Siyakhula Sonke Empowerment Corporation (Pty) Ltd v Prins and Others (UM 146/2020) [2021] ZANWHC 56 (26 February 2021)

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

NORTH WEST PROVINCIAL DIVISION, MAHIKENG

Reportable: YES / NO

Circulate to Judges: YES / NO

Circulate to Magistrates: YES / NO

Circulate to Regional Magistrates: YES / NO

CASE NO: UM 146/2020

In the matter between:

SIYAKHULA

SONKE EMPOWERMENT

Applicant

CORPORATION (PTY) LTD

And

SARAHNI

PRINS

1st Respondent

GOOD PROGNOSIS CENTRAL (PTY) LTD

2nd Respondent

COMPANIES

AND INTELLECTUAL PROPERTY

3rd Respondent

COMMISSION

JUDGMENT

DJAJE J

Introduction

[1] This application was originally brought as an urgent one but due to the lateness of the answering papers by the first and second respondents, the parties agreed that the matter be removed from the urgent roll of 1 September 2020. The matter was removed and costs to be costs in the application. It is only the first and second respondents who opposed the application and where reference to the respondents in this judgment is made, it is to those who opposed the application.

Background

[2] The applicant holds 30% shares in the second respondent whereas the first respondent holds 70% shares. The applicant had acquired shares in the second respondent on 6 April 2017 in a contract concluded with the first respondent on 7 April 2017. The first respondent served the applicant with a notice of termination of the contract on 22 June 2020 based on the alleged failure by the applicant to conclude a service level agreement with the second respondent. This was as envisaged in clause 8.5 of the contract. At a shareholders meeting on 14 July 2020 the first respondent used her 70% voting power to remove the applicant’s nominated director of the second respondent. This was done on the premise that the contract was terminated. It was as a result of the first respondent’s conduct that the applicant launched this application for the following orders:

“1. That condonation be granted to the Applicant for non-compliance with the forms and service and time periods provided for in the Uniform Rules of Court and that same be dispensed with, and that this application be heard and finalised as an urgent application, alternatively a semi-urgent application, as contemplated in Uniform Rule 6(12)(a) read with this Court's Practice Directives;

2. An order declaring:

2.1 That the First Respondent's notice of termination of the Sale of Shares

Agreement dated 07 April 2017 (the contract') between the Applicant and the First and Second Respondents, is invalid and of no force or effect;

2.2 That the resolution by the First Respondent on 14 July 2020 to remove Mr Frederick Sam Arendse as a director of the Second Respondent, is in breach of the contract between the parties, invalid and of no force or effect;

3 In the alternative to prayer 2.2 above an order reviewing and setting aside the First Respondents resolution on 14 July 2020 to remove Mr Frederick Sam Arendse as a director of the Second Respondent.

4 That Mr Frederick Sam Arendse forthwith be reinstated as a director of the Second Respondent and that the Third Respondent be directed to amend its records to reflect such reinstatement and appointment Page

13 5. An order for specific performance of the following terms of the contract:

5. An order for specific performance of the following terms of the contract:

5.1 Directing that the First Respondent forthwith provide the Applicant's nominated director, Mr Frederick Sam Arendse, with access to all bank accounts of the Second Respondent, as provided in clause 8.10;

5.2 Directing that the Second Respondent be incorporated as part of the Applicant's group of companies (the SSC Group of Companies), and that the Second Respondent be subject to the same governance and organisational structures as that of the SSC Group of Companies, as provided in clause 8.15 of the contract;

5.3 Directing that 21% of the First Respondent's shareholding in the Second Respondent be sold to the Applicant at fair value as provided in clause 6.1 of the contract, such fair value to be determined in accordance with prayers 5.4 to 5.7 below, alternatively to be determined at such further court proceedings as may be instituted by the Applicant;

5.4 That the First Respondent provide a full account to the Applicant in respect of a current and fair valuation of her 21% shareholding in the Second Respondent, supported by all relevant documents, financial records, and vouchers, and including (but not limited to) the financial records listed below, within ten (10) days from the date of this Court's order, alternatively such time period as determined by this Court:

5.4.1 External audited annual financial statements in respect of the Second Respondent for the last five financial years, i.e. for the financial periods ending on 29 February 2016, 28 February 2017, 28 February 2018, 28 February 2019, and 29 February 2020.

