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[2012] ZAWCHC 12
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Cilliers NO and Others v Duin & See (Pty) Ltd (12442/2011) [2012] ZAWCHC 12; 2012 (4) SA 203 (WCC) (28 February 2012)
Republic of South Africa
IN THE HIGH COURT OF SOUTH AFRICA
(WESTERN CAPE HIGH COURT, CAPE TOWN)
Case
No: 12442/2011
Before: The Hon Mr Justice Binns-Ward
In the matter between:
DR MATTHYS PETRUS CILLIERS N.O.
….....................................................
First
Applicant
(In his capacity as trustee of the
Thys Cilliers Family Trust)
AJ DE KOCK
…....................................................................................
Second
Applicant
HD VAN HUYSTEEN
…...................................................................................
Third
Applicant
and
DUIN & SEE (PTY) LTD
…...............................................................................
Respondent
JUDGMENT DELIVERED: 28 FEBRUARY 2012
BINNS-WARD, J:
The applicants seek a provisional winding up order against the
respondent company on just and equitable grounds. The application
is
opposed by the company. An objection by the applicants raised in
their replying papers to the effect that the directors had
lacked
authority to resolve that the company should oppose the application
was abandoned at the hearing, advisedly.
It is accepted by all concerned that the company is solvent, and
that the application thus falls to be determined in terms of
s 81
of the
Companies Act 71 of 2008
. The only part of that provision
that can be of application is paragraph (d) of subsection (1), which
provides:
A court may order a solvent company to be wound up if-
(d) the company, one or more directors or one or more
shareholders have applied to the court for an order to wind up the
company
on the grounds that-
(i) the directors are deadlocked in the management of
the company, and the shareholders are unable to break the deadlock,
and-
(aa) irreparable injury to the company is resulting, or
may result, from the deadlock; or
(bb) the company's business cannot be conducted to the
advantage of shareholders generally, as a result of the deadlock;
(ii) the shareholders are deadlocked in voting power,
and have failed for a period that includes at least two consecutive
annual
general meeting dates, to elect successors to directors whose
terms have expired; or
(iii) it is otherwise just and equitable for the company
to be wound up
The applicants’ counsel have identified the current application
as having been brought in terms of
s 81(1)(d)(iii).
One of the
principal grounds upon which the applicants rely is the application
of the so-called ‘deadlock principle’.
Section 81(1)(d)(iii)
, apart from the qualification imported by
the word ‘otherwise’, replicates the ground for winding
up provided in
terms of s 344(h) of the 1973
Companies Act (Act
61 of 1973).
1
The effect of the qualification contained in
s 81(1)(d)(iii)
was recently considered by Meyer J in
Budge and Others NNO v
Midnight Storm Investments 256 (Pty) Ltd and Another
2012 (2) SA
28
(GSJ). The learned judge held that the qualification related to
the instances of deadlock set out in sub-paragraphs (i) and (ii)
of
paragraph (d) and had the effect of excluding consideration of
deadlock in applications brought in terms of
s 81(1)(d)(iii).
As I understood their argument, the respondent’s counsel
submitted that the construction of
s 81(1)(d)
in
Budge
excluded the applicants’ ability to invoke the ‘deadlock
principle’.
At para. 10 of the judgment in
Budge
, Meyer J held:
In enacting
s 81(1)(d)(i)
,
which applies to a situation where the directors are deadlocked in
the management of a company, and
s 81(1)(d)(ii)
, which applies
to a situation where the shareholders are deadlocked in voting power,
the legislature modified the judicially developed
deadlock category
that forms part of the just and equitable ground for winding-up of a
company and made its application subject
to certain new requirements.
The application of
s 81(1)(d)(iii)
to deadlock categories and to
the circumstances referred to in
s 81(1)(c)
would render the
provisions of
s 81(1)(d)(i)
and of
s 81(1)(d)(ii)
nugatory
since an applicant who is unable to meet the requirements of those
sections would nevertheless be able to invoke the judicially
developed deadlock category that forms part of the just and equitable
ground for winding-up in terms of
s 81(1)(d)(iii).
I am further
of the view that the
ejusdem generis
rule is excluded, because the
specific words of
s 81(1)(d)(i)
and of
s 81(1)(d)(ii)
exhaust the
genus
,
in this instance deadlock.
Jurisprudence concerning the winding up of companies on just and
equitable grounds has employed the concept of ‘deadlock’
in two quite distinguishable senses. Deadlock in the strictly
literal sense - what might be termed ‘complete deadlock’
2
- applies in the case where, because the directors or shareholders
are equally divided, there is an inability to make decisions
that
are necessary for the company to function. The wider or looser sense
of the concept is encountered in the context of the
so-called
‘deadlock principle’,
3
which is applied in respect of the consequences of a breakdown of
trust and confidence between members of a company which because
of
its peculiar character is in substance akin to a partnership, and
thus amenable – subject to important qualifications
- to
dissolution as a partnership would be if relations between the
partners became untenable through no fault of the partner
claiming
the dissolution. The dichotomy between the two concepts of deadlock
is highlighted in the difference between the majority
and the
minority judgments in
Re Yenidje Tobacco Co Ltd
[1916]
2 Ch. 426
(CA); see also
Moosa NO v Mavjee Bhawan (Pty) Ltd
1967 (3) SA 131
(T), at 137-8;
Emphy and another v Pacer
Properties (Pty) Ltd
1979 (3) SA 363
(D) at 367B-C and
APCO
Africa (Pty) Ltd v APCO Worldwide Inc
[2008] ZASCA 64
;
2008 (5) SA 615
(SCA)
([2008]
4 All SA 1)
, at para 19.
