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Republic of South Africa

REPORTABLE

(pages 1-46 only)

IN THE HIGH COURT OF SOUTH AFRICA

(WESTERN CAPE HIGH COURT CAPE TOWN)

CASE NO. 11125/08

IN THE MATTER BETWEEN:

BRIAN MERVIN McMILLAN N.O. Applicant

(in his capacity as Trustee of the

McMillan Family Trust (IT 513/2007)

and

SIMON LESLIE POTT First Respondent

GARRY OWEN Second Respondent

KEVIN ERROL HOSKING Third Respondent

STEPHEN WILLIAMS Fourth Respondent

UNIPALM INVESTMENT HOLDINGS

(PTY) LTD Fifth Respondent

CORPORATE BUSINESS AUTOMATION

(PTY) LTD Sixth Respondent

TYGERBERG MINOLTA (PTY) LTD Seventh Respondent

JUDGMENT

Delivered on 18 June 2009

BINNS-WARD AJ:

[1] Nearly a quarter of a century ago, a judge in the Chancery Division remarked as follows about applications brought under the English equivalent of s 252 of the South African Companies Act No. 61 of 1973:

'They often bear some resemblance to divorce petitions in the days before Wachtel v Wachtel [1973] 1 All ER 829 [1973] Fam 72[1973] 1 All ER 829 ^{.[1973] 1 All ER 829} Voluminous affidavit evidence is served which tracks the breakdown of a business relationship commenced in hope and expectation of profitable collaboration. Each party blames the other but often it is impossible, even after lengthy cross-examination, to say more than the petitioner says in this case, namely that there was a "clear conflict in personalities and management style". It is almost always clear from the outset that one party will have to buy the other's shares and it is usually equally clear who that party will be. The only real issue is the price of the shares.'

Regrettably, the papers in the current matter - which ran to more than 1350 pages - and the outcome of the assessment of their content bore fulsome testimony that the characteristics that the

English judge was moved to describe can manifest, just as painfully, in our own jurisdiction.

[2] Mr Brian McMillan ('McMillan') has applied in his capacity as the sole trustee of the McMillan Family Trust for an order that the Trust's shares in Tygerberg Minolta (Pty) Ltd (the seventh respondent, hereafter referred to as either 'TBM', or 'the company') be purchased at fair value, either by the majority shareholder, Corporate Business Automation (Pty) Ltd (the sixth respondent, hereafter referred to as 'CBA'); or by the directors or shareholders in CBA,¹ to whom it was originally contemplated that the 70 percent member's interest not to be held by McMillan or the Trust would be transferred in their own names.

[3] In 2006, at a time that he was employed by Canon as head of that company's corporate sales department, McMillan identified TBM as a personal investment opportunity. He was, however, unable, by himself, to afford the purchase consideration and therefore enlisted the interest of certain business colleagues, especially the first and second respondents, who were already inbusiness through the vehicle of CBA. An understanding between these parties was reached pursuant to which CBA (and nominally McMillan) concluded a written agreement with one Rowan Peacock for the purchase of the latter's one hundred percent shareholding in TBM and of TBM's business as a going concern.

[4] In terms of the underlying understanding between the co-investors (to whom for convenience I shall hereafter refer as 'the joint venturers') 30 percent of the issued share capital in TBM was to be allotted to McMillan, with the remainder to be divided in smaller percentages between the other joint venturers, save that a 28 percent holding in TBM was to be allotted to a black economic empowerment partner. The understanding between the joint venturers also contemplated that McMillan would be engaged in executive control of TBM as managing director, with each of the other envisaged shareholders being entitled to a representative on the board. It was also understood that McMillan would be enabled, over time, to acquire from the other participants sufficient shares togive him the majority interest in the company within five years. It seems clear to me that it was understood by all those involved in the acquisition of the company that it was to provide McMillan with not only a commercial investment, but also the primary means to earn his living in employment.

[5] Having acquired the company, McMillan and his fellow joint venturers were remarkably slow to formalise their business relationship in TBM. There was some discussion about settling the terms of a shareholders' agreement and draft documents were exchanged at various stages, but despite there being no indication that consensus could not have been reached nothing was ever signed. Similarly, notwithstanding the passage of more than eighteen months from August 2006, no shares in TBM had been formally allotted in terms of the understanding referred to earlier before there was serious falling out between McMillan and his fellow joint venturers in early 2008. As it happened, the share certificates were issued only in August 2008, some time after the institution of this application.

[6] McMillan appears to have indicated for the first time in or about December 2006 that he wanted the 30 percent shareholding to which he was entitled in consideration for his having advanced R645 000 towards the purchase of the company² to be registered in the name of his family trust. At that stage the Trust had not yet been created. Similarly, differing ideas were expressed from time to time by the other joint venturers as to in what proportions, as between themselves, the rest of the shares should be divided and as to how they should be registered. The details are not important. It is sufficient to record that when eventually the shares were registered 30 percent were shown in the register to be held by the McMillan Family Trust and the rest in the name of CBA.³

[7] Despite the tardiness of the joint venturers in formalising their relationship inter se in regard to ownership of the newly acquired company, McMillan immediately assumed the running of its business and conducted himself in that role under the title of managing director. The company letterheads also reflected McMillan as the managing director and the other joint venturers as directors - all this notwithstanding that no formal election of directors appears ever to have occurred.⁴ It is common ground that the business of TBM was conducted under McMillan's control with very little interference by the other 'directors' until late 2007. All of this appears to have happened in accordance with the underlying understanding between the joint venturers, described earlier.