5.5 That the parties debate the First Respondent's aforesaid valuation within seven (7) days, alternatively such time period as may be determined by this Court;

5.6 In the event that the parties agree as to the correctness of the aforesaid valuation, that the Applicant make payment of the amount equal to the value of the First Respondent's 21% shareholding in the Second Respondent within seven (7) days from the date of such agreement, into the First Respondent's bank account;

57 Should a dispute exist as to the correctness of the First Respondents aforesaid valuation, that the Applicant be authorised to approach this Court on the same papers, duly supplemented, for the determination of the fair value of the First Respondents 21% shareholding in the Second Respondent.

6. In the alternative to prayers 2 to 5.7 above, an order with immediate effect:

6.1 Restraining and interdicting the First and Second Respondents from dissipating disposing encumbering and/or alienating any of the Second Respondents assets save in the normal course of business, and

6.2 Reinstating Mr Frederick Sam Arendse as director of the Second Respondent, and directing the Third Respondent to amend its records accordingly; pending the adjudication and outcome of proceedings for final relief, such proceedings to be instituted by the Applicant within thirty (30) days from the date of this Court's order;

7. That leave be granted to the Applicant to approach this Court on the same papers (duly supplemented) on an extremely urgent basis for an order with immediate effect as contemplated in prayer 6 above, pending the outcome of this application, in the event that the First and Second Respondents intend and/or proceed to dissipate, dispose,

encumber, and/or alienate any of the Second Respondent's assets, save in the normal course of business;

8. That the First Respondent pay the costs of this application on the scale applicable between attorney and own client.”

Main application

[3] The first issue raised by the applicant is that the contract was not validly cancelled by the first respondent on 22 June 2020. According to the applicant the first respondent was not entitled to cancel the contract based on the alleged non-compliance with the provisions of clause 8.5 of the contract.

[4] It was argued that the interpretation of the said clause is that the said clause constitutes an agreement to negotiate with a view to conclude a further agreement. The applicant’s case is that in clause 8.5 the parties agreed to negotiate a service level agreement to specify the role of the applicant’s director, the management input by the applicant to the second respondent and the fee for such management. As a result none of the above terms were agreed to in the sale of shares contract.

[5] Another submission by the applicant was that clause 8.5 is unenforceable and vague and as such the applicant cannot be in breach of an unenforceable clause. The reasons given by the applicant for unenforceability of the clause were that the clause is an agreement between the parties to negotiate in future for a further agreement with uncertain terms, that the parties could agree or not and further that there was no deadlock breaking mechanism in the contract if parties did not agree. The applicant on the other hand also submitted that even if the clause was found to be enforceable, the first respondent failed to negotiate in good faith and the non-conclusion of the service level agreement was not material in respect of the nature of the contract and as such did not entitle the first respondent to cancel the contract. At best, the second respondent should have sought specific performance to negotiate the service level agreement. Therefore, the applicant argued that the notice of termination of the contract is invalid.

[6] The second issue raised is the validity of the resolution to remove the applicant’s director. The applicant argued that in terms of clause 8.1 of the contract it was entitled to nominate and appoint a director to the second respondent’s board. As a result, Mr Arendse (“Arendse”) was nominated as applicant’s director. He was removed as such due to the cancellation of the contract by the first respondent which according to the applicant lacks substantive grounds. It is in those basis that the applicant seeks an order that Arendse be reinstated as applicant’s director.

[7] In the notice of motion the applicant seek an order for specific performance by the first respondent. At first the applicant requires the first respondent to comply with the provisions of clause 8.1 of the contract by allowing the nominated director access to all bank accounts of the second respondent. It is the applicant’s case that the first respondent has not provided the applicant’s nominated director access to the second respondent’s bank

accounts. The applicant further seeks an order that the first respondent comply with clause 8.15 of the contract to have the second

respondent incorporated as part of the SSC Group of Companies (Applicant’s group of companies).

