Chapman Fund Managers (Pty) Ltd v Tidal Sea Trading 59 (Pty) Ltd and Another (8447/10) [2015] ZAGPPHC 667 (18 September 2015)

SAFLII Note: Certain personal/private details of parties or witnesses have been redacted from this document in compliance with the law and SAFLII Policy

REPUBLIC OF SOUTH AFRICA

OFFICE OF THE CHIEF JUSTICE

(GAUTENG DIVISION, PRETORIA)

CASE NO: 8447/10

18/9/2015

DELETE WHICHEVER IS NOT APPLICABLE

(1) REPORTABLE: YES/NO

(2) OF INTEREST TO OTHER JUDGES: YES/NO

(3) REVISED.

IN THE MATTER BETWEEN

CHAPMAN FUND MANAGERS (PTY) LTD

Plaintiff

and

TIDAL SEA TRADING 59 (PTY) LTD

First Defendant

RONNIE PHALA

Second Defendant

JUDGMENT

LEGODI J

HEARD ON: 13 AUGUST 2015

JUDGMENT HANDED DOWN: 18 SEPTEMBER 2014

[1] The withdrawal of R50 000 on 30 June 3007 and 30 July 2007 respectively from the banking account of Chapman Fund Managers (PTY)

Ltd (the plaintiff), allegedly by the first defendant, Tidal Sea Trading 59 (PTY) Ltd ("Tidal Sea") through Mr Phala (the second defendant) and the signing of a shareholding agreement allegedly without reading clause 4.3 thereof have become the subject of a dispute before me.

[2] Clause 4.3 reads as follows:

"The share capital of the company will consists of 2500 (two thousand five hundred) of shares referred to in 4. 1 above after the share issue to Pacific Coast and Tidal Sea. The shares will be issued once the Department of Public Works confirms in writing that the contract period has been extended. In the event that the contract has been extended by a period:- (a) 10 years or less, then Tidal Sea shall start benefiting from such extension of the contract from June 2010; or (b) greater than 10 years, then Tidal Sea shall start benefiting immediately. After the share issue the shares will beneficially belong to and be registered in the names of the following parties ..."

[3] As a background, in 2003 the plaintiff secured Energy Consumption contract with the Department of Public Works (National), to manage consumption of energy in various government buildings. The contract was for a period of seven years to expire on 31 May 2010.

[4] In anticipation of the expiry period and with the intention to extend the plaintiff's contract, a company of which the second defendant had an interest, was introduced to the plaintiff by the Department of Works. The negotiations between the company concerned represented by the second defendant and the plaintiff ensued, which negotiations culminated into the establishment of Tidal Sea and 10% shareholding in the plaintiff was offered to Tidal Sea.

[5] On 8 April 2008 shareholding agreement was signed between the plaintiff and Tidal Sea the latter being represented by the second

defendant with clause 4.3 framed as quoted in paragraph 2 of this judgment. From 30 June 2008 to 29 October 2009 R50 000 was paid each month, totaling to R1 150 000 to the Tidal Sea as declared dividends. The payments are said to have made mistake by which is pleaded as follows in paragraph 14 of the particulars of claim

The payment of the aforesaid sum of R1 150 000-00 was made in bona fide and reasonable, but mistaken, belief that such payment was owing by the plaintiff to the first defendant".

[6] The amount of R1 150 000.00 is the subject of claim 2. As regards the payments of R50 000 each month from 30 June 2008 to 30 July 2008 and which forms the basis of claim 1, the cause of action is pleaded as follows:

"CLAIM 1

On 30 June 2008 and 30 July 2008 and at or near Pretoria, alternatively Johannesburg, first and/or second defendant unlawfully and intentionally, alternatively negligently, misappropriated the total sum of R100 000,00 by instituting a stop order against the bank account of the plaintiff held at ABSA Bank under account number […] for a monthly deduction of R50 000,00 from plaintiffs said bank account in favour of first defendant, without plaintiffs consent or any entitlement to do so and without the said R100 000,00 being due to the first defendant.

In the alternative to paragraph 9,

10.1 On 30 June 2008 and 30 July 2008 and at or near Pretoria, alternatively Johannesburg, the plaintiff paid to the first defendant the total sum of R100 000,00 by means of a stop order for a monthly deduction of R50 000,00 from plaintiff's bank account in favour of the first defendant;

10.2 The said payment was made in the bona fide and reasonable, but mistaken, belief that such was owing by the plaintiff to the first defendant;

10.3 In the premise, the first defendant has been enriched in the amount of R100 000,00 at the expense of the plaintiff but despite demand fails and/or refuses to repay the said amount to the plaintiff.

