Omar v Inhouse Venue Technical Management (Pty) Ltd and Others

• Jurisdiction: South Africa
• Citation: 2015 (3) SA 146 (WCC)

Omar v Inhouse Venue Technical Management (Pty) Ltd and Others
2015 (3) SA 146 (WCC)

2015 (3) SA p146

Citation	2015 (3) SA 146 (WCC)
Case No	14227/2014
Court	Western Cape Division, Cape Town
Judge	Gamble J
Heard	August 26, 2014; November 11, 2014
Judgment	February 6, 2015
Counsel	M Fitzgerald SC (with D Goldberg) for the applicant.; A Smalberger for the respondents.

Flynote : Sleutelwoorde B

Company — Oppressive conduct — What constitutes — Adverse offer for shareholding — Companies Act 71 of 2008, s 163.

Company — Directors and officers — Director — Personal financial interests — C Non-disclosure — Consequences — Companies Act 71 of 2008, ss 75(5) and 75(7).

Headnote : Kopnota

Omar, Gearhouse SA (Pty) Ltd (Gearhouse) and Govender were shareholders in Inhouse Venue Technical Management (Pty) Ltd in the proportions 45%, 50% and 5% respectively. Omar, Lapid, Abbas, Govender and three others D were the directors, with Omar the managing director. Gearhouse, whose directors were Abbas and Lapid, was wholly owned by Gearhouse SA Holdings (Pty) Ltd (Gearhouse Holdings), whose directors were Abbas, Lapid and Abbas' wife, and whose shareholders were Abbas and Lapid.

Despite Omar's designation as managing director of Inhouse, Abbas and Lapid E caused it to incur disadvantageous charges and rentals to Gearhouse and other companies held by Gearhouse Holdings. Ultimately relations between Omar, Abbas and Lapid broke down and Lapid caused Gearhouse to make an offer to Omar for his shareholding. The offer was open for 48 hours. Omar refused it, and Abbas later caused Omar to be accused of fraud, suspended him, and organised a disciplinary enquiry. Neither of the latter pair of actions was discussed with the board of directors.

F Omar ultimately applied to the Western Cape Division of the High Court for relief under s 163 of the Companies Act 71 of 2008. In issue was whether the offer (including the context in which it was made, the time granted for its consideration, and its terms) was oppressive or prejudicial.

Held, that it was. (Paragraphs [3] and [45] at 148G and 156F – H.)

Further in issue was the effect of Abbas and Lapid's non-compliance with s 75(5) G of the Act on certain of the transactions Inhouse had entered into.

Held, that the effect of non-compliance with s 75(5) was that the transaction or agreement entered into would be invalid (s 75(7)) unless it was ratified by the company's shareholders or declared valid by a court. Here there had been no ratification or validation. (Paragraphs [64] – [65] at 161B – E.)

Ordered inter alia that Omar's shareholding be acquired at its fair market value; H that Abbas and Lapid had contravened s 75 by failing to declare their personal financial interest in certain transactions Inhouse had entered into; and that this was to be taken into account in determining the value of Omar's shareholding. (Paragraph [78] at 164D – I.)

Cases Considered

Annotations

Case law I

Southern Africa

Bayly and Others v Knowles2010 (4) SA 548 (SCA): referred to

Donaldson Investments (Pty) Ltd and Others v Anglo-Transvaal Collieries Ltd: SA Mutual Life Assurance Society and Another Intervening1979 (3) SA 713 (W): J considered

2015 (3) SA p147

Ex parte Nell1963 (1) SA 754 (A): applied A

Foize Africa (Pty) Ltd v Foize Beheer BV and Others2013 (3) SA 91 (SCA): dictum in para [21] applied

Garden Province Investment and Others v Aleph (Pty) Ltd and Others1979 (2) SA 525 (D): considered

Goodwin Stable Trust v Duohex (Pty) Ltd and Another1998 (4) SA 606 (C) ([1996] 2 All SA 558): dictum at 615 applied B

Grancy Property Ltd v Manala [2013] 3 All SA 111 (SCA): applied

Kathmer Investments (Pty) Ltd v Woolworths (Pty) Ltd1970 (2) SA 498 (A): applied

Naptosa and Others v Minister of Education, Western Cape, and Others2001 (2) SA 112 (C) ((2001) 22 ILJ 889; 2001 (4) BCLR 388): referred to C

Reinecke v Incorporated General Insurances Ltd1974 (2) SA 84 (A): dictum at 94 – 96 applied

Telcordia Technologies Inc v Telkom SA Ltd2007 (3) SA 266 (SCA) (2007 (5) BCLR 503; [2007] 2 All SA 243): dictum in para [85] applied

Visser Sitrus (Pty) Ltd v Goede Hoop Sitrus (Pty) Ltd and Others2014 (5) SA 179 (WCC): dictum in para [55] applied. D

England

Re a Company (No 006834 of 1988), Ex parte Kremer[1989] BCLC 365 (Ch D): referred to

Re a Company (No 00709 of 1992), O'Neill and Another v Phillips and Others [1999] UKHL 24 ([1999] 1 WLR 1092 (HL); [1999] 2 All ER 961): E referred to.

