Msizi and Another v Watt Energy (RF) (Pty) Limited and Another; In re: Cennergi (Pty) Limited and Another v Watt Energy (RF) (Pty) Limited (1036/2015) [2015] ZAECGHC 94 (22 September 2015)

NOT REPORTABLE

IN THE HIGH COURT OF SOUTH AFRICA

(EASTERN CAPE, GRAHAMSTOWN)

Case no: 1036/2015

Date heard: 10 September 2015

Date delivered: 22 September 2015

In the matter between

NOMTHANDAZO FLORENCE MSIZI

First Applicant

LITHA LENIN MSIZI

Second Applicant

and

WATT ENERGY (RF) (PTY) LIMITED

(Registration Number: 2008/013176/07)

First Respondent

MARK SCHEEPERS

Second Respondent

CENNERGI (PTY) LIMITED

First Applicant

TSITSIKAMA COMMUNITY WIND FARM

(RF) (PTY) LIMITED

Second Applicant

WATT ENERGY (RF) (PTY) LIMITED

Respondent

MARK SCHEEPERS

Intervening Party

JUDGMENT

PICKERING J:

[1] On 19 August 2014, Nomthandazo Florence Msizi (“Msizi”)and her son, Litha Lenin Msizi (“LL Msizi”) launched an application as first and second applicants respectively for the final winding up of Watt Energy (RF)(Pty) Limited (“Watt Energy”) in the Eastern Cape Local Division, Port Elizabeth, under case number 2710/14, citing one Mark Scheepers (“Scheepers”) as second respondent.

[2] The basis on which the application was brought is that the relationship between Msizi and Scheepers in their capacities as shareholders and directors of Watt Energy has deteriorated to such an extent that Watt Energy cannot function effectively and that in the premises it is just and equitable that it be wound up either in terms of section 344(h) of the Companies Act no 61 of 1973 or in terms of section 81(1)(c)(ii) and/or 81(1)(e) of the Companies Act no 71 of 2008. The relief sought in terms of s 81(1)(e) was not proceeded with.

[3] On 18 November 2014, Cennergi (Pty) Limited (“Cennergi”) and Tsitsikama Community Wind Farm (RF)(Pty) Limited (“TCWF”) as first and second applicants respectively launched a separate application for the winding up of Watt Energy on the basis that Watt Energy is factually insolvent, is unable to pay its debts and that it is just and equitable that it be wound up as contemplated in s 344(h) of the Companies Act no 61 of 1973, alternatively, and that in the event that Watt Energy be held to be solvent, that it is just and equitable that it be wound up in terms of s 81(1)(c)(ii) of the Companies Act 71 of 2008 (the “new Companies Act”).

[4] Thereafter Scheepers, the second respondent in case no 2710/14, sought leave to intervene as a respondent in the Cennergi application. A further application brought by Petrus and Paula Taskinen to intervene as respondents in both matters was dismissed by Plasket J on 13 March 2015. The Cennergi and Msizi applications were both transferred to this Court and consolidated under case no

1036/2015 which had the effect of rendering redundant the application by Scheepers to intervene in the Cennergi matter.

[5] Watt Energy was founded in April 2008 by Msizi’s late husband, Mr. Michael Msizi and Scheepers. They were business partners and, says Scheepers, also friends, and up until Mr. Msizi’s death on 4 October 2012 they were the only two shareholders and directors in Watt Energy.

[6] Mr. Msizi died intestate. According to Msizi she inherited his shares and became a director of Watt Energy on 18 October 2012. The share register in respect of Watt Energy reflects that Msizi holds 73 shares (61%); her son L.L. Msizi, 11 shares (9%) and Scheepers, 34 shares (30%). The validity of the basis upon which Msizi and her son purported to hold their shares in Watt Energy was disputed by Scheepers in his opposing affidavit. He alleged, inter alia, that the shares had been registered into their names without compliance with the provisions of s 35(12) of the Administration of Estates Act 66 of 1965. It is convenient to mention at this stage that although Mr. Scott S.C., who appeared with Mr. Williams for Scheepers, commenced somewhat faintly to argue the merits of this issue he then correctly abandoned any reliance thereon, as indeed he was obliged to do in the light of the incontrovertible evidence of the share certificates and the share register reflecting the Msizis’ as shareholders. Nevertheless, as will appear hereunder, the dispute in this regard has relevance to the issue concerning the alleged breakdown of the relationship between Msizi and Scheepers.

[7] Watt Energy functions in the renewable energy sector. It is a special purpose vehicle established to develop a renewable energy project in the Eastern Cape. It is a ring-fenced entity restricted as contemplated in s 15(2)(b) of the Companies Act 71 of 2008 with its business being limited to the holding of shares and shareholder loans in TCWF and to activities ancillary thereto.

[8] TCWF is itself a ring-fenced company that was established to develop a wind farm in Tsitsikama. The shareholding in TCWF is held by Cennergi (75%), Watt Energy (16%) and by a third party company, Main Street 1066 (Pty) Ltd for the Tsitsikama Development Trust (9%).

[9] The wind farm project is a massive one, costing in excess of R2,8 billion. TCWF is funded in two ways: first, by way of a loan of approximately R263 million advanced by Nedbank in terms of a facility agreement concluded between TCWF and Nedbank and, secondly, by way of shareholder contributions in proportion to their shareholdings in terms of an equity contribution agreement concluded between TCWF, its shareholders and Nedbank.