[8] CBA is in the same line of business as TBM. It appears to have been part of the original understanding between the joint venturers that TBM would source the products in which it traded through CBA, thereby gaining an advantage from certain discounts that CBA enjoyed from suppliers and was willing to share with TBM. It is evident that something in the nature of a symbiotic relationship must have been contemplated between CBA and TBM; it apparently having been contemplated that CBA, or its shareholders, would benefit from the marketing skills and public profile of McMillan, who had a marketing track record in the business and is well-known as a long-time former player in the national cricket team. For reasons which it is not necessary to go into, McMillan informed CBA in about April 2007 of his intention to source products for the company directly. McMillan ascribes this as an important cause of the breakdown in relations between the joint venturers, although contemporaneous correspondence calls this allegation into doubt. It is however not in dispute that there were considerable problems in reconciling the trading accounts in respect of dealings between CBA and TBM and, despite the differing contentions on the effect of this, I can safely find on the papers, considered in their totality, that this raised tensions between the joint venturers. It is fortunately not incumbent on me to resolve any remaining dispute as to which entity was ultimately indebted to the other, or in what amount.

[9] The rising tensions between the joint venturers manifested towards the end of 2007 with regard to two aspects of McMillan's management of TBM's affairs in particular. The first aspect was

McMillan's failure to provide his de facto co-directors with management accounts; and the other concerned the payment and accounting treatment by TBM of a very large commission to McMillan's son, who, along with McMillan's wife, was employed by the company.

[10] There is no evidence of significant discontent about the absence of management accounts until late 2007, and I have little doubt that the issue became critical in the context of the aforementioned questions concerning the reconciliation of the trading account between TBM and CBA. The other 'directors' had insisted, quite early, on electronic access to TBM's banking account for monitoring purposes and, after initial unconvincingly motivated resistance by McMillan, this had been granted. The insight into the company's finances afforded to them by means of this access appears to have sufficiently satisfied the other 'directors' until, in November 2007, two of them detected the large commission payment to McMillan's son.

[11] McMillan's explanation for the non-production of management accounts was that the accounting programme taken over when the company was acquired from Peacock was inadequate, and thatreplacement software purchased on the recommendation of an independent accountant had failed to live up to expectations. He also claimed that the dispute on the inter-company trading account with CBA complicated the production of management accounts. I am inclined to accept the criticisms levied by Mr Dickerson SC (who, together with Ms Du Toit appeared for the respondents) at the plausibility of these explanations.⁵ However, once again - as with virtually all of the mutually accusatory and recriminatory evidence with which the papers are, as mentioned, replete - it is unnecessary on the view I take of the case to determine the issue. Suffice it for present purposes to say that there can be no doubt about the joint venturers' entitlement, qua de facto co-directors, to the production of management accounts for their consideration, or about the fact that it was McMillan's responsibility, in the context of the aforementioned arrangements, to produce them. I consider that the co-directors were justified in their dissatisfaction with McMillan for having failed to provide any management accounts more than a year after taking over the helm at TBM; although it must be said that until theresolution of the inter-company trading account dispute the content of such accounts would no doubt be contentious.⁶

[12] It was common ground that McMillan's permitted personal drawings on the company were limited to his agreed remuneration package as the manager of the company's business. He was not entitled to commission on business secured for the company by dint of his marketing work. The respondents contend that the contract concluded by TBM with Rohlig Grindrod, in respect of which McMillan's son received a commission of R478 173,25, was the result of McMillan's initiative, and not that of his son. This does not seem to be seriously disputed by McMillan. McMillan has sought to justify the payment of the commission on the basis that the work done by his son to resolve certain technical problems, after delivery of the equipment in question to Rohlig Grindrod, had been essential to save the concluded contract from cancellation. The commission was not treated in the company's accounts in the usual manner. It was journalised in a suspense account. This, according to McMillan, was because it remained uncertain that the contract in question would survive. One wonders, if that was indeed the case, why the commission had been paid to McMillan's son at a time when his entitlement to keep it, even on McMillan's version, was still in doubt. I am unable on the papers to determine the merits of the issue, but I can understand why the transaction should have given rise to some disquiet on the part of McMillan's co-'directors'.

[13] The two issues just discussed - and perhaps also, to a lesser degree, other matters that it serves no purpose to describe - made McMillan's co-'directors' determine to introduce a tighter system of financial control by the 'board' over the company's affairs. They acted somewhat ineptly in seeking to achieve this.

