Africoast Investments (Pty) Ltd v Nextec Industrial Technologies (Pty) Ltd (43314-2021) [2023] ZAGPJHC 1499 (5 December 2023)

IN THE HIGH COURT OF SOUTH AFRICA

GAUTENG LOCAL DIVISION, JOHANNESBURG

CASE NO: 43314/2021

DATE: 2023-12-05

1. REPORTABLE: YES / NO.

2. OF INTEREST TO OTHER JUDGES: YES / NO.

3. REVISED.

In the matter between

AFRICOAST INVESTMENTS (PTY) LTD

Plaintiff

And

NEXTEC INDUSTRIAL TECHNOLOGIES (PTY) LTD Defendant

JUDGMENT

CRUTCHFIELD, J: Nextec Industrial Technologies (Pty) LTD, the first defendant (“Nextec”) and EOH Holdings Limited, the second defendant, (“EOH”), referred to jointly as the defendants, took exception to the amended particulars of claim of Africoast Investments (Pty) LTD, the plaintiff, (“Africoast”).

The exception was premised on the amended particulars of claim indistinct] disclosed sufficient factual and legal averments to sustain a course of action alternatively, being vague and embarrassing.

The parties concluded an agreement for the sale of shares on 23 March 2017 (“the agreement”), in terms of which the plaintiff sold its shares in PiA Solar SA (Pty) Ltd (“PiA Solar”) to the first defendant.

The plaintiff would be remunerated for the sale of its shares in PiA Solar by way of an initial allotment of shares in the second defendant, a cash payment and a series of additional payments and/or transfers of EOH shares, subject to the future performance of PiA Solar.

Subsequently, the value of the EOH shares reduced as a result of which the plaintiffs claims in actual damages for an alleged fraudulent misrepresentation and relief for specific performance of the terms of the agreement.

The plaintiff alleges that it was induced to conclude the agreement by a false and intentional misrepresentation that the EOH shares would maintain their value and that the second defendant was financially stable.

The plaintiff alleges that it adequately formulated the claim for the issue and allotment of shares in terms of the contract as well as for the payment of damages arising out of the alleged fraudulent misrepresentation that induced the conclusion of the agreement in terms it did include the cap and collar clause, inter alia.

The plaintiff elects to uphold the agreement and claim damages on the basis of the position that it would have occupied if the fraudulent

misrepresentation has not been made, the contract would have been concluded by the parties including the cap and collar clause that would have regulated the plaintiff’s entitlement to payment.

Accordingly, the fraudulent misrepresentation induced the exclusion of the term from the agreement and it is for that that the plaintiff’s seeks compensation by way of the payment of damages. The plaintiff allege that it did not seek compensation on the basis as if the misrepresentation was true.

The plaintiff seeks to be put in the position it would have been if the fraudulent misrepresentation had not been made. So the plaintiff alleges.

The plaintiff contends that the parties would have concluded the contract including the cap and collar clause regulating the plaintiff’s entitled to payment. The fraudulent misrepresentation allegedly induced the exclusion of a term from the contract, for which the plaintiff seeks compensation.

The plaintiff allege further that whilst the plaintiff’s claim was made in delict, an innocent party’s claim may arise either in delict or in contract. The measure of damages may differ but that is not always so.

The principles relevant to exceptions are well documented in the case law and I do not intend to restate them safe as is strictly necessary for the purposes of this matter and the issues before me. Suffice to state that at this stage that the plaintiff’s particulars of claim must be excipiable on every possible interpretation in order for an exception to succeed.

Secondly, at this stage, that for a litigant to succeed on the basis that the impugn pleading is vague and embarrassing, the innocent party must be substantially embarrassed by the vagueness or lack of particularity.

Vagueness or such lack of particularly can be cured by way of a request for further particulars for trial will not serve to sustain an exception. It is appropriate to recall that pleadings are comprised of facts, material facts or facta probanda and not facta probantia.

A litigant is required to plea the material facts necessary to sustain a cause of action. A litigant is not required to plea the facta probantia that would to towards proving the material facts relied upon.

The defendants raised six grounds of exception that broadly cover two issues - the nature of the misrepresentation relied upon by the plaintiff and the issue of causation, and, secondly the damages and quantification thereof.

The plaintiff contended that the particular of claim and facts upon which it relied for is formulation of the damaged claimed by it and unequivocally pleaded, and that all averments necessary to sustain the cause of action for the issuing allotment of shares in terms of the contract and for the payment of damages arising out of the fraudulent misrepresentation that induced the contract and terms excluding the cap and collar clause, were made.

The plaintiff relied on two facts in regard to the misrepresentation – the financial affairs of the second defendant as represented to the plaintiff during the negotiations prior to concluding the contract, and the stability of the share price of the second defendant by representing that the financial stability of the second defendant were sound, that it was sustaining significant growth and that it share price would only increase. Notwithstanding the improbability or otherwise of the allegations, I am enjoined for purposes of the exception to accept that they are true.

