THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT

Reportable
Case no: 20760/14

In the matter between:
DINES CHANDRA MANILAL GIHWALA      FIRST APPELLANT
LANCELOT LENONO MANALA
SECOND APPELLANT
DINES CHANDRA MANILAL
GIHWALA NO                                                  THIRD APPELLANT
SHANTI GIHWALA NO

FOURTH APPELLANT
KANTIELAL JERAM PATEL NO
FIFTH APPELLANT
NARENDRA GIHWALA NO

SIXTH APPELLANT
KIRAN GIHWALA NO

SEVENTH APPELLANT
and
GRANCY PROPERTY LTD

FIRST RESPONDENT
MONTAGUE GOLDSMITH AG
(in liquidation)                                               SECOND RESPONDENT
MINISTER OF TRADE AND
INDUSTRY                                                        THIRD RESPONDENT

Neutral citation: Gihwala v Grancy Property Ltd (20760/2014) [2016]
ZASCA 35 (24 March 2016)

Coram:
LEWIS, LEACH, SERITI and WALLIS JJA and TSOKA
AJA.
Heard:
22 and 23 February 2016
Delivered: 24 March 2016
Summary: Investment agreement – express and tacit terms – breach –
damages – heads of damage – claims not excluded by rule in Foss v
Harbottle – declaration of delinquency in terms of section 162(5)(c) of
the Companies Act 71 of 2008 – section applies in cases of substantial
misconduct by directors – not retrospective in its operation – section a
rational response to the problem of delinquency by directors – not
unconstitutional – circumstances justifying the making of a declaration of
delinquency.

ORDER

On appeal from: Western Cape Division of the High Court (Fourie J
sitting as court of first instance):
The appeal succeeds to the extent that:
(a)
Paragraphs 1(b) and (e) of the first paragraph 1, and
paragraphs 3 and 5 of the order in the High Court are set aside;
(b)
The amount in paragraph 1(c) is reduced to R41 763.20;
(c)
Paragraph 2 of the order in the High Court is varied to read
as follows:

‗The First, Second and Third Defendants are to make available to
the First Plaintiff for inspection and, if desired, the making of
copies of all books of account and accounting records, including all
supporting vouchers and documents, in their possession relating to
the transactions undertaken by and the financial position of the
business of the Third Defendant.‘
The cross-appeal succeeds to the following extent:
(a)
Paragraph 1(g) is inserted into the order of the High Court
reading as follows:
‗The amount of R465 000 plus interest calculated at 15.5 per cent
from 3 March 2009 to date of payment.‘
(b)
The Dines Gihwala Family Trust is declared to be jointly
and severally liable, the one paying the others to be absolved, with
the first and second defendants, for payment of the amounts
referred to in paragraphs 1(a), (b), (c) and (f) and 2(a) to (c) of the
order of the High Court.

The order of the High Court is accordingly amended to read as
follows:
‗IT IS ORDERED THAT:
1.
First and Second Defendants are declared liable, jointly and
severally with each other and, in the case of paragraphs (a), (b), (c)
and (f), jointly and severally with the Dines Gihwala Family Trust,
to pay the following to First Plaintiff:

(a)
The amount of R2 051 833,34, together with interest thereon
at the rate of 15,5% per annum, calculated from 20 March 2007 to
date of final payment.

(b)
The amount of R41 763,20 together with interest thereon at
the rate of 15,5% per annum, calculated from 28 February 2009 to
date of final payment.

(c)
The amount of R620 000,00 together with interest thereon at
the rate of 15,5% per annum, calculated from 15 June 2009 to date
of final payment.

(d)
The amount of R213 789,57, together with interest thereon
at the rate of 15,5% per annum, calculated from 19 August 2009 to
date of final payment.

(e)
The amount of R326 740,00, together with interest thereon
at the rate of 15,5% per annum, calculated from 19 August 2009 to
date of final payment.

(f)
The amount of R165, 660,60, together with interest thereon
at the rate of 15,5% per annum, calculated from 6 January 2010 to
date of final payment.

(g)
The amount of R465 000 plus interest calculated at 15.5 per
cent from 3 March 2009 to date of final payment.

2.
That the First and Second Defendants and the Dines Gihwala
Family Trust are declared liable, jointly and severally, to pay the
following to First Plaintiff:

(a)
The amount of R852 500,00, together with interest at the rate
of 15,5% per annum on the amount of R1 705 000,00 calculated
from 8 April 2009 to 23 November 2010 and on the amount of
R852 500,00, calculated from 23 November 2010 to date of final
payment.

(b)
The amount of R345 507,09, together with interest at the rate
of 15,5% per annum on the amount of R691 014,18, calculated
from 1 March 2008 to 23 November 2010, and on the amount of
R345 507,09, calculated from 23 November 2010 to date of final
payment.

(c)
The amount of R612 722,24, together with interest thereon,
at the rate of 15,5% per annum, calculated from 24 June 2009 to
date of final payment.

3.
The First, Second and Third Defendants are to make available to
the First Plaintiff for inspection and, if desired, the making of

copies of all books of account and accounting records, including all
supporting vouchers and documents, in their possession relating to
the transactions undertaken by and the financial position of the
business of the Third Defendant.

4.
The First and Second Defendants are declared delinquent directors
as contemplated in section 162(5)(c) of the Companies Act 71 of
2008.

5.
No order as to costs is made in respect of the constitutional
challenge.

6.
The First Plaintiff is declared liable for the costs of the application
for amendment, which were reserved on 6 February 2014,
including the costs incurred by Second Defendant in opposing
same.