Statutes Considered

Statutes

The Companies Act 71 of 2008, ss 75(5), 75(7) and 163: see Juta's Statutes of South Africa 2013/14 vol 2 at 1-343 – 1-344 and 1-380 – 1-381.

Case Information

M Fitzgerald SC (with D Goldberg) for the applicant. F

A Smalberger for the respondents.

An application for relief under s 163 of the Companies Act 71 of 2008. The order is in para [78].

Order G

1.

The second and third respondents (pro rata to their current shareholding in the first respondent) are to acquire the applicant's forty-five percent (45%) of the issued share capital in the first respondent for the fair market value thereof as at 27 June 2014.

2.

A chartered accountant shall be appointed by agreement between H the parties (or failing such agreement by the chairperson for the time being of the South African Institute of Chartered Accountants) to determine the fair market value of the applicant's shareholding in the first respondent as at 27 June 2014 in accordance with the procedure contemplated in clause 18 of annexure AO1 to the founding affidavit herein. I

3.

The fourth and fifth respondents are declared to have acted in contravention of s 75 of the Companies Act 71 of 2008 (the Act) in failing to disclose their personal financial interests in transactions undertaken by the first respondent.

4.

The aforesaid chartered accountant is directed, in the determination J

2015 (3) SA p148

A of the fair market value, to take into account the contraventions of s 75 of the Act in respect of purchases from related parties, rental paid to related parties and management fees paid by the first respondent for the financial years ending 30 June 2011 to date.

5.

To the extent that clause 18.5 of annexure AO1 permits the B applicant to make representations to the chartered accountant, the first respondent is directed to furnish and make available to the applicant all documentation reasonably required by him.

6.

The respondents, save for the third respondent, shall pay the costs of this application jointly and severally, the one paying the other to be absolved.

Judgment

Gamble J: C

Introduction

[1] It could be said that the circumstances of this case resemble a D 'commercial divorce case'. Two shareholders in a private company, one with a larger portfolio of shares than the other, have fallen out and want to go their separate ways. In the absence of a squabble over children or the involvement of a paramour, it is really just the division of the parties' jointly held assets that requires the attention of the court.

E [2] The applicant (Omar) is the minority shareholder (45%) in the first respondent (Inhouse), which is the corporate entity on the rocks, while the second respondent ('Gearhouse SA', a wholly owned subsidiary of Gearhouse SA Holdings (Pty) Ltd) holds 50% of the shares. The remaining 5% is held by the third respondent (Govender). The fourth F and fifth respondents ('Lapid' and 'Abbas') effectively control Gearhouse Holdings and Gearhouse SA, of which they are both directors. Lapid and Abbas, together with Omar, Govender and three others (Abbas' wife, Neelofa Khan, James Demore and Nkosinathi Biko) are the directors of Inhouse.

G [3] Omar wants to be fairly compensated for his minority shareholding. Lapid and Abbas say that a fair offer has been made to him but Omar is not happy with their proposal and has sought relief under s 163 of the Companies Act 71 of 2008. [1]

2015 (3) SA p149

Gamble J

[4] The import of s 163 is, it is common cause, not unlike the provisions A of s 252 of the Companies Act 61 of 1973 (the old Act) and, in interpreting the former, reference may be made to the substantial body of law which has arisen from the application of that section of the old Act. [2]

[5] Unlike our divorce law which is based on the no-fault principle B (where matrimonial misconduct is no longer regarded as relevant before a decree of divorce may be granted), the relief available to an oppressed minority shareholder requires some consideration of the relevant circumstances to enable a party to claim relief under s 163. In O'Neill[3] C Lord Hoffmann dispelled the submission that it was sufficient to sustain a claim under the similar provision in the English Companies Act of 1985, [4] that an applicant need allege only a breakdown of confidence and trust between the parties.

'I did not think that there is any support in the authorities for such a D stark right of unilateral withdrawal. There are cases, such as Re a Company (No 006834 of 1988), Ex parte Kremer[1989] BCLC 365, in which it has been said that if a breakdown in relations has caused the majority to remove a shareholder from participation in the management, it is usually a waste of time to try to investigate who caused the E breakdown. Such breakdowns often occur (as in this case) without either side having done anything seriously wrong or unfair. It is not fair to the excluded member, who will usually have lost his employment, to keep his assets locked in the company. But that does not mean that a member who has not been dismissed or excluded can demand that his shares be purchased simply because he feels that he has lost trust and confidence in the others.' F

[6] The learned Law Lord noted [5] that the English Law Commission...