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:

(in his capacity as Trustee of the 
McMillan Family Trust (IT 513/2007) 

and

UNIPALM INVESTMENT HOLDINGS 

CORPORATE BUSINESS AUTOMATION 

JUDGMENT 
	Delivered on 18 June 2009

BINNS-WARD AJ:

[1973] 1 All ER 829 [1973] Fam 72[1973] 1 All ER 829 .[1973] 1 All ER 829 
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, 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.

[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.

[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

[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.

[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.

[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'. 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 account 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.

[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. 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.'

[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. 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.

"... 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."

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 point of jurisdiction the wide language of ss.459 and 461 is not to be cut down."
[1999] 1 WLR 1092 
"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.”

Re Westbourne Galleries

'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.'

public law

'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.

[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.

 

[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. 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. 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 case 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, but those instances will, I would imagine, be exceptional.

the earlier cases referred to.'

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.

[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.	
2.	
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

The sixth respondent shall purchase the applicant's 30 per cent holding in the seventh respondent on the basis set out hereunder:

(ii)	For the purpose of the said purchase of the applicant's shares by the sixth respondent, the fair value of the shares shall be determined with regard to the financial condition of the first respondent as at 29 February 2008.
(iii) The total purchase consideration payable to the applicant for the Trust's shares shall be adjusted downwards-

c. 	in any further amount necessary to adjust for the shortfall between the amount of approximately R645 000 paid by McMillan towards the purchase price of the shares from Mr Rowan Peacock and the amount representing thirty percent of the full purchase consideration owed to Peacock by the purchasers in terms of the agreement dated 14 July 2006; which purchase consideration shall for the purpose of the calculation required in terms of this order be adjusted downwards in accordance with the sixth respondent's contentions as to what the adjusted price should be in the unresolved price dispute with Peacock.

(iv) 	The financial condition of the company on 29 February 2008 shall be 	determined on the basis that any company expenses contended by 	McMillan to have been legitimately incurred, for example in respect of the remuneration of Mrs Denise McMillan or the commission paid to Mr Ryan McMillan shall be deemed to have been legitimately incurred - without prejudice to the right of the seventh respondent, if so advised, to recover in separate proceedings any of such amounts as it might contend were unauthorised payments.

(vi) The applicant and the sixth respondent are directed to endeavour to agree upon the appointment of a practising chartered accountant of not less than 10 years' standing, who shall not be the auditor of either the sixth or the seventh respondent, nor have been previously professionally engaged in any capacity by either of those companies or by any of the other respondents, to undertake the valuation of the shares in accordance with the directions in sub-paragraphs (i) - (iv), above and to determine the purchase consideration payable by the sixth respondent for the applicant's shares. In the event of the parties being unable so to agree within 15 days of the date of this order (as finally settled, if written submissions are made in terms of paragraph 2), the valuation and determination shall be undertaken by a Cape Town based practising chartered accountant of not less than 10 years' standing to be nominated by the President of the South African Institute of Chartered Accountants.

(x) In the event of the applicant or the sixth respondent being unwilling to accept the determination of the person appointed in terms of sub-paragraph (vi), proceedings to obtain a judicially determined substitute valuation shall be instituted by the dissatisfied party or parties within 20 days of the publication of the valuation, failing which the independent determination made in terms of this order shall be final and binding on the parties.