L v L and Others (917/2014) [2014] ZAFSHC 203 (6 November 2014)

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

IN THE HIGH COURT OF SOUTH AFRICA

FREE STATE DIVISION, BLOEMFONTEIN

Case No.: 917/2014

In the matter between:

F[…] W[…] C[…] L[…] ….......................................................................................................Applicant

and

A[…] L[…] ….................................................................................................................First Respondent

J[…] C[…] L[…] …...................................................................................................Second Respondent

R[…] L[…] …................................................................................................................Third Respondent

KIRFOJHL CC …........................................................................................................Fourth respondent

HEARD ON: 7 AUGUST 2014

JUDGMENT BY: N.M. MBHELE, AJ

DELIVERED ON: 6 NOVEMBER 2014

[1] This is an Application wherein the applicant prays for an order in the following terms:

“1. An order interdicting and prohibiting the First Respondent from disposing of her 17% member’s interest in the Fourth Respondent

without the consent of the Applicant, the Second Respondent and the Third Respondent.

2. An order directing that the First Respondent shall cease to be a member of the Fourth Respondent forthwith, her member’s

interest be transferred to the Fourth Respondent immediately.

3. An order directing that the Fourth Respondent shall purchase the 17% member’s interest in the Fourth Respondent held by the First Respondent.

4. An order directing that the price which the Fourth Respondent shall pay to the First Respondent for the said member’s interest shall be determined as follows:

4.1 The Fourth Respondent shall pay the fair market-related value for the member’s interest of the First Respondent,( taking into account that the member’s interest represents a minority holding), less such amount as may be found by a competent court to be due by the First Respondent to the Fourth Respondent on loan account or otherwise.

4.2 For the purpose of the said purchase of the First Respondent’s member’s interest by the Fourth Respondent, the fair value of the member’s interest shall be determined with regard to the financial condition of the Fourth Respondent as at the date of 27 January 2013.

4.3 The parties are directed to endeavour to agree upon the appointment of practising charted accountant of not less than 10 years standing, who shall not be the Fourth Respondent’s auditor nor have been previously professionally engaged in any capacity by any of the parties, to undertake the valuation of the member’s interest in accordance with the directions above, and to determine the purchase consideration.

4.4 In the event of the parties being unable to so agree within 10 days of the date of this order, the valuation and determination shall be undertaken by a Bloemfontein-based practising chartered accountant of not less than 10 years standing to be nominated by the president of South African Institute of Chartered Accountants.

4.5 The Applicant and the First, Second, Third and Fourth Respondents are directed to furnish the person appointed in terms of the aforegoing prayers with all such information, appropriately vouched, as he or she might reasonably require in order to undertake the valuation and determination, failing which the said person is authorised to make application for such further directions and relief as might be appropriate.

4.6 The person appointed in terms of the aforegoing prayers shall complete the valuation and determination and furnish each of the parties with a reasoned report thereon in writing within six weeks of his or her appointment, or such extended period as the parties may agree to in writing, failing which he or she shall file a written statement with the Registrar, a copy of which shall be furnished to each of the parties, setting out the reasons for the failure to complete the valuation and setting out the period within which and the conditions subject to which he or she then expects to be able to complete the work. Without limitation of rights, any of the parties shall be entitled in context of such statement to apply for such further directions or relief as might be appropriate.

4.7 The costs of the said valuation and determination shall be borne by the First Respondent, and be deducted from the amount payable to her by the Fourth Respondent and paid over to the person undertaking the valuation and determination.

5. In the event of either the Applicant or the Second, Third and Fourth Respondent being unwilling to accept the determination of the person so appointed, proceedings to obtain a judicial substitute valuation shall be instituted by the dissatisfied party or parties within 20 days of the valuation, failing which the independent determination made in terms of this order shall be final and binding on parties.