The defendant’s misrepresentation included the presentation of a document entitled “EOH Corporate overview”, which included a summary of the second defendant’s annual financial results for the year ending 31 July 2015 in respect of the second defendant and its group of companies (“the EOH group”).

Paragraph 10.1 and paragraph 11 of the amended particulars of claim manifestly articulate the plaintiff’s reliance on an act or commission, misrepresentation allegedly made by the defendants during the course of the negotiations, in respect of the second defendant’s financial affairs, the stability of the share price and that the share price would only increase.

The defendants argued however that if regard was had to the plaintiff’s reference to annexure POC4 in their amended particulars of claim, POC4 being a report in respect of an investigation into the second defendant’s corporate dealings being conducted by ENS, the plaintiff sought to rely upon POC4 to establish the basis of the misrepresentation relied upon by the plaintiff, as well as relying on the July 2020 report of the Johannesburg Securities Exchange.

The latter report was not attached as an annexure to the particulars of claim, but the defendants argued that the plaintiff sought to rely thereupon for purposes of establishing of the alleged misrepresentation.

Whilst annexure POC4 identifies various issues in respect of the second defendant’s financial or corporate alleged misconduct, no facts are given in respect of the second defendant’s financial affairs in respect of 2014 or 2015. There is no link pleaded by the plaintiffs between the alleged misrepresentation relied upon by the plaintiff and the contents of POC4 or the report of the Johannesburg Securities Exchange. The plaintiff does not specify the portions of the report that it relies upon, as it is obliged to do in terms of the principle set out in Swissbourgh.

The plaintiffs does not allege any facts pursuant to which the financial information in respect of the second defendant, allegedly misrepresented to the plaintiff during the course of the negotiations, was incorrect at the time it was presented to the plaintiff during the negotiations.

The vague and generalised allegations made by the plaintiff in paragraphs 11.1 up to and including paragraph 11.4 of the amended particulars of claim do not assist in this regard.

Accordingly, the defendants are able to ascertain what the alleged misrepresentation in respect of the stability of the second defendant’s financial affairs specifically comprised of as the plaintiff has not pleaded the facts in respect of what was incorrect regarding the information presented. The particulars of claim do not disclose a misrepresentation in respect of the second defendant’s

financial affairs.

Furthermore, the amended particulars of claim do not allege the facts in which annexure POC3, the corporate overview of the second defendant, was incorrect at the time it was presented to the plaintiff during the negotiations.

POC4 does not assist in this regard as the relevant portions thereof upon which the plaintiff relies are not specified, and POC4 does not refer to a misrepresentation of the second defendant’s financial affairs. Nor does it refer to a misstatement in that regard.

Furthermore, in so far as the plaintiff relies upon the July 2020 report from the Johannesburg Securities Exchange (“the July 2020 report”), that report is not attached to the amended particular of claim and is to be made available to the defendants. Nor does the plaintiffs specify the specific portions of the July 2020 report that it relies upon as it is required to do.

The plaintiff cannot rely on the annexures, POC3, POC4 and the July 2020 report, as a substitute for pleading the necessary and relevant facts. Accordingly, to the extent that the plaintiff relies on a misrepresentation of the second defendant’s financial affairs that does not appear from the amended particulars of claim and the annexures thereto.

The defendants do not know what information in respect of the second defendant’s financial affairs is incorrect because it is not pleaded. In so far as the plaintiff relies on the contents of paragraphs 11.1 to 11.4 of the amended particulars of claim, being allegations sourced annexure POC4, to establish the alleged misrepresentation relied upon, the defendant is correct that constitutes an omission. Accordingly, the plaintiff is alleging that circumstances existed that imposed on the defendants a duty to disclose the alleged misconduct being perpetrated and the second defendant at the relevant time.

To the extent that the plaintiff relies on a misrepresentation by silence, or a material nondisclosure, the plaintiff is obliged to plead a duty on the defendants to make that disclosure, which the plaintiff has not done.

The plaintiff relies in paragraph 6.3 to 6.7 of the amended particulars of claim upon various obligations that allegedly fell upon the defendants. The plaintiff fails however, to plead what obligations the defendants breached and when they did so.

In addition, the plaintiff conceded in argument before me, that paragraph 6.3 of the amended particulars of claim constituted a “red herring”. Paragraph 6.3 as it stands implies that the plaintiff’s claim is contractual and is a source of confusion. The plaintiff needs to make the appropriate adjustments to the amended particular of claim in this regard.

The plaintiff’s course of action, whether the plaintiff relies on an act or an omission, is not sustainable for the reasons set out above. The plaintiff needs to plea that the misrepresentation that it relies upon in a manner that the defendants can plead to.

