IN THE HIGH COURT OF SOUTH AFRICA
KWAZULU-NATAL DIVISION, PIETERMARITZBURG
Appeal Case No.: AR384/2023
High Court, Durban, Case No.: D3962/2022
In the matter between:
CAPABILITY BPO GLOBAL (PTY) LTD First Appellant
CAPABILITY INVESTMENT GROUP (PTY) LTD Second Appellant
MARK GEORGE ESSEY Third
Appellant
JUSTIN LAWRENCE FARRY Fourth Appellant
JOHN GEORGE ESSEY Fifth
Appellant
and
FORE CONSULTING AND MANAGEMENT BV First Respondent
TRANSFORMATION CONSULTING AND Second Respondent
MANAGEMENT SERVICES BV
SANDER SCHEPENS Third Respondent
________________________________________________________________
ORDER
________________________________________________________________
On appeal from: the High Court of South Africa, KwaZulu-Natal Local Division,
Durban (Hadebe J sitting as court of first instance):
1. The appeal is upheld with costs, including the costs consequent upon the
employment of two counsel on scale C.

2

2. The orders of the High Court granted on 8 March 2023 are set aside, and
replaced with the following:
(a) The application is referred to trial.
(b) The notice of motion shall serve as a simple summons.
(c) The applicants shall deliver their declaration in terms of Uniform Rule 20
within one month from the date of this order.
(d) Thereafter, the time periods as provided for in the Uniform Rules of Court
shall apply to the further conduct of the matter.
(e) The costs of the application are reserved for the decision of the trial court.
________________________________________________________________
JUDGMENT
________________________________________________________________
Balton J et Harrison J (and Oliff AJ concurring)

Introduction
[1] This appeal concerns an application before Hadebe J in the court a quo
which was ostensibly based on the provisions of ss 162 and 163 of the
Companies Act 71 of 2008 (the Companies Act).

[2] On 8 March 2023, H adebe J granted a n order which included the
following:
(a) declaring the third appellant (‘Mark’), the fourth appellant (‘Justin’), and the
fifth appellant (‘John’) to be delinquent directors;
(b) declaring the first respondent ( ‘FCMB’) to be a shareholder holding 226 of
1 000 shares (‘the shares’) in the first appellant (‘Capability’);
(c) declaring FCMB to have earned the shares in terms of the Consultancy
Services Agreement (‘the Consultancy Agreement ’) concluded between
the second respondent (‘Transformation’) and Capability;
(d) declaring the second appellant’s ( ‘Capability Investment ’) purported
exercise of its option by notice dated 5 May 2020 to have been invalid;
(e) directing Capability to deliver the necessary share certificate to FCMB,
refrain from altering its register, and reflect its name in its register;

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(f) granting the sheriff the authority to give effect to the aforegoing should it
not be performed by Capability;
(g) interdicting Capability, Capability Investment, Mark, Justin, and John from
interfering with FCMB’s rights;
(h) directing Capability to maintain its accounting records and give notice of
shareholders meetings, and to allow FCMB to participate in shareholders
meetings;
(i) appointing Eddie Moyce as a director of Capability;
(j) interdicting Capability, Capability Investment, Mark, Justin, and John from
interfering with Moyce’s rights and obligations as a director;
(k) declaring invalid and ineffectual Capability’s purported cancellation of the
Consultancy Agreement on or about 5 May 2020;
(l) directing Capability to comply with its obligations under the Consultancy
Agreement and provide within 15 days after month end, copies of all
relevant invoices, cost of income items, payment calculations, invoiced
amounts, cash payments received, and a profit and loss review;
(m) in the event of the information not being provided, that the billing in respect
of the Consultancy Agreement will be based on financial forecasted
EBITDA (net profit);
(n) that Capability Investments, Mark, Justin, and John pay the costs of the
application on an attorney-client scale.

[3] Leave to appeal was refused by the court a quo and leave was
subsequently granted by the Supreme Court of Appeal on petition.