7.
Save for paragraphs 6 and 7 above, the First and Second
Defendants and the Dines Gihwala Family Trust, represented by
the Fourth to Eighth Defendants, are declared liable, jointly and
severally, for the payment of First Plaintiff's costs of suit on the
scale as between attorney and client, which costs are to include the
following:

(a)
The costs of two counsel, where employed;

(b)
The attendance fees and qualifying expenses of the expert
witness, Mr H J Greenbaum;

(c)
The reasonable costs and disbursements, as followed on
taxation incurred by First Plaintiff in respect of Mr KI Mawji, who
is declared a necessary witness.‘

The amended paragraph 3 of the order of the High Court is to be
complied with within 30 days of the date of this judgment and the
obligation to comply therewith will not be suspended or postponed
pending the outcome of any further application for leave to appeal
in this or any other case.

The appeal is otherwise dismissed with costs, such costs to include
those consequent upon the employment of two counsel, but to
exclude
all
costs
occasioned
by
the
challenge
to
the
constitutionality of s 162(5) of the Companies Act 71 of 2008, in
respect of which each party will pay its or their own costs.

The first and second appellants and the Dines Gihwala Family
Trust are to pay the costs of the cross-appeal, such costs to include
those consequent upon the employment of two counsel.

JUDGMENT

Wallis JA (Lewis, Leach and Seriti JJA and Tsoka AJA concurring)
Introduction
[1] In about 2001 Mr Dines Gihwala, the first appellant and an
attorney and businessman, met Mr Karim Mawji, an English
businessman, while playing golf in Portugal. Their acquaintance ripened

into friendship and in February 2005, together with Mr Lancelot Manala,
the second appellant and a friend and business associate of Mr Gihwala‘s,
they entered into a business venture. That went awry and has precipitated
a flood of litigation and two prior appeals to this Court,1 as well as the
present proceedings.

[2] This appeal follows upon a lengthy trial before Fourie J in the
Western Cape Division of the High Court, Cape Town. It involved the
consolidated hearing of two actions2 brought by Grancy Property Limited
(Grancy), the first respondent, and Montague Goldsmith AG,
(Montague), the second respondent, both corporate entities controlled by
Mr Mawji, principally against Messrs Gihwala and Manala. Other
defendants were Seena Marena Investments (Pty) Ltd (SMI), the
company through which the business transaction was conducted, and the
Dines Gihwala Family Trust (the Trust). SMI initially defended the
actions and lodged a claim in reconvention in the 2010 action. At the
commencement of the trial it withdrew the claim in reconvention and
indicated that it abided the decision of the court. The Trust originally
defended the actions jointly with Mr Gihwala, but at the trial and in this

1 Grancy Properties Ltd v Manala and Others [2013] ZASCA 57; 2015 (3) SA 313 (SCA); Grancy
Property v Seena Marena [2014] ZASCA 50; [2014] 3 All SA 123 (SCA).
2 Where it is necessary to distinguish between them they will be referred to as the 2010 action and the
2011 action respectively.

Court they were separately represented.3 Fourie J upheld most of
Grancy‘s claims. He gave judgment against Mr Gihwala and Mr Manala
for payment of certain amounts. In addition he ordered Messrs Gihwala
and Manala, as well as SMI, to disclose books of account and financial
records relating to SMI‘s affairs, and ordered that the three of them and
the Trust render a statement of account to Grancy in regard to the
business venture.

[3] Lastly, in terms of s 162(5)(c) of the Companies Act 71 of 2008
(the 2008 Act), Fourie J declared both Mr Gihwala and Mr Manala to be
delinquent directors. As he added no conditions qualifying that order, its
effect was that the two men were barred from acting as directors for any
company for seven years,4 subject to their right after three years to apply
for the suspension of the order and its substitution with an order for
probation.5 Fourie J rejected a constitutional challenge to s 162 of the
2008 Act. The Minister of Trade and Industry (the Minister) had been
joined, as a party to the proceedings, to argue that s 162 was not
unconstitutional.

3 Although represented by separate counsel they continued to conduct the litigation on pleadings
common to both Mr Gihwala and the Trust and the instructing attorneys remained the same.
4 Section 162(6)(b)(ii) of the Act.
5 Section 162(11) of the Act.

[4] No one, bar the Minister, was satisfied with the outcome of the
trial. Messrs Gihwala and Manala, and the Trust, contended that none of
the orders made by Fourie J were justified. Grancy and Montague, for
their part, were dissatisfied with Fourie J‘s refusal to grant certain
declaratory orders as well as his dismissal of two monetary claims and his
failure to hold the Trust jointly and severally liable on some of the
successful monetary claims. They also challenged his rejection of claims
under s 424 of the Companies Act 61 of 1973 (the 1973 Act),
alternatively s 77(3) of the 2008 Act. When Messrs Gihwala and Manala
and the Trust sought leave to appeal, Grancy applied for leave to cross-
appeal against the judgment in relation to their rejected claims. Fourie J
granted leave to appeal and cross-appeal to this Court. The Minister is
also a party to the appeal.

Background
[5] Spearhead Property Holdings Ltd (Spearhead) was a property loan
stock company listed on the Johannesburg Stock Exchange (JSE).6 Its
business was to hold and invest in immovable commercial, industrial and
retail properties, primarily in the Western Cape, and to derive its income
from rentals. Provided its business was successful, as it appears to have

6 Many of these have since converted to Real Estate Investment Trusts (REITs).

been, it would generate a steady and reasonably predictable flow of
income. The capital structure of the company, as with others of this type,
consisted of linked ordinary units with varying rate linked debentures.
After deducting operating expenses the net revenue would be distributed
to shareholders. Because of the capital structure of the company the
distributions made to unit holders were deductible from gross income in
its hands before the assessment of tax, and were taxable as income in the
hands of shareholders. Such investments are seen as comparable to
interest-bearing investments such as bonds. Their attraction to investors
lies in the fact that they provide a reasonably consistent return, which
tends to grow at least in line with inflation as rentals increase.