[10] In order to enable Watt Energy to make its equity contributions to TCWF in terms of the equity contribution agreement, Cennergi provided Watt Energy with loan finance under the loan agreement. In terms thereof Cennergi would make the loan amount available by making payment of Watt Energy’s equity contribution directly to TCWF. For its part Watt Energy was obliged to furnish Cennergi with its signed and audited financial statements within sixty business days of its financial year end, such end being 30 June. Failure to do so would entitle Cennergi immediately to cancel the loan agreement. TCWF was also obliged to provide Watt Energy’s signed, audited financial statements to Nedbank in terms of the facility agreement.

[11] It will be convenient to deal firstly with the application by the Msizis for the winding up of Watt Energy on the basis that it is just and equitable to do so in terms of s 81(1)(d)(iii) of the new Companies Act on the assumption that it is solvent. Section 81(1)(d)(iii) provides as follows:

“(1) A court may order a solvent company to be wound up if-

(d) the company, one or more directors or one or more shareholders have applied to the court for an order to wind up the company on the grounds that-

(i) ...

(ii) ...

(iii) it is otherwise just and equitable for the company to be wound up.”

[12] It is common cause that Watt Energy did not timeously furnish Cennergi with the requisite financial statements for the financial year ending 30 June 2013. It is further common cause that, in consequence thereof, Cennergi purported to cancel the loan agreement and called upon Watt Energy to pay all amounts due, whether payable or not, in terms of the agreement. The validity of such cancellation is disputed by Scheepers in opposition to the Cennergi application. The issue is, however, also of relevance to the Msizi application insofar as Scheepers alleges that Msizi has not come to court with clean hands and I will deal with it to the extent necessary hereunder.

[13] At the commencement of the hearing I was handed a supplementary affidavit attested to by Scheepers together with affidavits in reply thereto by Cennergi’s Chief Executive Officer, Mr. Garner, and an attorney, Ms. Jonker, a director of Goldberg and De Villiers Inc., being the attorneys of record of the two applicants.

[14] In Scheepers’ affidavit certain averments were made in support of an allegation, with which I will deal hereunder, that Msizi was acting in collusion with Cennergi in seeking the winding up of Watt Energy. These allegations which inter alia, involved Mr. Bothma, who appeared for the applicants, were hotly refuted by him during the course of his address to the Court, and Mr. Scott did not seek to rely on them. It is accordingly not necessary to refer any further thereto.

[15] Msizi states that after her husband’s death her relationship with Scheepers, which had prior thereto been cordial and respectful, changed dramatically. According to her Scheepers became condescending and disparaging towards her. He told her that she knew nothing about business, that she should leave the running of Watt Energy to him, and that, in any case, she did not deserve anything as she had merely inherited her shares in Watt Energy.

[16] Msizi states that she found these attacks on her to be so stressful and disturbing that at one stage she considered abandoning her shares in Watt Energy and resigning as a director. Scheepers’ conduct towards her caused her such stress that during

November/December 2013 she was obliged to seek medical attention for her resultant high blood pressure and severe stress.

[17] She states that Scheepers frequently and repeatedly acted of his own accord and took actions without her knowledge or authority including the sending of emails without her knowledge or approval in his capacity as chief executive officer of Watt Energy to, inter alia, certain shareholders of Cennergi in which he levelled serious allegations against certain representatives and/or employees of Cennergi.

[18] She further accuses Scheepers of, by his conduct, having made himself and Watt Energy guilty of a corrupt act, the details of which are not necessary to repeat here, in consequence whereof she reported the conduct in terms of s 29 of the Financial Intelligence Centre Act no 38 of 2001 and in terms of s 34 of the Prevention and Combating of Corrupt Activities Act no 12 of 2004.

[19] She states further that by August 2013 she felt that she was being completely sidelined as a director and could no longer cope with Scheepers’ “overbearing attitude”. She accordingly approached her current attorneys of record, Goldberg and De Villiers Inc., to assist her. She states that from that time communications between herself and Scheepers have been mostly through their respective attorneys and that their relationship has deteriorated to such an extent that they cannot act together nor are they in a position to manage Watt Energy effectively. I will deal further with this issue hereunder.

[20] All of this culminated in Msizi convening a shareholders’ meeting of Watt Energy on 13 May 2014, the validity of which is disputed by Scheepers, at which she passed a resolution to remove him as one of Watt Energy’s nominated directors to the TCWF board.

[21] The allegations of misconduct are denied by Scheepers. He admits only that his relationship with Msizi was “somewhat strained” and “less than ideal.”

[22] He states that the first indication that Msizi had approached her attorneys to represent her was when his own attorneys, Rushmere and Noach Inc., received an email from Goldberg and De Villiers on 6 September 2013. Up until that date he and Msizi had been communicating with each other primarily via email and telephonically.

[23] He states further that since then Msizi has instructed Goldberg and De Villiers to attend to the management of Watt Energy which, he states, “has led to the untenable situation wherein (her) attorneys converse with me as well as my attorneys on issues which are not legally in dispute and which do not warrant legal representation” thus leading to their “somewhat strained relationship”. This degree of personal strain, so he states, should not, however, impact in any way on the management of Watt Energy, inasmuch as Watt Energy does not trade in the “traditional sense” and it is therefore not necessary for him and Msizi to operate or engage with each other as would partners in a trading sense. He avers further that insofar as it may be necessary for decisions to be taken at shareholder and board levels it is possible to do so in a “formal manner”.