6. 6.1 The price which the Fourth Respondent shall pay to the First Respondent for the said member’s interest shall be payable by the Fourth Respondent on the date of the divorce order in the action between the Applicant and the First Respondent under case number 637/2013 in this honourable Court being granted; alternatively

6.2 The date on which the extent of the accrual of the estates of the Applicant and the First Respondent shall be determined for purposes of the implementation of the accrual system provided for in the antenuptial contract between the Applicant and the First Respondent shall be the date of litis contestatio in the said action; alternatively

6.3 The amount of the fair, market-related value of the member’s interest of the First Respondent as determined above, but without the amount due by the First Respondent of the Fourth Respondent(if any) being deducted therefrom, shall be taken into account in calculating the accrual in the estate of the First Respondent for purposes of implementing the accrual system as provided for in the antenuptial contract between the Applicant and the First Respondent, regardless of whether the First Respondent is at that date still possessed of the whole of such asset or the value thereof.

7. An order interdicting and prohibiting the First Respondent from applying for the winding-up of the Forth Respondent.

8. The costs of the application shall be paid by the First Respondent on a scale as between attorney and client.”

FACTS NOT IN DISPUTE

1. Applicant and First Respondent are married to each other out of community of property with accrual.

2. The Applicant and the First Respondent have pending divorce action in this court.

3. The Applicant, First, Second and Third Respondents are members of Fourth Respondent, a close corporation.

4. The Second Respondent and Third Respondent are children of the Applicant and the Fourth Respondent conducts family business of the Applicant, First, Second and Third Respondents.

5. The members’ interest of the Fourth Respondent is held as follows:

Applicant 51%

First Respondent 17%

Second Respondent 16%

Third Respondent 16%

6. The first Respondent intends to dispose of her members’ interest in the fourth Respondent to a certain Mr Botha who is not a member of the fourth Respondent.

7. The Applicant, Second and Third Respondents are opposed to the sale of the First Respondent’s members interest to an outsider.

JURISDICTION

[2] The First Respondent submits that the court lacks Jurisdiction to adjudicate over this matter on the following basis:

i. The First Respondent is not resident in the area of Jurisdiction of this court. The First Respondent is resident in the Northern Cape Province.

ii. The matter revolves around membership’s interest of a close corporation which has its registered address in North West. It is further argued that the cause of action can only vest within the area of Jurisdiction of the court where the members’ interest vest.

[3] Mr Snellenburg on behalf of the First Respondent finds support for his contention in Dairy Board v John T Rennie & Co (Pty) Ltd 1976 (3) SA 768 (W) and Bisonboard Ltd v Braun Woodworking Machinery (Pty) Ltd [1990] ZASCA 86; 1991 (1) S.A 482 (A) at 496.

[4] He further argued that where a person is litigated against on the grounds of residence, he must be sued in the area in which he is residing at the time when the proceedings is served upon him.

[5] Mr Wagener on behalf of the Applicant contends that the First Respondent’s plea that this court does not have the requisite

Jurisdiction to entertain this application is not in good faith. He submits the following in support of his contention:

i. The First Respondent stated in the divorce action that she is domiciled within the area of Jurisdiction of this court. The said

allegation was made while she was already residing at her present address.

ii. The Second and Third Respondents are domiciled and resident within the area of jurisdiction of this court.

iii. The Fourth Respondent’s main place of business is located in the area of Jurisdiction of this court and it has no presence outside of the said area of Jurisdiction.

[6] Section 7 of the close corporation Act 69 of 1984 (the Act) provides the following:

“For the purpose of this Act any High court and any magistrate court within whose area of Jurisdiction the registered office or the main place of the corporation is situated, shall have jurisdiction. “

[7] The Fourth Respondent’s main place of business is situated in the area of Jurisdiction of this court. Furthermore, the member’s interest that is the subject matter of this application is held at the Fourth Respondent’s main place of business which is situated in the Jurisdiction of this court.

