Molokoane v Diversified Power & Systems Integration (Pty) Ltd (3235/09) [2009] ZAKZDHC 70 (18 November 2009)

IN THE KWAZULU-NATAL HIGH COURT, DURBAN

REPUBLIC OF SOUTH

AFRICA

CASE NO: 3235/09

(Not reportable)

In the matter between

MOTHUSI PETER MOLOKOANE Applicant

and

DIVERSIFIED POWER & SYSTEMS

INTEGRATION (PTY) LIMITED Respondent

____________

JUDGMENT

MARAIS AJ

1. The Applicant is a shareholder in the Respondent (a domestic company which started with four equal shareholders and directors).

2. In February 2009 the Applicant launched application for final liquidation of the Respondent.

3. In making the application, the Applicant claimed to be a shareholder (26%) and director of the Respondent.

4. The application is made in terms of Section 344(h) of the Companies Act, 1973 (“the Act”), on the basis that it is just and equitable that the Respondent be wound up.

5. In support of the application, the Applicant relies upon the following circumstances:

(a) that, since January 2008, the other three directors/shareholders have prevented him from participating in the management of the Respondent;

(b) that a letter issued specifically to the bank to reveal (incorrectly) that the Applicant had resigned as a director, was used (in breach of the “arrangement” for the letter only to be used for the bank), to obtain the Applicant’s removal as a director;

(c) that two of the remaining directors (Irving and Smit) continued to operate a close corporation which, strangely, showed a dramatic increase in turnover, because (so the Applicant said) they were misappropriating some of the Respondent’s funds into (the CC)”;

(d) that the Applicant’s email facility was disconnected;

(e) that the Applicant was pressurised to relinquish his shares in the Respondent, in terms of a shareholding agreement which he did not accept.

6. Against this background the Applicant concluded the following:

“It is clear that it has become impossible for the Respondent to carry on business due to the deadlock reached in the management, arising from the internal disputes between myself and the other directors”.

7. The application is opposed by the remaining directors and shareholders.

8. They raised the following special issues:

(a) that this Court is without jurisdiction because neither the registered office nor principal place of business of the Respondent falls within its geographical area;

(b) the application is ill-conceived since, in terms of the shareholder’s agreement, the shareholders were compelled to resolve their disputes by negotiation or arbitration.

9. These co-shareholders (as I shall refer to them) responded with complaints of their own and, in addition to the special issues, raised the following:

(a) that the Applicant has become interested in another business which competes with the Respondent;

(b) that the automation section (as it is described) managed by the Applicant, suffered continuous losses, partly because of the Applicant’s failure to control expenditure in his section;

(c) that the Applicant attended courses, incurred expenses and gambled at the Respondent’s expense and made unauthorised use of its facilities and credit cards;

(d) that the Applicant was seldom at work and that he refused to attend meetings (claiming that no-one could demand his attendance at meetings without his approval).

10. In response to the Applicant’s complaints, his co-shareholders claimed that the Applicant had, in fact, resigned as a director, explained that the close corporation referred to had, in fact, paid some R3.9 million as bridging finance to enable the Respondent to operate and explained that the deadlock was self created by the Applicant to force a share transfer transaction on his terms.

11. Against this background the co-shareholders launched counter-application for an order declaring that the Applicant is no longer a director of the Respondent (on the basis that he had voluntarily resigned).

12. The evidence does not reveal that the Respondent’s registered address falls within this Court’s area of jurisdiction. That, in any event, is not what the Applicant contends. The Applicant claims that the main place of business of the Respondent is at Richards Bay. This is denied by the co-directors, who claim that the Richards Bay office is a mere branch office. Tellingly the co-directors do not identify the Respondent’s principal place of business. 1 Since the Applicant relies upon the Respondent’s principal place of business, no real factual dispute is created on this issue. (Possibly for these reasons, I was informed, in argument, that this was no longer in

issue).

13. In support of the second special issue, the co-directors rely upon the provisions of clause 24 of the shareholders’ agreement. This clause provides as follows:

“If a dispute between the parties arises in respect of this agreement and/or the interpretation thereof and/or the performance in terms hereof, the parties shall initially seek to resolve the dispute by good faith in negotiations over a period of thirty days.

If the negotiations fail to resolve the dispute, and the parties agree to refer the dispute, the dispute will be referred for arbitration to the Arbitration Foundation of South Africa”. 2

14. These provisions do not expressly prevent a shareholder from launching application for the winding up of the Respondent, even if the dispute arises in terms of or pursuant to the agreement. I am also satisfied that these provisions do not, by implication, have such effect. If the parties had wanted to restrict their rights to approach the Court for relief under the Act, they could (and, presumably, would) have made provision for such restriction in the agreement. The provisions quoted also do not, in my view, cater specifically for the situation under consideration, since the dispute before me (as raised by the Applicant) relates more to a deadlock and breakdown of the relationship (and not so much with a particular

failure to perform in terms of the shareholders’ agreement). 3

15. In the circumstances I find that the Applicant is not precluded by the aforementioned provisions, from launching application for the Respondent’s liquidation in terms of Section 344(h).