[24] While he denies that he has been guilty of any corrupt conduct as alleged, it is apparent that he in turn made common cause with allegations of fraudulent misrepresentation levelled against Msizi in her capacity as executrix of her late husband’s estate by the aforementioned Taskinens in their capacities as intestate heirs to that estate. The dispute between the Taskinens and Msizi is, in my view, highly relevant to the dispute between Msizi and Scheepers as to the nature of their relationship and interaction with each other.

[25] As appears from the intervention application by the Taskinens and the judgment of Plasket J dismissing that application, the Taskinens are the son and daughter of Mr. Msizi, born of a relationship prior to his relationship with Msizi. They too are accordingly intestate heirs of Mr. Msizi. It is common cause that, during May 2013, Msizi and the Taskinens entered into an agreement styled a Child Share Purchase Agreement in terms of which each of the Taskinens sold their respective child’s share of deceased’s half of his and Msizi’s joint estate to Msizi.

[26] The basis for their application to intervene was that the Child Share Purchase Agreement was invalid for want of compliance with s 49(1) of the Administration of Estates Act 66 of 1965 and that they therefore remained intestate heirs and should have inherited shares in Watt Energy. Their application to intervene in this regard was supported by Scheepers.

[27] A letter written by Rushmere Noach on behalf of the Taskinens to the Master of the High Court, Port Elizabeth, on 17 September 2013, is relevant in this regard. In this letter the removal of Msizi as executrix is sought. The following was stated with regard to the above mentioned agreement:

“Our clients ... were unduly influenced to conclude the agreement by certain representations of the executrix and/or the agent which our clients view to be fraudulent misrepresentations.”

And:

“... to the extent that the Master were to find misconduct on the part of the executrix, such conduct will also attract criminal sanction ...”

[28] The letter concludes by stating that “our clients have appointed Mr. Mark Scheepers as their duly authorised agent.”

[29] Scheepers also made common cause with the Taskinens in their unsuccessful application to intervene in this application where the same serious allegations were levelled against Msizi, and he deposed to an affidavit on their behalf.

[30] It is further relevant that during April 2014 Msizi, acting in terms of s 2(1) of the Protection from Harassment Act 17 of 2011 filed an application for a protection order against Petrus Taskinen alleging that at a gathering on 29 March 2014 she was physically accosted by him and that he threatened her saying that “Mark (Scheepers) said you and Cennergi would rot in jail for the rest of your lives.” Whilst this is obviously hearsay concerning Scheepers it is an indication of the depth of ill feeling between Msizi and the Taskinens with whom Scheepers had made common cause.

[31] Scheepers states that he has no knowledge of this incident but denies that he was acting in concert with the Taskinens in order to pressurise Msizi.

[32] As stated above, Msizi instructed Goldberg and De Villiers to assist her in her dealings with Scheepers. Scheepers, in turn, instructed Rushmere Noach. Certain management issues relating to the retrenchment of employees as well as to the use of certain vehicles were discussed between the respective attorneys and are recorded in an email written by Ms. Jonker of Goldberg and De Villiers to Ms. Koorsse of Rushmere Noach on 16 January 2014. This email concludes on what Mr. Bothma correctly described as being an entirely conciliatory note stating that Msizi’s “wish for 2014 is to regularise all of the affairs of Watt Ops and Watt RF and further their relationship with your client. We trust that your client shares this view and will provide his cooperation in this regard.”

[33] This email was followed up by a further email sent by Ms. Jonker to Ms. Koorsse on 22 January 2014 requesting a reply to the previous email and adding that “our client has over the last couple of weeks enjoyed a far less strained relationship with your client which our client wishes to preserve and maintain.”

[34] On 29 January 2014, however, Ms. Jonker wrote again to Ms. Koorsse, stating, inter alia,:

“It is to our client’s dismay that simple matters regarding the operations of Watt Ops and Watt RF cannot be resolved via direct

communications between our respective clients and that all of these issues should be resolved via our respective offices and as such resulting in the incurrence of unnecessary legal costs... Our client urges your client in the spirit of good governance and not to strain our client’s relationship any further to simply engage with our client in an open and transparent manner ...”

[35] The hope of any reconciliation between Msizi and Scheepers was, however, quickly dashed. Ms. Koorsse replied to this email on 30 January in the following curt tones:

“From the outset, our failure to address each and every allegation raised in your letter and reply should not be construed as an

acknowledgement on our client’s part as to the correctness thereof and our client’s rights to deal more fully therewith at a later stage are reserved.

[36] The letter stated further that “your client’s contention ... is accordingly deprecated” and that “our client would similarly like to avoid the incurrence of unnecessary legal costs, however having regard to the attitude adopted by your client it would seem necessary.

[37] The war of words thereafter escalated with allegations being made by Rushmere Noach on behalf of Scheepers to the effect that Msizi was acting in breach of her fiduciary duties towards Watt Energy, coupled with a threat that Scheepers was contemplating bringing a derivative action in terms of s 165 of the new Companies Act to enable him to protect the interests of Watt Energy, as well as a threat that Scheepers would be obliged to seek her removal as a director.

[38] Ms. Jonker replied that Msizi saw this letter as a blatant attempt to intimidate her and stated that “your letter emphasises our client’s view that there is an irreparable breakdown in the relationship and trust” between her and Scheepers.