Facts
[4] The third respondent ( ‘Schepens’) introduced Mark to a Dutch company,
Custom Connect International NL (‘Custom Connect’), which provided business
process outsourcing (‘BPO’) to companies such as Groupon.

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[5] This then resulted in the Consultancy Agreement being concluded
between Capability and Transformation on 15 September 2018. 1 Relevant
portions of the agreement provide:
‘2 Introduction
2.1 Capability requires the services of a consultant to provide the services listed in
paragraph 3.1.
2.2 The Consultant, having examined and considered the scope of services, is able
to and undertakes to render the services from time to time to Capability in
accordance with Capability’s requirements.
2.3 Capability accordingly hereby appoints the Consultant to provide services in
terms of this agreement and the Consultant accepts the appointment.
2.4 Capability and the Consultant shall owe to each other a duty of good faith at al
times. Their relationship shall be construed as that of quasi partners.
3 Duration of Agreement
This agreement commences on 1 st of September with a duration of 6 years and
is automatically renewed for same term unless Parties agree otherwise (only
under mutual consent) and terminates when the Consultant ceases providing
the services to Capability, or when Parties agree (only under mutual consent) to
discontinue the partnership subject to both Capability and the Consultant’s right
to terminate this agreement prior to the termination date in accordance with the
provisions of paragraph 7.9.
4 Consultant’s Mandate
4.1 The Consultant will provide (on a case by case bases, meaning not all services
for all projects involved) the following services to Capability –
. . .
5 Consultant’s Fees
5.1 . . .
5.2 As consideration for the services in connection with this agreement, Capability
shall pay (aside from the above in clause 5.1 mentioned optional fees) the
Consultant a % of Revenue on each Project based on the following sliding
scale: (Table omitted)
5.3 The Consultant will bill Capability for the fees in clauses 5.1 and 5.2 on a
monthly basis, in arrears, and the amount billed will become due and payable

monthly basis, in arrears, and the amount billed will become due and payable
by Capability within 15 days of receipt of the Revenue by Capability from its

1 Pages 71 to 80 of the record.

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clients. Capability will provide Consultant within 15 days after Month ending with
an overview which holds all relevant invoices send to clients, payment
calculations concerning these invoiced amounts, cost - and income items, cash -
payments received from clients, and provides a clear Profit & Loss Overview
including gross - and Nett -margins. If Capability cannot meet the 15 day
reporting cycle, then billing will be done based on financial forecasted ebita (nett
profit) for appliable periods, which will be corrected for actuals the following bill -
cycle/month.
The Consultant will bill Capability in the currency that Capability bills the clients.
5.4 As additional compensation for the services to be rendered by the Consultant
pursuant to this Agreement, Consultant will receive a stock option:
(1) to purchase up to 22.6% of the company’s outstanding shares;
(2) at an exercise price of the par value (of a single (1) South African Rand in
total) of the shares;
(3) vesting on the achievement of cumulative Revenue milestones based on
the audited financial statements of the company (due no later than 4
months after the end of the Company’s financial year, which is February);
…’

The respondents’ (the applicants in the court a quo) version
[6] The Consultancy Agreement provided that:
(a) Transformation would bill a fee equivalent to 3% of the total revenue
generated by Capability;
(b) there would be an adjustment, up or down, depending on whether a base
margin of 13% would be exceeded or not;
(c) the billing would be on a monthly basis;
(d) Capability would account to Transformation within 15 days of month end
with an overview of all relevant invoices;
(e) in the event of Capability not meeting the 15 -day reporting cycle, billing
would be done on financially forecasted earnings before interest, tax
depreciation, and amortisation (EBITDA); and
(f) Transformation be given a stock option to receive 22.6% of Capability’s
shares.

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[7] After concluding the Consultancy Agreement, in December 2018
Schepens concluded a Shareholders Agreement with FCMB as the shareholder,
and not Transformation . Thus, FCMB became the shareholder and
Transformation a service provider and creditor for the payments of consultancy
fees under the Consultancy Agreement.

