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IN THE HIGH COURT OF SOUTH AFRICA

(NORTH GAUTENG DIVISION)

CASE NO.: 41065/2006

DATE: 1 APRIL 2010

In the matter between

MONTIC DAIRY (PTY) LTD + 9 Others..........................................................................................Applicants

and

MORAITIS INVESTMENTS (PTY) LTD + 6 Others....................................................................Respondents

In re:

MORAITIS INVESTMENTS (PTY) LTD + 3 Others.........................................................................Applicant

and

MONTIC DAIRY (PTY) LTD + 9 Others.......................................................................................Respondents

JUDGMENT HANDED DOWN ON: 1st APRIL 2010

JUDGMENT: APPLICATION FOR LEAVE TO APPEAL

EBERSOHN AJ.

[1] In this judgment the parties will be referred to as in convention.

[2] The respondents applied for leave to appeal against the judgment and order made in the urgent court.

[3] In this Division a single judge, during the particular week when he is on urgent duty, hears all the opposed and unopposed urgent matters, enrolled and/or added to the roll on a daily basis, the number whereof often totals between 60 and 70 matters per week, with about half of them opposed. It is therefore unavoidable that at the end of the week judgments in between 20 and 30 matters have been reserved. After hearing a particular matter it is considered and the authorities researched as soon as possible and the order to be made is drafted and stapled onto the inside cover of the Court file with the intention to later write the judgment. The same procedure is followed with the matters heard on the following days and at the end of the week the judge immediately carries on with the hearing of cases on other rolls and is not first given an opportunity to write the reserved judgments and must write the reserved judgments as and when there is an opportunity to do so. The system results in an unavoidable and regretted delay.

[4] This matter should actually have been enrolled by the Registrar on the special roll to be heard by the 3rd judge instead of enroling it on the urgent roll in view of the bulkiness of the papers in the matter and the papers in the preceding case which was heard by Sapire AJ. The matter was, however, heard and after studying the arguments and the contents of the two court files the Court concluded that the application should be granted and the order to be made was drafted and stapled onto the inside of the file cover so that the full judgment could be written later.

[5] In an unrelated matter, heard probably on the 8th September 2009, there was just a notice of opposition and no answering affidavit and no notice in terms of rule 6(5)(d)(iii) and the Court ruled that the counsel of the respondent in that matter could not argue the legal points she wished to raise. The notes I made in the latter case unfortunately also landed up somehow in the file of this matter resulting in the judgment wherein erroneously was referred to the respondents not filing answering papers and that the respondents could not argue the matter. The correct and intended order which the Court decided upon after the Court considered the matter was, however, reflected in the judgment. This is the first time in over seven years that such an unfortunate mishap occurred and any inconvenience is regretted.

[6] An amended judgment was handed down wherein the Court could not deal with the facts of the matter and the facts will accordingly be set out in this judgment and as the matter is to be resolved later by another Court this Court will refrain from making final findings.

[7] Appeal ground 1 is accordingly no longer applicable.

[8] The second ground of appeal is that in the view of the respondents the order made by the Court could not have been made as the order destroyed the finality of the valuation of the shares made by the appointed valuer, being a company known as Ernst & Young Advisory Services Ltd. ("Ernst & Young").

[9] Paragraphs 3, 5 and 7 of the order made by Sapire AJ in the preceding matter between the parties read as follows:

“3. That the purchase prise shall be conclusively and finally determined by an independent third party who shall act as valuer and not as arbitrator.”

“5. That the valuer shall entertain and consider, but need not necessarily act on representations from both purchaser and Seller as to the value to the placed on the interests bought and sold, and mav make all such other enquiries as he may deem necessary including reference to third parties relative to the value of the fixed and movable assets of the companies to enable him to arrive at and determine a fair purchase price.”

“7. That the parties shall render to the valuer all assistance and cooperation which he might reasonably require in order to facilitate his valuation.”

[10] Paragraphs 2, 5 and 7 of annexure FA6 to the founding affidavit, being the engagement letter of Ernst & Young, signed on behalf of the applicants and the respondents, dated the 9th November 2007, read as follows:

”2. The Terms of Business, which are attached as Annexure A, provide further details of our respective responsibilities and, together with this engagement letter and any other correspondence dealing with our fees or timing of our work, constitute the essential elements oi the terms of our engagement, although in the event of any inconsistency, the Terms of Business shall prevail. Part I is specific to this type of engagement and Pari IE is generic to all Ernst & Young engagements."