[39] Msizi states further that a simple act such as the calling of a directors’ meeting for Watt Energy also became a contentious

issue between the parties which led to correspondence being addressed to Scheeper’s attorneys on 18 March 2014, enclosing a draft round robin resolution whereby Watt Energy would authorise any of its directors to call a directors’ meeting on seven business days notice. This resolution was eventually only signed by Scheepers on 9 May 2014. Scheepers, in response to these allegations, refers to a meeting of the board of TCWF on 18 March 2014 at which, so he states, Msizi aligned herself with Cennergi in accusing him of a corrupt act. He states that he became “weary” of Msizi and her motives and it was for this reason that the resolution was not signed at that time.

[40] Msizi avers that even the requisite appointment of a new auditor, following upon the resignation of the previous auditor, was

“something which has to be managed through our respective attorneys.” This is denied by Scheepers who avers that Msizi has largely abrogated her role and responsibility as a director to her attorneys. He states further, in any event, that, far from being obstructionist, he required more time to consider that issue.

[41] Msizi states that the issue which was, in her view, the final straw, arose at a directors’ meeting held on 6 August 2014, called at the instance of Scheepers. The notice and agenda of the meeting set out a number of proposed resolutions concerning the validity of the cancellation of the loan agreement by Cennergi and proposed, in particular, that Watt Energy dispute the cancellation thereof and take steps to protect its interests including the institution of legal proceedings. The circumstances surrounding the meeting are disputed but it is not in dispute that Msizi proceeded to vote against the proposed resolutions, thereafter launched the present application and, eventually, supported Cennergi’s application for the winding-up of Watt Energy.

[42] Mr. Bothma submitted that Watt Energy is, in substance, a partnership, in the form of a private company and that accordingly

circumstances which would justify the dissolution of the partnership would also justify the winding-up of the company under the just and equitable provision. See Apco Africa (Pty) Ltd and Another vs Apco World Wide Inc [2008] ZASCA 64; 2008 (5) SA 615 (SCA) at 624G paragraph 18; Thunder Cats Investments 92 (Pty) Ltd and Another v Nkonjane Economic Prospecting & Investment (Pty) Ltd and Others 2014 (5) SA 1 (SCA). In Ebrahimi v Westbourne Galleries Ltd [1973], AC 360 (HL) it was stated at 379G that the words “’just and equitable’ are a recognition of the fact that a limited company is more than a mere judicial entity, with a personality in law of its own: that there is room in company law for recognition of the fact that behind it, or amongst it, there are individuals, with rights, expectations and obligations inter se which are not necessarily submerged in the company structure.”

[43] This is very different from the type of company in respect of which Baron Thurlow, in the 1700’s, asked why one ever expected it to have a conscience when it had no body to be kicked and no soul to be damned.

[44] In Apco Africa supra Ponnan JA referred at 625C – D to the so-called “deadlock principle” that guides a Court in exercising its discretion to wind up a domestic company which is in the nature of a partnership. The learned Judge stated as follows at para 19:

“The second, usually called the deadlock principle, is derived from the Yenidje Tobacco Company case. It is founded on the analogy of partnership and is strictly confined to those small domestic companies in which, because of some arrangement, express, tacit or implied, there exists between the members in regard to the company’s affairs a particular personal relationship of confidence and trust similar to that existing between partners in regard to the partnership business. If by conduct which is either wrongful or not as contemplated by the arrangement, one or more of the members destroys that relationship, the other member or members are entitled to claim that it is just and equitable that the company should be wound up.”

[45] At para 30, page 629C – D Ponnan JA stated further as follows:

“It suffices, on the analogy of partnership law, to state that the company is now in a state which could not have been contemplated by the parties when it was formed and that it ought to be terminated as soon as possible. It is, after all, contrary to the good faith and essence of the agreement between the parties that the state of things encountered here should be allowed to continue.”

[46] The learned Judge referred further with approval to In Re Yenidje Tobacco Co. Ltd [1916] 2 Ch 426 (CA) where reference was made to the following extract from a book on Partnership by Lord Lindley:

“Refusal to meet on matters of business, continued quarrelling, and such a state of animosity as precludes all reasonable hope of reconciliation and friendly cooperation have been held sufficient to justify a dissolution. It is not necessary, in order to induce the court to interfere, to show personal rudeness on the part of one partner or the other, or even any gross misconduct as a partner. All that is necessary is to satisfy the court that it is impossible for the partners to place that confidence in each other which each has a right to expect, and that such impossibility has not been caused by the person seeking to take advantage of it.”

[47] Mr. Bothma submitted that the affairs of Watt Energy fell squarely within the ambit of the above authorities. Mr. Scott conceded, with a considerable degree of understatement, that there could be no disputing that the relationship between Msizi and Scheepers was “not harmonious”. But, he said, that mattered little in the greater scheme of things, having regard to the fact that Watt Energy is not in substance a partnership, is not engaged in trade and does not otherwise carry on a business, given its function as a ring-fenced company holding shares in Cennergi. There was therefore, so he submitted, no need for Msizi and Scheepers to engage on a day to day basis as would directors operating in the manner of partners in a company carrying on business and it was not necessary that they have a cordial relationship. He submitted that the “highwater mark” of any requisite collaboration between them was the submission of Watt Energy’s annual financial statements to Cennergi.