[8] Pursuant to the conclusion of the Shareholders Agreement Capability
appeared to establish a successful business and Schepens, on behalf of
Transformation generated monthly invoices to Capability for consultancy fees for
the period February 2019 to February 2020.

[9] Schepens contends that the last set of financial information received as at
28 February 2020, reflecting revenue of R56 499 822 and a net profit of
R14 538 639 is set out in a screenshot, Annexure ‘FA6’ 2 to the founding affidavit.
Schepens disputes the accuracy of these figures, but then states that:3
‘Based on the figures in “ FA6”, in terms of the Consultancy Agreement as read with the
Shareholders Agreement, FCMB, alternatively Transformation, had earned at least 166
shares (a shareholding of 16.6% in the Company).’

[10] Schepens set out various contracts with certain companies which he
contended would entitle Transformation to bill for additional amounts , in terms of
the Consultancy Agreement and the revenue for which, he contends, would
exceed R74 million. He therefor e concludes that FCMB , alternatively,
Transformation would have attained the necessary threshold for the 22.6%
shareholding in Capability . During December 2019, Mark and Justin informed
Schepens that Transformation would not be receiving any fees on new deals or
projects.

[11] Schepens contends that he was prejudiced at a directors meeting in
January 2020, when an attorney attended the directors meeting and he was not
advised thereof or given an opportunity to have an attorney present.

2 Page 102 of the record.
3 Founding affidavit para 58.

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[12] Schepens details how he, FCMB and Transformation did not receive any
financial information from Capability despite various requests to do so. He
contends that because Mark, Justin, and John failed to give information this
constituted unauthorised and unlawful conduct. Schepens thereafter details the
non-payment of Transformation invoices from March 2020 onwards.

[13] As at the time of the hard lock down during Covid -19, the relationship
between the parties had soured. Schepens describes the failure to communicate
with him as being a breakdown of trust. Schepens t hen details the exercise of
the call option by Capability Investments pursuant to clause 2 of the
Shareholders Agreement, which was exercised during May 2020. That exercise
of the call option sought to invoke the formula of the purchase price being limited
to R226 for the par value of the shares. Simultaneously with the exercise of the
call option, Capability purported also to cancel the Consultancy Agreement on
the basis that Transformation had materially breached the agreement in that it
failed and/or ceased to provide the envisaged services to Capability. In addition,
Mark, Justin, and John sought to call upon Schepens to resign.

[14] Schepens sought the appointment of further/alternate directors to the
board of Capability.

The appellants version (the respondents in the court a quo)
[15] In the answering affidavit, the appellants set out in detail the services
which Transformation/FCMB were to supply and contend that the respondents
failed to comply with the services specified in clause 4 of the Consultancy
Agreement. They detail the failure by FCMB and Transformation to provide the
services, contending that Capability is entitled to cancel the Consultancy
Agreement, as well as to justify why no further fees were payable.

[16] They contend that the figures upon which Schepens relied were
inaccurate, detailing why they were inaccurate and furnishing an explanation of

inaccurate, detailing why they were inaccurate and furnishing an explanation of
same. Capability claimed that none of the other projects for which FCMB and

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Transformation were claiming fees had come to fruition, thereby disentitling them
to the so -called commission claims or the right to have earned the shares
contended for by Schepens in the founding papers.

[17] The non -payment of the Transformation invoices is founded on the
premise that services were not provided by FCMB and Transformation, therefore
not entitling them to any further payments.

[18] The answering affidavit also sets in detail the reasons why the purported
appointment of further directors to Capability was inappropriate particularly as the
nominations for directors were persons who were direct competitors of Capability.

Issues
[19] The court a quo has set out the test for deciding applications where there
are disputes of fact, detailing the Plascon-Evans4 test and its interpretation . The
court adopted a robust approach to deciding the matter on the papers, not only
finding that there had been minority oppression, but the exclusion of Schepens
from the management of the companies amounted to conduct which was
oppressive behaviour warranting the removal of Mark, Justin, and John as
directors under s 162 of the Companies Act.