In the alternative to paragraphs 9 and 10 above and in the event that the plaintiff does not succeed against the first and/or second defendant on the grounds set out therein, then plaintiff pleads that second plaintiff (sic) breached his fiduciary duty and/or duty of care towards plaintiff by instituting the aforesaid unlawful and unauthorized stop order which resulted in loss for plaintiff in the sum of R100 000,00.

[7] The crux of the defendant's defence with regards to claim 2 is that, it was entitled in terms of the draft shareholding agreement which he sent to Mr Kruger on the 6 April 2008 to receive the dividends every month since June 2008. The effect of the defence is that he signed the agreement dated 8 April 2008 without reading it in particular, clause 4.3. The draft which the second defendant said he sent to Mr Kruger on 6 April 2008 before the shareholders' meeting of 8 April 2008, has clause 4.3 worded as follows:

... In the event that the contract has been extended by a period of - (a) less than 10 years than Tidal Sea shall start benefiting from such extension of the contract from June 2010; (b) 10 years of greater, then Tidal Sea shall start benefiting immediately".

[8] The involvement of Tidal Sea in the plaintiff was to ensure that when the plaintiff applies for extension, its application complies with the BEE requirement set by the Department and in its request for extension it postulated four scenarios. That is, projection at 7 year, 10 year, 12 year and 14 year with additional figures and continued investment. With regard to 10 year extension, total benefit to the Department was projected to be R480 895 010.26 of which 30% i.e. R65 329 21 was calculated as shared savings, R84 100 570.00 projected as savings on maintenance due to retrofits and renewal of equipment and R149 640 036.18 projected as reinvestment and capital expenditure.

[9] Coming back to the defendant's defence, the fact that he did not read the contract before he signed it on 8 April 2008, on probability

ought to be rejected seen in the light of the followings:

9.1. On 9 March 2008 the second defendant acting on behalf of the Tidal Sea sent an email to Dawie Kruger who was the Chief Executive Office of the plaintiff at the time and proposed, inter alia;

"Chapman Fund Managers (CFM)

Newco will acquire 16% of CFM on condition of securing a 10 year contract with DPW Pretoria region if CFM secures a contract for 10 years, Newco will receive benefit equivalent to its shareholding in CFM onlv after the end of the current CFM contract. If CFM secures a contract 12 years Newco will receive immediate benefit equivalent to its shareholding in CFM.

If CFM secures a contract greater than 12 years, Newco will receive an upfront of R1,5 m for each additional year, paid 30 days after signing of the contract.

Newco's interests will be secured through the shareholder's agreement".

9.1.1 'NEWCO' referred to in the quotation above, has been substituted by Tidal Sea. It is clear from the quotation that the defendants as early as 9 March 2008 envisaged a situation in the event of a ten year extension that Tidal Sea will only be entitled to benefit at the end on 31 May 2008 of the existing contract which the plaintiff had with the Department. The proposal by Tidal Sea quoted above, is in line with the signed agreement insofar as it relates to the ten year extension.

9.2. On 13 March 2008 Kruger on behalf of the plaintiff, of relevance, responded:

"We as Chapman shareholders will make available 10% shares of the company Newco on the basis of securing a further 10 years contract with DPW Pretoria region. If the contract is for 10 years from now, Newco will receive benefits from their shareholding after the existing contract expires which is 31 May 2010. If Newco secures a 10 year extension i.e. 12 year from now, then Newco will receive benefits from the date of extension when the contract is signed with DPW Pta".

9.2.1 Newco is the company which was replaced by Tidal Sea. The plaintiff in terms of the quotation above, rejected the 16% shareholding.

However, it clearly agreed with the proposal by the Tidal Seal that if the contract is extended by further ten years, Tidal Sea will only be entitled to benefit in the form of dividends from June 2010, which is 'after the existing contract expires when is 31 May 2010'.

9.3 In his evidence, the second defendant indicated that Tidal Sea accepted the counter proposal as recorded in the email of 13 March 2008 from Kruger. However, he sought to construe the response to mean:

9.3.1 Ten years of the extension plus the remaining two years of the 2003 agreement. This does not accord with the clear wording of Kruger's email in paragraph 9.2 above, that is: "If the contract is for 10 years... Newco will receive benefits from their shareholding after the existing contract expires which is 31 May 2010. An attempt to rely on the ‘12 years’ mentioned in Kruger's email is in any event not helpful to the defendants because, 'Newco will receive benefits from their shareholding from date of extension when the new contract is signed with DPW Pta". Therefore what the second defendant says Tidal Sea accepted, does not accord with his suggestion that Tidal Sea was entitled to receive benefits immediately upon '10 yeas or greater' extension.