[48] Furthermore, Msizi is the majority shareholder and, by virtue of the provisions of the Memorandum of Incorporation, holds the majority vote at meetings of the board. Accordingly, so Mr. Scott submitted, the directors cannot be deadlocked in voting powers.

[49] In my view, however, these submissions cannot be sustained. As was stressed by Ponnan JA in Apco Africa, supra, at para 21, actual deadlock is not an essential to the dissolution of a partnership and that “all that is necessary is to satisfy a court that it is impossible for the partners to place that confidence in each other which each has a right to expect and that such impossibility has not been caused by the persons seeking to take advantage of it...”

[50] As set out above Watt Energy is obliged to provide a set of its audited financial statements to Cennergi within sixty business days of its financial year end, namely 30 June. It is common cause that the audited financial statements for the financial year ending 30 June 2013 were only finally approved and signed on 10 June 2014 and a copy thereof provided to Cennergi on 13 June 2014.

[51] Whereas Msizi lays the blame for this at the door of Scheepers he in turn accuses her of having failed to meet with him in order to discuss the draft financial statements and avers that it was only on 10 March 2014 that Msizi, through her attorney, requested a copy of the draft which, he says, had already been furnished to her in January.

[52] It is not necessary to resolve the dispute as to who was to blame for this state of affairs. Whatever the position may be, Msizi’s status as the majority shareholder was of no avail in this regard. The fact is that despite her being the majority shareholder the “disharmony” between her and Scheepers resulted in Watt Energy failing to perform what is probably the most crucial obligation resting upon it and thereby committing a material breach of the terms of the loan agreement which in turn resulted in Cennergi cancelling that agreement, albeit that Scheepers contests the lawfulness thereof. This entirely contradicts the averment by Scheepers that despite their differences he and Msizi are able to take decisions at shareholder and board levels.

[53] Furthermore, it is common cause that Msizi and Scheepers have been unable to agree on instructing the auditors to finalise the audited financial statements for the year ending June 2014 and that Watt Energy’s accountant withdrew his services at the end of 2014 citing the conflict between them.

[54] Having regard to the above situation, it is clear, in my view, that the relationship between Msizi and Scheepers has indeed irreparably broken down and that the management of the company is dysfunctional. Anyone reading the correspondence set out above without the benefit of the background facts would be forgiven for thinking that it related to a dispute between two prospective litigants rather than discussions between directors and shareholders in the same company as to the management of its affairs. Msizi and Scheepers are clearly at loggerheads and allegations and counter-allegations of impropriety, corruption and criminality abound. Of that there can be no dispute. Compare in this regard: Knipe and Others v Kameelhoek (Pty) Ltd and Another 2014 (1) SA 52 (FB) at para 34.

[55] But, submitted Mr. Scott, the blame for this dysfunctional state of affairs must be laid at the door of Msizi. It was she, he submitted, who resorted to the expedient of addressing Scheepers through the medium of her attorneys, thereby creating the admittedly “untenable situation” referred to by Scheepers. In my view, however, the matter is not as clear cut as Mr. Scott would have it. What also emerges from the papers as a whole is that Msizi’s disputed position as majority shareholder remains an aggravation for Scheepers because, had the Taskinens inherited shares in Watt Energy, which they and Scheepers claim they should have, the balance of power in Watt Energy would have been dramatically different to what it is at present. In my view, in the light of this the probabilities are that Scheepers does resent Msizi’s role in the company as alleged by her.

[56] In my view in all the circumstances it is not possible to apportion the greater, much less the sole, blame to Msizi and it cannot be said that she alone was the author of the impossible situation which has arisen in the company.

[57] Mr. Scott then submitted that Msizi had not came to court with clean hands inasmuch as she was colluding with Cennergi to bring about the liquidation of Watt Energy to the prejudice of Scheepers. He submitted that for reasons on which one could only speculate Cennergi concluded that it would be desirable to liquidate Watt Energy and, to this end, “contrived” to cancel the loan agreement, thereby making the loan amount repayable whereas it was never within the contemplation of the parties that the loan would be repayable at this stage of the project.

[58] In my view there is no merit in the submission that Cennergi “contrived” to cancel the loan agreement. That cancellation followed upon the failure by Watt Energy to comply with its obligation to furnish its financial statements to Cennergi timeously. There is no suggestion in the papers that Msizi deliberately engineered the late finalisation of the financial statements in order to afford Cennergi the opportunity to cancel the agreement. This is a very different issue from the issue as to whether the agreement was, in the end, validly cancelled or not.

[59] Mr. Scott submitted, however, that it was relevant in this regard that Msizi had refused to contest the lawfulness of the cancellation

by Cennergi of the loan agreement. This, he submitted, was indicative of the fact that she was acting in collusion with Cennergi

to bring about the liquidation of Watt Energy to the prejudice of Scheepers. He referred also to the fact that on 26 May 2014 Cennergi instituted action against Scheepers in respect of his guarantee provided on behalf of Watt Energy. It was passing

strange, he submitted, that Cennergi chose not to also institute action against the Msizis who, like Scheepers, had also signed

guarantees in favour of Watt Energy. He submitted in all the circumstances that Msizi and Cennergi had clearly adopted a strategy to drive Scheepers out of the project.