16. This brings me to the merits of the application.

17. It is, of course, so that in the case of small domestic companies with the hallmarks of a partnership, a Court might adopt a more lenient approach in ordering the winding up of the company in cases where a deadlock exists. 4

18. Shorn of the preamble and conclusion, the Applicant’s founding affidavit is a mere four pages. Without supporting detail or documents, the Applicant broadly raised the complaints referred to.

19. Against this, the co-directors pointed out that the Respondent is financially sound, employs some 38 employees, engages two exclusive sub-contractors and that it has numerous lucrative contracts in the pipeline. In addition the more detailed response offered in answer by the co-directors, includes various complaints raised against the Applicant. Whilst the Applicant sought to deal with them, in reply, he seemed, firstly, to create doubt with his own explanations and, secondly, spawned numerous additional factual disputes peripheral to the central issues. (For example, the Applicant claims that he did not carry a pin for the credit card and that he was, occasionally, forced to use the nearest casino to draw cash!). 5

20. In the light of all of this I must decide whether the Applicant has made out a case for the relief sought.

21. Where an application is opposed, the concept of a prima facie case is approached differently:

“Where the application for a provisional order of winding up is not opposed or where, though it is opposed, no factual disputes are raised in the opposing affidavits, the concept of the Applicant, upon whom the onus lies, having to establish a prima facie case for the liquidation of the company seems wholly appropriate; but not so where the application is opposed and real and fundamental factual issues arise on the affidavits, for it can hardly be suggested that in such a case the Court should decide whether or not to grant an order without reference to the Respondent’s rebutting evidence”. 6

22. I am satisfied that the factual disputes are of such a nature that it cannot be said that the balance of probabilities favour the Applicant, at least not on the papers. In the circumstances I must consider whether or not to refer the application for the hearing of oral evidence:

“Where, on the other hand, affidavits in an opposed application for a provisional order of winding up do not reveal a balance of probabilities in favour of the Applicant, then clearly no prima facie case is established and a provisional order cannot at that stage be granted. The Applicant may, however, apply for an order referring the matter for the hearing of oral evidence in order to try to establish a balance of probabilities in his favour. It seems to me that in these circumstances the Court should have a discretion to allow the hearing of oral evidence in an appropriate case. The alternative, vis refusal of the provisional order of winding up, represents a final decision against the Applicant and, if such a decision is always made purely on the affidavits, injustice may be done to the Applicant”. 7

23. In my view the Applicant has not established a prima facie case in the sense explained above.

24. As pointed out by Binns-Ward AJ, a dissatisfied minority shareholder is not entitled, without more, to achieve his escape from an unhappy investment by the winding up of the company. 8

25. In the exercise of my discretion I also have to consider whether or not the Applicant should not rather have sought support in the provisions of Section 252 of the Act. (There is authority to the effect that an application for the winding up of a company may be refused where the interests of the Applicant may be better served in terms of Section 252). 9

26. Against this background I must consider whether a prima facie case (in the sense required) has been made out by the Applicant and, if not, whether there is justification for the application to be referred for the hearing of oral evidence (weighing up, on the one hand, the fact that the dismissal of this application will amount to final relief whilst, on the other, the referral might simply delay an inevitable conclusion).

27. I cannot agree. The just and equitableness test with which I am concerned, naturally invite consideration of the cause and nature of the breakdown or deadlock. (It is trite that a party might not create a deadlock by his own conduct and then seek to rely on the consequent deadlock to wind the company up).

28. If all I had before me was the Applicant’s description of the problems summarised in para 5 hereof, I might still have been persuaded to refer the matter to oral evidence.

29. The undisputed evidence before me reveals, however, that the company is (otherwise) alive and well, busy, effective and the employer to a number of employees. I also cannot escape the feeling that some of the problems have been caused by the Applicant’s own conduct and his apparent inclination not to submit to the corporate environment. (By this I am not saying that the co-directors are blameless. They, too, may have to share some of the blame for the breakdown).

30. Since the Applicant relies upon superficially sketched limited events, the persuasive value of these circumstances (in the light of the challenge by the co-directors) is not enough to persuade me even to grant a provisional order or to refer the matter for the hearing of oral evidence, even more so because there is no reason why the Applicant might not be adequately protected in terms of the shareholders’ agreement or, even, by the provisions of Section 252 of the Act.

31. The counter-application has become academic since, I am told, it is now common cause that the Applicant has resigned as a director.

32. In the circumstances and in the exercise of my discretion, the application is dismissed with costs.

_____

18 NOVEMBER 2009

1 Bernard v Klein NO 1990 (2) SA 306 W.

2 Application papers at 82.

3 See generally Woomack v Commercial Vehicle Spares (Pty) Limited 1968 (3) 419 R.

4 See generally Emphy & Another v Pacer Properties (Pty) Limited 1979 (3) SA 363 DCLD.

5 Application papers at 117.

6 Kalil v Decotex (Pty) Limited & Another 1988 (1) SA 943 AD (at 976).

7 Kalil at 979.

8 Robson v Wax Works (Pty) Limited & Others 2001 (3) SA 111 CPD.

9 Robson (supra) at 1132.