[6] At the end of 2004 and early 2005 Spearhead, like many other
companies, wished to engage in a Black Economic Empowerment (BEE)
transaction to expand its shareholder base in the Black community. To
that end it was prepared to make available 3,5 million linked units to a
special purpose vehicle (SPV), the shares in which would predominantly
held by Black shareholders or organisations or companies that
predominantly represented the interests of Black people. The SPV would
subscribe for the shares at R15.50 per unit, a price significantly below the
then current price of Spearhead shares on the JSE, of around R20 per
unit.

[7] Ngatana
Property
Investments
(Pty)
Ltd
(Ngatana)
was
incorporated as the SPV through which the BEE transaction would be
implemented. Messrs Gihwala and Manala, were offered a 40 per cent
stake in Ngatana, which they proposed to take up thorough SMI, an
existing company in which the Trust and Mr Manala held equal shares.
Prescient Real Estate Ltd (Prescient) and certain other minor investors
would take a total of 42 per cent. Bonitas Medical Aid Fund (Bonitas)
was offered an 18 per cent share, but withdrew at a late stage in the
implementation of the proposal. This is what gave rise to the involvement
of Mr Mawji.

[8] Apart from his friendship with Mr Mawji, Mr Gihwala was also a
close friend of Mr Anil Narotam, who was at the time the chief operating
officer of Montague, a company that administered investments on behalf
of Grancy. Mr Gihwala and Mr Manala had been afforded the opportunity
of taking up the 18 per cent stake in Ngatana that Bonitas had decided to
forego. They in turn, for reasons that do not emerge fully from the record,
but appear to have included the fact that Mr Mawji would be in a position
to help finance the transaction, decided to involve Mr Mawji in the
investment in Ngatana. Initially Mr Gihwala approached Mr Narotam. He
did not have authority on behalf of Mr Mawji to make any final decision

on such matters, but conveyed the gist of the proposal to Mr Mawji. He in
turn found it sufficiently interesting to come to South Africa and meet
with Mr Gihwala.

[9] That meeting took place on 3 February 2005 at a hotel in
Johannesburg. Present were Mr Gihwala, Mr Mawji and Mr Narotam.
According to several later statements by Mr Gihwala he represented
himself, and also Mr Manala, the Trust and SMI, at the meeting. The only
oral evidence of what transpired at the meeting was that of Mr Mawji,
because neither Mr Gihwala, nor Mr Narotam, gave evidence, although at
the stage of the pre-trial conference such evidence had been
foreshadowed. Fourie J found that Mr Mawji was a credible witness and
that finding was not challenged before us. Some documents dealing with
what was agreed are also important, as contemporaneous documents
emanating from Mr Gihwala.

[10] The meeting was conducted against the backdrop of the Spearhead
BEE transaction and the availability through Ngatana of an interest in
3.5 million units at a price of R15.50. Standard Bank had agreed to
provide finance in an amount equivalent to R12.75 per linked unit. The
investors in Ngatana needed to provide the balance of R2.75 per unit, as
well as to fund the implementation costs to be incurred in implementing

the transaction. With the withdrawal of Bonitas as an interested party an
opportunity existed for SMI to obtain an effective 58 per cent stake in the
3,5 million Spearhead units. This would be done by subscribing for 58
per cent of the shares of Ngatana and lending to Ngatana that proportion
of the funds needed to pay the balance of the subscription price for the
Spearhead units and the anticipated implementation costs. Prescient and
the other investors would subscribe for the remaining shares in Ngatana
and provide the balance of the funding.

[11]     It was explained to Mr Mawji that SMI would be used as the
vehicle for the investment. The proposal put to him was fairly simple. In
return for a shareholding in SMI he would provide a portion of the funds,
estimated as being approximately R3.5 million, needed for SMI to obtain
the 58 per cent stake in Ngatana. In addition, as Mr Manala lacked the
resources to make his contribution to SMI as a one-third shareholder, Mr
Mawji (through Grancy) and Mr Gihwala would each fund one half of Mr
Manala‘s share. These loans would attract interest at a commercial rate
and, if and when Mr Manala realised his interests at a profit, Mr Gihwala
and Mr Mawji (or their corporate doppelgängers) would share in a
proportion of that profit.

[12] Mr Mawji insisted on a one-third shareholding in SMI and Mr
Gihwala agreed to this. There was some urgency about the matter and Mr
Mawji was told that it was essential for him to make a decision that day.
The cause of the urgency is not entirely clear, but it matters not because
Mr Mawji agreed at the meeting to participate in the investment on the
basis outlined above. In this Court all parties accepted that an agreement
was concluded at the meeting on that day.

[13] The business relationship appeared to proceed without problems
for a few months. In August 2005 Mr Narotam raised the possibility of
Grancy exiting the investment, but nothing came of this and it does not
appear to have occasioned any problems. Thereafter the relationship
between the parties deteriorated. On 6 October 2005 Mr Narotam wrote
asking Mr Gihwala to finalise the shareholders‘ agreement for SMI and
the loan agreement in relation to the loan to Mr Manala. A loan
agreement was forthcoming in December 2005 at which stage it became
clear that Grancy would hold the investment in SMI.

[14] In November 2005 Spearhead undertook a rights issue. It does not
appear that either Mr Mawji or Mr Narotam was aware of this. The effect
of the rights issue, which was funded entirely by Standard Bank, was that
Ngatana acquired an additional 2 million linked units in Spearhead. Its

existing loan from the bank was discharged and a fresh loan agreement
concluded for R93.6 million. Additional security was furnished by way of
a pledge of a further 630 000 linked units and by additional suretyships
from inter alia Messrs Gihwala and Manala.