[60] In my view, however, this submission cannot be sustained. Scheepers’ case that Msizi was colluding with Cennergi is, of necessity, in the absence of any direct evidence in this regard, founded on inference. The fact that Msizi refused to dispute the validity of the cancellation of the loan agreement does not, in my view, give rise to an inference that she was thereby colluding with Cennergi. There is no evidence suggesting that her opinion concerning the validity of the cancellation was anything but bona fide held by her. Furthermore, as will appear hereunder when I deal with the Cennergi application, that opinion was, in my view, correct. There is no evidence of any improper motive on her part or that she is using this application for the illegitimate purpose of ejecting Scheepers from the company. Compare Brummer v Gorfil Brothers Investments (Pty) Ltd en Andere 1999 (3) SA 389 (SCA); South African Post Office v De Lacy and Another 2009 (5) SA 255 (SCA).

[61] Msizi can also not answer for the decision by Cennergi to institute action only against Scheepers. There is no evidence pointing to any involvement by her in that decision.

[62] Mr. Scott submitted further that it would be entirely inequitable to liquidate Watt Energy thereby triggering a sale of its shareholding in TCWF at a substantially discounted value to the remaining shareholders. As against this, however, is that the degree of dysfunctionality of Watt Energy’s management is such as to cause the matrix of project-sensitive agreements to be put at risk.

[63] In all the circumstances I am of the view that it is just and equitable to liquidate Watt Energy.

[64] I turn then to consider the Cennergi application which is brought on the basis that Watt Energy is currently factually insolvent and unable to meet its liabilities to TCWF and Cennergi. The application is not opposed by the majority shareholders who, in fact, support it.

[65] As set out above it is common cause that Watt Energy defaulted on the terms of the loan agreement by failing timeously to provide Cennergi with its signed audited financial statements for the year ending 30 June 2013, in consequence whereof Cennergi purported to cancel the loan agreement and demanded accelerated payment on 6 May 2014 of the amount of R19 469 862,69 on the due date, such date being 10 May 2014.

[66] Scheepers disputes that the loan agreement was validly cancelled and avers that in the light of the invalid cancellation Cennergi cannot claim an acceleration of any amounts advanced under the agreement.

[67] It is necessary first to deal with the issue concerning the institution of action by Cennergi against Scheepers on 26 May 2014 in respect of his guarantee on behalf of Watt Energy. Upon receipt of Scheepers’ notice of intention to defend this action Cennergi applied for summary judgment. Scheepers thereupon filed a lengthy affidavit on 10 July 2014 in which the defence disclosed therein is, as is the case in the present application, that the loan agreement was not validly cancelled and that accordingly the monies lent and advanced by Cennergi to Watt Energy are not due and payable.

[68] Cennergi thereafter consented to an order refusing summary judgment and granting Scheepers leave to defend the action.

[69] Mr. Scott submitted, with reference to authority, that an application for liquidation should not be resorted to in order to enforce a claim which is bona fide disputed on reasonable or substantial grounds. In the present matter, so he submitted, Cennergi, by agreeing to an order granting Scheepers leave to defend its action, was clearly of the view that his affidavit in opposition to the summary judgment application disclosed a bona fide defence. In these circumstances, he submitted, it hardly now lay in Cennergi’s mouth to aver that Scheepers’

opposition to the present application was not bona fide and based on reasonable grounds.

[70] In my view, however, this submission overlooks the nature of summary judgment applications, including the fact that an applicant for summary judgment is precluded from filing any affidavit in response to an opposing affidavit. In the present matter, the dispute as to the cancellation of the loan agreement has been exhaustively examined in the course of the various proceedings giving rise to what could justifiably be termed a paper war between the various parties. Very different considerations to those pertinent to the summary judgment application now apply.

[71] Mr. Scott stressed further, however, that, because of issue estoppel, any determination of this issue in the present application would impact on the outcome of Cennergi’s action against Scheepers, the trial of which is set down for hearing on 26 November 2015. He submitted that in the event of my conclusion being adverse to Scheepers, this would be highly prejudicial to him.

[72] When I raised the question of possible prejudice with Mr. Stais S.C., who appeared for applicant, he informed me, after taking instructions, that, in the event of the present application succeeding, Cennergi would not take the point of issue estoppel at the trial involving Scheepers. There can therefore be no prejudice to Scheepers.

[73] I turn then to consider whether or not Scheepers’ disputation of the validity of the cancellation of the loan agreement is bona fide and based on reasonable or substantial grounds.

[74] Clause 16.1.20 of the loan agreement provides that an Event of Default shall occur if, inter alia, Watt Energy fails to provide Cennergi with copies of its audited financial statements within sixty business days of the end of the financial year.

[75] Clause 16.2 thereof provides as follows:

“16.2 Upon the happening of an Event of Default, the Lender shall, in addition to and without prejudice to any other rights the Lender may have in terms of this Agreement or in law, including, but not limited to, its rights to claim damages and/or seek specific performance from the Borrower, as the case may be, have the right without further notice to:

16.2.1 immediately cancel this Agreement; and

16.2.2 call upon the Borrower in writing (“Written Call”) to pay all amounts due, whether payable or not, by the Borrower to the Lender under and in terms of this Agreement within 3 Business Days of the date of the Written Call (“Due Date”), it being agreed that the Written Call shall set out:

16.2.2.1 the Event of Default in question;

16.2.2.2 the outstanding balance of the Capital Sum as at the Due Date;

16.2.2.3 any and all other amounts, if any, outstanding in terms of this Agreement, including interest, penalties, breakage costs and the like, it being agreed that for purposes of this clause 16.2, in order to avoid any doubt, the due date for the payment of the amounts contemplated in this clause 16.2 shall be the Due Date.”