^“5. You requested us to act as ar. independent referee as set forth in the Court Order dated the 10 October 2007 with regards to the above referenced matter. In terms of the Court Order we are mandated to finally determine the purchase price consisting of the value of the interests in the Montic Companies and the relative claims on the loan accounts owning(sic) to the Moraitis Group. We will entertain and consider, but won't necessarily act on representations from both parties as to the value to (sic) placed on the interests to be bought and sold, and we may make all such other inquiries as we deem necessary including reference to third parties to enable us to arrive at and determine a fair purchase price. The parties shall render to us all assistance and cooperation which we may reasonably require. Should any problems or difficulties become manifest, we may on notice to the parties, approach the court for directions in this regard. The purchase price will be determined based on the most recent financial information available."

"7. Since this type of engagement includes following lines of thought that develop during the engagement, we may perform additional procedures not initially anticipated. We will consult with you before extending our procedures."

[11] By signing Ernst & Young's engagement letter and Terms of Business, the applicants and the respondents thus amended the Court Order by agreement and made it subject to the terms of the engagement letter and the Terms of Business of Ernst & Young and in the process relaxing the strictness, in so far as it had any, of the Court Order regarding finality.

[12] The gist of the applicant's attack against the valuation is contained in paragraphs 6 and 7 of the founding affidavit and only the relevant subparagraphs thereof are quoted here:

"6.1 The Respondents during December 2006 under case no. 41065/06, launched an urgent application for the winding-up of the First to Seventh Applicants, alternatively for an order directing the Applicants to but out their shareholding in the Montic Group of Companies. After the Applicants filed their answering affidavits, the Respondents withdrew the winding-up relief and persisted only with the buy-out reiief."

"6.2 On 25 October 2007, the application (i.e. the buy-out reiief) was heard by Sapire AJ. The application, save for the issue of costs, was settied between the parties. An order by consent (save for the costs) was handed up to Sapire AJ, who on 25 October 2007 mae an order in terms of FA4."

"6.5 The Applicants (represented by Mr Gross) and the Respondents (represented by Mr Iouiianou) agreed to the appointment of Ernst & Young as the ‘‘independent third party” to value the Moraitis Group’s 20% interest in the Montic Group. Ernst & Young were appointed in terms of an engagement letter signed on behalf of the Applicants and the Respondents, which letter is dated 9 November 2007 - a copy of the letter of engagement is annexed hereto marked FA6. Mr Dave Thavser (“Mr Thavser”) of Ernst & Young was identified as the person ultimately responsible for the preparation of the valuation. Mr Gert Wahl (“Mr Wahl”) was, however, the person who initially performed the actual work. Mr Wahl left the employ of Ernst & Young during April 2008, whereafter Mr David Coleman (“Mr Coleman”) took over Mr Wahl’s functions. The Applicants were dissatisfied with the manner in which Mr Coleman prepared the valuation and the manner in which he communicated with the Applicants’ representatives. I deal with the relevant aspects hereof below."

"6.6 On 10 December 2008, Ernst & Young prepared and circulated a draft valuation report - a true copy of which is annexed hereto marked “FA7” (“the draft valuation”). In terms of the draft valuation, Ernst & Young had valued the equity in and the shareholders’ claims against the Montic Group at R37 million on a minority non-marketable basis. On 17 December 2008, I requested a meeting with Ernst & Young to discuss my concerns regarding the draft valuation, which meeting was arranged for mid-January 2009. No meeting, however, took place, despite my request and Ernst & Young ‘s undertaking to hold a meeting. Mr Coleman, during early January⁷ 2009, requested me to submit my concerns by e-mail to enable Ernst & Young to prepare for the intended meeting. Mr Coleman held the view that the intended meeting would be more constructive if Ernst & Young could bring the required answers and/or present the required facts at the intended meeting. I agreed to e-mail my concerns to Mr Coleman, provided that the meeting would still take piace. On 20 January 2009, I submitted my concerns to Ernst & Young by e-mail - a true copy of my e-mail is annexed hereto marked FA8. FA8 also contains Ernst & Young’s responses to my concerns, which responses were prepared by Mr Thavser and were received by me on 2 February 2009. On 2 February 2009, I had telephone conference call with Mr Thayser and Mr Coleman to discuss the content of FA8. On 3 February 2009, Í again wrote to Mr Coleman to arrange a date for the meeting. On 5 February 2009 (being Mr Coleman’s last correspondence with me), he still indicated that a meeting would take place once he had received feedback from Mr Thayser. [A copy of this e-mail is annexed hereto marked FA8(a)j. As stated above, this meeting never took place and the Applicants also received no notice that the draft valuation was in the process of being finalised and issued until it arrived at the offices of Mr Gross.” (Own accentuation).

