De Sousa and Another v Technology Corporate Management (Pty) Ltd and Others

• Jurisdiction: South Africa
• Judge: Boruchowitz J
• Judgment Date: 31 March 2017
• Citation: 2017 (5) SA 577 (GJ)
• Hearing Date: 31 March 2017
• Docket Number: 2010/50723
• Counsel: A Subel SC (with B Slon) for the plaintiffs.J Suttner SC (with P Cirone) for the defendants.

Boruchowitz J:

[1] This is an action brought at the instance of two minority shareholders for relief in terms of s 252 of the Companies Act 61 of 1973, as amended (the Act). C

[2] The plaintiffs, acting jointly, seek relief in the first instance against the first defendant, Technology Corporate Management (Pty) Ltd (TCM), and, in the alternative, against the second, third and fifth defendants. TCM is a nominal defendant as, in substance, the dispute is between the shareholders. D

[3] TCM was incorporated in 1987. It is engaged in the sale, supply and maintenance of computer systems, and is a distributor of computer hardware, software and related products, and performs value-added services. It has several subsidiaries and is the holder of shares in the following companies: TCM Management (Pty) Ltd; TCM Software & E Services (Pty) Ltd; TCM Networks (Pty) Ltd; E-Business Infrastructure Solutions (Pty) Ltd; Stand 226 Erand (Pty) Ltd; Cape Gannet Properties (Pty) Ltd; TCM Small Systems (Pty) Ltd; and Lechabile Holdings (Pty) Ltd.

[4] The current proportional shareholding of TCM is as follows: F

[4.1]

The first plaintiff (De Sousa): 30%;

[4.2]

The second plaintiff (Diez): 7,45%;

[4.3]

The second defendant (Cornelli): 30%;

[4.4]

The third defendant (Da Silva): 7,45%;

[4.5]

The Hassim Family Trust (controlled by the fourth defendant, G Iqbal Hassim (Hassim)): 25,1%.

[5] Each of the shareholders (and Hassim on behalf of the Iqbal Hassim Family Trust (the Trust)) is a director of TCM. Its current board of directors consists of five shareholders and two non-shareholders. The two non-shareholders are Mr Wayne Impey, TCM's chief financial H officer, and Ms Ayesha Bhula. Cornelli is the chief executive officer of TCM.

Background

[6] To properly contextualise the dispute, it is necessary that I refer to I certain material facts relating to the incorporation of TCM and the history of the relationship between De Sousa and Cornelli. These are either common cause or incapable of dispute, particularly as the defendants closed their case without adducing evidence.

[7] In mid-1980 De Sousa commenced employment at IBM as a trainee customer engineer in field services. Cornelli was employed in the same J

Boruchowitz J

capacity A by IBM at more or less the same time and they became friends. In 1980 until 1987, they worked closely together as part of the same team. De Sousa became a technical specialist, while Cornelli became an operations specialist.

[8] Their friendship grew in leaps and bounds and they decided to go B into business together. The business was initially named 'TCM Small Systems', and later, in about August 1987, a company was incorporated by the name of TCM Small Systems (Pty) Ltd, which later changed its name to TCM. Each of De Sousa and Cornelli held 50% of the shares therein, and they were the only directors and employees. At the outset C the business of the company consisted of the recycling and adapting of downgraded computer parts and the resale thereof. De Sousa managed the technical side of the business and, later, the business accounting systems, whereas Cornelli dealt with the management of the company and the sales portion of the business. The company benefited greatly from their complementary and synergistic skills.

[9] D TCM was in substance a partnership in corporate form. The affairs of TCM were always conducted by means of mutual discussion and consensus of the principal shareholders. As founding members, they held equal status within the company and contributed substantially to the running of the business. Although De Sousa and Cornelli had different areas of E expertise, they were equals in every way: they earned equal salaries; had identical offices; and commanded the same measure of respect from all employees and from each other. De Sousa testified that at all times their understanding was that both he and Cornelli had the right to participate in the running of the company.

[10] F Diez joined TCM in October 1987, when he became a director and employee in field operations, stores and logistics. Da Silva, who also became a director, joined the company in April 1989 and was employed in sales and field work. On 30 March 2004 Hassim was brought into TCM as a Black Empowerment partner and was appointed as an executive G director of TCM with the title of Corporate Sales Director. During June 2005, the Hassim Family Trust, which was controlled by him, was made a shareholder of TCM.