[8] A further prayer is for the first respondent to grant the applicant an option to buy a further 21% shareholding in the second respondent. That has been provided for in clause 6.1 of the contract.

[9] In contention the respondents argued that the applicant has committed several breaches of the agreed terms of the contract and as such the first respondent was entitled to cancel the contract and remove Arendse as a director. It was argued that the applicant firstly failed to provide management services to the second respondent whilst being paid an amount of R20 000-00 per month for such services as provided for in clause 8.5 of the contract. Secondly the respondents argued that the applicant failed to make resources available to the second respondent for the purpose of its current operations and development of the business as agreed in clause 8.7 of the contract. A further breach alleged by the first respondent was that the applicant failed to identify corporate opportunities for the exploitation of the second respondent as per clause 8.15 of the

contract.

[10] In relation to the removal of Arendse as a director the respondents argued that there was an acrimonious relationship between the first respondent and Arendse and granting an order that he should be reinstated would result in hardships in the company. Further that the court cannot review and set aside the resolution to remove Arendse, which was not an exercise of public power.

[11] It is the respondents argument that the court cannot order that the first respondent comply with clause 8.10 and 8.15 of the contract which deal with access to the bank accounts and the incorporation of the second respondent into the applicant’s groups of companies. According to the respondents the said clauses are worded vaguely and an order for specific performance thereof would be a nullity.

[12] On the issue of the purchase of 21% shares by the applicant, the respondents argued that clause 6.1 of the contract provided that there would be an agreement between the parties to agree. Further that the said clause did not create enforceable contractual obligations but that there would be consensus between the parties first in order to exercise that option.

[13] Lastly the respondents argued that the applicant failed to establish the requirements of an interim interdict. In that there is no prima facie right, the applicant is unable to allege facts that establish reasonable apprehension of harm and finally that the reinstatement of Arendse would be detrimental to the second respondent.

[14] The issue in this matter does revolve around the interpretation of the contract for the sale of shares by the first respondent to the applicant. It is important to determine whether the cancellation of the contract by the first respondent was validly done. In considering the interpretation of a contract the following was stated in Natal Joint Municipal Pension Fund v Endumeni Municipality 2012 (4) SA 593 (SCA) at para 18:

“Interpretation is the process of attributing meaning to the words used in a document, be it legislation, some other statutory instrument, or contract, ha vine regard to the context provided by reading the particular provision or provisions in the light of the document as a whole and the circumstances attendant upon its coming into existence. Whatever the nature of the document, consideration must be given to the language used in the light of the ordinary rules of grammar and syntax: the context in which the provision appears; the apparent purpose to which it is directed and the material known to those responsible for its production. Where more than one meaning is possible each possibility must be weighed in the light of all these factors. The process is objective, not subjective. A sensible meaning is to be preferred to one that leads to insensible or unbusiness like results or undermines the apparent purpose of the document. Judges must be alert to, and guard against, the temptation to substitute what they regard as reasonable, sensible or businesslike for the words actually used. To do so in regard to a statute or statutory instrument is to cross the divide between interpretation and legislation; in a contractual context it is to make a contract for the parties other than the one they in fact made. The 'inevitable point of departure is the language of the provision itself, read in context and having regard to the purpose of the provision and the background to the preparation and production of the document.”

[15] In Bothma-Batho Transport (Edms) Bpk v S Bothma & Seun Transport (Edms) Bpk 2014 (2) SA 494 (SCA) at para 4 Wallis JA stated that:

“Whilst the starting point remains the words of the document, which are the only relevant medium through which the parties have expressed their contractual intentions, the process of interpretation does not stop at a perceived literal meaning of those words, but considers them in the light of all relevant and admissible context, including the circumstances in which the document came into being. The former distinction between permissible background and surrounding circumstances, never very clear, has fallen away. Interpretation is no longer a process that occurs in stages but is ‘essentially one unitary exercise’. Accordingly it is no longer helpful to refer to the earlier approach.”