"6.7 As a result of FA8, Ernst & Young made two amendments to the draft valuation, namely:

6.7.1 Ernst & Young had valued the Puma helicopter fleet at a negative figure of R4 343 863.00. The value of the helicopter business was, however, included in the draft valuation as a positive figure of R4 343 863.00. The net effect of this “clerical” error was to reduce their valuation by R8 687 726.00. (I point out that the incorrect helicopter spreadsheet remains attached to the final valuation which does not correspond with the final figures reflected on page 50 of the final valuation);

6.7.2 The earnings before interest and tax margin (“EBITDA margin”) (EBITDA = "Earnings Before Interest And Tax") was adjusted from 6,07% to 5,66%. This change already reduced the valuation figure by approximately R5 million. (These errors were confirmed in Ernst & Young’s letter of 5 March 2009 to which reference is made in paragraph 6.8 below)."

"6.8 On 5 March 2009, Ernst & Young provided Mr Gross and Mr Ioulianou with what purports to be their final valuation which is dated 28 February 2009. This document was sent to the parties under cover of a letter dated 5 March 2009. A true copy of the covering letter and the valuation (“the final valuation”) is annexed hereto marked FA9. in terms of the finai valuation, Ernst & Young calculated the value of equity in and the shareholders' claims against the Montic Group at R25,l million on a minority non-marketable basis."

"6.9 The final valuation is incorrect. The grounds upon which the Applicants intend seeking the rectification, alternatively the setting aside of the final valuation are set out below."

"6.10 To enable the Applicants to meaningfully assess the final valuation, Mr Gross addressed a letter to Ernst & Young dated 18 March 2009 - a copy of which is annexed hereto marked FA10. In terms of FA10:

6.10.1 Ernst & Young are advised that notwithstanding the assertion in the final valuation that the Applicants’ auditors, MDP Auditors Inc (“MDP Auditors”), were consulted during the valuation process, this did not in fact happen; (Own accentuation)

6.10.2 Ernst & Young are advised that in terms of paragraph 10 of the letter of engagement (FA6), the external auditors of the Applicants and the respondents would be entitled to have sight of Ernst & Young’s working papers;

6.10.3 Ernst & Young are requested to provide the Applicants with their land valuations and to provide the Applicants access to their working papers."

"6.11 As Ernst & Young never replied to FA10, Mr Gross addressed a further letter to them dated 3 April 2009 - a copy of which is annexed hereto marked FA11. In terms of FA11, Mr Gross repeats the request that the Applicants and/or MDP Auditors be given access to Ernst & Young’s working papers. Mr Gross also detailed the concerns which the Applicants had with the valuation of certain of the immovable properties and again requested Ernst & Young to provide the Applicants with their property valuations. The valuation performed by Ernst & Young cost the Applicants and the Respondents the total amount of R900,000.00 and is as such the property of the Applicants and the Respondents. As the letter of engagement (FA6) makes provision for access to the working document by the parties, the refusal by Ernst & Young inevitably raises concerns that the final valuation is flawed, which flaws Ernst & Young do not want exposed.”

"6.12 Ernst & Young never responded to FA11, as a result of which Mr Gross addressed a further letter to them dated 8 May 2009 - a true copy of which is annexed hereto marked FA12. In FA12, the Applicants’ concerns are again set out and the request that Ernst & Young provide the Applicants with copies of their working papers and property valuations is repeated."

"6.13 During May 2009, Mr Ioulianou telephoned Mr Gross and enquired when the Applicants would be making payment to the Respondents for their 20% shareholding in the Montic Group, being 20% of the value determined by Ernst & Young. Mr Gross advised Mr ioulianou of the letters addressed to Ernst & Young and their failure to respond. These conversations and the Applicants’ attitude that they did not, in the circumstances, consider FA9 to be final, was conveyed to Mr Ioulianou in terms of a letter dated 27 May 2009 -a copy of which is annexed hereto marked FA13. Mr Ioulianou never replied to FA13 - he simply issued the warrant of execution."