[20] In light of our finding in this matter it is our view that the main issue is
whether the court a quo ought to have referred the matter to trial in light of the
disputes of fact.

The law
[21] Sections 162(5) and 163 of the Companies Act form the foundation of this
case.

[22] An application under s 163 is required to be brought by a shareholder or a
director. In this instance, it would be FCMB or Schepens. Transformation is

4 Plascon-Evans Paints Ltd v Van Riebeeck Paints (Pty) Ltd 1984 (3) SA 623 (A).

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nothing more than a creditor and lacks any locus standi to bring itself under this
section for relief. Schepens has deliberately conflated these entities in order to
seek to suggest that Transformation is equally entitled to relief under this section .
Transformation is not entitled to such relief.

[23] Section 163(1) of the Companies Act affords a director or a shareholder
the right to approach the court for relief from oppressive or prejudicial conduct
that unfairly disregards the interests of the app licants in the following three
scenarios:
‘(a) any act or omission of the company, or a related person, has had a result that is
oppressive or unfairly prejudicial to, or that unfairly disregards the interests of, the
applicant;
(b) the business of the company, or a related person, is being or has been carried on
or conducted in a manner that is oppressive or unfairly prejudicial to, or that
unfairly disregards the interests of, the applicant; or
(c) the powers of a director or prescribed officer of the company, or a person related
to the company, are being or have been exercised in a manner that is oppressive
or unfairly prejudicial to, or that unfairly disregards the interests of, the applicant.’

[24] It is only once the abovementioned conduct is established that relief can
then be sought under s 163(2). Section 163(2) grants a court a wide discretion to
make any interim or final order it considers fit as set out in the section.

[25] It is noteworthy that s 163 (2)(l) includes a referral to trial o f any issue
determined by the court. It is clear that the legislators contemplated that the
procedure adopted in invoking s 163 would be by way of application and that,
when faced with a dispute of fact, the court would have the option to refer specific
matters to trial . The appellants have, as part of the relief sought in the appeal,
sought for a referral to trial.

[26] Section 163(2)(i) of the Companies Act provides:

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‘an order requiring the company, within a time specified by the court, to produce to the
court or an interested person financial statements in a form required by this Act, or an
accounting in any other form the court may determine;’

[27] The production of financial records as contemplated in paragraph 2.6 of
the court order, specifically references the 30 and 45 -day periods which are
taken from the Shareholders Agreement . The wording of the court order is taken
directly from the Shareholders Agreement and arises not out of any statutory
obligation, but out of a contractual obligation. This type of situation was referred
to by Wallis AJA in Technology Corporate Management (Pty) Ltd and Others v
De Sousa and Another 5 where at paragraphs 87 to 94, Wallis AJA identifies the
types of cases where there are exclusions from the company as complained of
by Schepens in this matter.6 At paragraph 94 Wallis AJA states:
‘…Where the parties have expressly addressed and provided for particular situations
that may arise in the future, courts should be wary of holding that the implementation of
what was agreed is unfairly prejudicial to a minority shareholder and, by overriding the
agreement, confer rights on the minority shareholder that they agreed not to have.’

[28] The right of a member to financial information was recently examined in
the matter of Trustees for the Time Being of the Krom rivier Trust v Trustees for
the Time Being of the Hartwig Family Trust and Others .7 Cloete J was faced with
an application dealing with ss 31, 61, and 163 of the Companies Act, and similar
to this case, was aske d to make an order in terms of s 163 as well as order that
the removal of a director be declared invalid. Cloete J specifically found that
there were disputes of fact as regards the s 163 portion of the application.
However, when being called upon to make a declaration under s 31(1)(b) relating
to the right to receive annual financial statements, he pointed out that:8