[14] On 6 February 2008, McMillan received a notice by the first respondent calling a meeting of the company's 'directors' for Wednesday, 13 February 2008 at the offices of CBA. According to the agenda incorporated in the notice, the matters for attention at the meeting were 'Bank account administration', including 'approval of proposed changes to authorised signatories' and 'management accounts'. The meeting had clearly been determined upon in order to put in place measures to address the areas of concern that had come to the fore between McMillan and his co-'directors' towards the end of 2007. McMillan responded to the convening of a meeting of 'directors' by writing to the first respondent on 12 February 2008 pointing out that no allocation of shares between the joint venturers had occurred consequent upon the purchase of the shareholding from Peacock and that there had therefore been no appointment of directors of the company. He expressed the view that any resolutions that might be adopted at the proposed board meeting would therefore be 'null and void'. McMillan maintained that priority should be given to the registration of the respective shareholdings and the formal conclusion of a written shareholders' agreement, pursuant whereto, he suggested, a proper appointment of directors might then occur. Considering that he had held himself out as the managing director and conducted the business of the company using stationary reflecting the first, second and third respondents as directors of the company for well over a year, McMillan's response in the circumstances was, to say the least, opportunistic. It is apparent that McMillan's reaction was in fact inspired by his concern about the clearly signalled intention by his co-'directors' to rein in the relatively unfettered control over the company's management that he had up to then enjoyed.

[15] McMillan's belated and somewhat contrived insistence on proper compliance with the statutory requirements had consequences. The first and second respondents drew the attention of the company's bankers to the fact that the company had no validly appointed directors. In this regard the respondents must have purported to act as de facto directors of the company or shareholder representatives. There was no other basis on which they could have intervened in the manner they did. It would appear from the tenor of the bank's reply, which was in the form of an email addressed jointly to the first respondent and the 'CBA Group', that the first and second respondents must have appreciated that the consequence of their approach to the bank would be that a hold would be placed on the operation of the account until the requisite formalities had been complied with.⁷ I must accept the respondents' explanation that they acted in this manner with the regularisation of the company's corporate governance in mind. An element of hostility towards McMillan, no doubt arising from the issues described earlier, nevertheless characterised the action. This was apparent from the absence of any prior notice thereof to McMillan, who plainly had a material and practical interest in being able to operate the banking account in his capacity as the day to day manager of the company's business in terms of the founding understanding between the joint venturers. As it happened, McMillan - also without notice to his co-directors -managed, after threatening litigation against the company's bankers, to re-establish the operation of the bank account.

[16] In the meantime, having arranged for the provision of the necessary documentation to enable the registration of shares and the formal appointment of directors of the company, the first respondent gave renewed notice of a meeting of directors to be held on 27 February 2008.

[17] It bears mention that whereas the requisite documents to obtain registration of shares and confirmation as appointment as a director were forwarded by the respondents' attorney to McMillan on 20 February, the Registrar of Companies had already on the previous day confirmed receipt and acceptance of notification of the appointment of first, second and third respondents as directors of the company. It is not clear on the papers how these appointments came about - there is no evidence of there having been any meeting of shareholders for the purpose of appointing directors. The overwhelming probability is that the formal appointment of McMillan and the first to third respondents to the board was addressed pragmatically on the basis of the original understanding between the joint venturers, described earlier, which attended the acquisition of the shares from Peacock.

[18] The agenda for the 27 February board meeting was the same as that for the aborted meeting of 13 February, save that items related to payment of 'salaries and creditors' and a 'forensic audit' had been added. In context, it seems clear that it was intended by McMillan's co-directors under those rubrics to address the issue of inter-company trading accounts between TBM and CBA and the other joint venturers' concerns about McMillan's alleged mismanagement of the company's finances for his own personal benefit and that of some of his family members. That the exclusion of McMillan from the company, albeit possibly on agreed terms, was under consideration before the 27 February meeting emerges from a letter written by the respondents' attorneys to McMillan's attorneyon 26 February in which McMillan was advised that he 'was at liberty to propose a strategy involving the purchase of his shareholding... subject to the findings of the proposed forensic audit'. Written confirmation was sought from McMillan that he would be 'amenable' to 'a buy-out'.⁸ McMillan was also requested to take paid leave of absence from his position as managing director while the forensic audit was conducted.

[19] At the board meeting on 27 February, resolutions were adopted that had the effect of removing McMillan's wife's signing powers on the company's banking account⁹ and making McMillan's signing powers subject to the co-signature of the first respondent. McMillan's dissatisfaction with these changed arrangements manifested in his failure to sign the amended bank mandates and in a letter from his attorney in which he demanded of his fellow directors that he be retained as a co-mandatory signatory to the company bank account. McMillan was also aggrieved at his exclusion from any say in the appointment of a forensic auditor.

[20] On 7 March 2007, CBA gave notice to the board of TBM to call a shareholders' meeting to resolve on the immediate removal of McMillan as a director of TBM. The notice was given by CBA, qua shareholder, consequent upon a resolution by the board of CBA. The notice was addressed by the third respondent qua director of CBA to the first respondent in his capacity as a director of TBM. The notice by CBA reflected that the first to fourth respondents were directors of CBA. As mentioned, the first to third respondents had also by that stage been formally appointed as directors of TBM. These events reflected a move towards a take over by CBA and/or its directors of effective managerial control of TBM.

[21] On 18 March 2008, CBA launched proceedings in this Court, without notice to McMillan, in which interdictory relief was sought prohibiting McMillan from entering the company's premises and from accessing or removing any company information. (McMillan came to hear of the application and eventually succeeded in having it dismissed.) On 19 March 2008, the first respondent, presumably purporting to act in his capacity as one of the company's directors, gave instructions to the company's internet service provider to disconnect all remote access to the company's network, thereby depriving McMillan, who at that time was still on any account a director of the company, from the access that he had up to that time been able to exercise from his home computer. This conduct was explained by the respondents as having been inspired by their concerns arising from information obtained by them that McMillan was sabotaging TBM internally, preparatory to the establishment by him of a new business in competition with TBM and CBA.