"7.1 The final valuation is incorrect for the following reasons:

7.1.1 The Third Applicant owns various immovable properties (the aggregate size of which is 427 hectares) of which 327 hectares were valued separately by Ernst & Young (“the excess land”). The remaining 50 hectares are used commercially and are covered by the free cash flows valuation method. The excess land, which consists of 327 hectares of agricultural land, was valued by Ernst & Young at R5,560,000.00 (vide: page 33 of the final valuation). From this amount, the sum of Rl,463.000.00 was deducted in respect of farm housing, as these houses formed pari of employment packages for key personnel (vide: page 33 of the final valuation). The excess land was accordingly valued by Ernst & Young in the final valuation at R4.097,000.00:

7.1.2 The northern section of the excess land valued by Ernst & Young falls below the 50-vear flood line and can accordingly not be developed. The southern section of the excess land valued by Ernst & Young falls is very rocky and is also unsuitable for development, as there are large tracts of dolomite. In 2002, 327,1318 hectares of virtually identical land was sold by the Third Applicant to the National Parks Board for R510,000.00, which equated to a rate of Rl,559.00 per hectare. The property sold to the National Parks Board and improvements consisting of three brick dwellings, in September 2005, a professional valuer valued the entire land area of 472,9152 hectares at R830,000.00, which equates to a rate of Rl,750.00 per hectare. (This price excluded the dwellings) [a copy of this valuation is annexed hereto marked FA13(a)J. The excess land valued by Ernst & Young (which is identical to the land which was soid to the National Parks Board) was valued at R9.574.00 per hectare. The excess property also borders the Zonkisizwe Township, as a result of which it is classified as a “red zone” for building finance purposes by financial institutions. There is no acceptable reason or basis for the excess land to have been valued at more than Rl.500.00 per hectare as at 25 October 2007;

7.1.3 This final valuation is obviously incorrect insofar as the valuation of the excess land is concerned. The Applicants intend appointing their own valuer and calling him as an expert during the proceedings contemplated in paragraph 3 of the notice of motion to establish that the property valuation undertaken by Ernst & Young is wrong and will in the circumstances iead to an inequitable result;

7.1.4 The EBITA margin used by Ernst & Young in the craft valuation was 6,07%. This figure is based on a comparison made by Ernst & Young between the dairy operations of Dairy’ Belie and that of the Applicants. This comparison is inappropriate, as Dairy' Belie is a national dairy with an approximate market share of 8% whilst the First Applicant operates a regional dairy with a market share of less than 1%. The results of the national dairies such as Clover, Parmalat and Dairy Belle (which are the largest dairies in the country) will always exceed those of the First Applicant, as these dairies have far bigger marketing capabilities and also have cheese manufacturing facilities which are highly profitable lines;

7.1.5 The historical EBITDA margin figures (obtained from the Applicants’ audited financial statements) for the financial years ending 2002 to 2007 were the following: financial year 2002 - 6,58%; financial year 2003 -2,99%; financial year 2004 — 3,84%; financial year 2005 - 3,6%; financial year 2006 - 6,25% and financial year 2007 - minus 0,55%. Based on the historic trends and the forecasts provided by the management of the First Applicant, an average of he five consistent years between 2002 and 2006 (I excluded the negative figure for the financial year ending 2007) would be realistic margin to use, being an EBITDA margin of 4,65%. I have requested Mr Andre Dames (“Mr Dames”) of MDP Auditors to comment on what, in his expert opinion, is a realistic EBITDA margin to be applied, regard being had to the historical figures and the projections provided by the management of the First Applicant. Mr Dames’ opinion is accordingly based on the same figures provided to Ernst & Young. Mr Dames agrees that a figure of 4,65% is far more realistic than the figure of 5,66% used by Ernst & Young. Mr Dames’ affidavit is annexed hereto marked FA14. In the event of it eventually being found that the EBITDA margin used by Ernst & Young was incorrect to the extent provided for above, their valuation wiii be reduced by a least a further R6 million. This figure is based on the figures contained in Ernst & Young’s letter of 5 March 2009 (FA8). 1 cannot provide a more accurate figure at this stage without having the benefit of Ernst & Young’s working papers;