Scope for confusion about the relevant import of the judgment in
Budge
arises from the judge’s reference to the
‘
judicially developed deadlock category
’ because
that might easily be mistaken to include the ‘
deadlock
principle
’. On an analysis of the judgment as a whole,
however, it is evident that the learned judge’s aforementioned
observations
were intended to pertain only to deadlock understood in
the strict or narrow sense of the word. Indeed the winding up orders
that were granted in
Budge
, apparently in terms of
s 81(1)(d)(iii) of the 2008
Companies Act, were
plainly
premised on the application of the deadlock principle; in other
words in the context of the use of the term in its aforementioned
wide or loose sense.
4
Sub-paragraphs (i) and (ii) of paragraph (d) of
s 81(1)
pertain
only to instances of complete deadlock and do not have any bearing
on the incidence of ‘the deadlock principle’
in
determining whether it might be just and equitable to wind up a
solvent company. Therefore, irrespective of whether or not
Meyer J
is correct in the effect he gives to sub-paragraphs (i) and (ii) of
s 81(1)(d)
– as to which I express no opinion -
s 81(1)(d)(
iii) of the Act is amenable for use in the
determination of winding up applications on just and equitable
grounds involving ‘deadlock’
cases in the wider sense of
the word.
The only business of the respondent company is the ownership of a
valuable beachfront property in Plettenberg Bay. The property
has
been held in ownership by the company since 1959. During all of that
time it has been used by the shareholders and their
families for
their beach holidays. For that purpose a number of rudimentary
holiday houses, described in the papers as ‘shacks’,
have been erected at various spots on the property. One of the
shareholders and his family live permanently on the property in
one
of the shacks.
The holdings of the respective members in the company are
proportionately quite disparate and bear no direct relationship with
the respective holders’ use of the property for the purposes
aforementioned. This characteristic has given rise over the
years to
debate between the members as to whether their holdings should be
adjusted
inter se
and as to whether their respective holdings
should be differentially valued with reference to the usage
individually enjoyed
by each shareholder of the property. An idea of
the content of these debates is evident from the correspondence
annexed to the
papers in the application. It is not necessary to go
into the detail. Suffice it to say that it is apparent that much of
the
debate has proceeded on the basis of an evident misapprehension
by some of the members of the nature of the proprietary interest
inherent in their share ownership. The debate has given rise to the
exchange of a variety of proposals between the shareholders
as to
the possible restructuring of the company, including the idea of its
conversion into a shareblock company. Other ideas
have included the
establishment by the company of a sectional title scheme on its
land, or rezoning and subdividing the property
so that it might be
transferable as individually owned portions to the members. While
the tone of some of the exchanges between
members deteriorated in
the months before the institution of these proceedings, the evidence
does not show that this fundamentally
undermined the functioning of
the company, or brought about a situation in which it would be
unjust or inequitable to hold any
member wishing to dispose of their
shares from doing so in the manner provided in the articles of
association.
No concrete steps have been taken by the company to bring any of
these proposals to fruition, but that is hardly surprising in
the
absence of any indication, other than those mentioned below, that
any resolutions have been moved by members at general meeting
to
achieve such objects. The company did, however, resolve in July
2008, with the support of the holders of 85,8% of the shares,
to
invite tenders for the purchase of the property. The resolution
provided that the company would consider the tenders received
and in
a special general meeting determine whether to accept one. The
wording of the resolution made it clear that it was not
the
intention that the company would be bound to accept the highest
tender received, or indeed any offer at all. It follows that
there
was no fixed commitment by the company or the members who supported
the resolution to the sale of the property.
Tenders were thereafter duly invited. The offers received were
considered by the members at a general meeting of the company
held
on 23 January 2010. To assist in the consideration of the
offers submitted, the company had commissioned a market valuation
of
the property by an expert. The expert valued the property at
R60 million, as of 14 January 2010. The cash offers received
for the property were in sums significantly below that figure. This
was ascribed to the depressed state of the property market.
(A
valuation report, dated 16 September 2011, in respect of the
company’s property by an experienced valuer with local
knowledge put its market value as at that date at R40 million.)
The minutes of the meeting reflect that after some deliberation it
was resolved not to accept any of the tenders, but the directors
were mandated to pursue negotiations with two of the parties who had
submitted tenders, including one who had offered a cash
price of
R45 million coupled with giving the right to the members to the
use for a period of 50 years of certain accommodation
which the
tenderer would erect on the property, something which the tenderer,
rather arbitrarily, suggested added R60 million
in value to its
cash offer. The negotiations came to nought through no fault of the
directors. By the time the current proceedings
were instituted, on
22 June 2011, it was apparent that an imminent sale of the company’s
property was not in the offing.
The applicants hold in total 35% of the issued shares in the
company. The first applicant has instituted the proceedings in his
capacity as the trustee of a trust which holds 12,8% of the shares.
The second applicant is an individual who holds 7,2% of the
shares.
