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IN THE HIGH COURT OF SOUTH AFRICA

WESTERN CAPE DIVISION, CAPE TOWN

 

                                                                                                            Case no: 18740/2020

 

In the matter between:

 

JASON-B SANDELL	Applicant
and
DIANA MARIA CHAVARRO GONZALEZ	First Respondent
GONZALEZ EDGAR CHAVARRO MONTERO	Second Respondent
LUZ MELIDA GONZALEZ SANCHEZ	Third Respondent
LAS PALETAS (PTY) LTD	Fourth Respondent

JUDGMENT DELIVERED ON 17 MAY 2021

 

NEL AJ:

 

INTRODUCTION:

 

1.    This matter came before me as an opposed application in terms whereof the applicant sought an order in terms of sections 163(1)(a), (b) and (c) and section 163(2) of the Companies Act 71 of 2008 (“the Act”), restraining conduct and activities of the first to third respondents in the exercise of their conduct of the affairs of the fourth respondent which was oppressive or unfairly prejudicial to the applicant and/or that unfairly disregarded the applicant’s interests.  The applicant also sought an order directing the respondents to rearrange between themselves their shareholding so as to restore to the applicant his alleged 50% shareholding in the fourth respondent.

 

2.    Mr. Torrington, who appeared on behalf of the applicant, however informed the court during argument that the primary relief sought by the applicant was to be restored to his alleged 50% shareholding, and that should this court find that he was not entitled to such relief, an order in terms of section 163 of the Act would not be necessary.  The issue was accordingly limited as to whether, on the papers before court, the applicant would be entitled to the relief sought in prayers 2 and 3 of his notice of motion dealing with his shareholding only.  Mr. Torrington also informed the court that the basis for this relief was not founded upon the provisions of section 163 of the Act.

 

3.    The first respondent is the applicant’s wife and they are at present involved in acrimonious divorce proceedings.  The second respondent is the father of the first respondent, whilst the third respondent is her mother.  Where I refer to the respondents it shall be reference to the first to third respondents; whilst the second and third respondents are collectively referred to as the parents of the first respondent.  The applicant and first to third respondents are shareholders of the fourth respondent (“the company”). 

 

4.    One has to point out at the outset that there are material disputes of fact between the parties, especially in respect of the shareholding of the company.  For this reason I deal with both versions separately below.

 

5.    It is common cause between the parties that the company was registered on 22 November 2012 and on that date both the applicant and first respondent were appointed as directors of the company.  They were married at the time. The company grew into a successful business manufacturing and selling ice lollies and ice cream.

 

THE SHAREHOLDING OF THE COMPANY:

 

Applicant’s version:

 

6.    The applicant alleges that he and the first respondent each held 50% of the shares in the company from the date of its incorporation.  In support of this contention he relies upon a South African Broadcasting Corporation (“SABC”) supplier registration form which he alleges was signed by the first respondent on 12 June 2013 wherein they are both recorded as 50% shareholders of the company.  He further relies upon a Cape Town International Convention Centre (“CTICC”) registration form which he also alleges was signed by the first respondent on 18 June 2013 which records that 50% of the company is “women owned”, which he contends leaves the remaining 50% to be owned by him.  The applicant lastly relies upon correspondence received from the first respondent’s attorneys of record, dated 6 November 2020, wherein they make reference to the applicant’s “half share” in the company. The first two of these three documents were not attached to the applicant’s founding affidavit, but rather attached to his replying affidavit.  The respondents were accordingly not provided with the opportunity of responding thereto.

 

7.    The applicant alleges that by 2020 the business was thriving financially and had no outstanding debts and required no further investment.  He however alleges that during the beginning of 2020 the first respondent’s parents wished to invest in commercial property with the idea that the business would rent a portion of such property from them.  He envisaged that the business would grow and eventually occupy all of such property.  The applicant alleges further that the arrangement with the second respondent was that the applicant would give up 40% of his shareholding in the company (although he does not explain what he means by this) and that he would be given 10% of the value of the property sold (again, no explanation is given as to what is meant by this).  One would have expected the applicant to provide more details in this regard such as what would happen to the 40% shareholding that he was giving up?  Who would become the shareholder of those shares?  What was meant by 10% of the value of the property sold?  Was he to be paid out 10% of the value of property acquired by the second and third respondent?  How and when would such payment take place?  These were all questions left unanswered by the applicant in his founding papers. 