[16] As stated that the parties entered into a sale of shares contract, there were terms and conditions that had to be complied with, failing which the breach clause would be applied. Clause 12 of the contract is the breach clause and provides that:

"12. Breach

Should a Party (Defaulting Party) commit a breach of any of the provisions of this Agreement, then the other Party aggrieved by such a breach (Aggrieved Party), shall give the Defaulting Party 10 (ten) Business Days written notice to remedy the breach. If the Defaulting Party falls to comply with such notice, the Aggrieved Party shall be entitled to cancel this Agreement or to claim immediate payment and/or specific performance by the Defaulting Party of all the Defaulting Party's obligations then due for performance, in either event without prejudice to the Aggrieved Party's rights to claim damages. The foregoing is without prejudice to such rights as the Aggrieved Party may have in law, provided always that, the Aggrieved Party shall not be entitled to cancel this Agreement for any breach by the Defaulting Party unless such breach is a material breach going to the root of this Agreement and specific performance is or has become impossible and the breach is incapable of being remedied by payment in money, or if it is capable of being remedied by payment in money, the Defaulting Party falls to pay the amount concerned within 10 (ten) Business Days after such amount has been finally determined."

[17] In its notice of breach and termination the first respondent stated that the applicant failed to conclude the service level agreement which is considered as a material breach of the contract. The applicant was given ten (10) business days to remedy the breach. The notice was given on 4 June 2020. On 22 June 2020 the contract was cancelled. The issue of the service level agreement was dealt with in clause 8.5 of the contract and provided that:

“8.5 The parties agree that a Service Level Agreement will be concluded between the Parties in order to define the expectations of the Parties regarding directorship and management input by SSC and the payment of a management fee (for) such input. Furthermore, the Parties agree that the management fee for such input will be R20 000-00…per month with effect from the date of signature of the agreement.”

[18] Looking at the clause and its interpretation, the service level agreement was to be concluded for purposes of defining the role of the applicant in relation to directorship and management of the company, second respondent. This can only mean that the parties agreed to agree on the role of the applicant. At the time of the conclusion of the contract the parties agreed that in future a service level agreement would be concluded to define expectations of the parties regarding directorship and management. In the notice of breach the first respondent placed the responsibility or authority to agree on the applicant and used that to terminate the contract. Properly construed, clause 8.5 placed a discretion on the parties to negotiate and agree or disagree. This required both parties performance and the first respondent should have requested specific performance from the applicant to conclude the service level agreement. Failing which the first respondent could have approached court for specific performance.

[19] The breach clause provided that an aggrieved party shall not be entitled to cancel the contract unless specific performance has become impossible. The first respondent did not ask for specific performance and nor did she show that specific performance is or has become impossible.

[20] Another issue to consider is whether the breach goes to the root of the contract. The root of the contract was the sale of shares. Failure to conclude a service level agreement does not go to the root of the contract but has everything to do with the role of the parties in relation to directorship and management of the company, second respondent. The language used in the breach clause is clear and unambiguous and the first respondent did not comply therewith. In the result the termination of the contract by the first respondent was not validly done.

[21] On the issue of the removal of the applicant’s nominated director, Arendse, the respondents argued that this was done due to the acrimonious relationship between the parties. Clause 8.1 of the contract provided that:

“8.1 The Parties agree that SSC will elect and appoint a minimum of 1 (one) director/s to serve on the board of Good Prognosis. Sarahni Prins will appoint a minimum of 1(one) director/s to serve on the board of Good Prognosis.”

[22] The parties had agreed to the nomination of one director each but not agreed on the removal thereof and how it could be done. At the time the first respondent decided to remove Arendse as a director, the contract had been terminated albeit invalidly so. The removal of Arendse flows from the invalid termination and in breach of clause 8.1 of the contract.

[23] The applicant further seek specific performance by the first respondent. This is in relation to access to bank accounts. This has been provided for in clause 8.10 of the contract that:

“8.10 The Parties agree that a director nominated by each of the Purchaser and the Seller, respectively, will have access to all bank accounts and all banking transactions will be carried out in terms of the required levels of authority and oversight.” This clause is clear and should be complied with as agreed between the parties. The respondents argument that it is vague cannot be sustained.