to the right to receive annual financial statements, he pointed out that:8

5 Technology Corporate Management (Pty) Ltd and Others v De Sou sa and Another [2024]
ZASCA 29.
6 Wallis AJA was dealing with s 252 of the Companies Act 61 of 1973. However, the examination
of unfair prejudice was specifically handled in a manner where the applicability to s 163 was not
only compared, but also clearly connected, the judgment referencing s 163 and making the
comparative analysis.
7 Trustees for the Time Being of the Kromrivier Trust v Trustees for the Time Being of the Hartwig
Family Trust and Others [2025] ZAWCHC 19.
8 Ibid para 35.

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‘…It remains open to the 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.’

[29] From a conspectus of these cases, it is clear that a party must u tilise the
appropriate remedy and section in order to secure its rights. If the right being
enforced is a right under a contractual arrangement, either the Shareholders
Agreement or the Memorandum of Incorporation, then the shareholder must
enforce such contractual right, subject to it not being enforced in an improper
fashion. A director similarly must use the provisions of ss 26 and 30 of the
Companies Act in order to secure financial information, and the securing of
financial information under s 163 should only be resorted to where there is
unfairly prejudicial conduct, or the other remedies have already been attempted
or exhausted.

[30] It appears that the respondents brought the application under s 162(5) of
the Companies Act . Section 162(5) was specifically examined in Gihwala and
Others v Grancy Property Ltd and Others,9 where Wallis JA held that:
‘[142] In order to assess these arguments, it is appropriate first to examine the purpose
of s 162(5). . . . it is not a penal provision. Its purpose is to protect the investing public,
whether sophisticated or unsophisticated, against the type of conduct that leads to an
order of delinquency, and to protect those who deal with companies against the
misconduct of delinquent directors . What is that conduct? It is helpful to examine some
of the other provisions of the section. Under ss 5 (a) consenting to serve as a director, or
acting in that capacity or in a prescribed office, while ineligible or disqualified from doing
so, attracts delinquency. Under ss 5 (b) acting as a director while under a probation

so, attracts delinquency. Under ss 5 (b) acting as a director while under a probation
order in terms of s 162, or the corresponding provision dealing with close corporations,
results in delinquency as both orders are directed at preventing that very conduct.
[143] Turning to ss 5 (c), one starts with a person who grossly abuses the position of
director, conduct of which I have found Mr Gihwala and Mr Manala guilty. We are not
talking about a trivial misdemeanour or an unfortunate fall from grace. Only gross

9 Gihwala and Others v Grancy Property Limited and Others 2017 (2) SA 337 (SCA).

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abuses of the position of director qualify. Next is taking personal advantage of
information or opportunity available because of the person's position as a director. This
hits two types of conduct. The first, in one of its common forms, is insider trading,
whereby a director makes use of information, known only because of their position as a
director, for personal advantage or the advantage of others. The second is where a
director appropriates a business opportunity that should have accrued to the company.
Our law has deprecated that for over a century . The third case is where the director has
intentionally or by gross negligence inflicted harm upon the company or its subsidiary .
The fourth is where the director has been guilty of gross negligence, wilful misconduct
or breach of trust in relation to the performance of the functions of director or acted in
breach of s 77(3)(a) – (c). . . .
[144] All of these involve serious misconduct on the part of a director. In the affidavits
raising the constitutional issue there was a complaint that gross negligence could trigger
a delinquency order. There is no merit in this complaint. There is a long history of courts
treating gross negligence as the equivalent of recklessness, when dealing with the
conduct of those responsible for the administration of companies, and recklessness is
plainly serious misconduct. It was urged upon us that there might be circumstances of
extenuation, or perhaps that, notwithstanding the seriousness of the conduct, the
company might not have suffered any loss. But neither of those is relevant to the
protective purpose of the section. Its aim is to ensure that those who invest in
companies, big or small, are protected against directors who engage in serious
misconduct of the type described in these sections. That is conduct that breaches the
bond of trust that shareholders have in the people they appoint to the board of directors.

bond of trust that shareholders have in the people they appoint to the board of directors.
Directors who show themselves unworthy of that trust are declared delinquent and
excluded from the office of director. It protects those who deal with companies by
seeking to ensure that the management of those companies is in fit hands. And it is
required in the public interest that those who enjoy the benefits of incorporation and
limited liability should not abuse their position. . . . ‘[Footnotes omitted].