The third applicant, also an individual, holds 15% of the shares. He
has lived in Israel for about 30 years. The applicants’
complaint is that relative to their respective shareholdings in the
company they derive little or no use and enjoyment of the
company’s
property. They assert that the owners of 50% of the shares in the
company have the use of only two of the aforementioned
shacks on the
property, while the other 50% enjoy what they term ‘access’
to 10 shacks. They allege that the inequity
that this would suggest
is exacerbated by reason that the expenses of the company are
charged to the shareholders
pro rata
their holding. The
latter allegation was contradicted in the answering affidavit, from
which it is evident that the members’
liability to contribute
towards the company’s expenses is weighted with regard to a
number of factors, including the availability
to them of the use of
the shacks. The relevant determinations are made by agreement
between the members. The applicants nevertheless
contend that
disputes among the shareholders have caused ‘
a complete
meltdown and stalemate in the company’s affairs
’. I
should say at once that that description is hyperbolical and does
not reflect the factual position as it appears from
the papers.
Certainly, there is no evidence of any instances of complete
deadlock in regard to the administration of the company’s
affairs. Furthermore, the distribution of and access to shacks on
the property appears to be a function of the investment by
individual shareholders over the years in their own respective
accommodation requirements, and not the result of any discriminatory
determination by the company. There is nothing to suggest that any
constraints imposed by the company, or the other shareholders
prevent the applicants from obtaining or exercising the privilege of
using the company’s property. Although there is no
direct
reference thereto in the papers, it might well be that planning
legislation applicable in the Western Cape since 1986
might have
prevented the erection or extension of shacks on the property after
that date. This might explain the value which
some of the members
apparently ascribe to their existing ‘footprints’ on the
company’s land. The applicants
do not, however, rely on the
incidence such factors, which are external to the company’s
functioning, in support of their
application.
It is clear that the applicants wish to divest themselves of their
shareholdings and realise the value of their investments without
further delay. They are plainly frustrated by the fact that the
aforementioned resolution by 85,8% of the members to proceed
towards
obtaining the sale of the company’s only asset has not been
consummated. They are also exasperated by the company’s
failure to implement a resolution adopted by 100% of the members,
also at the July 2008 meeting, ‘
to appoint an appropriately
qualified arbitrator to evaluate and review all relevant factors
regarding the weighting of the shareholding
in the Company, to
receive submissions from the shareholders in this regard and to make
a final and binding decision as to the
adjustments to be made to the
existing shareholdings in order to ensure that the economic
interests in the Company are fairly
distributed
’. It is
unnecessary to make a finding to that effect, but it seems to me
that the resolution adopted by 100% of the members
was
ill-conceived, and but another manifestation of a lack of
understanding by some of them of the nature of their proprietary
interest in the company - which did not give any of them the right
vis à vis
the company to occupy or utilise any portion
of its land, and which furthermore was not represented through the
holding of different
classes of shares in the company. There is no
evidence that the members have ever formally proposed that the
company exercise
the power in terms of the memorandum of association
to divide the issued shares into classes. Where the contemplated
arbitrator
was to obtain the power to make a determinative
adjustment of the holdings of the members is not explained. On the
contrary,
a consideration of the document entitled ‘
Stated
Case’
, to which regard was apparently had by the members
in their decision to adopt the second resolution, and which sets out
two contesting
arguments reflecting the members’ opposing
contentions, shows that all that the so-called arbitrator was to be
called upon
to do in effect was to furnish advice on a number of
questions.
It is unnecessary to make any finding in regard to what, on the face
of it, seems to me to have been the futility of the exercise
contemplated by the second resolution because it is evident from the
applicants’ founding papers that its object was to
resolve an
anticipated dispute between the shareholders in respect of the
division between them of the net proceeds of the sale
held in
contemplation by the first resolution. As the contemplated sale did
not proceed, by reason of the exercise by the members
of the right
expressly reserved to them in general meeting, in terms of the first
resolution, not to accept any of the offers
that had been submitted,
the non-compliance by the directors with the second resolution is
immaterial, and the applicants’
complaint about it of no
weight.
There is no merit in the applicants’ allegation that the
decision not to accept any of tenders submitted reflected a
‘dysfunctionality’ in the company. On the contrary it
reflected the operation of the principle of majority rule,
trenchantly described in
Sammel and others v President Brand Gold
Mining Co. Ltd
1969 (3) SA 629
(A) at 678H-679C, to which
persons acquiring shares in a company with a share capital
invariably subject themselves.
The applicants’ frustration on the basis aforementioned, and
because some of them found themselves in personal disagreement
with
their fellow members on the nature of their proprietorship and in
respect of proposals on the future conduct of the company’s
affairs and the re-ordering of the means of ownership of the
company’s asset, culminated in their making an offer to sell
their shares. The sale of shares by a member of the company is
restricted in terms of the company’s articles of association.