[22] McMillan was removed as a director of the company at a shareholders' meeting held on 31 March 2008. At the same meeting it was also decided to suspend McMillan as an employee of the company pending a disciplinary enquiry into an allegation of 'breach of trust' and to appoint Mr David Black of A&R Corporate Finance and Forensic Service Division to conduct a forensic investigation into the affairs of TBM.

[23] McMillan did not attend the shareholders' meeting of 31 March 2008. In fact it would appear that on that date he applied in the name of Brian Promotions CC for facilities to enable that close corporation to become a dealer in Konica Minolta products as partof an office automation business that would trade in competition with

TBM and CBA.

[24] Disciplinary proceedings against McMillan and his wife culminated in their dismissal as employees of the company at the end of April. The dismissal was recommended by the attorney in charge of the proceedings because he found there to have been a complete breakdown in mutual trust and confidence between employer and employee. McMillan and his wife did not appear at the disciplinary enquiry and contented themselves with putting in the affidavits filed in answer to the interdict application by CBA referred to above.¹⁰ I do not attach any importance to the disciplinary proceedings or their result; any notion that McMillan would have continued in the employ of the company after it had become clear that he was to be removed from the board of directors was fanciful -as indeed confirmed by the steps taken by him from early March to set up a competing business. I have mentioned the proceedings merely to complete the narrative.

[25] Section 252 of the Companies Act provides insofar as relevant:

'(1) Any member of a company who complains that any particular act or omission of a company is unfairly prejudicial, unjust or inequitable, or that the affairs of the company are being conducted in a manner unfairly prejudicial, unjust or inequitable: to him or to some part of the members of the company, may, subject to the provisions of subsection (2), make an application to the Court for an order under this section.

(3) If on any such application it appears to the Court that the particular act or omission is unfairly prejudicial, unjust or inequitable, or that the company's affairs are being conducted as aforesaid and if the Court considers it just and equitable, the Court may, with a view to bringing to an end the matters complained of, make such order as it thinks fit, whether for regulating the future conduct, of the company's affairs or for the purchase of the shares of any members of the company by other members thereof or by the company and, in the case of a purchase by the company, for the reduction accordingly of the company's capital, or otherwise.'

[26] Mr Dickerson contended that McMillan had failed to make out a case for relief in terms of s 252 of the Companies Act.

[27] In the first place, argued Mr Dickerson - perhaps encouraged by my having taxed the applicant's counsel on the point - McMillan had failed to demonstrate that any particular act or omission of the company, or any incidence of the conduct of its affairs had been unfairly prejudicial, unjust or inequitable to the Trust (as distinct from McMillan personally). In this regard it was emphasised that it wasthe Trust,¹¹ and not McMillan personally, that was the member of the company; and that seeking relief in terms of s 252 was a member's remedy. It was submitted that he could not treat himself effectively as the alter ego of the Trust for the purposes of satisfying the requirements of s 252(1) of the Act. The argument proceeded that McMillan's exclusion from the company did not prejudice the Trust's proprietary interest; there was nothing to prevent it from nominating somebody other than McMillan to represent its interests on the company's board of directors.

[28] Mr Goodman SC, who (with Mr Acton) appeared for the applicant, argued on the other hand that, having regard to the relationship between the interests of McMillan and the Trust and the circumstances in which the Trust had come to be a registered shareholder, it would be 'the height of technicality' and quite incongruous with the equity based remedial objects of the statutory provision to draw too nice a distinction between McMillan and the Trust. Mr Goodman submitted that it was clear that the Trust held its shares in the company only on the basis that McMillan had entered into the joint venture, namely the understanding that he would have managerial control of the day to day running of the company's business and would be employed by it in a capacity ordinarily designated as that of managing director.

[29] In my judgment there is considerable cogency in the considerations urged by the applicant's counsel. It is indeed clear that McMillan participated in the joint venture and advanced his capital contribution for the purchase of the issued shareholding in the company only on the basis that this would provide him with employment and the opportunity to 'grow' the company's business, primarily for his own benefit. His later decision to establish the McMillan Family Trust and to direct that the 30 per cent interest he was entitled to in the company should be registered in the Trust's name did not affect the essential basis of his initial investment and continued participation in the joint venture. Likewise, the basis on which the Trust obtained and held its shares in the company was indistinguishable from McMillan's joint venture involvement in the company. The Trust had no commercial reason to continue to hold shares in TBM if McMillan was not to be a director of the company and in charge of the day to day running of its business.

[30] The reasoning of Robert Walker J (as he then was) in R&H Electric Ltd v Haden Bill Electrical Ltd [1995] 2 BCLC 280 affords support, by analogy, for the approach contended for by Mr Goodman. The relevant part of the judgment in R&H Electric was subsequently referred to with approval by five Lords of Appeal in Ordinary constituted as the Judicial Committee of the Privy Council in Gamlestaden Fastigheter AB v. Baltic Partners Ltd & Ors (Jersey) [2007] UKPC 26; [2007] 4 All ER 164 (PC); [2008] 1 BCLC 468. The approach is adequately illustrated by quoting their Lordships' treatment (per Lord Scott of Foscote) of the R&H Electric case at paras. [30] -[31] of Gamlestaden Fastigheter.