[15] In the early stages of 2006 information sought by Mr Mawji
concerning the Spearhead investment was not forthcoming and the
business relationship with Mr Gihwala, which included another venture
referred to as ‗Scharrig‘, soured. By the middle of 2006 Mr Mawji was
clearly regretting the investment and sought to withdraw from it. On
28 June 2006 Mr Narotam sent an email to Mr Gihwala informing him
that a decision had been made to exit the Spearhead investment. He
added:
‗As the initiators and co-investors we would like to offer to you the opportunity to
make a proposal to take over our investment or bring in a new investor of your choice
to buy us out. Alternatively if you also wish to exit now to arrange the full disposal.‘
This provoked an angry response from Mr Gihwala. Within an hour he
replied noting the decision and saying:
‗You are NOT and were NOT initiators of this transaction. You invested in this deal
through Lance who you lent money.
Please let me have an exit proposal for consideration.
Strictly speaking your investment was with Lance …‘

[16] Despite the tone of this communication Mr Narotam appears to
have set to work preparing a proposal. While he was so engaged another
event occurred. On 26 July 2006 Redefine Income Fund Ltd (Redefine),
also a property investment trust, announced its intention to make an offer
to unit holders in Spearhead to acquire their units on the basis that they
would receive either 6.18 Redefine linked units or R31 in cash for each
unit.

[17] Mr Narotam was aware of this offer and the calculations in the
proposal he prepared valued the Spearhead units at R30 per unit. He
submitted the proposal to Mr Gihwala on 3 August 2006 suggesting that
Grancy‘s interest could be acquired for about R11 million. Less than two
hours later Mr Gihwala rejected this figure out of hand saying that
Ngatana wished to become a significant investor in Redefine and did not
want to exit the investment. He said that but for Redefine‘s offer the
Spearhead price would be nearer R26 per unit. In addition, although the
calculations were based on an equal division of the indirect interest of
SMI in the Spearhead units originally acquired, resulting in each investor
having an interest in 676 666 units,7 Mr Gihwala claimed that Grancy‘s
interest was limited to 630 000 units. After dealing with costs and some

7 SMI‘s stake in Ngatana was 58 per cent and the original acquisition was of 3.5 million Spearhead
units. A 58 per cent share in those units amounted to 2 030 000. One third of that would be 676 666
units, with two remaining.

other issues he suggested that the calculations be redone ‗on the basis of
630k units at a realistic price‘.

[18] On 3 September 2006 Mr Narotam sent an email to Mr Gihwala,
that was copied to Mr Manala and Mr Mawji.8 As it, and the response to
it, set the stage for the disputes that followed it is desirable to set out its
terms relatively fully:
‗We refer to our investment in Spearhead through Seena Marena Investments (Pty)
Ltd which was made in accordance with your e-mail dated 21 February 2005.
The main terms of the investment as clearly indicated in the aforementioned e-mail
are as follows:
1.
Seena Marena Investments (Pty) Ltd acquired 58% of the 3 500 000 units in
Spearhead at R15.50 each of which R12.75 was funded by Standard Bank.
2.
For our one third investment (equivalent to 676 666 Spearhead units) we paid
to you as requested an amount of R1 976 833.33 plus R75 000.00 for costs.
3.
In addition Montague Goldsmith and you equally and jointly, advanced as a
loan to Lance Manala an amount of R1 976 833.33 …
Although you proposed drafting an agreement acknowledging our one third share in
Seena Marena Investments (Pty) Ltd, such agreement has not as yet been concluded
or executed. We request that agreements in the form of a shareholders agreement
together with loan agreements between Lance Manala, Montague Goldsmith and you
be executed as soon as possible.

8 In an affidavit filed in earlier proceedings Mr Narotam claimed that the email was drafted by Mr
Mawji and sent on his instructions, but this was denied by Mr Mawji.

As you are aware, our investment was made at very short notice on good faith and on
the understanding that the formal agreements containing the terms and basis of our
investment (such terms being as per your e-mail of 21 February 2005) would be
executed shortly thereafter. This has not been done to date and needs to be regularised
immediately.
We are concerned that you have indicated that our entitlement is for 630 000
Spearhead units and not the 676 666 units indicated in correspondence at the time the
investment was made. At no time were we subsequently informed of any rights issue
etcetera that could lead to a dilution or reduction in our entitlement to Spearhead
units. We therefore maintain that we are entitled to 676 666 units.
We are aware that an offer has been made by Redefine and Apex-Hi to the
shareholders of Spearhead. As an equal shareholder in Seena Marena Investments
(Pty) Ltd we should be consulted on the decision to be made by Ngatana. Please let us
have full details of the offer so that we may provide our input.‘
Ten minutes after sending this email a further email was sent attaching a
copy of Mr Gihwala's email of 21 February 2005.