[8] In Diary Board v John T Rennie & Co (Pty) Ltd 1976 (3) SA 768 (W) it was considered that a company could reside for Jurisdiction purpose at both the registered office and principal place of business. Based on the above, courts could have concurrent Jurisdiction over a company. In my view, the above applies to close corporations as well.

[9] The First Respondent’s contention that this court lacks Jurisdiction is without merit and it falls to be rejected.

INTERDICT

[10] The applicant applies for a relief preventing the First Respondent from disposing of her member’s interest to a third party, without the consent of the Applicant, the Second Respondent and the Third Respondent.

[11] Mr Wagener on behalf of the applicant finds support for his contention that the First Respondent must be interdicted from applying for winding-up of the Fourth Respondent from the following cases:

Kalley Flooring Co (Pty) Ltd v President Carpeting Manufactures Ltd 1982 (4) SA 681 (C);

Soundcraft (Pty) Ltd t/a Advanced Audio v Daan Jacobs t/a Radio Spares and TV 1982 (4) SA 685 (W);

Alton Coach Africa CC v Datcentre Motors (Pty) Ltd t/a CMH Commercial 2007 (6) SA 154 (D).

[12] He further contends that the threats from the First Respondent that she intends applying for Liquidation of the Fourth Respondent, is an abuse of court process. He further submits that it is not fair to liquidate a domestic type lucrative business that has employees just because the other members refuse to be blackmailed by the First Respondent.

[13] Mr Snellenburg on behalf of the First Respondent submits that it is the First Respondent’s right to seek liquidation of the Fourth Respondent if other members of the Fourth Respondent are making it difficult for her to participate in the affairs of the Fourth Respondent. He further contends that the permanent relief sought by the Applicant is unjust and cannot be sustained in law.

[14] He admits that the relationship between the members of the Fourth Respondent has deteriorated to a level wherein parties cannot

continue to exist together within the Fourth Respondent.

[15] In all the judgements mentioned supra, the court had an application for liquidation before it. I have not been asked to liquidate the Fourth Respondent.

[16] An order restraining the First Respondent from applying for liquidation of the Fourth Respondent in future would be unfair and unjust. The First Respondent has up to the date of the hearing of this matter, not taken steps to apply for winding-up of the Fourth Respondent.

[17] The First Respondent may in future have a host of valid reasons to apply for winding-up of the Fourth Respondent. Taking away that right from the First Respondent would be unjust.

INTERDICT (SALE OF MEMBER’S INTEREST)

[18] The Applicant requests an order interdicting and prohibiting the First Respondent from disposing of her member’s interest in the Fourth Respondent without the consent of the Applicant, Second Respondent and Fourth Respondent.

[19] Section 37 of the Act provides as follows;

“Every disposition by a member of a corporation of his interest, or a portion thereof, in the corporation, shall be done

(a) in accordance with the association agreement (if only);

(b) or (b) with the consent of every other member of the corporation.”

[20] Mr Wagener on behalf of the Applicant submits that in terms of section 37 a right to alienate member’s interest in a close corporation to a third party does not arise. He submits further that the First Respondent is prohibited to sell her member’s

interest to the third party without consent of the other members of the Fourth Respondent.

[21] Mr Snellenburg argues that the First Respondent cannot be compelled to sell her member’s interest for a price less than what she is being offered by Mr Botha. Mr Snellenburg further argues that selling First Respondent member’s interest to the Fourth Respondent will be prejudicial to the First Respondent. He further contends that in terms of Section 29 of the Close Corporation Act 69 of 1984; only natural persons can be members of the Close Corporation. He contends further that the Fourth Respondent is in terms of the Act prohibited from being a member of a close corporation.

[22] It is not in dispute that the First Respondent intents to sell her members interest in the Fourth Respondent. The First Respondent is of the view that the price offered by Mr Botha is market related and the Fourth Respondent is in no position to match the price.