'30. This was a case where the applicant for section 459 relief was, of course, a shareholder in the company but, via another company that he controlled, had also provided working capital to the company. He was removed by the majority shareholders from any management role and accordingly applied under section 459 for an order requiring the majority shareholders to purchase his shares and, alternatively, petitioned for the company to be wound up on the just and equitable ground. One of the grounds relied on by the majority shareholders for resisting any section 459 relief was that the applicant's "only real involvement was as an agent for [the other company] which was a loan creditor, not a shareholder therefore ... there was no prejudice to [the applicant] in his capacity as a shareholder." As to this point Robert Walker J said this.

"If [the applicant] himself had been [the company's] loan creditor, under arrangements made between him and the majority shareholders when the company was first being planned, I should have had little hesitation in coming to the conclusion that the arrangements were a reflection of, and sufficiently closely connected with, [the applicant's] membership of [the company] as to be within the scope of s.459."

Robert Walker J then addressed the question whether the fact that the loan creditor was not the shareholder applicant, but was the other company that he controlled, mattered. He concluded that it did not:

"On the whole I have come to the conclusion that I should not treat the separateness of [the applicant] and [the other company] as excluding him from seeking relief under s.459 on the basis that [the other company's] loans to [the company] were procured by [the applicant] and formed part (and an essential part) of the arrangements entered into for the venture to be carried on by that company."

In the outcome the judge made an order for relief under section 459. He ordered that the applicant's shares be purchased by the majority shareholders at a fair value and that the loans from the applicant's other company be repaid as soon as reasonably possible.

31. Robert Walker J's approach in the R&H Electric Ltd case commends itself to their Lordships....'

[31] The Privy Council supported its advice with reference to the following dicta from other cases, some of which had been cited by Robert Walker J in R&H Electric:

'Thus, in re a Company (No.08477 of 1986) BCLC 376 at 378, Hoffmann J as he then was, commenting on the proposition that section 459 should be limited to conduct unfairly prejudicial to the interests of members as members and could not extend to conduct prejudicial to other interests of members, said that

"... the application [of the proposition] must take into account that the interests of a member are not necessarily limited to his strict legal rights under the constitution of the company. The use of the word 'unfairly' in s.459, like the use of the words 'just' and 'equitable' in s.517(1)(g) enables the court to have regard to wider considerations."

In re Macro (Ipswich) Ltd [1994] 2 BCLC 354, Arden J (as she then was) said

that

"... the jurisdiction under s.459 has an elastic quality which enables the courts to mould the concepts of unfair prejudice according to the circumstances of the case".

In re Little Olympian Each-Ways Ltd [1994] 2 BCLC 420 at 429 Lindsay J said that

"... in point of jurisdiction the wide language of ss.459 and 461 is not to be cut down."

And in O'Neill v Phillips [1999] 1 WLR 1092 at 1105 Lord Hoffmann said that

"As cases such as R&H Electric Ltd v Haden Bill Electrical Ltd [1995] 2 BCLC 280 show, the requirement that prejudice must be suffered as a member should not be too narrowly or technically construed.”¹²

[32] Adopting the approach contended for by Mr Goodman, which commends itself as eminently sensible in pragmatically furthering the objects of s 252, I have concluded that the exclusion of McMillan from the business is as relevant and pertinent to the Trust's position qua member of the company, as it would have been had McMillan himself, in his personal capacity, been the member.

[33] In O'Neill and Another v. Phillips and Others, supra, at part 6 s.v. 'Legitimate expectations', Lord Hoffmann, referring to his earlier judgment in In re Saul D. Harrison & Sons Plc. [1995] 1 BCLC 14; [1994] BCC 475 reiterated that in a case in which 'shareholders have entered into association upon the understanding that each of them who has ventured his capital will also participate in the management of the company... it will usually be considered unjust, inequitable or unfair for a majority to use their voting power to exclude a member from participation in the management without giving him the opportunity to remove his capital upon reasonable terms.' In acknowledging the principle it is, however, important to distinguish its operation from the case where an unhappy member in a closely held (or as it sometimes called, 'quasi-partnership') company seeks at will to require his or her fellow shareholders topurchase that member's shares simply by declaring that mutual trust and confidence between the shareholders has broken. Lord Hoffmann's observation that 'there is no support in the authorities for such a stark right of unilateral withdrawal' holds true in our own jurisprudence.¹³

[34] The applicable principle was eloquently expressed by Lord Wilberforce in Re Westbourne Galleries [1973] AC 360¹⁴ at p. 379B (which was a winding up application on just and equitable grounds):

'The "just and equitable" provision does not... entitle one party to disregard the obligation he assumes by entering a company, nor the court to dispense him from it. It does, as equity always does, enable the court to subject the exercise of legal rights to equitable considerations; considerations, that is, of a personal character arising between one individual and another, which may make it unjust, or inequitable, to insist on legal rights or to exercise them in a particular way.'

which, in the current context, may usefully be read with the gloss thereon by Hoffmann LJ (as he then was) in Re Saul D Harrison &

Sons plc, supra, (which was an application in terms of s 459 of the then applicable English Companies Act):

'Thus the personal relationship between a shareholder and those who control the company may entitle him to say that it would in certain circumstances be unfair for them to exercise a power conferred by the articles upon the board or the company in general meeting. I have in the past ventured to borrow from public law the term "legitimate expectation" to describe the correlative "right" in the shareholder to which such a relationship may give rise. It often arises out of a fundamental understanding between the shareholders which formed the basis of their association but was not put into contractual form, such as an assumption that each of the parties who has ventured his capital will also participate in the management of the company and receive the return on his investment in the form of salary rather than dividend. These relationships need not always take the form of implied agreements with the shareholder concerned; they could enure for the benefit of a third party such as a joint venturer's widow.'