7.1.6 On page 5 of the final valuation. Ernst & Young state tha^r as part of the valuation process, thev held discussions with MDP Auditors. Mr Dames confirms in his affidavit that no discussions or consultations whatsoever were held with an^ representatives of Ernst & Young in the preparation of the valuations. This factually false statement in itself justifies the request that Ernst & Young provide the Applicants and/or MDP Auditors with their working documents;

7.1.7 Both Mr Wahl and Mr Coleman advised me that as part of finalising the valuation, a quality control process was required. This process would ostensibly be dealt with by the London Branch of Ernst & Young and had to be completed before a final valuation could be issued. Mr Wahl initially advised me that an additional payment of R100,000.00 would need to be made to cover the costs associated with the quality control process, which amount was paid on 12 May 2008, bringing the figure paid by each of the parties (i.e. the Applicants and the Respondents) to R450,000.00 - the total valuation cost being R900,000.00. When Mr Coleman took over the functions of Mr Wahl, he advised me that a further sum of R100,000.00 and thereafter R50,000.00 was required to finalise the quality' control process. I refused make any further payments to Ernst & Young, as Mr Wahl had stated to me when calling for the further sum of R100,000.00 that such payment would be the final payment. I mentioned that the Applicants have still not received a full accounting from Ernst & Young in respect of the retainers being utilised. To date, the Applicants records show that R159.000.00 of the retainer is refundable based on the invoices which have to date been raised by Ernst & Young;

7.1.8 Notwithstanding having made payment of the additional sum of R100,000.00 (bringing the total sum paid by the Applicants to Ernst & Young to R450,000.00) towards this quality control process, it does not appear ex facie the final valuation that any such process was undertaken by the London Branch of Ernst & Young. This is a further matter which requires investigation."

(Own accentuation)

"7.2 I am advised that it is only necessary at this stage to on a prima facie basis deal with the errors of flaws in the final valuation. The errors concerning the valuation of the immovable property and the use of the incorrect valuation variables has a material effect on the ultimate value determined by Ernst & Young. Should the final valuation be allowed to stand, it will lead to a patently inequitable result."

[13] In paragraph 7.3 it was alleged that the warrant of execution was irregularly phrased but this point was not further canvassed in argument.

[14] The respondent, in the answering affidavit, however, responded to only subparagraphs 6.1, 6.8 and 6.13 of paragraph 6 of the founding affidavit, and apparently relied only on the legal argument to the effect that the valuation was “final”, and stated the following:

"31. AD PARAGRAPH 6.1

It is incorrect that after the Applicants filed their answering affidavits, the Respondents withdrew their winding up relief. The true position is the following: on the day of the hearing, his Lordship Judge Sapire indicated to the parties that he was inclined to proceed on the alternative relief as it appeared that the business was a viable concern and many employees would be out of work in the event of a winding up order. He stated that a buy-out was the preferred mode in the circumstances and that “money must change hands"."

"32. AD PARAGRAPH 6.8

I wish to draw the Honourable Court’s attention to the fact that the deponent concedes that the Fifth Respondent contended the valuation dated the 28^th of February 2009 to be a final valuation. I respectfully submit that the matter ends there and it is not open for the Applicants to now contend that because of their dissatisfaction with this valuation, they are entitled to circumvent the operation of the Court Order and to deiay the payment.

"33. AD PARAGRAPH 6.13

My attorney, Mr ioulianou, informs me that he indeed made contact with Mr Gross, representing the Applicants, to enquire as to when the Applicants would be making payment to the Respondents. My attorney, Mr Ioulianou, informs me that during the discussion with Mr Gross he made it clear that the report of the Fifth Respondent dated the 28^th of February 2009 constituted a final determination of the value in respect of which the purchase price was to be calculated and that the purchase price would become due an payable to the Respondents after the lapse of 90 days. Gross informed my attorney of record on 7 May 2009 that he would get instructions from his client and revert back to him. This exercise will be undertaken, if necessary , at the appropriate time.hatsoever was made by Gross as to any purported objections to the report. It is submitted, with respect, that all of this was simply an afterthought by the Applicants. Gross’ letter of the 7 May 2009 to Mr louiianou is annexed hereto marked AM5".