[31] Gihwala was considered in Lewis Group Ltd v Woollam and Others 10
where Binns-Ward J commented on the import of s 162(5) as follows:
‘[14] Treating of subpara (i) thereof, Wallis JA remarked that a gross abuse of the
position of director did not involve “a trivial misdemeanour or an unfortunate fall from
grace”. Indeed, the adjective “gross” used in a context like “gross abuse ” denotes

10 Lewis Group Ltd v Woollam and Others 2017 (2) SA 547 (WCC).

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obvious and egregious conduct . The conduct in question must relate to the use of the
position as director, it does not relate to the performance by the person concerned of his
or her duties and functions as a director because that is a matter dealt with discretely in
terms of subpara (iv). Subparagraph (i) does not appear to be applicable in respect of
Woollam's complaints.
. . .
[18] It follows that for a company or any of its shareholders to succeed in obtaining a
declaration of delinquency in respect of any of the company ’s directors or former
directors they must demonstrate very serious misconduct by the person concerned. The
relevant causes of delinquency entail either dishonesty, wilful misconduct or gross
negligence. Establishing so -called “ordinary” negligence, poor business decision -
making, or misguided reliance by a director on incorrect professional advice will not be
enough.’ (Footnote omitted.)

[32] The declaration of delinquency of a company’s director involves an
element of mala fides to the point that the conduct is required to be unlawful. It is
insufficient to have a mere recitation of the wording of the section of the
Companies Act to describe a director’s conduct as being delinquent. This is a
conclusion which must be substantiated by facts.

[33] In order for a court to conclude that there has been such malfeasance by a
director, requires not just the allegation, but reference to the specifics, and the
actual conduct of the director complained about . The mere breakdown of the
relationship between parties is not sufficient for a declaration of delinquency. 11
The conduct complained of must be as against the company as a whole and be
to the detriment of the company or unlawful as regards its conduct towards the
members, but the harm cannot be based on an individual’s sensibilities being
offended or his/her mere exclusion from the company. Mere dissatisfaction with
another party is not sufficient to found a basis for a declaration of delinquency.12

another party is not sufficient to found a basis for a declaration of delinquency.12


11 McMillan NO v Pott and Others 2011 (1) SA 155 (WCC) para 34.
12 Visser Sitrus (Pty) Ltd v Goede Hoop Sitrus (Pty) Ltd and Others 2014 (5) SA 179 (WCC)
paras 55-57.

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[34] Courts, when being called upon to make declarations of delinquency, are
being called upon to adjudicate serious misconduct. Whilst s 162 specifically
references that the parties may apply to court, the nature and extent of making
the findings which are required to declare delinquency, are best determined by
trial or the hearing of oral evidence.

[35] This is not to say that in circumstances where the misconduct is of such an
egregious nature that it is patently obvious from the papers that the relief can be
sought, but in circumstances where it is disputed, the rejection of the version put
up by the impugned director should not be dealt with by way of application.

Analysis
[36] There appears to be inherent contradiction in Schepens version namely:
(a) Schepens contends that Capability is doing better than that which was
suggested in annexure ‘FA6’;
(b) he makes these allegations in order to claim an entitlement to 22.6% of
the shares;
(c) on his version, Capability is doing well and was running at a profit;
(d) he claims that the directors, Mark, Justin, and John, are delinquent for
acting unlawfully;
(e) this claim is based on a failure to account and pay Transformation the
monthly consultancy fees claimed for by Transformation (bearing in mind
that Transformation is neither the director nor the shareholder, but merely
a creditor);
(f) the failure to pay the claimed consultancy fee s is on the basis that the
directors are acting in a fashion which is not in the interest of Capability;
(g) in order to claim the right to the shareholding, Schepens is claiming that
Capability is doing well and making a profit, yet in the same breath, he is
seeking to say that the directors are delinquent because they are acting
with gross negligence to the detriment of the company.