[23] It is not in dispute that the Applicant, Second and third Respondent are not willing to enter into a business relationship with Mr Botha, the potential buyer of the First Respondent’s interest due to high levels of mistrust between the parties.

[24] It is clear from evidence before me that Mr Botha, the Applicant and the Second Respondent may never live together within a business relationship.

[25] The first Respondent requires the consent of every other member of the Fourth Respondent to have her members’ interest transferred to Mr Botha.

[26] Section 37 of the Close Corporation Act 69 of 1984 does allow sale of members’ interest to a close corporation in situations where the corporation has more than one or more other members.

[27] Section 38 (c) further provides:

“Any member's interest acquired by the corporation shall be added to the respective interests of the other members in proportion to their existing interests or as they may otherwise agree”.

[28] In the absence of the association agreement between the members of the Fourth Respondent, the disposition of the members’ interest of the first Respondent must be done with the consent of every other member of the Fourth Respondent.

CESSATION OF THE FIRST RESPONDENT

[29] The Applicant is requesting an order directing that the membership of the First Respondent in the Fourth Respondent cease.

[30] The basis for the Applicant’s claim for cessation of the First Respondent is that she breached her fiduciary relationship with the Fourth Respondent in the Following manner:

1. She insists on bringing an outsider into the Fourth Respondent whose intentions are to destroy the Fourth Respondent.

2. She stole monies from the account of the Fourth Respondent at the time she had exclusive control of the account.

[31] The First Respondent contends that the allegations contained above are not true and that they are aimed at tarnishing her good name. It is the First Respondent’s contention that all the monies claimed to have been expended were used towards the communal expenses.

[32] It is not clear why the First Respondent continued to withdraw monies from the Fourth Respondent’s account for communal expenses when she had already vacated the common household.

[33] It is common cause that the First Respondent and other members of the Fourth Respondent have irreconcilable differences and the relationship between them has irretrievably broken down.

[34] The First Respondent attributes the total breakdown of relationship to the Applicant and the Second Respondent.

[35] Section 36 of the Close Corporation Act 69 of 1984 states the following:

“1) On application by any member of a corporation a Court may on any of the following grounds order that any member shall cease to be a Member of the corporation:

(a) Subject to the provisions of the association agreement (if any),

That the member is permanently incapable, because of unsound mind or any other reason, of performing his part in the carrying on of the business of the corporation;

(b) That the member has been guilty of such conduct as taking into account the nature of the corporation's business, is likely to have a prejudicial effect on the carrying on of the business;

(c) That the member so conducts himself in matters relating to the Corporation’s business that it is not reasonably practicable

for the other member or members to carry on the business of the Corporation with him; or

(d) That circumstances have arisen which render it just and equitable that such member should cease to be a member of the corporation:

Provided that such application to a Court on any ground mentioned in paragraph (a) or (d) may also be made by a member in respect of whom the order shall apply.

(2) A Court granting an order in terms of subsection (1) may make such further orders as it deems fit in regard to-

(a) The acquisition of the member's interest concerned by the Corporation or by members other than the member concerned; or

(b) The amounts (if any) to be paid in respect of the member's interest concerned or the claims against the corporation of that Member, the manner and times of such payments and the persons to whom they shall be made; or

(c) Any other matter regarding the cessation of membership which the Court deems fit.”

[36] Section 49 of the Act provides:

“(1) Any member of a corporation who alleges that any particular act or omission of the corporation or of one or more other members is unfairly prejudicial, unjust or inequitable to him or her, or to some members including him or her, or that the affairs of the corporation are being conducted in a manner unfairly prejudicial, unjust or inequitable to him or her, or to some members including him or her, may make an application to a Court for an order under this section.

(2) If on any such application it appears to the Court that the particular act or omission is unfairly prejudicial, unjust or inequitable as contemplated in subsection (1), or that the corporation's affairs are being conducted as so contemplated, and if

the Court considers it just and equitable, the Court may with a view to settling the dispute make such order as it thinks fit, whether for regulating the future conduct of the affairs of the corporation or for the purchase of the interest of any member of the corporation by other members thereof or by the corporation.