[15] The respondents in the answering affidavit did not respond in any way to the contents of paragraphs 7.1 and 7.2 of the founding affidavit and with regard to subparagraph 7.3 responded by arguing that the warrant of execution was correctly phrased.

[16] Ernst & Young filed a notice of abiding and also a very short affidavit deposed to by one Thayser, of Ernst & Young, wherein the allegations of the applicant as set out in the founding affidavit were baldly denied. It must be noted that the initial work regarding the valuation was done by one Gert Wahl and he was succeeded by one Coleman with whom the applicants did not get on well. How Thayser who only came in late and did not do the work can comment on the applicants’ grounds of attack is not clear. In paragraph 7 of the affidavit he stated inter alia:"...it is in any event not appropriate to deal comprehensively with all of the allegations made by Mr. Gross and I will not do so. This exercise will be undertaken, if necessary at the appropriate time."

[17] With regard thereto the applicant siated the following in the replying affidavit:

"AD THE AFFIDAVIT OF MR THAYSER:

14.

14.1 Mr Thavser states that Ernst & Young stands by the contents of the final valuation and denies that in preparing such valuation, Ernst & Young “did not exercise the judgment of a reasonable man”; “acted irregularly or wrongly” and that the final valuation leads to a “patently inequitable result”. No facts are, however, advanced to support this statement.

14.2 It cannot be disputed that in the event of the Applicants’ grounds of attack upon the final valuation eventually being upheld, that the final valuation will be substantially reduced. If the Applicants are obligated to pay an amount to the Respondents based on an incorrect valuation, this in itself constitutes an inequitable result.

14.3 In the circumstances, the Applicant is entitled to institute those proceedings contemplated in paragraph 3 of the notice of motion and is further entitled to the interdictory relief contemplated in paragraph 2 of the notice of motion pending the institution and finaiisation of such proceedings.

14.4 The letter from Ernst & Young dated 24 April 2009 was received and responded to by Mr Gross in terms of this letter dated 9 May 2009. A true copy of his letter (attached to which is a letter form MDP Auditors) annexed hereto marked RA1. RA1 was sent to Mr Thavser by fax and to his personal e-maiS address.

14.4.1 Mr Gross never received DJT2, as it appears that Mr Thavser faxed DJT2 to Mr Gross’ telephone number [(012) 341 6607] instead of his fax number. In DJT2, Mr Thavser records the following in the final two sentences thereof:

“I have noted the contents of your correspondence and am discussing our reaction with our internal legal counsel. You will hear from us in due course.” Save for Ernst & Young’s letter dated 24 April 2009. Mr Gross never heard anything further from Ernst & Young. The assertions in DJT2 are moreover inconsistent with the view now adopted by Ernst & Young that the valuation was final.”

[18] The full text of the e-mail message annexure DJT2 which was forwarded on the 9th June 2009 by Dave Thayser of Ernst & Young to attorney Solly Gross, and which is attached to Thayser's affidavit, reads as follows:

"Subject: IN THE MATTER BETWEEN MORAÏTÍS AND THE KEBERT GROUPS.

Dear Sir,

Your faxes dates(sic) 8 May 2009 and 22 May 2009 refer. I was overseas for the last three weeks of May and into early June, and thus I have only just become aw are of your correspondence. Part of the reason for the slow response is that you use our general fax number (011 772-4000) for this purpose. In future kindly use my direct fax, 011 772-4818, in order to streamline communication. I have noted the contents of your correspondence and am discussing our reaction with our internal iega! counsel. You will hear from us in due course.

Yours faithfully Dave Thayser."

[19) The following appears from the valuation being annexure FA9 to the founding affidavit:

a) The 4th unnumbered paragraph of the letter appearing of page 136 of the record reads as follows:

"We have relied upon the documentation, information and explanations made available to us without independent verification and without performing audit procedures that would enable us to express an opinion on the information iniuded therein, albeit that we determined such to be reasonable in the circumstances in which such was received."

b) On page 147 of the record the following is stated in the report regarding their method of operation:

• " We have also relied upon the explanations provided by Management during the course of our valuation, without independent verification. We have assessed such comments and explanations for reasonableness within he context of our knowledge and understanding of the Montic Group and the industry within which it operates.