[76] Acting in terms of 16.2.2 of the loan agreement Cennergi addressed a letter to Watt Energy on 6 May 2014 advising it that Watt Energy’s failure timeously to provide it with the 2013 annual financial statement constituted an event of default; that the loan agreement was accordingly cancelled; and, calling upon Watt Energy to pay the amount of R19 469 862,69 on the “due date”, such date being three business days from the date of the letter, namely 10 May 2014.

[77] It is common cause that Watt Energy has not paid and cannot pay such amount.

[78] Mr. Scott submitted that the said amount was never intended to be due at this stage of the project and that it only became due on Cennergi’s version because the indebtedness of Watt Energy to Cennergi had been carefully orchestrated or contrived in order to afford it the opportunity to purport to cancel the loan agreement, despite Cennergi having other remedies available to it and despite the fact that the liquidation of Watt Energy would trigger a forced sale of its shareholding in TCWF at a substantially discounted value to the shareholders.

[79] As stated above there is, however, quite simply no evidence to support the allegation that Cennergi had somehow contrived to bring about the liquidation of Watt Energy.

[80] In support of the averment that the loan agreement was not validly cancelled Mr. Scott submitted further that Cennergi had condoned the aforesaid breach. In this regard he referred to the minutes of a board meeting of TCWF on 18 March 2014 where the following was recorded:

“The chairman pointed out to Mr. Scheepers and Mrs. Msizi that from a TCWF point of view that such omission [to furnish the financial statements] constituted a breach of the loan agreements and requested that they ensure that this did not happen again.” (My emphasis)

[81] It is common cause that the chairman referred to in the aforementioned

minute was Garner, who is also the Chief Executive Officer of Cennergi. In these circumstances, so Mr. Scott submitted, it was clear that Cennergi had condoned the non-compliance by Watt Energy with the terms of the loan agreement.

[82] The short answer to this contention is that Garner was clearly acting in his capacity as chairman of TCWF and not in his capacity as Chief Executive Officer of Cennergi. He stated pertinently that he was addressing the matter from the viewpoint of TCWF. This statement can therefore not be construed as being a waiver by Cennergi of its rights under the loan agreements.

[83] Mr. Scott referred further to clause 15.4 of the Equity Contribution Agreement which provides, inter alia, that no Event of Default shall be declared nor shall any funding under the Cennergi debt agreements be declared due and payable nor accelerated nor shall any of the rights under any Security Interest be enforced, realised or exercised, without the prior written consent of the Facility Agent, namely Nedbank.

[84] The relevant letter of consent furnished by Nedbank to Cennergi on 30 April, 2014, states, inter alia, as follows:

“4. We confirm that we, in our capacity as Facility Agent (acting on behalf of the Lenders), hereby consent in respect of the following:

4.1 the failure by Watt to deliver copies of the audited financial statements within sixty Business Days of its financial year, be declared by written notice by Cennergi (in its capacity as Lender to Watt in its capacity as borrower), as an event of default under the Loan Agreement and be placed on demand and any and all amounts outstanding in terms of the Loan Agreement, including interests, penalties and breakage costs, be accelerated and become due and payable.”

[85] Paragraph 5 of the said letter of consent provides as follows:

“We further advise that Cennergi may not take any other actions Including any enforcement or acceleration or otherwise, under the Cennergi debt agreements without the Facility Agent’s prior written consent.”

[86] Mr. Scott submitted that it was evident from the consent letter that Nedbank did not consent to Cennergi cancelling the loan agreement and that paragraph 5 of the letter in fact expressly forbade Cennergi from taking any other action which, so he submitted, would include cancellation of the loan agreement.

[87] He submitted further, correctly, that the rights granted to Cennergi under clause 16.2 of the loan agreement upon an Event of Default are cumulative and cannot be exercised separately from each other. In order to accelerate payment therefore, Cennergi was obliged to cancel the loan agreement. Without the requisite consent to cancel, however, Cennergi could not claim any acceleration of any amounts advanced under the agreement. The cancellation of the loan agreement was therefore invalid.

[88] In my view this submission bears the seeds of its own destruction. If, as Mr. Scott correctly submitted, the rights in clause 16.2 are cumulative, then it must follow that Nedbank, by consenting to the acceleration of all amounts outstanding in terms of the loan agreement, has impliedly consented to the cancellation of that agreement without which cancellation there can be no acceleration of payment. Any other interpretation of paragraph 4 would, in my view, be to render the consent granted in paragraph 4 of the consent letter meaningless. As was submitted by Mr. Stais, paragraph 5 of the letter is obviously intended to refer to any other action in terms of the several other agreements as defined in the Equity Contribution Agreement and not to the loan agreement.

[89] In my view therefore, the above submissions cannot be upheld and it is clear that the loan agreement was validly cancelled.

[90] Apart from the above it is clear, in my view, from the audited financial statements for the year ended 30 June 2013 that Watt Energy is indebted to Cennergi as set out therein and that such amount is due and payable. The financial statement is signed by both Scheepers and Msizi. Under the heading “Report of the Directors for the year ended 30 June 2013” the following appears:

“REPORTABLE IRREGULARITY

The company was in breach of its Memorandum of Incorporation which requires the company to issue its audited financial statements within sixty business days of its financial year end.