The applicable article provides:
4. NIETEENSTAANDE enige strydige bepalings in hierdie
artikels vervat is geen aandeelhouer of die eksekuteur of trustee van
‘n
afgestorwe of insolvente aandeelhouer bevoegd om enige van
sy aandele aan enige persoon oor te dra nie, tensy sodanige aandele
in die eerste plek aan die oorblywende aandeelhouers aangebied is
teen ‘n prys waarop die partye moet ooreenkom. En indien
daar
nie tot ‘n ooreenkoms geraak word nie, teen ‘n prys wat
deur arbitrasie vasgestel word as die waarde van sodanige
aandele,
watter aanbod skriftelik moet wees en oor ‘n tydperk van sestig
dae vir aanname beskikbaar moet bly. Indien al die
oorblywende
aandeelhouers nie verkies om die aandele binne die vermelde tydperk
van sestig dae of binne enige tydperk wat deur
toestemming of deur
die arbiters verleng is, teen die waarde wat aldus bepaal is of teen
sodanige goedkoper prys as wat die verkopers
bereid is om te aanvaar
te koop nie, dan mag die aandele verkoop word aan enigeen of meer van
die oorblywende aandeelhouers teen
‘n prys wat nie minder is en
teen voorwaardes wat nie beter is as dié waarvolgens hulle aan
al die oorblywende aandeelhouers
aangebied is nie. Indien geeneen van
die aandeelhouers verkies om die aandele binne veertien dae van die
datum af wat volg op die
vermelde tydperk van sestig dae of enige
verlengde tydperk soos hiertevore bepaal, te koop nie, dan mag die
aandele aan enige persoon
verkoop word teen ‘n prys wat nie
minder is en op voorwaardes wat nie beter is as die waarvolgens hulle
aan die oorblywende
aandeelhouers of aandeelhouer aangebied is nie,
met dien verstande dat die direkteure die voorgenome persoon aan wie
die aandele
oorgedra word, goedkeur, enige geskilpunt daaromtrent
moet deur arbitrasie besleg word. Dit word uitdruklik bepaal dat
enige sodanige
aanbod van aandele betrekking moet hê op al die
aandele van die verkoper wat nie daarop geregtig is om ‘n
gedeelte
van sy aandele te koop aan te bied nie.
The applicants’ offer to sell their shares was conveyed in a
letter from their attorneys, dated 28 January 2011, which
went
as follows:
Dear Sirs
RE: OFFER TO PURCHASE SHARES IN THE COMPANY
We act for the Trustees for the time being of the Thys
Cilliers Familie Trust. Mr H D van Huyssteen and Mrs A J de Kock
(“our
clients”). We have further confirmed with Mr Tim
Maughan from the firm Francis Thompson & Aspden who acts for the
Trustees
for the time being of the Jan T Beukes Family Trust that a
similar letter will follow on behalf of their clients.
We advise herein as follows:
Our clients are collectively the beneficial owners of
35% (Thirty Five Percent) of the issued shares in the Company. The
Trustees
for the time being of the Jan T Beukes Family Trust are the
beneficial owners of 15% of the issued shares of the Company.
Paragraph 4 of the Statues (
Articles
) of the
Company records the following:
“
4. Nieteenstaande enige
strydige bepalings in hierdie artikels vervat,….”
[The content of the article, which has been quoted
above, was set out.]
In accordance with the content of the aforesaid
paragraph 4
(which is tantamount to a right of pre-emption)
we are instructed to offer for sale to yourselves on behalf of our
clients their shares in die Company for a total purchase
consideration of R21 000 000.00 (Twenty One Million Rand)
i.e R120 000.00 (One Hundred and Twenty Thousand Rand)
per
share (“the Offer”).
Our clients have resolved to sell their shares in the
Company as per the provisions of paragraph 3 above.
The Offer is open for acceptance in writing until 12h00
noon on
4 April 2011
and such written acceptance can be hand
delivered or sent per fax
(021 9750816)
to our firm at 4
th
Floor De Ville Centre, cnr. Wellington & Durban Road,
Durbanville which is the address nominated by our clients for this
purpose.
Payment for our clients shares must be made by a bank
guaranteed cheque within 14 (Fourteen) days of your acceptance of
the Offer
at the registered offices of the Company against signature
by our clients of all statutory documentation required to give
effect
to the aforesaid sale.
Please be guided accordingly
The price asked by the applicants for their shares suggests that it
was premised on the R60 million valuation of the property
in
January 2010. It certainly exceeds by a significant margin what they
would have received
pro rata
their respective shareholdings
from the net proceeds of the disposal of the property in terms of any
of the cash offers submitted
in the aforementioned tender process.
The applicants’ offer elicited the following response, in a
letter dated 22 March 2011:
Dear Mr Kotze
RE: DUIN-EN-SEE (PTY) LTD (“THE COMPANY”):
OFFER OF SHARES FOR SALE
I refer to your letter dated 28 January 2011 which was
addressed,
inter alia,
to Dr. P.L. Cilliers, Prof. A.
Gagiano, the trustees for the time being of the Tim Hunter Family
Trust, Mr J.A. Joubert, Mr H.
Swanepoel and the trustees for the
time being of the Van Huyssteen Trust (“
the Remaining
Shareholders
”).
I have been instructed to respond to your letter by all
of the Remaining Shareholders other than Prof. Gagiano, who is
currently
away at a conference in Trinidad & Tobago. Whilst I
believe that Prof. Gagiano will agree with the contents of this
letter,
I will only be in a position to confirm this after her
return to South Africa on 30 March 2011.
I will not respond to each and every statement made in
your letter and my failure to do so should not be construed as an
admission
of the contents of your letter.
As regards the first paragraph of your letter under
reply, kindly note that none of the Remaining Shareholders has yet
received
any letter from the trustees of the Jan Beukes Family Trust
or their attorneys.
As regards paragraph 3 of your letter, I note that the
offer that your clients have extended to the Remaining Shareholders
does
not comply with the provisions of article 4 of the Company’s
articles of association (“
the Article”
).