[19] One week later, on 11 September 2006 Mr Gihwala responded in
an email to Mr Narotam, which was also sent to Mr Mawji and Mr
Manala. It read:
‗I told you and now repeat hopefully for the final time that any reference to any
number of units other than 630k is wrong and a mistake. 630k units became available
after another participant elected not to proceed with the investment. By this time

Lance and I had already secured 1.4m units. I could therefore not offer any more than
was available at the time.
You were never to be a shareholder in our company. You came in behind us for 630k
units. It was always so that you would be subject to the decisions of SMI. You were
certainly not an independent party as you now try to suggest. When you make
investments you expect priority interest on your capital. Why should I bind my credit
and take risk for no reward? The position is unnecessarily complicated by your
unilateral decision to realise this investment and above all on your terms and
conditions. I'm afraid it will not happen in this instance.
I shall conduct the affairs of SMI as I deem fit. You have no say in its affairs. You are
NOT a shareholder. You were never intended to be one. You will never be one. Your
interest is limited to the 630k units. There is no risk of any dilution; regardless of
what we choose to do in SMI we have to account to you for your interest in 630k
units. This will only happen once SMI is liquidated for us (Lance & I) to realise our
investment. The earlier correspondence you refer to is premised on this grand plan of
creating SM Capital. You know what happened and the least said about that the better.
Could you perhaps explain why I would want to introduce you to the opportunity the
630k units presented at its cost to us at a time when it was trading at a premium of
more than 35% above the price we paid for the units; why would I assume the risk of
personal liability to the bank without any indemnity or upside; and why are these
issues raised only now and not before even though I told you explicitly I would be
charging for my ―credit‖? I drafted an agreement some time ago and asked my
secretary to forward it to you. If she has not done so I can only assume that she
wanted me to check it before dispatching same. I will ask her to send it off
immediately even though I have not had a chance to check it. The idea of a

shareholders agreement is a little disingenuous and a ploy to obtain a position of
advantage you are not entitled to. Do you think I could not have personally funded the
amount of money you put in or raise it from family and friends etc? …
As far as the Redefine offer is concerned, which is a matter of public knowledge … It
is not our intention to take any cash but to take up all the RDF units we are entitled to.
Even if we did take some cash it will be used to pay down the debt; in short there will
be no cash surplus. Even if there were cash we shall deal therewith in the best interest
of SMI and no other party, least of all an opportunistic and expedient one.
I have no intention of dealing with your letter under reply in any more detail. I reserve
the right to do so if and when it may become necessary. My failure to do so now
should therefore not be interpreted as an acknowledgement of the correctness or
otherwise thereof. You should soon be in possession of the agreement I drafted some
time ago. You are at liberty to sign such agreement or not. I shall nevertheless act in
accordance with that agreement. I can assure you that the realisation of the SMI
investment in Ngatana is not imminent unless something dramatic or spectacular
happens. Rest assured you will receive a proper accounting for the 630k units or its
equivalent in RDF if the offer succeeds when the time to do so arrives. I reserve the
right to charge a fee for my services I have rendered and continue to render for SMI.
You are liable for a portion of those and other operating expenses based on your 630k
units. If and when I need your share I shall call for it and expect you to make payment
promptly.
This matter is now closed as far as I am concerned.
Finally, I was the one to arrange this transaction. Lance does not know of any detail of
the transaction except that he may be able to confirm that there were only 630k units
available. Accordingly, I am the one to deal with.‘

[20] There can be little surprise that shortly afterwards Mr Mawji, on
behalf of Grancy, consulted attorneys and various letters of demand were
sent to Mr Gihwala, Mr Manala and SMI. It is unnecessary to go into any
detail regarding this correspondence, save to say that if anything it served
to harden the parties‘ opposing positions. A full account of the funds
deposited in the trust account of Mr Gihwala's law firm for the purposes
of the Spearhead investment was demanded. In addition a demand was
made for full details of the Redefine takeover of Spearhead, including any
monetary benefits offered to Spearhead unit holders, the number of
Redefine units to be acquired, the nature and extent of SMI‘s and
Ngatana‘s stake in Redefine and the date on which the takeover became
effective.

[21] In November 2007 Grancy launched an application in the Western
Cape Division of the High Court claiming against Messrs Gihwala and
Manala, SMI and the Trust delivery of a 31 per cent shareholding in SMI.
Although this was less than the one-third share originally agreed upon Mr
Mawji explained in his founding affidavit that this was being accepted on
the basis of a concession by Messrs Gihwala and Manala, whilst
reserving Grancy‘s position to make further claims after receiving a
proper account of its investment. In addition to the registration of that

shareholding in its name it sought an accounting in respect of its original
investment in SMI.

[22] Messrs Gihwala and Manala, as well as the Trust and SMI,
opposed the application. Mr Gihwala deposed to the principal answering
affidavit on behalf of himself, SMI and the Trust. The opposition was
vigorous, and aspersions were cast on Mr Mawji‘s personality, integrity
and business methods. In essence Mr Gihwala claimed that it had been
discovered that Grancy could not be a participant in a BEE transaction
and that its interest was now being exercised indirectly through Mr
Manala. There was also a considerable excursus in relation to the failure
of an attempt to establish a venture capital fund. But the opposition to the
application collapsed shortly before the hearing when an offer of
settlement was made that in substance conceded all the relief sought by
Grancy. Pursuant to the settlement on 9 March 2009 an order9 was made

9 The order read:
‗1.
The First Applicant is entitled to a 31% direct equity shareholding in the First Respondent.
2.
The First to Third and Fifth to Ninth Respondents shall do all things (including but not limited
to passing resolutions, allotting, issuing or transferring the shares, registering the transfer thereof and
delivering to the First Applicant share certificates and all other documents which establish and
evidence its 31% equity stake in the First Respondent) and such other things as are necessary to
transfer 31% of the shares in the First Respondent to the First Applicant and to effect the registration of
the First Applicant as a member of the First Respondent in its register of members.
3.
The Second, Third and Fifth Respondents shall, within fourteen days of this order, render a
full and proper account to the Second Applicant in respect of the First Applicant's investment in
Spearhead Property Holdings Limited linked units ("the Spearhead Investment") and ("the
Spearhead units") and shall provide a statement of account, duly supported by all relevant vouchers,
dealing with at least, but not limited to, how, when, by whom and for what purposes the First,
alternatively the Second Applicant's fund of R4 040 250.00 deposited into the Fourth Respondent's

directing that Grancy be registered as a 31 per cent shareholder in SMI. It
further directed Mr Gihwala, in both his personal capacity and as a trustee
of the Trust, and Mr Manala to render a full and proper account to Grancy
in respect of its investment in the Spearhead investment and the
Spearhead units. Pursuant to this order Grancy was registered as a 31 per
cent shareholder in SMI on 25 March 2009.