• We have based the valuation results on the budgeted financial information provided by management. The budgets for Montic relate to future events and are based on assumptions that may or not remain valid for the whole of the forecast period. Consequently, such information can not be relied to the same extent as that derived from audited financial statements for completed accounting periods. We express no opinion as to how closely the actual future results for the Montic will correspond to those projected. We have not verified the authencity or validity of the documentation made available to us.

• Conclusions arrived at in this report should be interpreted in this light. We do not express an opinion on the commercial merits of any aspects on the Montic Group's business.

• If additional or new documentation or information is brought to our attention subsequent to the date of this report, which would affect the findings detailed below, we reserve the rignt to amend or qualify our findings accordingly.

• The financial information for the period ended 31 December 2007 is based on the unaudited management accounts. There are significant fluctuations in the revenues and margins as compared to the previous financial years. We have discussed the with management, as detailed in the later sections.

• We emphasize that any valuation is subjectively based on the facts presented, which have not necessarily been verified." (Own accentuation)

c) From the accentuated paragraph in subparagraph b). supra, it appears that Ernst & Young themselves did not regard the valuation as being final and that it was always subject to being amended upon proof furnished. This apparently explains why they did not independently verify the information given them. This distinguishes the valuation even more from an architect's final certificate and causes serious doubt as to the acceptability at all of the valuation..

[20] It is also the case of the applicants that despite a written undertaking to do so, Ernst & Young did not revert again to attorney Gross so that he could make an input regarding the valuation. See in this regard annexure DJT2 quoted in paragraph [19] supra. In so far as some reliance is placed on annexure DJT1, this fax was not received by attorney Gross as it was faxed to his telephone number 012 341 66071 and not to his fax number.

[21] Despite advising the applicants that as part of finalising the valuation a quality control process was required which would ostensibly be done by the London office of Ernst & Young and had to be completed before a final valuation could be issued, and charging and getting paid therefor, it does not appear ex facie the valuation and accompanying papers, that such verification process was undertaken by the London Branch of Ernst & Young and it may be argued that the valuation report was not yet ripe to be issued yet when it was issued.

[22] On page 5 of the valuation Ernst & Young stated that as part of the valuation process they held discussions with MDP Auditors, the external auditors of the Montic Group of companies, of which the Montic Dairy is part of. In paragraph 7.1.6 of the founding affidavit the deponent on behalf of the applicants stated that no such discussions took place between Ernst & Young and MDP Auditors and this allegation is confirmed by Mr. Dames of MDP Auditors in his confirmatory affidavit attached as annexure FA 14 to the founding affidavit. Mr. Dames also stated therein that had Ernst & Young compared the Montic dairy business, which is a regional business, with a similar regional business, instead of comparing it with Dairybelle, which is a national business, a more realistic EBITDA margin of 4,65% would have been used, reducing the valuation with R6 million. Dames confirmed the allegations in this regard made by Wayne van Biljon in the founding affidavit, in paragraph 3 of his confirmatory affidavit, on page 221 of the record.

[23] Based on the figures set out above it appears that it is the applicants' case that the valuation of the "excess land" was R3 606 500.000 (38,28%) too high and with regard to the alleged incorrect EBITDA margin used a further R6 million too high, totalling R9 606 500,00.

[24] The Court therefore found that the applicants have established, on at least a prima facie basis, that the valuation was markedly wrong and incorrect in the respects outlined in paragraph 7.1 of the founding affidavit and that Ernst & Young, in preparing the valuation did not exercise the judgment of a reasonable man, resulting in the final valuation leading to a patently inequitable result. Paragraph 7.2 of the Applicants' replying affidavit reads in this regard as follows:

"7.2 As a result of the concerns raised by the Applicants upon receipt of the draft valuation, Ernst & Young reduced their valuation by R12.6 million (33,42%). These errors undoubtedly demonstrated that Ernst & Young had erred, which error would have ied to a patently inequitable result/ The grounds upon which the Applicants rely will, if established, lead to the final valuation being amended by approximately a further R10 million (39,8%). In the event of the Applicants being successful there will undoubtedly be a finding that Ernst & Young again erred, which error will lead to a patently inequitable result."