In this regard and without limitation, I wish to draw
your attention to the following:
Article 4 requires that your clients offer their shares
for sale at a price to be determined by agreement with the Remaining
Shareholders,
and failing that at a price to be determined by
arbitration. No agreement regarding the price at which your clients
have offered
their shares has been reached, nor have your clients
attempted to engage with the Remaining Shareholders with a view to
reaching
such an agreement. Likewise, no arbitration to determine
the price has been conducted. Your clients attempt to set the price
at which their shares are offered unilaterally, does thus not comply
with Article 4.
Furthermore in terms of Article 4, the period of 60
days within which the Remaining Shareholders are entitled to accept
your clients’
offers only commences once a valid offer has
been made in accordance with that Article (i.e. an offer stipulating
a price that
has been determined either by agreement or by
arbitration). Note also that the article envisages that the period
of 60 days may
be extended by the arbitrator.
Finally, Article 4 requires that each shareholder
should offer his or her shares to the other shareholders
individually. Therefore,
to the extent that your clients purport to
offer the shares for sale as a single, indivisible block of shares,
their offer is
again not in compliance with the Articles.
Accordingly, the Remaining Shareholders hereby call on
your clients to comply with the provisions of Article 4, to withdraw
your
letter and then to engage with the Remaining Shareholders in a
bona fide
attempt to agree the price at which your clients’
shares should be offered to them.
In this regard, we would suggest that your clients
attempt to establish the open market value of their shares by
obtaining arm’s
length, third party offers to purchase each of
their shareholdings. Such offers could then form the basis for an
informed discussion
between your clients and the Remaining
Shareholders with a view to agreeing the price at which each of your
clients should offer
their shares for sale to the other
shareholders.
Finally I wish to encourage your clients to engage with
the Remaining Shareholders in relation to the sale of their shares
without
at this stage involving legal representatives (whilst that
of course remains their right). To date the relationships between
the Company’s shareholders have in the main been amicable, and
I can assure your clients that it is the Remaining Shareholders’
sincere desire to facilitate the sale of their shares in a manner
that benefits all.
I look forward to receiving your clients’
response.
Yours faithfully
ADAM BEKKER
Mr Bekker’s letter was replied to by the applicants’
attorneys in a letter dated 5 April 2011. That letter read
as
follows:
IN THE MATTER OF DUIN & SEE (PTY) LTD (‘THE
COMPANY’): OFFER OF SHARES FOR SALE
In response to your letter of 22 March 2011 we are
instructed as follows:
We do not intend to deal with each and every statement
in your letter and any failure to do so should not be construed as
an admission
of the content thereof.
We await confirmation whether you are in fact also
instructed by Prof A Gagiano and if she agrees with the contents of
your letter.
We further confirm that although you might not have
received a letter from the Jan Beukes Family Trust, the issues were
canvassed
with Marlene Beukes and it is only due to logistical
problems that the letter has not been sent from the aforementioned
Trust.
Please note that although our clients’ made the
offer collectively, the purchase consideration is also stated per
share
and as such the offer per shareholder is also made
individually.
Our clients’ have made a
bona fide
offer
in terms of the statutes of the Company. Our clients’ have
unequivocally stated the price at which they are prepared
to sell
their shares. The aforementioned price was determined taking various
factors in consideration not the least of which
the offers
previously received by the Shareholders. It is quite clear from your
letter that you do not agree on the price and
that further
negotiations on the price would be a futile exercise. With respect,
our clients’ offer to sell their shares
provided you with an
opportunity to make a
bona fide
counteroffer. It is clear
that there is a dispute between the parties as to the price of the
shares. Accordingly my clients,
in terms of
Section 4
of the
Statutes, will exercise their right to refer to dispute regarding
the price of the property to be decided by an arbitrator.
Attached you will find a list of suggested arbitrators,
all senior counsel at the Cape Bar, to act as arbitrator in the
matter.
We invite you to agree to an arbitrator of your choice or to
add any other individuals you might prefer to conduct the
arbitration.
As soon as you have indicated your willingness to refer
the dispute between the parties concerning the price of the shares
to
an arbitrator, we will provide you with or stated case to be
decided by the arbitrator.
Our clients’ place on record that as far as they
are concerned the Company is dysfunctional. Should you not purchase
our
clients’ shares as per
Section 4
of the Statutes as
offered at a price to be decided by an arbitrator, our clients will
offer their shares firstly to individual
shareholders and thereafter
to external parties (as per
Section 4
of the Statutes) failing which
to sell the shares my client’s will apply for the liquidation
of the company on the basis
that it is just and equitable to do so.
The complete reasons for such application will in due course be
contained in the Founding
Papers. All our clients’ rights are
reserved.
We therefore await your reply as a matter of urgency on
or before close of business on Thursday 21 April 2011.
Yours faithfully
Mr Bekker replied to the applicants’ attorneys, apparently on
behalf of the remaining shareholders (except perhaps the
trustees of
the Jan T Beukes Trust), in a letter dated 21 April 2011, which
went:
Dear Mr Kotze
RE: DUIN-EN-SEE (PTY) LTD (“THE COMPANY”):
OFFER OF SHARES FOR SALE
I refer to your letter dated 5 April 2011.
As indicated to you in my letter of 7 April 2011, Prof.