In Grace v Biagioli & Ors, Patten J (sitting in the Court of Appeal, with Mummery and Mance LLJ) expressed the position thus:

'It is not enough merely to show that the relationship between the parties has irretrievably broken down. There is no right of unilateral withdrawal for a shareholder when trust and confidence between shareholders no longer exist. It is, however, different if that breakdown in relations then causes the majority to exclude the petitioner from the management of the company or otherwise to cause him prejudice in his capacity as a shareholder.'

In this regard I venture it may often be significant in a given case concerning a so-called quasi-partnership company whether the applicant for relief in terms of s 252 has been pushed overboard, or just seeks to abandon ship.

[35] Mr Dickerson, pointing to evidence that McMillan had commenced with steps to establish his own business in competition with TBM some weeks before his removal from the board and had launched that business while still officially as an employee of TBM (albeit on suspension), argued that McMillan had chosen of his own will to exclude himself from the management of the company rather than being pushed out. While the evidence affords some superficial support for that analysis, the argument does not bear close scrutiny. As mentioned, signs of an intention by the majority to materially curb McMillan's role in the management of the business and even to encourage him to leave manifested during February 2008; these were subsequently underscored by the notice given shortly thereafter of an intention to remove him as a director. Having regard to the respective shareholdings of the protagonists, the inevitability of McMillan's removal from his executive role in the company would have been evident well before the completion of theattendant formalities late in March and into April. I therefore accept the essential validity of Mr Goodman's contention that McMillan had been 'constructively' excluded with effect from 7 March 2008.

[36] Relying on the manifold allegations made by the respondents in the papers of managerial misconduct against McMillan, all of which were disputed, Mr Dickerson submitted that the company's shareholders acted entirely within their rights in removing McMillan from his office as a director. On the assumption for present purposes, mindful that I am dealing with the matter on paper, that the allegations against McMillan were not unfounded, the correctness of Mr Dickerson's contention in this regard must be accepted. It nevertheless does not follow that it was fair or equitable in circumstances in which the joint venturers, including McMillan, had acquired their interest in the company - namely, on the understanding that McMillan would be employed by and in day to control of the company - for the removal to happen, even if it was done on good cause, without an attendant offer by the majority to allow McMillan to remove his capital on reasonable terms.

[37] In the current case there were indications at various times by the majority interest holders that they were prepared to buy out the Trust's interest in the company at market value as soon as a forensic investigation had confirmed the status of the company's affairs, including the substance or otherwise of the allegations that McMillan and his family had benefited from certain allegedly unauthorised payments by the company. However, notwithstanding the completion of the forensic audit by Black that was commissioned by the directors after McMillan's removal from office, nothing has been done by the majority shareholder to acquire McMillan's shareholding. In addition, when the shares in the company were eventually formally allotted in or about August 2008, they were not divided amongst the individual joint venturers and the BEE investor, as originally contemplated, but instead all the shares not allotted to the Trust were registered in the name of CBA. This had the result of making TBM a subsidiary company of CBA, thereby bringing about a situation more removed than ever from the basis of understandingon which McMillan and his fellow joint venturers had entered into their business relationship through the acquisition of the company.¹⁵

[38] If there were merit in the allegations against McMillan, this might, depending on their effect on the company's value, have entitled the majority shareholder(s) to take the factors involved into account in reasonably determining the terms on which they would give the Trust the opportunity to redeem its shares. What has happened, however, in the context of the manifestly terminal fracture of the mutual understanding on which the shareholders placed their investments in the company, is that the majority interest has done nothing to advance the withdrawal of the McMillan interest, and has even argued at the hearing that there is nothing unfair about the Trust being made no offer at all on the grounds that McMillan, qua trustee, should be content to nominate a replacement director to represent the Trust on the board of directors.

[39] In my judgment the respondents' attitude in failing, within a reasonable time¹⁶ of McMillan's exclusion from the management of the company, to afford the Trust the opportunity to remove its capital constitutes an act or omission by the company that, in the circumstances described, is unfairly prejudicial, unjust or inequitable to the Trust within the meaning of s 252(1) of the Companies Act.