(3) When an order under this section makes any alteration or addition to the relevant founding statement or association agreement, or replaces any association agreement, the alteration or addition or replacement shall have effect as if it were duly made by agreement of the members concerned.

(4) A copy of an order made under this section which-

(a) alters or adds to a founding statement shall within 28 days of the making thereof be lodged by the corporation with the Registrar for registration; or

(b) alters or adds to or replaces any association agreement, shall be kept by the corporation at its registered office where any member of the corporation may inspect it.”

[37] The first Respondent intends to divest herself of the Fourth Respondent. The First Respondent has not actively participated in the day to day running of the affairs of the Fourth Respondent since her departure from the common home on 27 January 2013.

[38] It is argued on behalf of the First Respondent that she is entitled to a winding up order against the Fourth Respondent due to total destruction of mutual trust owing to Applicant’s vindictiveness although an application to that effect has not been filed with the court.

[39] What the first Respondent desires the most is a fair and competitive market related price for her members’ interest. The fair market value in the First Respondent’s view is R1 900 000. 00 as offered by Mr Botha.

[40] It is common cause that the parties are not able to agree on the value of the assets of the Fourth Respondent, making it difficult to determine what the real value of the First Respondent ‘s members’ interest is. The Applicant obtained sworn

valuation of the immovable property of the Fourth Respondent which was utterly rejected by the First Respondent and the valuator

recommended by the First Respondent was likewise rejected by the Applicant.

[41] It is evident that the only way the issue relating to valuation can be resolved, is through appointment of an independent valuator.

Fourth Respondent is a family business designed to run as a domestic corporation from its inception. Involving an outsider who has not earned trust from the other members of the corporation will in no way be in the interest of the business itself.

[42] I have no doubt that Section 37 of the Act was aimed at discouraging ‘forced’ marriages between business partners who from the beginning are not able to exist together in the same entity. It is clear it was aimed at protecting the remaining members of the close corporation and to safeguard the interests of the close corporation itself.

[43] In De Franca v Exhaust Pro CC (De Franca Intervening) 1997 (3) 878 (SE) it was said:

“Section 49 deals with the situation where conduct (an act or an omission) of the close corporation or of one or more of its members, or where the manner in which the affairs of the close corporation are being conducted, is unfairly prejudicial, unjust or inequitable to a member of the close corporation. When this occurs such member may make application to the Court for an order that will have the effect of “settling the dispute” (s 252 of Act 61 of 1973 provides for an order having the effect of “bringing to an end the matters complained of”) . . . The Court has a wide discretion with regard to the order that it decides to make to bring about the required result . . . Such order can, however, only be made “if the Court considers it just and equitable” to do so.”

[44] Section 36 of the Act also deals with an application to Court by a member of a close corporation, but such member is not required to establish conduct of the nature referred to above when discussing s 49 of the Act, namely conduct affecting him. It is the carrying on of the business of the close corporation that must be affected, either by the existence of circumstances envisaged by ss (1)(a) or by conduct as described in ss (1)(b) and (1)(c). Subsection (1)(d), however, gives wide and virtually unlimited scope for the application of s 36 of the Act, the only limitation being the “just and equitable” requirement. The order that a Court can make in terms of s 36(1) of the Act is circumscribed, namely an order that a member shall cease to be a member of the close corporation. Once a Court decides that an order for such cessation of membership should be made, it has a discretion to make further orders as referred to in s 36(2) of the Act. While a Court could, applying the provisions of s 49 of the Act, make an order compelling one member to purchase the interest of another, which would have the effect of such member's membership in the close corporation ceasing, that which would have to be established before this is done is quite different to what would have to be established under s 36 of the Act.

[45] A corporation is for all intents and purposes a partnership between the members. The only difference between a close corporation and a common law partnership is that it is a separate legal entity from its members. Sound relationship and trust between members is at the heart of a thriving close corporation.