Gagiano has confirmed that she agrees with the contents of my letter
of
22 March 2011.
At the outset, I would like to state that in my view
this matter has become unnecessarily hostile, and that the parties
should
at least make an attempt to agree on a procedure that will
address everyone’s interests whilst avoiding unnecessary legal
and arbitration costs. I remain firmly of the view that a practical
and amicable solution to the parties’ differences can
be
found.
Accordingly, whilst I do not agree that the offer that
your clients made to the Remaining Shareholders (as defined in my
letter
of 22 March 2011) complied with the Company’s articles
of association (“the Articles”), and without prejudice
to the Remaining Shareholders’ rights to require full
compliance therewith, I am nevertheless of the view that the
pre-emptive
rights procedure in the Articles is impractical.
The central issue for the Remaining Shareholders is
that your clients are not entitled to determine the price at which
their shares
are to be offered in terms of the pre-emptive rights
unilaterally (which is what they purported to do in your letter of
28 January
2011). The Remaining Shareholders furthermore do not
understand how your clients arrived at the price at which their
shares were
offered, as it does not appear to be based on any of the
serious offers recently obtained for the Company/s property.
Whilst it does therefore seem that there is a dispute
between the parties as to the price at which your client’s
shares
are to be offered, arbitration is not a suitable manner in
which to determine that dispute. Senior counsel are not qualified or
experienced in valuations, and arbitration itself is extremely
costly. The only definitive test of the value of an asset is to
determine what a willing buyer would pay for that asset in an open
market transaction.
I would accordingly suggest that the parties agree a
more usual and commercial pre-emptive right procedure than that
provided
for in the Articles (which will speed up the process and
remove the need for negotiation or costly arbitration), along the
following
lines:
The Remaining Shareholders will agree that your clients
may immediately start the process of obtaining
bona fide
offers from unrelated third parties for their shares, without the
need for them to offer their shares to the Remaining Shareholders
prior to doing so (although contrary to the articles of the Company,
this may be achieved by way of agreement by unanimous assent);
Your clients will in turn agree that the Remaining
Shareholders may likewise procure or themselves make offers for your
clients’
shares, and your clients will agree to provide the
offerors introduced to your clients in this manner with the same
information
and access to their portions of the property as offerors
that they themselves identity;
The parties will agree on a cut-off date by which all
offers must be submitted, and after which no further offers will be
entertained.
In this regard I would suggest that the period be at
least the 60 day period referred to in the Articles (or longer, to
provide
a realistic period for marketing your clients’
shares); and
After the above period has expired, your clients will
offer their shares to the Remaining Shareholders at the same price
and on
the same terms as the offer received in terms of the above
process which they wish to accept. Thereafter the third sentence
et
seq
of Article 4 of the Articles will apply (i.e. the Remaining
Shareholders will have 14 days within which to purchase your
clients’
shares, and so on.)
I trust that your clients will find the above broad
proposal acceptable, as it will allow them to begin the process of
finding
purchasers for their shares immediately, and will avoid the
unnecessary cost and delays associated with arbitration. If
acceptable,
the above proposal should be reduced to a short
agreement and signed by each of the shareholders (as it will amount
to a variation
of the Articles).
Please note that I have not at this stage been able to
obtain instructions from the Swanepoels and Gagianos in relation to
the
proposals made herein. However, as I believe that they will
support the proposals, and in view of your request that we respond
to your letter not later than today, I am sending this letter to you
now. I will confirm in writing in due course whether or
not the
Gagianos and Swanepoels agree with the contents of this letter.
Whilst I have not responded to your letter under reply
in full, I reserve the right to do so at a later stage should that
become
necessary.
I will be out of the office from tomorrow, 22 April
2011, and will return on
4 May 2011. Should you wish to contact
me during this period, kindly leave a message on my cellphone, on
082 469 3077.
There would appear to have been further relevant correspondence
dated 10 May 2011, which is not included in the papers.
Its existence is however confirmed in a letter from the applicants’
attorneys to Mr Bekker, dated 23 May 2011,
which read (as
corrected):
Dear Sir
IN THE MATTER OF DUIN & SEE (PTY) LTD (‘THE
COMPANY’): OFFER OF SHARES FOR SALE
We refer to your email dated 10 May 2011, the contents
of which are noted.
We confirm that we are in the process of consulting
with our clients who as you know is dependent on the availability of
the clients.
We trust that we will be able to revert to you with or
client’s response before the end of this month.
We trust you find the above in order and will act
accordingly.
Yours faithfully
The applicants’ attorneys did not revert, as indicated.
Instead, without further ado, these proceedings for the winding up
of
the company were instituted.
In their founding papers the applicants contend that it would be
just and equitable for the company to be wound up because the
other
members have repudiated the articles and indicated their
unwillingness to apply the mechanisms and procedures provided
therein for the disposition by the applicants of their shares. They
also contend, by implication, that the relationship between
shareholders and the manner in which the company being administered
are such that there is a situation of deadlock in the wider
sense of
the word. Expressly they contend for a situation of actual deadlock
between the shareholders, but for good reason, quite
apart from the
implications of the judgment in
Budge
, that contention was
not pursued at the hearing.