[24] The parties had also agreed that the second respondent would be incorporated as part of the applicant’s group of companies in terms of clause 8.15. The said clause states that: “The parties agree that the Company will, following the acquisition by the Purchaser of the Sales Shares, be incorporated as part of the Purchaser’s group of companies (“the SSC Group”), and will be subjected to the same governance, organisational

structure and operating philosophies of the SSC Group. The Purchaser, however, agrees that its philosophies do not be applied in such a way as to hamper, but rather to enhance the successful running of the Company’s business and will also allow the operations team as it exists at the Effective Date to serve the best interest of the Company”. The first respondent argued that the clause is vague and cannot be understood stands to be dismissed. The first respondent is bound by the terms of the contract.

[25] Lastly, it’s the issue of the option to purchase 21% shareholding in the second respondent by the applicant. Clause 6.1 of the contract states that:

“The Parties agree that the Purchaser will have an option to purchase a further 21% shareholding in the Company at fair value and by agreement of the Seller.”

The intention of the parties in this clause was to give the applicant an option to purchase a further 21% shareholding in the company. If that had not been the intention, this clause would not have been included in the contract and the first respondent would decide on it in future. The only issue that the first respondent would have to agree on was the fair value of the shares. The first respondent is bound by the terms of clause 6.1 of the contract.

Counter-application

[26] The respondents have raised a conditional counter-application in the event the main application is granted and is as follows:

“1. It is declared that the conduct of the Applicant 'identified in the answering affidavit constitutes oppressive or prejudicial conduct as contemplated by section 163 of the Companies Act, 2008.

2. The Applicant is ordered to sell its shareholding in the Second Respondent for the consideration of R350 00000, alternatively for a fair value which fair value is to be determined by an independent chartered accountant appointed for the purpose of conducting the aforesaid valuation by South African Institute of Chartered Accountants (SAICA).

3. In the alternative to paragraph 2 above, setting aside the Agreement and directing the First Respondent to restore the consideration paid by the Applicant for such shares.

4. The Applicant is ordered to immediately restore possession, in respect of the following vehicles, to the Second Respondent:

41. 2019 Mini Cooper, John Cooper Works, Hatch, A/T, LCI_ ([....]-2019) Starlight Blue

Registration Number: 1 E[...] GP

Engine Number: [....]

Chassis! Serial Number: W[...]1

4.2 2019 Mini Cooper S, Hatch, A/T (F56) Lcl([....]2019

White Silver

Registration Number: 3 E[...] GP

Chassis / Serial Number: W[...]2

5. Costs.”

[27] The counter-application is an application brought in terms of section 163 of the Companies Act of 2008. Section 163 of the Companies Act provides that:

"163. Relief from oppressive or prejudicial conduct or from abuse of separate juristic personality of company.—

(1) A shareholder or a director of a company may apply to a court for relief if—

(a) any act or omission of the company, or a related person, has had a result that is oppressive or unfairly prejudicial to, or that unfairly disregards the interests of, the applicant;

(b) the business of the company, or a related person, is being or has been carried on or conducted in a manner that is oppressive or unfairly prejudicial to, or that unfairly disregards the interests of, the applicant; or

(c) the powers of a director or prescribed officer of the company, or a person related to the company, are being or have been exercised in a manner that is oppressive or unfairly prejudicial to, or that Unfairly disregards the interests of, the applicant."

[28] According to the respondents the applicant’s director, Arendse, has threatened to destroy the property of the second respondent, poached the staff and threatened the first respondent. The said alleged conduct is seen by the respondents as contrary to obligation of acting in good faith towards the respondents.

[29] In contention the applicant argued that the conduct complained of is not that of the applicant and that there are material disputes of fact between the parties in relation to those allegations against Arendse. Secondly that the first respondent complains about Arendse who in her own words was never involved in the running of the second respondent. As a result section 163 is not applicable.