[23] In the interim, while this dispute was raging and even before the
litigation was underway, events moved on. The Redefine offer was
accepted and the 5.5 million Spearhead units held by Ngatana were
replaced by 33.99 million Redefine units. On 7 March 2007 the directors
of Ngatana resolved to repay the amounts lent to it by its various
shareholders to enable it to conclude the original BEE transaction. This
involved the repayment of R6 657 673 to SMI on 15 March 2007.

First National Bank trust account number 51331425227 between February and June 2005, were utilised
by any of the said Respondents or any other party.
4.
The First to Third and Fifth to Ninth Respondents after rendering the aforesaid account shall:
4.1
debate the aforesaid account;
4.2
pay to the First and Second Applicant, such amount, if any, as may be due to them upon such
debatement.
5.
The Third Respondent shall pay to the First Applicant the sum of R988 416.66 plus interest
thereon calculated monthly from 11 February 2005 to date of payment at the rate equal to the greater of
the interest rate on the Quant Plus Call Account of Prescient Investment Management (Pty) Ltd or the
dividend yield rate of the Spearhead units, from time to time.
6.
The Third Respondent shall pay to the First Applicant, upon the realisation and unwinding of
the Spearhead investment and payment of the proceeds thereof to the First Respondent, an amount
equivalent to 25 per cent of the amount by which the price of the 700 000 Spearhead units held
indirectly by the Third Respondent, upon realisation thereof, exceeds R18.00 per Spearhead unit.
7.
The First to Third and Fifth to Ninth Respondents, jointly and severally, the one paying the
others to be absolved, shall pay the Applicants' costs in the above proceedings on the High court scale
as between party and party, as taxed or agreed, to 5 February 2009, which costs will include the costs
of two counsel.‘

Thereafter amounts totalling R4 million were paid to the Trust, and
shared between Messrs Gihwala and Manala. Nothing was paid to
Grancy. Instead, on 2 April 2007 an amount of R2 million was invested
in Scarlet Ibis Investments 52 (Pty) Ltd (Scarlet Ibis), a property
development company. Later correspondence between Mr Manala and
Mr Gihwala showed that Mr Manala had initially suggested that Grancy
be repaid its loan to SMI, but at Mr Gihwala‘s instigation the investment
in Scarlet Ibis had been made instead. This may not have been
unconnected to the fact that Mr Gihwala‘s wife and the Trust had an
interest in the development.10 Mr Gihwala apparently believed that there
would be a 50 per cent return on the investment within 24 months, but
those prognostications proved incorrect and, when the company was
liquidated, it is likely that it was lost.

[24] Also on 7 March 2007, Ngatana had resolved to pay an amount of
R3 million to Prescient and SMI in equal shares, ostensibly as
compensation for their efforts in setting up the BEE transaction.
However, at that stage it lacked the necessary funds to make this
payment. Needless to say Grancy was not informed of this decision. But
in March 2009 Ngatana‘s board of directors resolved to pay R1.5 million

10 When Scarlet Ibis was liquidated they were the sole shareholders.

to Prescient for setting up the transaction and R750 000 each to Messrs
Gihwala and Manala as ‗directors‘ fees‘. Again Grancy was not aware of
this decision or these payments. The resolution noted, ‗… this matter has
already been verbally discussed with many of the shareholders and they
will be asked to confirm their consent by signing this resolution.‘ This
recognised that the payments were sufficiently unusual that they
necessitated consulting the shareholders before they could be made.

[25] From May 2008 Ngatana started to dispose of the Redefine units
that it had received in place of the Spearhead units. This was not
discussed with Grancy and it was not informed that it was happening. By
April 2009, shortly after the court order, all the Redefine units obtained in
the acquisition of Spearhead had been sold. The Standard Bank loan was
repaid and substantial dividends were paid from the proceeds. (In the
2008 financial year Ngatana purchased a further 20 million Redefine
units as a participant in a BEE transaction by Redefine. It funded this by
incurring fresh liabilities to Standard Bank of some R25 Million and to
RMB Securities (Pty) Ltd of R116 million.) In October 2008 Ngatana
declared a dividend and SMI received R5 572 727.27. This was paid, by
way of dividend, in equal shares to the Trust and Mr Manala.
Accordingly, while the Trust and Mr Manala had been repaid the money
they had lent to SMI to fund the original investment – in Mr Manala‘s

case, money that he had been lent by Grancy and Mr Gihwala – and had
received a substantial dividend, Grancy had received nothing and indeed
was unaware that these payments had been made.

[26] After the grant of the order and the registration of Grancy as a
shareholder Mr Gihwala continued, as he had said in his email of
11 September 2006 to ‗conduct the affairs of SMI as I deem fit‘.
Demands for access to the company records were rebuffed. And on
15 June 2009 the directors of SMI, by way apparently of a telephone
conversation between Mr Gihwala and Mr Manala, agreed to lend the
latter R2 million. Another loan of slightly less than R2 million was made
at the same time. Overall his ledger account reveals that between 2007
and 2009 Mr Manala withdrew over R9 million from SMI. He had
himself provided only R77 000 to SMI so he benefited handsomely from
his participation.

