Louw and Others v Nel

• Jurisdiction: South Africa
• Judge: Lewis JA, Ponnan JA, Mhlantla JA, Shongwe JA and Bertelsmann AJA
• Judgment Date: 01 December 2010
• Citation: 2011 (2) SA 172 (SCA)
• Docket Number: 45/10
• Hearing Date: 18 November 2010
• Counsel: C van der Westhuizen SC (with DB du Preez and AR Venter) for the appellants. JR Peter SC for the respondent.
• Court: Supreme Court of Appeal

Ponnan JA (Lewis JA, Mhlantla JA, Shongwe JA and Bertelsmann AJA concurring):

C [1] This is a case that is by no means easy for an appellate court satisfactorily to deal with, not least because of the rather voluminous and sometimes conflicting affidavits, but also, as importantly, because events intervened as the matter progressed, rendering the principal relief that was originally sought obsolete. Much of the difficulty in this matter arises as well from the manner in which the founding papers were cast and the D paucity of the information that they contained in respect of certain crucial aspects of the case. Whether those should prove to be an insuperable obstacle to a decision in the matter is what calls for consideration.

[2] The respondent, Christiaan Nel (Nel), the first appellant, Johannes E Louw (Louw) and the second appellant, Willem du Preez (Du Preez), formed a partnership known as EPI-USE Financials Partnership (the partnership), which commenced business on 1 November 2002. The partnership conducted business in the implementation and continuous operation, including training and problem-solving, of a computer program used by big business, known as SAP. During early 2003 the F partnership became involved in certain projects, together with the third appellant, Lukas Lejara Mothupi (Mothupi).

[3] By that stage the appreciation had dawned on the three partners that, if the partnership was to secure State contracts, it was necessary for it to implement a black economic empowerment policy. Mothupi appeared G well suited to achieve that strategic vision of the partnership. After negotiations between the three partners and Mothupi it was decided that the future business of the partnership should be conducted through a company, and to that end a shelf company, which was registered and incorporated on 10 January 2003, was acquired. The name of the shelf company was changed first to Lejara Business Intelligence (Pty) Ltd and H thereafter to Lejara Consulting (Pty) Ltd (the company). Each of Nel, Louw and Du Preez held 16% of the shares in the company. Mothupi held 52% of the shares. Of his 52% shareholding Mothupi explains:

'I was, however, only the owner of 16% of the shares and not 52% because I held the balance of the shares, namely 36%, as nominee I for previously disadvantaged individuals which we intended to become shareholders and directors of [the company] in order to comply with the Black Economic Empowerment legislation. It was the understanding that if no suitable candidates were available to take up the 36% shares held by me, the shares would be divided equally amongst the applicant, the first respondent, the second respondent, the third J respondent and myself.'

Ponnan JA (Lewis JA, Mhlantla JA, Shongwe JA and Bertelsmann AJA concurring)

He continues: A

'The four of us were the sole directors of the company and the four of us each brought the following skills to the [company]:

[Nel]: SAP management accounting (controlling) skills and SAP business planning skills; B

[Louw]: SAP management accounting (controlling) skills and SAP business planning skills;

[Du Preez]: SAP financial accounting skills and SAP business planning skills;

Myself: SAP logistic skills. C

. . .

I was not entitled to rely on the additional 36% shareholding when voting and at meetings of the directors each director had an equal vote which was cast by the showing of hands. I chaired the meeting of directors and had a deciding vote if a stalemate would arise.' D

[4] On 23 May 2003 what was termed a 'previously disadvantaged individual', Bhadrakan Chibi, was awarded 16 % of the shares in the company, which shareholding was allocated from the 36% held by Mothupi as nominee. Shortly thereafter Chibi returned his shares and resigned as a director. His shares were distributed to the four remaining directors and shareholders. On 1 April 2004 the fourth appellant, Kurt E Lindoor (Lindoor), purchased 16% of the company's shareholding for the sum of R10 000 per share. This was made up of 4 % of the shareholding of each of the other four shareholders. The effect of that transaction was that Mothupi held 36% of the shares and each of the others 16%.