9.4 It was the second defendant's evidence that he is an experienced businessman. A person who has seen people going down in stress and frustration in business and taken for a ride because they did not analyse the contract documents before appending their signatures

thereon. For this, the discussion document or draft shareholding agreement was critically perused by him, making suggestion and

submitted same to his lawyer for advice. He was particularly concerned about the wording in clause 4.3 of the initial draft in

terms of which Tidal Sea on the extension of 10 years will be entitled to benefit only from June 2010, that is, after the expiry of the 2003 agreement.

9.4.1 Having regard to what is stated in 9.4 above, it is unlikely that the second defendant would have signed the agreement without reading it, in particular clause 4.3 which was critical to his own interest and that of Tidal Sea.

9.5 The evidence was that on 7 April 2008 other shareholders of the plaintiff discussed the proposed immediate payment of benefits or dividends upon the 10 year extension period. Some members were not happy with the immediate benefit to Tidal Sea. On 8 April 2008 and before signing, the agreement was discussed page by page and whatever changes had to be made on the document, were so effected by the second defendant on Kruger's computer. According to one of the plaintiff's witnesses, Clause 4.3 was also discussed on 8 April 2008. Now to suggest that the defendants had assumed without reading that immediate payment of benefits upon '10 years or greater' extension had been included in the agreement smacks at the probabilities arising from the circumstances of this case. I therefore find that the second defendant signed the agreement on 8 April 2008 well aware of the provision of clause 4.3 therein and that the defendants are therefore liable to the repayments of the sum of R1 150 000-00 as this sum was never due to Tidal Sea in terms of the signed agreement.

[10] Before I conclude on the issue, I find it strange that immediately after the agreement of the 8 April 2008, the plaintiff started to pay dividends to the Tidal Sea until October 2009. What is clear, however, is that an agreement for the extension of ten years was to be concluded between the plaintiff and the department. That clearly appears in the email from Kruger quoted in paragraph 9.2 of this judgment. What had happened to such an agreement became a mystery in these proceedings. I am mentioning this because it could well be that immediate payments to Tidal Sea were used as an incentive to ensure that with the second defendant's help in signing, the agreement with the Department. But in the absence of more to the speculation, Tidal Sea was not entitled to payments any time before June 2010.

[11] I now turn to deal with the claim 1. What is alleged the second defendant has done as pleaded in paragraphs 9 and 10 of the

plaintiff's particulars of claim and quoted in paragraph 6 above, has not been established by any credible evidence. However, in paragraph 10.3 of the particulars of claim, undue enrichment is pleaded. As discussed earlier in this judgment, Tidal Sea was not entitled based on the written agreement to any payment before June 2010. A claim of undue enrichment should therefore succeed.

Fiduciary Duty

[12] The second defendant was a director of the plaintiff. Tidal Sea was his company and Tidal Sea was a shareholder in the plaintiff. As a result of this relationship, it is pleaded inter alia, in paragraph 4 of the particulars of claim that the second defendant owed a fiduciary duty towards the plaintiff and that such a duty imposed on the second defendant inter alia.

- The duty to exercise his powers bona fide and solely for the benefit of the plaintiff and or its shareholders as a whole and not for an ulterior motive,

- The duty not to advance own interest at the expense of the plaintiff, and/or

- The duty not to exceed his powers as a director of the plaintiff and that he also owed the plaintiff a duty of care in the exercise of his duties as a director.

[13] In the light of a finding that Tidal Sea was not entitled to any dividends or benefits before June 2010, the second defendant should be found to have failed in his fiduciary duty towards the plaintiff. This applies with regards to both the claims.

Counterclaim

[14] The defendants had filed a counterclaim in terms of which Tidal Sea claims a total amount of R250 000 calculated at R50 000 each month from November 2008 to March 2010. This claim is based on the alleged entitlement by Tidal Sea to receive benefits or dividends before the expiry of the 2003 agreement. I have already rule against this and therefore the counterclaim is destined to fail.

Order

[15] Consequently judgment is hereby granted against the defendants, jointly and severally the one paying the other to be absolved as follows:

15.1 CLAIM 1: Payment of R100 000;

15.1.1 Interest on the amount of R100 000 at the rate of 15,5% atempora morae;

15.2 CLAIM 2: Payments of R1 150 000;

15.2.1 Interest on the amount of R1 150 000 at the rate of 15,5% atempora morae;

15.3 Costs of action for both claims 1 and 2 and such costs to include costs of two counsel.

_________________________

M F LEGODI

JUDGE OF THE HIGH COURT

ATTORNEYS FOR THE PLAINTIFF: STéFAN SWART ATIORNEYS

3rd Floor, Steven House

Brooklyn, PRETORIA

Brooklyn Bridge Office Park

570 Fehrsen Street BROOKLYN, PRETORIA

TEL: 012 340 0178

REF: SS076

ATTORNEYS FOR THE DEFENDANTS: SELAHLE ATIORNEYS

126 Centenary Building

Bereau Lane

PRETORIA

TEL: 012 324 7441