Upon approval of these financial statements by the Directors this breach would have been purged not withstanding which the call of the Cennergi Loan (as referred to in the paragraph headed ‘Events subsequent to the accounting date’) remaining.”

[91] Under the heading “EVENTS SUBSEQUENT TO THE ACCOUNTING DATE” the following appears:

“On the 6th May 2014, Cennergi has served a Written Call option in terms of clause 16.2.2 on the Loan Agreement. The Written Call option

was instituted in terms of clause 10 of the Loan Agreement which provides that the Borrower (Watt Energy) shall be obliged whilst any payment to the Lender in terms of this agreement remain outstanding, to furnish the Lender with signed copies of the audited financial statements of the Borrower within sixty business days from the end of its financial year.”

[89] Under the heading of “Notes to the Financial Statements at 30 June 2013 the following appears:

“15 EVENTS AFTER REPORTING PERIOD

On 6th May 2014 Cennergi served a Written Call option in terms of clause 16.2.2 of the Loan Agreement against Watt Energy. The Written

Call option was instituted in terms of clause 10 of the Loan Agreement which provides that the Borrower (Watt Energy) shall be

obliged whilst any payment to the Lender in terms of this Agreement remain outstanding, to furnish the Lender with signed copies of the audited financial statements of the Borrower within sixty business days from the end of the financial year.

In terms of paragraph 8 of the Written Call option, the Borrower is called upon to pay the amount of R19 469 862,69 on the Due Date, which Due Date is 3 (three) business days after the Call notice.”

As appears from the Written Call Notice the due date was 6 May 2014.

[92] Furthermore, as appears from Note 8 to the financial statements a secured short-term loan from Cennergi in the amount of R12 308 006,00

“has been called up in terms of clause 16.2.2 of the loan agreement.” Watt Energy is also indebted to Cennergi in the amount of R1 350 016,00 in respect of unsecured loans.

[93] Scheepers admits that Watt Energy is indebted to Cennergi but states that he does not admit the amount which is claimed as being due and payable. Nowhere does he state what he alleges the amount of such indebtedness may be. By personally signing the financial statements, however, Scheepers thereby confirmed that the amounts referred to therein were due and payable on the said due date to Cennergi. His explanation that the reference to the loan agreement being called up is merely a “de facto recordal” and that his signature was no more than an acknowledgment of that fact cannot, in the circumstances, be accepted.

[94] In my view therefore the defence raised by him as to the validity of the cancellation of the loan agreement and his consequent denial that any amount was accordingly due and payable falls to be rejected. I am satisfied that the grounds upon which he disputes that the debt is due and payable are neither bona fide nor reasonable. It is clear that Watt Energy which has no sources of income, cannot meet its liabilities and that it is factually insolvent. In consequence thereof it is appropriate that it be wound up and Cennergi’s application must also

succeed.

[95] I should add that Cennergi also submitted that because of the dysfunctionality of Watt Energy’s management it was just and equitable that it be wound up in terms of s 344(h) of the old Companies Act. For the same reasons set out above with regard to the Msizi application the application should succeed on this basis as well.

[96] Both Mr. Stais and Mr. Bothma submitted that in view of the admitted fact that Watt Energy has no other creditors and the fact that the issues have been exhaustively ventilated and the prerequisites for a final order established no purpose would be served in issuing a provisional winding up order. I agree. It remains only to deal with the questions of costs.

[97] It is appropriate in my view that Scheepers should be ordered to pay such costs as were occasioned by his opposition to both the Msizi and Cennergi applications, excluding the costs of 4 December 2014 and 13 March 2015 which costs were reserved for later decision. The matters were postponed on 4 December 2014 because of the non-joinder of Scheepers. The applications were postponed again on 13 March 2015 when the Taskinens sought leave to appeal against the dismissal of their application to intervene. In these circumstances it seems to me that it would be fair and appropriate that the costs occasioned by the respective postponements should be costs in the cause.

[98] This matter was transferred to this Court for reasons of convenience. The Master of the High Court, Port Elizabeth, is

however, the Master having jurisdiction in the matter.

[99] The following order will issue:

1. Watt Energy (RF) (Pty) Ltd is placed under final winding-up in the hands of the Master of the Eastern Cape Local Division, Port Elizabeth.

2. The second respondent and intervening party, Mr. Mark Scheepers, is ordered to pay such costs as were occasioned by his opposition to both the Msizi and the Cennergi applications.

3. The remaining costs, including those previously reserved for decision, shall be costs in the liquidation of Watt Energy (RF) (Pty) Ltd.

__________________

J.D. PICKERING

JUDG OF THE HIGH COURT

Appearing on behalf of the Applicants in the Msizi applicaiton: Mr. Bothma

Instructed by: Goldberg & De Villiers Inc, Ms. Jonker c/o Netteltons Attorneys, Ms. Pienaar

Appearing on behalf of Applicants in the Cennergi application: Adv. Stais S.C.

Instructed by: Netteltons Attorneys, Ms. Pienaar

Appearing on behalf of the Respondent in both applications: Mr. Scott S.C., with him Mr. Williams

Instructed by: Lawrence Masiza Vorster Inc. c/o Neville Borman & Botha