 

8.    He moreover alleges that consequent upon this presumably oral agreement referred to above, concluded sometime in the beginning of 2020, he entered into a written agreement with the respondents which he attaches to his founding affidavit.  What is attached to the founding affidavit is not an agreement per se.  The first page is something akin to a resolution signed by the applicant and first respondent in their capacities as directors and shall be referred to herein as the 2019 resolution.  It states that on the 7^th of January 2019, the directors, following a meeting, resolved to allow the first respondent’s parents to invest in the company.  The applicant alleges that the date is incorrect and should reflect 2020.  The document is signed by both the applicant and first respondent.  The last paragraph states that “these 2 persons of interest will invest in building Las Paletas, helping us settle debts, as well as purchase new equipment and vehicles, that are needed in order to keep the make the [sic] business afloat”.

 

9.    The second page of the annexure, also dated 7 January 2019, records that the shareholding of the company would vest as follows:

 

9.1  40% in the first respondent;

 

9.2  40% in the second respondent;

 

9.3  10% in the third respondent; and

 

9.4  10% in the applicant.

 

10. This second page is signed by all four of the parties and during argument was referred to as the shareholding agreement.

 

11. Notably, the SABC and CTICC documents relied upon by the applicant in his replying affidavit, and referred to above, predate the 2019 resolution and shareholding agreement.

 

12. The applicant alleges the second and third respondents are not entitled to 40% of his shareholding in the company as they did not perform in accordance with the alleged aforementioned oral agreement.  Notably, there is no reference at all on either page of this annexure to the purchase of any immovable property by either the second or third respondents.  There are no suspensive conditions to the transfer of the shareholding or anything indicating that it was not effective immediately.  One cannot therefore accept the terms of an alleged oral agreement, which is in any event disputed by the first to third respondents, and which lacks in particularity, and is at odds with the express terms of a written agreement.[1]

 

13. The applicant alleges further that there were no investments made by the first respondent’s parents from 2019 to date thereby giving effect to the aforementioned resolution. 

 

14. He states that on or about 9 February 2020 he and the first respondent became embroiled in a matrimonial altercation resulting in the irretrievable breakdown of their marriage.  The first respondent states that in such altercation the applicant assaulted her, and a criminal case is currently pending in the Cape Town Magistrates Court in this regard.  The applicant vacated the family home and a divorce action is pending before this court.  As a result, his relationship with the first respondent’s parents has also deteriorated and thereafter a resolution was concluded to give effect to the transfer of the shareholding as per the shareholding agreement as well as to remove him as a director of the company.  The applicant attaches email correspondence dated 6 April 2020 from his attorneys of record addressed to the first respondent’s legal representative wherein he states that the applicant refuses to sign the resolution presented to him (“the 2020 resolution”) because the agreement dated 7 January 2019 is void for vagueness.[2]  The correspondence continues to state that the agreement purports to be a sale of shares but does not contain a purchase price.  Notably, the correspondence does not state that the date of the agreement is incorrect and should reflect the year 2020, nor does it make any mention of the alleged oral agreement relied upon by the applicant in respect of the immovable property as set out above.  Mr. Potgieter, who appears on behalf of the respondents, argued that the shareholding agreement is not void for vagueness as there are no specific requirements as to what has to be contained in such an agreement other than the allocation of the shares.

 

Respondents version:

 

15. The first respondent alleges that there were never any discussions regarding shareholding of the company prior to the 2019 shareholding agreement.  Prior thereto no share register had ever been opened and no share certificates issued.  The only discussions between her and the applicant pertained to them being co-directors of the company.

 

16. She states that all capital investments for the business came from her parents.  She states further that her parents offered to invest further funds into the company in order for it to acquire its own immovable property so as to reduce the operational costs associated with paying rent.  This the second and third respondents still intend doing, but are only willing to do so after the applicant and first respondent have resolved the disputes between them.  This proposed further investment was however not the reason for the parties concluding the shareholding agreement, which was rather based upon capital investment which the first respondent’s parents had already made into the company.  It was certainly not based upon an alleged oral agreement in respect of the purchase of immovable property, the existence of such agreement being denied by the first respondent.  The first respondent in fact states that her father is not fluent in English and has never had a conversation with the applicant about business, or otherwise, and that during family gatherings, she used to translate most of the conversations between her father and the applicant.  The applicant in reply concedes that communication between himself and the second respondent was difficult due to the language barrier; however, they nevertheless had communicated about business.  The applicant also alleges that capital investments made into the company by the first respondent’s parents were gifts and had no effect on the shareholding of the company.

