
[67]
There is nothing in the respondent’s
version that is to be rejected as far-fetched and untenable. In fact,
many of the facts
which could have been contentious, were admitted by
the applicant.
[68]
Where a court is satisfied that the purpose
behind an application is other than that sought to be achieved by the
statutory remedy,
a punitive costs order is appropriate. The purpose
of this application is distinctly unclear, where the material
information regarding
the respondent’s financial affairs was
available to the respondent, and in fact, approved by it.
[69]
The applicant has put the respondent to
needless expense and persisted to an opposed hearing on the strength
of a founding affidavit
devoid of facts sufficient to sustain the
applicant’s cause. This is a factor which weighs in determining
an appropriate
costs order.
[67] In
conclusion the following order is made:
1.
The application is refused.
2.
The applicant is ordered to pay the
respondent’s costs on an attorney and client scale.
__________________
VAN ROOYEN AJ
Date
reserved:
4 November 2024
Date
delivered:
8 November 2024
For
Applicant:
Adv Oosthuysen SC – Adv Pillay
Instructed
by:
Kooben Chetty and Associates
Ref: Ravi Chetty
Tel: 033-394 8115
Email:
ravi@chettylawinc.co.za
For
Respondent:
Adv Harrison
Instructed
by:
J Leslie Smith & Company
Ref: 24EL0006/VN DALY/VC
Email:
virginaic@jleslie.co.za
[1]
Prinsloo
NO v Goldex 15 (Pty) Ltd
2014
(5) SA 297
(SCA) at para [17], with reference to
Plascon
at
634E to 635C
[2]
Bester
v Lebra Developments (Pty) Ltd
(2022)
ZAGPPC 211 at para 34
[3]
Business
Doctor Consortium Ltd v Old Mutual Finance (RF) (Pty) Ltd
2022
JDR 2891 (WCC)
[4]
De
Sousa v Technology Corporate Management (Pty) Ltd
2017
(5) SA 577
(GJ) at para [47]
[5]
Clutchco
(Pty) Ltd v Davis
2004
(3) SA 486
(SCA)
[6]
Clutchco
at
paras [11] and [14]
[7]
Clutchco
at
para [17]
[8]
Moodley
v Crazy Plastics 2024 JDR 0058 (GJ)
[9]
Crazy
Plastics
at
para [26]
[10]
Pakade
NO v Lukhandji Leisure (Pty) Ltd
ZAECGHC
21 (2 March 2017)
[11]
Grancy
(Pty) Ltd v Manala
2015
(3) SA 313
(SCA) at para [26]
[12]
Freedom
Stationery v Hassam
2019
(4) SA 459
(SCA) at para [27] to [28]
[13]
De
Sousa
at
para [38]
[14]
De
Sousa v Technology Corporate Management (Pty) Ltd
2015
(5) SA 57 (SCA)
[15]
Grancy
Property Ltd v Manala
2015
(3) SA 313
(SCA) at para [22]
[16]
De
Sousa
(a
quo) at para [39] to [44]
[17]
Grancy
at
para [22] and [23]
[18]
Business
Doctor
at
para [57] and [58]
[19]
At para [59]
[20]
De
Sousa
(SCA)
at para [258] and [259] – in the context of a court ordered
buy-out where no enquiry was conducted into the financial
effect of
such an order on the company. “
The
purpose of a buy-out order was not to bring a company to its knees.”