[40] A basis to claim relief in terms of s 252 inured in the circumstances even if it is accepted that McMillan had been wholly or in part to blame for his removal from the board and dismissal from employment. The prejudicial unfairness or inequity lies not in the legally justifiable exclusion of the affected member from the company's management, but in the effect of the exclusion on any such member - who had become a member only on the understanding that he or she would have an actively participativerole amounting to employment by the company - if a reasonable basis is not offered in the circumstances for a withdrawal by the member of his or her capital.¹⁷ The issue of fault should, in general, not negate the right of a so-called quasi-partner member to relief under s 252 when such member has been excluded by the other members from the direct participation in the management of the company contemplated when the member's investment in the company was made.¹⁸ Having regard to the equitable nature of the remedy, and the attendant wide ambit of the judicial discretion to grant or withhold it on terms appropriate to the peculiar characteristics of the given case¹⁹ there is no compelling reasonwhy fault on the part of the applicant should as a rule preclude the grant of relief in terms of s 252. There may of course be cases in which the excluded member's fault might be so gross, in the context of its effect on the company or its other members, as to render the member's exclusion without an offer of redemption neither prejudicial, nor unjust nor inequitable; or may lead the court to conclude that it is not just and equitable to afford a remedy,²⁰ but those instances will, I would imagine, be exceptional.

[41] The reasons for the application of the 'clean hands' principle in winding up applications on just and equitable grounds do not, in my view, find foundation in s 252 applications. The difference lies in the fact that in the former type of case the court is 'faced with a death sentence decision dependent on establishing just and equitable grounds for such a decision', whereas in the latter the 'court is more in the position of a medical practitioner presented with a patient who is alleged to be suffering from one or more ailments which can be treated by an appropriate remedy applied during the course of the continuing life of the company'.²¹ Clearly a party which is itself to blame for the unsatisfactory situation of the company should not readily be allowed to obtain its winding up in circumstances in which the majority of members wish to continue with it; non constat, however, that a member who might have misbehaved in a relevant sense should on that account be excluded from the actively participative role that it was initially understood would attach to that member's holding of the shares without being given an opportunity to withdraw its capital on reasonable terms.

[42] Mr Dickerson also sought to make much of the lack of clarity in the founding papers as to whether the conduct relied upon by the applicant arose out of the conduct of the company's affairs or those of CBA. Mr Goodman did argue in this regard that part of the prejudicial conduct of the company's affairs manifested in the majority of the company's directors -who, it will be recalled, were also directors of CBA - acting with the interests of CBA rather than those of TBM in mind. In view of the narrow basis upon which I am inclined to determine the matter, namely the exclusion of McMillan -which clearly was the consequence of a determination, initially, by a majority of the company's directors and, in relation to his removal from the board, latterly, by the company in general meeting - it has not been necessary to deal with the contentions advanced in thisrespect. In considering the argument, however, I found it instructive to discover that there is a body of authority that the expression 'the affairs of a company' in the relevant context is 'extremely wide and should be construed liberally'. See Gross v Rackind [2005] EWCA Civ 655; [2005] 1 WLR 3505²² at paras. [21]-[32] (per Sir Martin Nourse sitting in the Court of Appeal²³) and Re Grandactual Ltd, [2006] BCC 73²⁴ at paras. 23 - 29. These and certain other cases in point were considered by Lewison J in Hawkes v Cuddy & Ors [2007] EWHC 2999 (Ch)²⁵ at paras. 207 - 214. Summarising the effect of the discussion of the relevant law by Sir Donald Rattee in Re Grandactual, the learned judge said 'If company A controls company B then the affairs of company B can count as the affairs of company A, and vice versa. This has the merit of a simple and straightforward test. Commonality of directors is also an important feature.' This observation was qualified by an emphasis that 'There is no absolute rule that the affairs of one company cannot count as the affairs of another; but the question is fact-sensitive. In looking at the facts,the court must look at the business realities and must not adopt a narrow, legalistic view.' The soundness in principle of such an approach was very recently again endorsed by the Court of Appeal in Hawkes v Cuddy & Ors [2009] EWCA Civ 291²⁶ at para. 50. I should mention that the reasoning of Corbett J (as he then was) in Bader and Another v Weston and Another 1967 (1) SA 134 (C) at 147 - 148F appears to me to reflect a very similar philosophy to that illustrated in the English authorities to which I have referred in this paragraph.

[43] In regard to the requirements of s 252(1), it remains only to consider one additional submission by Mr Dickerson as to why the Trust should be refused a remedy under s 252. Relying on Re a company (No 006834 of 1988), ex parte Kremer [1989] BCLC 365, counsel contended that it was incumbent on the applicant to prove that the provisions of the articles of association did not afford an adequate basis for the applicant to withdraw its capital without any necessity for the court's intervention. In ex p. Kremer Hoffmann Jstated (at p.367e):

'The principle to be derived from the cases is that when it is plain that the appropriate solution to a breakdown in relations is for the petitioner to be able to sell his shares at a fair price and the articles contain provisions for determining a price which the respondent is willing to pay or the respondent has offered to submit to an independent determination of a fair price, the presentation or maintenance of a petition under s 459...will ordinarily be an abuse of the process: see Re a company (No 003096 of 1987) 4 BCC 80, and

the earlier cases referred to.'

[44] In the absence of any evidence by either side as to the relevant content of the company's articles of association, it is difficult to find any substance in the point. Assuming, however, in favour of the respondent, that the articles are in accordance with the pro forma articles for private companies in Table B of schedule I to the Companies Act, the indications on the papers are that the majority would not have been co-operative in facilitating the disposal of the Trust's shares on this basis. This much may be inferred from their reluctant disclosure, only under pressure, of the forensic report prepared by Black²⁷ and their failure to follow through on early tokens of a willingness to acquire the Trust's shares at fair value determined with regard to the results of the forensic investigation by

Black. It also transpired that Black did not undertake a valuation of the Trust's shareholding, despite assurances to McMillan that this was part of his mandate. As mentioned, the majority's current position, articulated in argument by the respondent's counsel, is that the Trust is not prejudiced by having to continue to hold the shares and nominating someone else to replace McMillan as its representative on the board of directors. In the circumstances I have not found this argument persuasive.