[5] In August 2004 it was decided that the company would expand its F business operation. Money had to be borrowed from a financial institution and security in the form of suretyships was required from each of the shareholders for that purpose. That marked the beginning of discontent and distrust between Nel on the one hand, and the other shareholders on the other. G

[6] According to Nel, it 'soon became evident to him that there was a move afoot to sideline him and force him to dispose of his interest in the company'. The other directors on the other hand formed the view that Nel — H

'acted in an obstructive and disruptive manner; breached his fiduciary duty as director of [the company]; caused [the company] irreparable harm and damages and strained the relationship with the other directors and shareholders'.

Things came to a head on 16 September 2005 when a general shareholders' I meeting of the company resolved by a majority vote of 84% for, and 16% against (Nel voting against the motion), that Nel be removed as a director of the company. The allegations levelled against him were, inter alia, that he had breached his fiduciary duty, stolen the company's intellectual property, and conducted himself dishonestly and to the general prejudice of the company. J

Ponnan JA (Lewis JA, Mhlantla JA, Shongwe JA and Bertelsmann AJA concurring)

A [7] According to Nel, on 21 November 2005 he attended a shareholders' meeting of the company where he was informed that the 'shareholders loans which were due, could not be paid because that would effectively place [the company] in an insolvent position'. Nel thus formed the view that the company was unable to pay its debts as contemplated by B s 344(f) of the Companies Act 61 of 1973. He responded by launching an application on 30 November 2005 to the North Gauteng High Court (Pretoria). To the extent here relevant he sought an order:

'1.

Placing the [company] under winding up in the hands of the Master of the above Honourable Court.

2.

C Directing that the costs of this Application be costs in the winding up of the [company];

Alternatively to paragraphs 1 – 2:

3.

Declaring that the affairs of the [company] is being conducted in a manner unfairly prejudicial, unjust or inequitable to the Applicant as contemplated in Section 252(1) of the Companies Act, 61 of 1973; D

4.

Directing that [Louw], [Du Preez], [Mothupi] and [Lindoor] purchase [Nel's] shares in [the company] at a value to be determined by an independent auditor appointed by agreement between the [parties] and, failing such agreement by an independent auditor duly appointed by the current President of the Institute E of Chartered Accountants of the Republic of South Africa, having regard to the provisions of Section 252(3) of the Companies Act 61 of 1973;

5.

Directing that [Louw], [Du Preez], [Mothupi] and [Lindoor] pay the costs of this Application, jointly and severally, the one paying the other to be absolved.'

F [8] In his founding affidavit in support of the winding-up application Nel alleged that:

'In support of my contentions that it would be just and equitable to place [the company] under winding up, I rely, inter alia, on the following:

G Frauds have been perpetrated in the conduct and management of the affairs of [the company] by their controllers namely [Louw], [Du Preez], [Mothupi] and [Lindoor].

I have been excluded from the business affairs of [the company] and its H affairs and business have been conducted to its detriment and to my prejudice as an excluded outside shareholder when the intention at the formation of the business of the company was to participate as an equal partner and shareholder.

. . .

I The main business of [the company] has been disposed of to other companies whose directors and shareholders are common with that of [the company], save that I have been excluded, [the company] has not been compensated for such disposal and this was in violation of my rights in terms of the Companies Act.

[Louw], [Du Preez], [Mothupi] and [Lindoor] have contrived to J ensure that:

Ponnan JA (Lewis JA, Mhlantla JA, Shongwe JA and Bertelsmann AJA concurring)

(i)

the business of [the company] has ceased trading; A

(ii)

the assets of [the company] have been transferred to companies with common shareholders and directors of [the company] to my exclusion, which companies are inter alia:

De La Harpe Trading (Six) (Pty) Ltd [De La Harpe];

Matlotlo Trading 26 (Pty) Ltd [Matlotlo]; B

[the company] has ceased invoicing for work undertaken by it for its customer base and is not participating in those revenues; the sales representatives engaged by [the company] have been instructed to, and are no longer taking orders in the name of [the company] but are now canvassing business for those other entities; the entire customer base of [the company] has been diverted to the aforementioned companies; the C sales representatives of [the company] have been instructed to and are furnishing quotations to customers of [the company] in the name of the aforementioned companies; [the company's] customer base and the market which it services have been informed that the affairs of [the company] are being wound down; there has been a wrongful and wholesale diversion of the business of [the company] to the aforementioned companies. D

. . .

I have been removed as director of [the company] and have now been totally excluded from its affairs.

. . . E

My entire interest in [the company] has been now eroded and there are in fact now no assets in [the company].

As a result of this conduct and other conduct to which...