 

17. The first respondent states that the applicant never invested any substantial money in the company, despite his allegations to the contrary, and that he was remunerated well and was given 10% shareholding for the work that he did.  He was however never a 50% shareholder and he became a director of the company because her entire family are foreign nationals and before they could register the company with CIPC they required a director with a South African identity number.

 

18. She alleges that the applicant never objected to signing the shareholders agreement, was party to the discussions apropos the shareholding and willingly signed the shareholders agreement which reflects the true position of the company’s shareholding with the applicant being a 10% shareholder.  A share register now exists and share certificates were issued on 3 April 2020 reflecting the aforesaid shareholding.

 

19. The applicant and respondents appear to be ad idem that a future working relationship between the shareholders is not possible and accordingly the first respondent has offered to purchase the applicant’s 10% shareholding, although there is disagreement in respect of the valuation to be attributed thereto.

 

20. There are further disputes between the parties regarding the role which the applicant played in the company, specifically around the extent of his involvement therein, as well as the circumstances giving rise to his removal as a director; however, given that the relief sought by the applicant has now been limited to the issue of the shareholding in the company it is not necessary to deal with these disputes.

 

RELIEF SOUGHT AND DISPUTE OF FACTS:

 

21. The relief sought by the applicant does not include the setting aside of the 2019 resolution or the shareholding agreement, which the applicant admittedly voluntarily concluded, nor does it include a prayer rectifying the securities register of the company to reflect him as a 50% shareholder.  This is relief that one would have expected the applicant to seek if he wished to have a redistribution of the shares carried out.

 

22. Nevertheless, there is a clear and material dispute of fact between the parties surrounding the issue of the shareholding in the company. The applicant nevertheless seeks final relief on the papers.  When this was pointed out to the parties, Mr. Torrington indicated to the court that the parties were not desirous of having the matter referred to the hearing of oral evidence and they wished for the matter to be decided on the papers.

 

23. It is trite that in the case of final relief, any factual disputes in motion proceedings must be resolved in terms of the general rule contained in Plascon-Evans Paints Ltd v Van Riebeeck Paints (Pty) Ltd[3].

 

24. In Plascon-Evans the SCA held at 634H-I that:

 

…where in proceedings on notice of motion disputes of fact have arisen on the affidavits, a final order….may be granted if those facts averred in the applicant's affidavits which have been admitted by the respondent, together with the facts alleged by the respondent, justify such an order.

 

25. The general rule in Plascon-Evans has been summarised as follows: final relief may only be granted if the facts as stated by the respondents, together with the admitted facts in the applicant’s affidavits, justify the granting of such relief.[4]

 

26. The SABC and CTICC documentation relied upon by the applicant to evidence his 50% shareholding in the company, as stated above, was attached for the first time to his replying affidavit and the respondents accordingly did not have the opportunity to respond thereto.  The respondents were not desirous of delaying the matter any further in order to be given an opportunity to file a supplementary affidavit dealing therewith.  What was evident was that the parties wished for the matter to be disposed of as soon as possible.  These two documents were nevertheless concluded in 2013 and therefore predate the 2019 resolution and shareholding agreement.  In respect of the correspondence from the first respondent’s attorneys of record dated 6 November 2020 wherein reference is made to the applicant’s “half share” in the company, Mr. Potgieter argued that this correspondence contains settlement negotiations and accordingly was without prejudice; he argues further that it could nevertheless not have been considered as a recordal of the factual exposition in respect of the shareholding of the company.  This question ought to be decided upon the sworn evidence contained in the answering affidavit of the respondents.

 

27. I was informed by counsel for the parties that the memorandum of incorporation (“MOI”) in respect of the company stipulates that the company is authorized to issue 100 shares, but is silent as to who those shares would be issued to.  I was further advised that it was a generic MOI obtained from the Companies and Intellectual Property Commission (“CIPC”). 