[45] Following on the conclusion to which I have come on 'standard case'²⁸ principles that the Trust has established an entitlement to a remedy in terms of s 252(3), it falls to be considered precisely how the remedial relief should be formulated. Mr Goodman sought an order along the lines of that made in Barnard v Carl Greaves Brokers, supra.

[46] The facts in Barnard were materially distinguishable from the current case. Most significantly it was not necessary in that case, as it is in this matter, to consider whether effect, if any, should be given in the formulation of the relief granted to causal fault by theapplicant in his exclusion from the management of the company. If I were constrained to find that the fault on the part of McMillan alleged in the respondents' papers is a factor that probably should affect the determination of just and equitable relief, I would be bound to refer those disputed allegations for trial because I am unable to decide them on the papers. In the event, accepting for present purposes the allegations against McMillan in the answering papers, I have concluded that it is possible to formulate a buy out order that will not be unfair to any of the parties involved. I have come to this conclusion because it is not disputed that McMillan's efforts while he was in control of the company were successful in expanding its customer base and apparently increasing the value of its shares. The most material allegations against him entailed what the respondents claimed were unauthorised drawings on the revenue of the company - for example, the payment of the commission to his son, the payment of a salary to his wife beyond the level allegedly agreed to by his fellow joint venturers and the payment of domestic expenses such as swimming pool maintenance costs on the company's account.²⁹ Inasmuch as it is also alleged that McMillan sought to sabotage the company's business by removing information and seeking to recruit its staff to leave with him, there is little in the respondents' papers to suggest that any such measures were substantially successful or had a material effect.

[47] If one assumes that the allegations about unauthorised payments on the company's account are well-founded, it must be accepted that the company's profits would have been adversely affected pro tanto. A valuation of the company's shares on the basis of an acceptance of the profits as McMillan would have had them (i.e. on the basis that the aforementioned payments were legitimate company expenses) would therefore tend to depress the value of the shares if the valuation is undertaken on any of the well known and most commonly used methods to value the shares in a private company with a going concern. McMillan could not complain about this because it would be an incidence of an acceptance of his version of the facts. On the other hand there would be nothing in the terms of the buy-out order disabling the company from instituting proceedings to recover from McMillan or any other party the proceeds of any defalcations from the company's purse. Those domestic expenses which, according to Ms du Toit, the company's accountants and auditors would have debited against McMillan's loan account can for accounting purposes in respect of the order to be made be deemed to have been so debited.

[48] It is also necessary to provide in any order to be made in the current case for the fact that the balance of the purchase price of the shares in the transaction with Peacock is not yet fully paid and that the balance outstanding is to some extent subject to an unresolved dispute. Recognition must also be given to the fact that the monthly payments in reduction of the balance of the purchase price have, according to the uncontested evidence, been effected wholly by CBA.

[49] As I did not hear any argument on the detailed formulation of a buy-out order, the provisions of annexure A to the order to be made, in which detailed directions for the valuation of the shares are set out, shall be provisional and subject to revision upon consideration of additional written argument received in terms of the leave to be granted in paragraph 2 of the order to be made.

[50] I consider that it would be fair to both sides to determine that the shares should be valued with regard to the financial condition of the company as at 29 February 2008. Apart from its convenience as a date corresponding to the company's financial year-end, it is also a date close to the date on which the respondents' attorney asked for confirmation that McMillan would be amenable to a buy out.

[51] Another issue that falls for determination in this judgment is the costs of the first stage hearing in respect of the registration of the Trust's shares. The merits of this aspect of the application were settled in terms of an order made by consent on 24 July 2008. In my view all the parties were at fault in the inordinate delay that attended the registration of the shares acquired from Peacock. I therefore propose to make no costs order in respect of the first stage hearing. The applicant has otherwise been substantially successful in the application and costs will otherwise follow the result.

[52] In the result an order providing for the purchase by the sixth respondent of the applicant's shares in the seventh respondent, together with ancillary relief will issue in the following terms:

1. In terms of s 252(3) of the Companies Act 61 of 1973 the sixth respondent is directed to purchase the applicant's thirty per cent holding in the seventh respondent on the basis provided in annexure A to this order (subject to any amendment as might be effected by the court pursuant to a consideration of any written submissions invited in terms of paragraph 2 hereof).

2. The parties are granted leave to make written submissions within 10 days of the date of this judgment in respect of the variation or supplementation of the directions set out in annexure A to this order in respect of the valuation of the applicant's shares, failing which the terms thereof shall be regarded as final.

3. No order as to costs shall issue in respect of the attendances directly related to obtaining the order obtained by consent on 24 July 2008 concerning the registration of the applicant's shares in the seventh respondent.

4. Save as aforesaid the applicant's costs of suit, including the costs of two counsel, shall be paid by the sixth respondent.

A. G BINNS-WARD

Acting Judge of the High Court

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