15

[37] The failure to pay the consultancy fees does not give rise to the conclusion
that there is maladministration and/or malfeasan ce in Capability. The failure to
pay the consultancy fees is to the detriment of Transformation. It may be “unfair”
that Transformation is not paid a consultancy fee but Transformation is only a
creditor and it cannot invoke s 163 of the Companies Act.

[38] Schepens’ complaint in the founding affidavit is Capability’s failure to pay
the monthly consultancy fee , his exclusion from Capability, and that Capability
chose not to pay further consultancy fees going forward . In our view Schepens
has mistakenly conflated Transformation’s rights to receive payment qua creditor
with his personal right as director, or as the controlling mind of the shareholder,
FCMB.

[39] The declaration of delinquency is based on allegations contained in
paragraphs 177 to 179 of the founding papers which are , for the most part, a
mere recitation of the wording of the Companies Act without linking how it applies
to the previous allegations relating to the conduct complained of in the papers .
Reduced to the bare bones, Schepens’ allegation of unlawful conduct is that
there was a failure to pay Transformation. Transformation lacks the necessary
locus standi to bring such a declaration and, as is set out above, Schepens may
have conflated his position as director with his position as the sole director of the
creditor, Transformation.

[40] Schepens engaged in a so -called financial analysis, comparing annexure
‘FA6’, being the figures which he contended were inaccurate as at 28 February
2020, with certain figures provided by Capability’s attorneys to engage in what
can only best be described as a justification for the contention that FCMB and
Transformation have ‘earned’ the 22.6% shareholding despite there being no
annual financial statements put up as part of the papers . Further, Schepens

annual financial statements put up as part of the papers . Further, Schepens
qualifications to engage in such analysis is never disclosed nor is any basis laid
as to how this analysis supersedes the contractual requirement that the annual
financial statements be used for the earning of the shares.

16


[41] In seeking to emphasise the services for which the monthly management
fee was to be charged, Capability has demonstrated that both parties appear to
have approached the monthly fee from a completely different perspective.
Capability approached the fee as only being earned if the services as provide for
in clause 4 of the Consultancy Agreement w ere to be provided, whereas FCMB
and Transformation viewed it as a payment for revenues generated and more
akin to a royalty fee and a payment for work already brought into Capability.

[42] The failure to pay Transformation, whilst prejudicial to Transformation, is
not prejudicial to FCMB . If the consultancy fee was not paid, then the retained
earnings of Capability is increased and this benefits FCMB as regards the right to
claim the shareholding and any dividend which may accrue thereunder . What is
prejudicial to Transformation is not prejudicial to FCMB. The failure to pay
Transformation will increase earnings and increase FCMB’s claim to having
earned the shares.

[43] The declarations that FCMB is the shareholder of 226 of the 1 000 shares,
and that the shares had been earned , together with the other relief in
paragraphs 2.1 to 2.6 of the court order, is problematic as the very agreements
which entitles FCMB to make claims to that shareholding and its right to have
earned same, requires the production of the annual financial statements.
Clause 5.4.3 of the Consultancy Agreement clearly sets out that the vesting of
the achievement on cumulative revenue milestones is based on audited financial
statements.

[44] Absent the audited financial statements, the court a quo was not in a
position to make the declaration as regards the shares having been earned.

[45] Whilst Schepens may have complained as to his exclusion from
Capability, his relief was not to seek such a declaration under s 163 of the
Companies Act, but rather to enforce his rights under ss 26 and 30 of the Act. It

17

is only after those audited financial statements have been produced, that there
can be any such declaration regarding the shares.