[27] A one page account was furnished to Grancy by Messrs Gihwala
and Manala and the Trust in purported compliance with the order referred
to in para 22. A demand by Grancy for full accounting records was
rejected on the footing that the account was adequate. This prompted a
further opposed application in June 2009 regarding its adequacy. In the
meantime Annual Financial Statements for SMI for 2007, 2008 and 2009

were supplied to Grancy, which objected to them. In September 2009
revised Annual Financial Statements for SMI for 2009 were presented at
the AGM and adopted over Grancy‘s objections. Attempts by Grancy to
obtain further information from Mr Gihwala were rejected on the grounds
that it was not entitled to this information. In January 2010 Grancy
launched the first action.

[28] In April 2010 Binns-Ward J handed down judgment holding that
the account tendered in response to the consent order was ‗woefully
inadequate‘ and ordering that an improved account be furnished. The
further account tendered pursuant to this order and supplemented after its
rejection by Grancy, was said by Grancy to be inadequate. After further
litigation this Court granted an order holding that it also was inadequate
and directing a hearing on that topic.11 That hearing took place before
Traverso DJP who delivered judgment on 29 February 2016, holding the
account to be inadequate and making consequential orders. Meanwhile in
June 2011 Grancy had brought the 2011 action.

11 Grancy Property Limited and Another v Seena Marena Investment (Pty) Ltd and Others [2014]
ZASCA 50; [2014] 3 All SA 123 (SCA).

The issues
[29] Grancy‘s case in both the 2010 and the 2011 action was that in
various respects Messrs Gihwala and Manala, as well as the Trust and
SMI, breached the February 2005 agreement. It alleged that these
breaches gave rise to a number of claims to recover compensation for
financial loss that it had suffered in consequence of such breaches. In
addition to the contractual basis for such claims it also advanced a claim,
in respect of some items, under s 424 of the 1973 Act and in the
alternative under s 77(3) of the 2008 Act. Apart from these monetary
claims it sought orders for the disclosure of financial records and books
of account and an accounting against both Messrs Gihwala and Manala
and the Trust and SMI. Finally it sought an order that Messrs Gihwala
and Manala be declared delinquent directors in terms of s 162(5)(c) of the
2008 Act.

[30] A fundamental dispute emerged in regard to the identity of the
parties to the February 2005 agreement and also as to its nature and
contents. However, in the course of argument in the appeal, counsel for
Mr Gihwala made certain important concessions that narrowed the field
of dispute. The Trust contended that it was not a party to the agreement at
all and accordingly, as the claims were based on an alleged breach of
contract, no relief could be claimed against it.

[31] In regard to the monetary claims the respondents contended that
they were in truth claims by SMI against its directors, Messrs Gihwala
and Manala, and therefore could not be pursued by Grancy in its own
right in accordance with the well-established principle of company law
known as the rule in Foss v Harbottle.12 Over and above that it was
submitted that one of the claims amounted to a duplication and others
were not well-founded on the facts.

[32] It was conceded in argument on behalf of Mr Gihwala that he and
Mr Manala owed Grancy an obligation to provide information and render
an account in regard to its investment, but the scope of those obligations
was disputed. It was submitted that the accounting sought related to
claims that would be disposed of by the monetary judgments. It was also
said that such an accounting overlapped with the accounting ordered in
the March 2009 order.13 Traverso DJP has now held that the accounting
pursuant to that order was inadequate, so that is an issue that remains
unresolved. Consistent with its attitude that it was not a party to the
agreement, the Trust denied any obligation to render an account.

12 Foss v Harbottle (1843) 2 Hare 461; (1843) 67 ER 189.
13 See fn 9 above.

[33] The final substantial point of dispute related to the orders made
declaring Mr Gihwala and Mr Manala delinquent directors. They both
contended that s 162 of the 2008 Act, under which the orders were made,
was unconstitutional. Although they did not formally ask for an order to
that effect it would necessarily follow from any determination of
unconstitutionality.

[34] Flowing from this the following are the issues to be determined in
this appeal:
(a) Who were the parties to the agreement concluded on 3 February
2005 and what were its material terms?
(b)  Was that agreement breached and, if so, in what respects?
(c)  Did Grancy have financial claims arising out of the breach of the
agreement?
(d)  Were those claims precluded by the rule in Foss v Harbottle?
(e) Was Grancy entitled to orders against Mr Gihwala and Mr Manala
in terms of s 424 of the 1973 Act or s 77(3) of the 2008 Act?
(f)  Was Grancy entitled to an order for access to the books and
accounting records of SMI and for the rendering of an account in
relation to its investment?

(g)  Is s 162 of the 2008 Act unconstitutional and, if not, was Fourie J
correct to make orders of delinquency in relation to Mr Gihwala and
Mr Manala?
(h)  The disposal of the cross-appeal.
(i)  What order should be made in regard to costs?

The agreement
Parties
[35] Grancy, Mr Gihwala and Mr Manala were indisputably parties to
the agreement. Grancy alleged, and contended before us, that SMI and the
Trust were also parties. It is not entirely clear what finding the High
Court made in this regard. It accepted that SMI and the Trust might, in
the event of specific obligations having been undertaken by them, be
regarded as separate contracting parties to the agreement. However, it
held that they were not to be regarded as contracting parties to the
‗primary overarching joint venture agreement‘. In reaching that
conclusion the trial judge relied particularly upon a passage in the
evidence under cross-examination of Mr Mawji, in which he described
SMI as being ‗the vehicle that was used by the three partners to carry the
investment‘ and went on to identify Grancy, Mr Gihwala and Mr Manala
as the three partners. He also emphasised that in response to a question by
counsel for the Trust, Mr Mawji accepted that the Trust had no greater

responsibilities or obligations to Grancy than those contained in the
memorandum or articles of SMI.