The applicants’ counsel conceded that the first of the
aforementioned contentions can be made good only if the letter of
21
April 2011 falls properly to be construed as a repudiation of the
articles. In my judgment it does not. Repudiation entails
the
demonstration of a deliberate and unequivocal intention no longer to
be bound by the contract (per Corbett JA in
Nash v Golden Dumps
(Pty) Ltd
1985 (3) SA 1
(A) at 22D-F) The letter does not have
that character. It is plainly just a proposal to enter into an
agreement with the applicants
deal with the disposition of their
shares in a different manner, which the writer appears to have
considered would be more practicable.
It does not purport to deny
the applicant’s contractual entitlement to compliance with the
articles, nor does it convey
a refusal to submit the issue of the
determination of the price at which the shares should be disposed if
the applicants should
not look with favour on the proposal of an
alternative mechanism for the purpose. A consideration of the
letter, fairly read,
does not objectively support an inference of
impending non- or malperformance, or exclude a construction equally
consistent with
any other feasible hypothesis. Repudiation is not
lightly to be presumed; see
Datacolor International (Pty) Ltd v
Intamarket (Pty) Ltd
[2000] ZASCA 82
;
2001 (2) SA 284
(SCA) at para. 18.
There is thus no merit in the first contention.
As to the alleged amenability of the application to determination in
terms of the so-called deadlock principle, I am prepared
to assume
in favour of the applicants, without so finding, that the company is
of the character that would render it susceptible
to winding up on
the application of the principles pertaining to the dissolution of
partnerships. Approaching the matter on that
assumption, however,
does not ‘
entitle one party to disregard the obligation he
assumes by entering a company, nor the court to dispense him from
it. It does,
as equity always does, enable the court to subject the
exercise of legal rights to equitable considerations;
considerations,
that is, of a personal character arising between one
individual and another, which may make it unjust, or inequitable, to
insist
on legal rights, or to exercise them in a particular way
’
(per Lord Wilberforce in
Ebrahimi v Westbourne Galleries Ltd
[1972] 2 All ER 492
at 500).
A mere loss of confidence or trust by the applicants in their fellow
shareholders, or in the directors of the companies, would
not, in
the assumed situation of a small domestic company or
quasi-partnership, in itself entitle them to a winding up of the
company on just and equitable grounds. They would have to show that
the mechanisms contractually available to them in the articles
to
achieve their disassociation with the company were ineffectual, or
that it would be inequitable or unjust for them to be kept
to their
contract. This is so because, as is evident from the passage quoted
from
Ebrahimi
, above, (which has been cited with approval in
this country’s courts on repeated occasions, most recently in
the Supreme
Court of Appeal in
Louw and others v Nel
2011 (2)
SA 172
(SCA at para. 21), the primary principle is that parties
should be held to the terms of their contracts. Furthermore, in
determining what would be just and equitable, regard has to be had
to the interests of all the potentially affected parties and
not
just to those of an applicant.
In the current case it is evident that the applicants want the
company’s asset to be sold and for them to be paid out the
net
proceeds of such disposition
pro rata
their holding in the
company. They are intent on this end, or its pecuniary surrogate,
regardless of the evident concerns of
some of their fellow
shareholders that the currently depressed market conditions provide
an adverse environment in which to dispose
of the company’s
property to best advantage. And the applicants press for this result
despite the sentiment of members
at the meeting of 23 January
2010 that the property should not be disposed on the terms offered
in an open tender process.
Ordinarily, the disposition of the
company’s asset would require the support of at least 75% of
the votes at a meeting
constituted compliantly with the requirements
of s 115(2)(a) of the 2008
Companies Act. On
the evidence, that
level of support from the company’s members for the
disposition of the asset is plainly lacking.
The applicants are not trapped in the company. In the context of the
provisions in the articles described above, they are able
to use the
procedures provided to dispose of their shares. Their own actions in
initially, only a few months before the institution
of this
application, seeking to follow that route are a powerful indicator
of its feasibility. That indication of feasibility
is supported by
the indication in the respondent’s answering papers that the
‘
remaining shareholders are eager to pursue the purchase of
the shares of the applicants, either by themselves, or failing that,
by willing buyers outside the company
’; albeit, hardly
surprisingly, not at the price demanded by the applicants . The
possibility that a disposal of shares
in the company subject to the
restrictions that attach under the articles might result in an
adverse disparity between what might
be achieved on a sale of their
shares and a
pro rata
dividend on the net proceeds of the
disposition of the company’s property is not something they
can be legitimately heard
to complain about. If it were to
eventuate, such a result would be an incident of the manner in which
the applicants’ indirect
investment in the property was
originally devised. The prospect of such a comparatively adverse
consequence does not make out
an inequity or an injustice.
The professed eagerness of at least some of the other shareholders
to acquire the applicants’ shares cannot be dismissed
as
fanciful. It is evident on the papers that there has been an
acceptance by a great majority of the shareholders that the zoning
status of the company’s property will soon have to change from
agricultural use to something more appropriate because its
agricultural zoning is not consonant with the manner in which the
property has been used for the past 50 years and a recognition
that
this, coupled with the high value of the land, will afford
opportunities to realise at least part of its monetary value
while
retaining the opportunity of continued enjoyment of its use for
those of the members who might wish that. It is thus evident
that
the acquisition of a significant additional interest in the company
would assist the acquirers in determining the timing
and character
of these future prospects and potentially give rise to significant
profit. These no doubt will be amongst the considerations
that would
be placed before an arbitrator if the shareholders are unable to
agree upon a price for the applicants’ shares.