[46] The appointment of Moyce as a director of Capability in paragraphs 2.7
and 2.8 of the court order is predicated on the basis of there being misconduct
and malfeasan ce by the directors, as well as the failure to pay the monthly
consultancy fee. The failure to pay a creditor is not a basis for appointing Moyce
and as regards the participation in Capability, it is unnecessary to appoint Moyce
in circumstances where Schepens could and should have exercised his director’s
rights in accordance with s 73 of the Companies Act. Schepens being out of the
country, was not a bar to him attending directors ’ meetings a s s 73 of the Act
specifically provides for board meetings to be conducted by electronic
communication. Schepens dissatisfaction with the manner in which he was being
reported to, does not justify declarations of unfairly prejudicial conduct. Such
declarations should be sought as a last resort. Schepens had other remedies and
could and should have used them before resorting to ss 162 and 163 of the Act.

[47] The purported cancellation of the Consultancy Agreement is an issue
which is clearly disputed and whether or not Transformation was providing the
services, is a question of fact. The entitlement to the cancellation was not an
issue which could be decided on the papers, and ought to have been referred to
oral evidence.

[48] The accounting procedure, as contemplated in paragraph 2.10 of the court
order, is deficient in that the entity which is entitled to claim the production of
accounts is FCMB, yet the payments under the Consultancy Agreement is in
favour of Transformation. Transformation did not have the right to make such a
claim under the Shareholders Agreement; those were exclusively in favour of
FCMB. Accordingly, the order for the adherence to the Consultancy Agreement is

FCMB. Accordingly, the order for the adherence to the Consultancy Agreement is
based on a conflation of the rights of a shareholder with the claims for payment
by a creditor.

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[49] The original application before the court a quo included a counter -
application relating to the removal of Schepens as a director and is predicated
upon an interpretation of whether the milestones had been met, and whether the
call option could be exercised by Capability Investment Inherent in the exercise
of the call option, is that the call option under the Shareholders Agreement
references the Consultancy Agreement and as has been highlighted above, the
Consultancy Agreement and the entitlement to 22.6% of the shares is based on
audited annual financial statements . Accordingly, it was incumbent upon
Capability Investment as well as Mark, Justin, and John, to put up the audited
financial statements in order to justify their contention that they had validly
exercised the call option, and they too failed to put those annual financial
statements.

[50] What appears to have been overlooked, both in the founding papers and
in the judgment of the court a quo, is that in order to exercise th e stock option,
the parties required that the annual financial statements must be used to
determine whether the milestone figures have been reached as per the
Consultancy Agreement. Further, when it came to the call option to Capability
Investment to purchase the FCMB shares, such was to be determined according
to the annual financial statements. It is apposite at this time to note that neither
FCMB/Transformation/Schepens nor Capability Investments , Mark, Justin or
John, at any stage, sought to put up the annual financial statements, yet both
camps sought to invoke the provisions of the Consultancy and Shareholders
Agreements, relying on clauses which require figures contained in the annual
financial statements for their implementation.

[51] Consequently, in our view, the court a quo erred in not referring the
matter to trial in light of the disputes of fact on the papers.

Order
[52] In the circumstances, the following order is issued:

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1. The appeal is upheld with costs, including the costs consequent upon the
employment of two counsel on scale C.
2. The orders of the High Court granted on 8 March 2023 are set aside, and
replaced with the following:
(a) The application is referred to trial.
(b) The notice of motion shall serve as a simple summons.
(c) The applicants shall deliver their declaration in terms of Uniform Rule 20
within one month from the date of this order.
(d) Thereafter, the time periods as provided for in the Uniform Rules of Court
shall apply to the further conduct of the matter.
(e) The costs of the application are reserved for the decision of the trial court.

________________
Balton J



________________
Harrison J


I agree

________________
Oliff AJ

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Case information

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Date of judgment:

Appearances

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Ref:
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For the respondents:
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Date reserved:
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