[46] In De Franca v Exhaust Pro CC (De Franca Intervening) supra Nepgen J said

“In fact, it is my view that it is highly probable that by enacting s 36 of the Act one of the purpose of the legislature was to create a mechanism whereby the inevitability of winding- up can be avoided where a ‘deadlock’ situation exists between members. Even if that was not the specific intention of the legislature, s 36 clearly has such result.”

[47] I agree with the above statement. The above section empowers the court to dissolve the association between the members without

winding- up the corporation, if the court is satisfied that it is just and equitable to do so.

[48] The Applicant bears onus of proving that he is entitled to an order in terms of section 36. It is incumbent on the Applicant to place before me evidence sufficient evidence to justify and order in terms of the provisions of section 36 of the Act.

[49] I am of the view that it is just and equitable for the First Respondent to cease to be a member of the Fourth Respondent. It is also just and equitable for the First Respondent to be rewarded fairly for her interests.

[50] I, therefore, make the following order:

ORDER

1. The First Respondent is interdicted and prohibited from disposing of her member’s interest without the consent of the Applicant,

Second Respondent and Third Respondent;

2. First respondent’s to cease to be a member of the Fourth Respondent forthwith;

3. Fourth Respondent to purchase the First Respondent’s member’s interest in the Fourth Respondent;

4. The first Respondent’s member’s interest to be transferred to the Fourth Respondent;

5. Member’s interest acquired by the Fourth Respondent to be allocated to the remaining members of the Fourth Respondent in

proportion to their existing interests within 30 days of such acquisition.

6. The price which the Fourth Respondent is to pay to the First Respondent for the said member’s interest is to be determined

as follows:

6.1 The Fourth Respondent to pay the fair market-related value for the member’s interest of the First Respondent;

6.2 For the purpose of the purchase of the First Respondent’s member’s interest by the Fourth Respondent, the fair value of the member’s interest is to be determined with regard to the financial condition of the Fourth Respondent as at the date of this order.

6.3 The parties to endeavour to agree upon the appointment of practising charted accountant of not less than 10 years standing, who shall not be the Fourth Respondent’s auditor nor have been previously professionally engaged in any capacity by any of the parties, to undertake the valuation of the member’s interest in accordance with the directions above, and to determine the purchase consideration.

6.4 In the event of the parties failing to so agree within 10 days of the date of this order, the valuation and determination shall be undertaken by a Bloemfontein-based practising chartered accountant of not less than 10 years standing to be nominated by the president of South African Institute of Chartered Accountants.

6.5 The Applicant and the First, Second, Third and Fourth Respondents are directed to furnish the person appointed as stated above

with all such information, appropriately vouched, as he or she might reasonably require in order to undertake the valuation and

determination;

6.6 The person appointed as stated above shall complete the valuation and determination and furnish each of the parties with a reasoned report thereon in writing within six weeks of his or her appointment, or such extended period as the parties may agree to in writing, failing which he or she shall file a written statement with the Registrar, a copy of which shall be furnished to each of the parties, setting out the reasons for the failure to complete the valuation and setting out the period within which and the conditions subject to which he or she then expects to be able to complete the work.

6.7 The costs of the said valuation and determination shall be borne by the Fourth Respondent.

7. The fourth Respondent to pay the purchase price of the First Respondent’s member’s interest to the First Respondent

within 30 days from the date of submission of valuation report;

8. The First Respondent to pay the costs of this application on party and party scale.

_______________

N.M. MBHELE, AJ

On behalf of applicant:

Adv Wagener SC

Instructed by:

Prinsloo Inc

c/o Symington & De Kok

BLOEMFONTEIN

(Ref. Sonette Visser/nl/mm/1295)

On behalf of first respondent: Adv N. Snellenburg

Honey Attorneys

(Ref. RJ BRITZ/AR/122403)