Dexgroup (Pty) Ltd v Trustco Group International (Pty) Ltd and Others

• Jurisdiction: South Africa
• Judge: Ponnan JA, Malan JA, Majiedt JA, Wallis JA and Pillay JA
• Judgment Date: 20 September 2013
• Citation: 2013 (6) SA 520 (SCA)
• Docket Number: 687/12 [2013] ZASCA 120
• Hearing Date: 10 September 2013
• Counsel: EJ Ferreira (with JJ Meiring) for the appellant. The heads of argument were prepared by S du Toit SC and JJ Meiring. CM Eloff SC for the respondents.
• Court: Supreme Court of Appeal

Wallis JA (Ponnan JA, Malan JA, Majiedt JA and Pillay JA concurring): I

[1] This case involves a challenge to an arbitration award in terms of s 33(1)(b) of the Arbitration Act 42 of 1965 (the Act). The fourth J respondent, a senior advocate and member of the Johannesburg Bar,

Wallis JA (Ponnan JA, Malan JA, Majiedt JA and Pillay JA concurring)

made the award. Foulkes-Jones AJ sitting in the South Gauteng High A Court, Johannesburg, rejected the challenge and the appeal is with her leave.

[2] The background to the dispute is the following. In terms of an agreement of purchase and sale concluded on 2 November 2007, the B first respondent, Trustco Group International (Pty) Ltd (Trustco Group), purchased from the appellant Dexgroup (Pty) Ltd (Dexgroup), the entire issued share capital of the third respondent [1] together with certain claims and loan accounts. The purchase price was to be a maximum of R65 million. Of this, R20 million was payable in cash on the effective date and the balance was to be paid by way of the issue of C shares in Trustco Group Holdings Ltd (Trustco Holdings), the second respondent. The number of shares to be issued was to be calculated by determining the net profit after tax achieved annually by a group of companies consisting of the third respondent and four subsidiaries over a period of four years, and dividing the resultant figure by R3,80 per share. In terms of clause 4 of the agreement the purchase consideration D was payable at annual intervals on 31 May 2008, 2009, 2010 and 2011. The total value of the shares to be issued in terms of that provision was not to exceed R45 million. Accordingly, if appropriate profits were earned earlier in the four-year cycle, the appellant would become entitled to the issue of the shares at an earlier stage.

[3] On 7 April 2009 Mr Müller, on behalf of Dexgroup, wrote to Trustco E Group and Trustco Holdings in the following terms:

'On 31 March 2009 the requirement for the profit targets in a cumulative amount of approximately R44 million has been reached surpassing the target as outlined specifically in clause 5. F

The working capital draw-down facility has been settled in the ordinary course of business on 31 March 2009 as required on a perusal of clause 22.2.'

Dexgroup accordingly contended that it was entitled to receive some 3 million shares in Trustco Holdings in settlement of the balance of the G payment price.

[4] Trustco Group did not accept that it was obliged to deliver the shares demanded by Dexgroup. It adopted this stance because it contended that, contrary to the statement in Mr Müller's letter, the working capital facility had not been settled in the ordinary course of business on H 31 March 2009 and that until it had been settled it was not open to Dexgroup to claim payment of the balance of the purchase price.

[5] Some explanation of the working-capital facility is required. In terms of clause 22.1 of the sale agreement Trustco Group undertook to make available to the third respondent 'a banking facility or cash of up to R30 000 000 (Thirty Million Rand) on the effective date'. It was I

Wallis JA (Ponnan JA, Malan JA, Majiedt JA and Pillay JA concurring)

A accepted that this facility was necessary to enable the third respondent (and indirectly its subsidiaries) to fund their day-to-day operations. Although there was originally some dispute over this, it was common cause during the arbitration that Trustco Group had made available such a facility through Absa Bank. The use of the facility ensured that the third respondent did not go into overdraft with its own bankers, B Standard Bank. Clause 22.2 of the sale agreement provided that:

'By 31 March 2011 or upon the attainment of the profit targets as mentioned in paragraph 5 hereof whichever happens first, the Seller must ensure that the facility in 22.1 is repaid.'

C The relevance of the date 31 March 2011 and the profit targets in para 5 of the agreement is that whichever of these came first would determine the date upon which the final payment in respect of the purchase price would be due.

[6] The dispute over the settlement of the facility arose in the following D way. One of the third respondent's subsidiaries, Brokernet (Pty) Ltd, collected insurance premiums on behalf of a broking company called Clarendon Transport Underwriters (CTU). Immediately before the letter of 7 April 2009 the outstanding amount of some R19 million in respect of the loan facility with Absa was settled, inter alia, by way of a transfer E of some R17 million from the bank account of Brokernet (Pty) Ltd, thereby reducing the balance in the Absa account to zero. The ability of Brokernet (Pty) Ltd to make this payment to Absa arose because it had collected premiums in at least this amount on behalf of CTU. However, Brokernet (Pty) Ltd had to account to CTU for the premiums collected on its behalf, and the third respondent and its subsidiaries still required a F banking facility in order to function. It was accordingly necessary for Trustco Group to reinstate the facility almost immediately after 31 March 2009. In those circumstances Trustco Group contended that Dexgroup had not ensured that the facility was discharged as required by clause 22.2 and accordingly disputed its obligation to deliver the shares G representing the balance of the purchase price.

[7] Dexgroup and Trustco Group submitted the dispute over Dexgroup's entitlement to receive payment of the balance of the purchase price of the third respondent to arbitration before the fourth respondent. Having heard evidence and argument, he held that discharge of the H facility was required before Dexgroup would be entitled to the issue of any shares in respect of the balance of the purchase price and that the facility had not been properly discharged by the means adopted by Mr Müller. He accordingly dismissed Dexgroup's claim and upheld a counterclaim by Trustco Group for declaratory relief.

I [8] The arbitration agreement was subject to the provisions of the Act. In terms of s 28 the arbitrator's award was final and binding and not subject to appeal. It could only be challenged on the limited grounds provided in s 33(1) of the Act. The ground on which Dexgroup relied in bringing its application was that the arbitrator committed a gross irregularity in terms of s 33(1)(b) of the Act or exceeded his powers. It complained that J it had suffered a substantial injustice in the conduct of the proceedings

Wallis JA (Ponnan JA, Malan JA, Majiedt JA and Pillay JA concurring)

and explained the basis for this in the following paragraphs of the A founding affidavit:

'19.1

The central question for determination by the arbitrator was...