 

28. The only recordal of the distribution of shares is therefore the 2019 resolution read with the shareholding agreement.

 

29. Mr. Torrington argued that these two documents must be read together and not in isolation and that the first respondent’s parents have not invested in the company as envisaged in the 2019 resolution.  The resolution however makes no mention of shareholding and does not state that the shareholding is subject to investment.  It merely states that the applicant and first respondent have decided to allow her parents to invest into the company.

 

30. Mr. Torrington further argued that the share register itself which records the parties respective shareholding as per the shareholding agreement recorded that the applicant and first respondent acquired shares on 22 November 2012 whilst the second and third respondents acquired shares on 7 January 2019.  This, Mr. Torrington submits, supports the applicant’s version of his 50% shareholding in the company which was diluted.  Mr. Potgieter on the other hand argues that the date of 22 November 2012 was included in the share register simply because it was the date of incorporation and the date that both parties became involved in the company.  This submission is however not on the papers and no weight can therefore be accorded to it.  Whilst I must agree with Mr. Torrington that the date recorded in respect of the applicant and first respondent’s acquisition of shares in the share register is odd, and does not accord with the dates on the share certificates themselves, which is 3 April 2020, the version of the respondents is that prior to the shareholding agreement there had been no issued shares.  It has not been disputed that the first written recordal of the share distribution is that recorded in the shareholding agreement.  Accordingly, the respondents allegations that prior thereto there had been no discussion of shareholding, and certainly no agreement concluded in terms thereof, are not so far-fetched or clearly untenable that this court is justified in rejecting them merely on the papers. 

 

31. Section 1 of the Act defines a shareholder as a holder of a share issued by a company and who is entered as such in the certified or uncertified securities register, as the case may be. 

 

32. Section 35(2) of the Act provides that a share does not have a nominal or par value, subject to item 6 of schedule 5.[5]

 

33. Section 35(4) notably states that:

 

An authorized share of a company has no rights associated with it until it has been issued.

 

34. Section 38 deals with the issuing of shares and subsection (1) provides:

 

The board of a company may resolve to issue shares of the company at any time, but only within the classes, and to the extent, that the shares have been authorized by or in terms of the company’s Memorandum of Incorporation…

 

35. The shareholding agreement, signed by both the applicant and the first respondent both in their capacities as directors and shareholders appears to have constituted the issuance of shares as envisaged in section 38. 

 

36. Mr. Torrington argued that by registering these shares in the share register and issuing the share certificates, the first respondent was taking the law into her own hands and she ought to have applied to this court for a declarator before doing so.  Firstly, section 49 of the Act provides for both certificated and uncertified securities, and section 49(2) expressly states that securities issued must be either evidenced by certificates or be uncertified.  The shares accordingly up until that point were uncertified.  Section 49(6) also provides for the withdrawal of uncertified securities from the uncertified securities register[6] and certificates being issued evidencing those securities.  This appears to have been the purpose of the 2020 resolution passed by the respondents on 2 April 2020.

 

37. The applicant was made aware of the respondents intention to issue share certificates, and on 6 April 2020, his attorneys of record responded to the respondents attorneys of record, stating that he would not sign the resolution presented to him and that should the respondents “persist to issue out the resolution, I am with instructions to launch an urgent High Court application after lockdown to have any shares issued set aside”.  It therefore appears that if anyone was to approach the court for relief, and was intent on doing so, then it was the applicant.  The present application was issued some time later on 11 December 2020, although not seeking the threatened relief per se.

 

38. Mr. Potgieter, on behalf of the respondents, argued that the simple fact of the matter was that prior to the shareholding agreement being concluded, the company had not issued any of its authorized shares and accordingly there could have been no rights associated with those shares, by either the applicants or the respondents.

 

39. Upon the application of the Plascon-Evans rule, and in the absence of referral to oral evidence, one has to accept the respondents version that the shareholders agreement, at that stage giving rise to uncertified shares, and the subsequent share register and certificates, accurately reflect the shareholding of the company.  As such the applicant has failed to make out a case for an order directing the respondents to rearrange between themselves their shareholding within the company in order to restore to him his alleged 50% shareholding therein.  In the circumstances, the application ought to be dismissed.

 

40. I accordingly make the following order:

 

ORDER:

 

(a)  The application is dismissed with costs.

 

 

NEL AJ

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