In their replying affidavits, the applicants introduced new evidence
in support of their application for a winding up of the
company.
This was premised on the annual general meeting of the company held
on 23 July 2011. Various courses for the determination
of the
future of the company were proposed in terms of one of the
resolutions (resolution 6) placed on the agenda of the meeting
by
the directors. The proposed resolutions that the applicants appear
to regard as objectionable or oppressive were:
4 That the arbitration to determine the allocation of
expenses and profits of the company (whether by current shareholding
or on
an adjusted basis) be held in abeyance pending the outcome of
resolution 6 below.
5 That the company proceed with the deemed rezoning of
the Company’s property to Resort Zone II
6 That the directors be authorised to investigate the
possibility for converting the company into a share-block company, a
sectional
title development or subdividing and distributing the
property to shareholders, and to report back to the shareholders
thereon.
7 That the Company ratify the directors’
resolution to defend the liquidation application against the Company
brought by certain
of its members (NOTE: MEMBERS THAT INSTITUTED THE
ACTION MUST ABSTAIN)
As might be deduced from their content, the resolutions, even if
adopted, would not have committed the company to any course of
action
that would have changed the nature of the applicants’
proprietary interest. On the contrary, their terms would merely
direct the investigation and reporting back on the viability of the
mooted courses. Whatever their possible merits, the mooted
courses
set out in proposed resolution 6 could in any event not have been
adopted in the face of the combined opposition of the
applicants.
The covering letter sent out to members by the company’s
directors in connection with the July 2011 annual general meeting
purported to set out the majorities expressed in percentage terms
required to adopt the various resolutions. As appears from
what is
set out above, the covering letter also purported to indicate that
the applicants were not permitted to vote on the resolution
concerning the opposition to the winding up application. That was
manifestly incorrect. Had the meeting been conducted in accordance
with the indication it might have afforded an instance of oppressive
conduct. As it was, the proposed resolutions were not put
to the
meeting, and none of those present moved that they should be. The
decision not to put the resolutions to the meeting was
premised on
advice given to the directors by the company’s legal advisers.
The applicants contend that the content of the proposed resolutions
constituted ‘
a patent disregard of the right of the
Applicant members
’.
5
There is no substance in that accusation. As mentioned, the proposed
resolutions were not put to the meeting. The applicants
cannot found
a case on a foundation that did not come into existence. In any
event, even had any of the resolutions set out above
been adopted in
the context of a valid voting process, I am unable to discern how
the result would have adversely affected the
applicants in any
cognisable way.
I should also mention that in my judgment the applicants’
allegations that the proposed resolutions were indicative of
improper conduct by the directors were also unfounded, and indeed
unfortunate. The respondent’s counsel argued that the
court
should mark its displeasure at the recklessness which characterised
these unfounded allegations of impropriety. I have
not been
persuaded to follow that course. Should they be advised to pursue
them (as to which I express no opinion), there are
other more
appropriate remedies available to those whose personal rights might
have been affected by these ill-considered allegations.
Moreover,
while I consider that the current proceedings were misdirected, I am
not persuaded that they were vexatious in the
sense exemplified in
the cases of
In re Alluvial Creek, Ltd.
1929 CPD 532
and
Delfante and another v Delta Electrical Industries Ltd and
another
1992 (2) SA 221
(C) on which the respondent’s
counsel also relied to support their request for a punitive costs
order.
In the result the application is dismissed with costs, including the
costs of two counsel.
A.G. BINNS-WARD
Judge of the High Court
JUDGMENT
:
The
Honourable Justice A.G. Binns-Ward
FOR THE APPLICANT
:
Adv. G.
WOODLAND SC
Adv.
D. WELGEMOED
INSTRUCTED
BY
: LAAS
SCHOLTZ ATTORNEYS
FOR THE RESPONDENT
:
Adv. L.
KUSCHKE SC
Adv.
J. BERNSTEIN
INSTRUCTED
BY
: BOWMAN
GILFILLAN ATTORNEYS
DATE OF HEARING
: 21
FEBRUARY 2012
DATE OF
JUDGMENT
:
28
FEBRUARY 2012
1
Cf.
Muller
v Lilly Valley (Pty) Ltd
[2011]
ZAGPHCJ 146 (24 October 2011), at para. 1-2.
2
Cf.
e.g.
APCO Africa (Pty) Ltd v APCO Worldwide Inc
[2008] ZASCA 64
;
2008
(5) SA 615
(SCA) ([2008]
4 All SA 1)
, at para 18; and
Lawrence
v Lawrich Motors (Pty) Ltd
1948 (2) SA 1029
(W). Cases involving
complete deadlock comprise the third of the five broad categories of
just and equitable winding up cases
described in
Rand Air (Pty)
Ltd v Ray Bester Investments (Pty) Ltd
1985 (2) SA 345
(W) at
349G-350H, in a passage quoted
in extenso
in
Budge
at
para. 5.
3
See
e.g.
Emphy and another v Pacer Properties (Pty) Ltd
1979 (3)
SA 363
(D) at 367B-C. Cases involving the application of the
‘deadlock principle’ comprise the fourth of the five
broad
categories described in
Rand Air
(see note 3, above).
4
When
Meyer J spoke of a ‘
judicially developed deadlock
category
’, he was thus evidently meaning only the third
broad category of cases described in
Rand Air
(see note 3,
above).
5
I
quote from the applicants’ heads of argument.