[25] The respondents' stance in this case, relying on Ocean Diners (Pty) Ltd v Golden Hill Construction CC [1993] ZASCA 41; 1993 (3) SA 331 (AD), is that the applicants could not attack the valuation. In Mouton v Smith 1977 (3) SA 1 (AD) Trollip JA, did not rule out the possibility that even an architect's final certificate could be assailed and stated the following on p. 5F-G:

"It is unnecessary' in the present case to decide what defences the employer can and cannot raise if the contractor sues him on an interim certificate, suffice it to say that ordinarily any defence available to the employer ought to be pleaded (see Langeler’s case, supra, at p. 843G-H)."

[26] The attitude of the respondents resulted in them not responding to and attempting to rebut the applicants' very serious allegations and taking this Court into their confidence regarding the facts. Ernst & Young also did not meet the allegations.

[27] The applicants, on the other hand, relied on authorities such as Perdikis v Jameson 2002 (10) SA 356(W); Bekker v RSA Factors 1983 (4) SA 568(T) and Rossing Stone Crushers (Pty} Ltd. v Commercial Bank of Namibia and Another 1994 (2) SA 622 (NmHc) 628E-G and at 632E-I for their contention that they could attack the valuation.

[28] There is a vast difference between the strict nature of the certificate of an architect (the Ocean Diners case) and the valuation of a valuer, especially in the instant case where there are so many variables like fluctuating land values and share prices, "red" areas close to squatters like in the present case and different operating costs of local and national dairies and even Ernst & Young in the accentuated paragraph set out in paragraph [20] b) supra, indicated that the valuation is open to amendment.

[29] It was proven by the applicants that the valuer in the course of things made mistakes which were pointed out to him by the applicants when the valuer reverted to them, which mistakes were not disputed by the respondents in their papers. Furthermore after the valuation was issued Ernst & Young gave a written undertaking to the applicants to revert back to them, obviously in view of the passage accentuated by the Court in paragraph [19] b), supra. It is the contention of the applicants that had the valuer reverted back to them further mistakes in excess of R9 606 500,00 would have been detracted from the valuation and a fresh valuation would have been issued as undertaken in the said quotd sub-paragraph.

[30] The above resulted in this Court concluding that the relief sought ought to be granted and that the matter should go to Court where expert evidence could be led and a Court could decide the matter.

[31] The grounds of appeal lumped together in paragraph 3 of the application for leave to appeal are mostly repetitive, argumentative and where they have not been dealt with in this judgment, do not warrant leave to appeal to be granted.

[32] The Respondents contended that because it was agreed between the parties that the valuation would be conclusive and binding, that it was not capable of being attacked or impeached. That interpretation of paragraph 3 of the order by Sapire AJ. clearly wrong and the valuation may be adjusted from time to time by the valuer until both parties have had an opportunity to make inputs and respond to inputs from the other side until there are no more inputs when the valuer will be entitled to finally determine the purchase price. The argument of the respondents that once a valuation has been handed down that that is the end of the matter is clearly wrong. Ernst & Young , in the past already adjusted the valuation once and must do so again upon proof being furnished that the valuation is incorrect. In view of the attitude of the respondents the applicants have no other remedy than to approach the Court for assistance.

[33]  With regard to appeal ground 4, namely that this Court should have found that the application was devoid of any merit or urgency, the aforegoing disproves that it was devoid of merit and this Court found that it was urgent and such a finding is non-appealable.

[34] The 5th ground of appeal namely that the Court should have found that the report by Ernst & Young was final and binding also has no merit at all as has been demonstrated supra.

[35] For the above reasons this Court granted the application of the applicants and made the order it did, in the process concluding that there were prima facie prospects of the applicants establishing that the valuation was incorrect in several material respects and that the matter ought to be resolved by a trial Court and for the same reasons I am satisfied that there are no prospects of success with the proposed appeal.

[36] The order the Court made was in any case not a final order and is therefore non-appealable.

[37] The Court accordingly make the following order:

1. The Application for leaveju-affpeai is refused with costs.

Counsel for applicants for leave to appeal: ADV. K. BAILEY SC

Attorney for applicants for

leave to appeal: STEVE IOULIANO ATTORNEY

Tel. 011x453 8138

Counsel for the respondents in the

application for leave to appeal : ADV. A.G. SOUTH

Attorneys for respondents in the

Application for leave to appeal GROSS, PAPADOPULO & ASS

Ref. S. GROSS/ BDP/MON2/0040 TEL. 012X3416607

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