[30] The first respondent in her answering affidavit complained of the conduct of Arendse which then resulted in her taking decisions on behalf of the second respondent. It is not clear how the second respondent has been affected as a result of the alleged conduct of Arendse. The first respondent stated that Arendse was never involved in the management of the second respondent and she was in control of the company. This is a clear indication that Arendse had no control or participated in the management of the company. Therefore, Arendse cannot be included in the definition of related person as referred to in section 163 of the Companies Act. I find that the first respondent has not made out a case in terms of section 163 of the Companies Act and the counter-application stands to be dismissed.

Costs

[31] It was submitted by the applicant that this application was brought as a result of the conduct of the first respondent and as such she alone should be responsible for the costs of the application and not the second respondent. I am in agreement that the second respondent should not be mulcted with the costs of this application which resulted from the unco-orporative conduct of the first respondent.

Order

[32] Consequently the following order is made:

1. It is ordered that:

1.1 The First Respondent’s notice of termination of the Sale of Shares Agreement dated 07 April 2017 (“the contract”) between the Applicant and the First and Second Respondents, is invalid and of no force or effect; and

1.2 The resolution by the First Respondent on 14 July 2020 to remove Mr Frederick Sam Arendse as a director of the Second Respondent, is in breach of the contract between the parties, invalid and of no force or effect.

2. That Mr Frederick Sam Arendse is reinstated as a director of the Second Respondent.

2.1 The Third Respondent is directed to amend its records to reflect such reinstatement and appointment.

3. The First Respondent is directed to forthwith provide the Applicant’s nominated director, Mr Frederick Sam Arendse, with access to all bank accounts of the Second Respondent as provided in clause 8.10 of the contract.

4. It is directed that the Second Respondent be incorporated as part of the Applicant’s group of companies (the SSC Group of Companies), and that the Second Respondent be subject to the same governance and organisational structures as that of the SSC Group of Companies as provided in clause 8.15 of the contract.

5. It is directed that 21% of the First Respondent’s shareholding in the Second Respondent be sold to the Applicant at fair value as provided in clause 6.1 of the contract, such fair value to be determined in accordance with paragraphs 5.1 to 5.4 below, alternatively to be determined at such further court proceedings as may be instituted by the Applicant.

5.1 The First Respondent is ordered to provide a full account to the Applicant in respect of a current and fair valuation of her 21% shareholding in the Second Respondent, supported by all relevant documents, financial records, and vouchers, and including (but not limited to) the financial records listed below, within ten (10) days from the date of this Court’s order:

5.1.1 External, audited annual financial statements in respect of the Second Respondent for the last five financial years, i.e. for the financial periods ending on 29 February 2016, 28 February 2017, 28 February 2018, 28 February 2019, and 29 February 2020.

5.2 The parties are directed to debate the First Respondent’s aforesaid valuation within seven (7) days from the date of the valuation and supporting documents being provided;

5.3 In the event that the parties agree as to the correctness of the aforesaid valuation, the Applicant is directed to make payment of the amount equal to the value of the First Respondent’s 21% shareholding in the Second Respondent within seven (7) days from the date of such agreement, into the First Respondent’s bank account;

5.4 Should a dispute exist as to the correctness of the First Respondent’s aforesaid valuation, the Applicant is authorised to approach this Court on the same papers, duly supplemented, for the determination of the fair value of the First Respondent’s 21% shareholding in the Second Respondent.

6. The counter-application is dismissed;

7. The First Respondent is ordered to pay the Applicant’s costs of the application and the counter-application including the costs occasioned by the removal of this Court’s urgent motion roll of 01 September 2020;

8. The First Respondent is ordered to pay the Second Respondent’s costs of the application and the counter-application

J.T. DJAJE

JUDGE OF THE HIGH

COURT

NORTH WEST DIVISION,

MAHIKENG

APPEARANCES

DATE

OF HEARING

: 10 DECEMBER 2020

DATE

OF JUDGMENT

: 26 FEBRUARY 2021

COUNSEL

FOR APPLICANT

: ADV

BOONZAAIER

COUNSEL

FOR RESPONDENTS :

ADV

HITGE