In respect of the plaintiff’s claim for damages, the notional insertion by the plaintiff of the cap and collar clause into the agreement, goes to the plaintiff’s claim for damages and it is accordingly, necessary to consider the cap and collar clause at this stage of the proceedings and not leave it to the trial Court as the plaintiff contended.

The plaintiff argued to the knowledge of the defendants, a clause such as the cap and collar clause would have been included in the agreement. No facts, however, are pleaded by the plaintiff in respect of the alleged knowledge relied upon by the plaintiff.

The defendants argued that given the notional absurdity of including such a clause in the agreement in the particular circumstances of this agreement, it was necessary for the plaintiff to plead the mechanism of the cap and collar clause and how the plaintiff intended that it would operate.

Whilst the plaintiff agreed to accept there is allotment of shares as part of its renumeration the parties did not peg the share price in the agreement for purposes of guaranteeing that the shares would retain a certain value.

The value of the deal concluded by the parties in terms of the agreement was …[indistinct] was to be made in a combination of cash and two tranches of shares. The value of the shares was not guaranteed and the definition of the share price agreed to by the parties did not peg the share price for purposes of guaranteeing the value of the shares. The share price definition served only to determine the number of shares the plaintiff would receive as part of its remuneration.

The cap and collar clause that the plaintiff seeks to include notionally in the agreement would serve to guarantee the share price within a particular band, in circumstances where the parties did not agree to guarantee the value of the shares in the agreement. It was not the intention of the parties to peg the share price in terms of the agreement.

Accordingly, the facts regarding the mechanism, how the cap and collar clause would apply in respect of the plaintiff’s claim for damages, requires to be set out in the light of the particular circumstances at hand in this matter, including the terms of the agreement. The plaintiff used the share price as the initial trance depreciated value …[indistinct] R145, when calculating the damages. The plaintiff used the initial tranche depreciated value to determine what the parties would have agreed to in circumstances where the plaintiff effectively was guaranteeing the share price, something the parties did not agree to.

The effect of the cap and collar clause is to guarantee the share price or the stability of the share price within a certain band that the share price would not depreciate either below of the plaintiff would not receive the benefit of an increase in the share price above a certain value. That means that the plaintiff would be put in the position as if the misrepresentation was true, or the effect of the cap and collar clause is to elevate the misrepresentation to a term of the agreement, which it was not. Putting the plaintiff in effect in the position that it would have been in if the misrepresentation was true, is a contractual measure of damages. It is not sustainable for the plaintiff to claim contractual damages in circumstances where its claim is for a fraudulent misrepresentation, a matter of delict.

Accordingly, in order for the defendants to assess the damages claimed against them, the necessary facts regarding the mechanism of the operation of the cap and collar clause needs to averred, which the plaintiff has not done.

The delictual measure of damages is to place the innocent party in the position that it would have occupied if the misrepresentation was not made. The parties in this matter agreed to remuneration to the plaintiff of cash and to allotment of shares, which the plaintiff received, the value of which shares …[indistinct]. The plaintiff, notwithstanding the fall in the share price, received cash and two allotments of shares in respect of which the value was not pegged in the agreement. Accordingly, there was no loss to the plaintiff’s patrimony and the plaintiff received the bargain that it contracted for in the agreement.

Accordingly, for the plaintiff to rely on a fictional clause that serve to guarantee the share price puts the plaintiff in the position it would have occupied if the misrepresentation was true, which is the contractual measure of damages, and not sustainable given that the plaintiff’s claim is …[indistinct] and delict, being damages for a fraudulent misrepresentation inducing a contract on specific terms. In the circumstances, the defendants are entitled to know the facts relevant in the operation of the cap and collar clause.

Furthermore, given that the parties based on the agreement as it stands before me, did not agree to guarantee the value of the shares, the plaintiff has failed to plead any basis as to why the parties would notionally, have agreed to such a clause.

In respect of the second ground of the defendant’s exception, information of that nature is the …[indistinct] of which request for trial particulars are made. It is not appropriate for such information to be pleaded and to form the basis of an exception. In the circumstances, the defendants stand to enjoy substantial success in respect of the exception and it follows that they are entitled to the cost of the application.

By reason of the aforementioned, safe in respect of the second ground of the defendant’s exception, the exception is upheld.

Accordingly, I grant the following order: the first and second defendant’s exception, excluding the second ground of the exception, is upheld;

The plaintiff is granted leave to file amended particulars of claim within twenty (20) days of the granting of this order being on 5 December 2023; the plaintiff is ordered to pay the cost of the exception. I hand down the judgment.

CRUTCHFIELD, J

JUDGE OF THE HIGH COURT

DATE: ……………….