[11] A formal shareholders' agreement regulating the relationship between the shareholders was only entered into for the first time on H 29 June 2005, some 18 years after TCM's incorporation.

[12] Simultaneously with the conclusion of the shareholders' agreement, a sale of shares agreement was entered into between Hassim and the remaining shareholders of TCM, in terms of which Hassim purchased I 25,1% of the issued share capital of TCM from the remaining shareholders. In terms of that agreement it was provided that the purchase price was to be determined in accordance with a formula, and paid by the Hassim Trust by means of an initial deposit of R1,5 million, with the balance thereof within 36 months from the date of signature of the agreement. The purchase price was subsequently determined to be an amount J of R26 646 260,53.

Boruchowitz J

[13] The plaintiffs contend that, although the composition of the equity A in TCM changed after Hassim acquired a 25,1% stake therein, TCM nonetheless still retained its original identity of a domestic company in the nature of a partnership primarily between De Sousa and Cornelli, in whose day-to-day business all shareholders were entitled to be engaged. This is an issue with which I will deal later in the judgment. B

[14] For some reason Hassim could not afford to pay the purchase consideration in respect of the shares acquired by him. Attempts were then made by Cornelli to assist Hassim to pay for the shares. These attempts gave rise to fundamental disputes between the plaintiffs and Cornelli. C

[15] Initially, Cornelli, who is the chairman and chief executive officer of TCM, sought to persuade the shareholders to reduce the purchase price of Hassim's shares by 20% and insisted that they amend the shareholders' agreement, but the plaintiffs resisted Cornelli's compulsion to conclude the amending agreement. In a further endeavour to assist D Hassim, it is alleged that Cornelli purported to procure, in contravention of s 38 of the Act, that TCM finance a loan to the Trust and/or Hassim to enable them to discharge the purchase consideration in respect of the shares acquired by him. This too was resisted by De Sousa. Cornelli then procured that a number of retention agreements be concluded between TCM and Hassim. The plaintiffs contend that these agreements unduly E favoured the Trust and/or Hassim's financial position at the expense of TCM and the other shareholders. Generous bonuses were also given to Hassim.

[16] The plaintiffs assert that, because of their resistance to the attempts made to assist Hassim to pay for his shares, Cornelli repeatedly F criticised, belittled, humiliated and persecuted them in the presence of other directors, shareholders and employees. By way of example, Cornelli reduced the office and parking space available to De Sousa with the aim of showing public contempt for him.

[17] The remuneration package payable to Cornelli and other G shareholders was also a source of animosity between De Sousa and Cornelli. It is common cause that until October 2007 De Sousa received exactly the same remuneration as Cornelli by way of salary, bonuses and other perks. On 6 November 2007 Cornelli proposed that he be paid a monthly salary of R125 000 and a R16 500 car allowance. De Sousa objected to this, whereafter the bonuses payable to him were drastically H reduced. In contrast, substantial bonuses, directors' emoluments and other benefits were paid to Cornelli, Da Silva and Hassim.

[18] The relationship between De Sousa, Diez and Cornelli worsened to the point that on 10 May 2008 De Sousa and Diez received emails from Cornelli recommending that they hand in their 'voluntary resignations as I executive directors and remain on the board as non-executive directors'. A notice of formal suspension of De Sousa from the employment of TCM was delivered on 19 February 2009.

[19] In March 2009 TCM preferred disciplinary charges against De Sousa of gross insubordination and undermining the authority of Cornelli, J

Boruchowitz J

causing A an irretrievable breakdown in trust and in the working relationship with TCM, his fellow employees, directors and shareholders; he was also accused of having poor work performance. These charges led to the formal dismissal of De Sousa as an employee of TCM. De Sousa contends that Cornelli acted with an ulterior motive in pursuing these charges; B that the charges were groundless and did not merit investigation or his dismissal. An appeal by him against the findings of the disciplinary tribunal was dismissed.

[20] In about June 2009 De Sousa referred the dispute to the Commission for Conciliation, Mediation and Arbitration (CCMA) alleging that he C had been unfairly dismissed. On 30 October 2010 the senior commissioner before whom the arbitration was conducted issued an award in which he determined that the first plaintiff had not been unfairly dismissed.

[21] On 3 April 2009 De Sousa received confirmation that he had been dismissed from the employ of TCM. Following his dismissal, De Sousa D was excluded from the day-to-day management of the affairs of TCM and has received no salary or other financial benefits other than dividends. He has been denied the usual freedoms and his access to the...