[36] It is unclear whether the High Court held that there was a primary
agreement concluded between Grancy and Messrs Gihwala and Manala
and subsidiary agreements to which SMI and the Trust may have been
parties, or whether it accepted that SMI and the Trust were parties to a
single agreement, but only undertook limited obligations thereunder, not
extending as far as the obligations undertaken by Messrs Gihwala and
Manala. It is important that this be resolved at the outset. If SMI and the
Trust were as much parties to the agreement as Grancy and Messrs
Gihwala and Manala, then prima facie their obligations would have been
the same as those of Mr Gihwala and Mr Manala. Even if they did not
owe specific obligations to Grancy, because only others could perform
those obligations, they would nonetheless have incurred the ordinary
obligation of all contracting parties not to act in a way, or permit others to
act in a way that would stultify the performance of the contract in
accordance with its terms.14

14 As to the duty of co-operation in contracts see A McAlpine & Son (Pty) Ltd v Transvaal Provincial
Administration 1974 (3) SA 506 (A) at 533H-534E.

[37] Mr Mawji said that there were three partners involved in the
investment and that these were Grancy and Messrs Gihwala and Manala.
Undue weight should not be attached to that. The description of someone
as a ‗partner‘ may carry various different connotations. It may, in some
contexts, carry a strict legal meaning as a member of a partnership. But
business people frequently use it to describe the individuals involved in a
business venture, without any technical connotation being attached to it.
For example, where a business is conducted through a corporate vehicle,
the natural persons interested in it are frequently referred to, and refer to
themselves, as partners in that business. That is how Mr Mawji used it
when he said ‗the partners agreed to use SMI as a corporate vehicle for
their common interest on this 3rd of February‘. It is also the sense in
which Mr Narotam used it when writing to Mr Mawji on 3 March 2005
after Bonitas again expressed interest in participating in the Spearhead
BEE transaction. Mr Mawji was a chartered accountant and an
experienced and successful businessman, but that does not mean that he
was familiar with the niceties of the law concerning partnership. Indeed,
elsewhere in his cross-examination, he disavowed such knowledge,
beyond a vague and uncertain understanding.

[38] It seems to me preferable to look at the conduct of the parties
present at the meeting in order to identify the parties to the agreement that

resulted from that meeting. Mr Mawji and Mr Narotam represented
Montague, which is accepted as having represented Grancy. Mr Gihwala
was plainly representing Mr Manala and his interests. There is no other
basis on which he could have negotiated for Mr Manala to forego one
third of his interest in SMI to Grancy, or for the latter to provide a loan to
Mr Manala upon the terms for repayment of that loan agreed by him. That
leaves SMI and the Trust.

[39] When the meeting commenced the Trust and Mr Manala held equal
shareholdings in SMI, that is, each held a 50 per cent stake in SMI. The
agreement involved each of them sacrificing one third of their interest in
order for Grancy to acquire a one third stake in SMI. That was not
something to which Mr Gihwala could commit the Trust in his own right.
He could only do so as a representative of the Trust with the authority of
his co-trustees.

[40] Not once, in all the litigation that has ensued since February 2005,
have his co-trustees questioned his authority to represent them and agree
to forgo a one third share of the Trust‘s interest in SMI. On the contrary,
when Grancy brought proceedings to compel delivery of these shares, Mr
Gihwala deposed to an answering affidavit in his own right and on behalf

of the Trust. In response to a statement in the founding affidavit by Mr
Mawji that:
‗… It was never clear whether he [Gihwala] was acting in his personal capacity … or
as an authorised trustee of the [Trust]‘
Mr Gihwala responded:
‗… the deponent was at all times aware that I was acting in my personal capacity and
on behalf of the Trust in relation to the Spearhead investment.‘
That statement has never been withdrawn or rebutted. It was confirmed in
another statement made by Mr Gihwala, this time in response to a
complaint about his conduct lodged with the Cape of Good Hope Law
Society. Then he said:
‗The entities in which I have an interest which were involved in these transactions
included the Dines Gihwala Family Trust (―the Trust‖) and Seena Marena
Investments (Pty) Ltd (―SMI‖). SMI is a company in which Lance Manala (―Manala‖)
and the Trust each initially had a 50 per cent interest. Grancy now has a 31 per cent
equity interest in SMI. The directors of SMI are Manala and myself.‘

[41] There was an endeavour by Mr Kirk-Cohen SC, who appeared for
the Trust at the trial and in this Court, to suggest that no reliance could be
placed on these documents. However, in a pre-trial minute dated February
2012, at a stage when Mr Gihwala and the Trust were represented by the
same counsel and attorneys, it was agreed that all documents included in
the trial bundle would, without further proof, serve as evidence of what

they purported to be. In the case of these two documents they are
respectively an affidavit and a statement by Mr Gihwala in regard to the
identities of the parties who he was representing at the meeting. Insofar as
he now seeks to challenge the fact that the Trust was a party to the
agreement they are admissible as statements against interest made by a
representative of the Trust.

[42] In addition, we were informed from the bar, without objection, that
a notice had been given in respect of these documents in terms of the
provisions of rule 35(10) of the Uniform Rules of Court. That rule
permits any party to give to any other party a notice to produce at the
hearing the original of any document referred to in the notice and, once
produced, it entitles the party giving the notice ‗without calling any
witness, to hand in the said document, which shall be receivable in
evidence to the same extent as if it had been produced in evidence by the
party to whom notice is given‘.  Friedman J said in Knouwds,15 that the
rule provides an exception to the general requirement that a document can
only be admitted in evidence by a witness who is in a position to identify
the document. Mr Kirk-Cohen submitted that nonetheless the contents of
the document remain hearsay against the Trust and inadmissible as proof

15 Knouwds v Administrateur, Kaap 1981 (1) SA 544 (C) at 551G-552B.

of their contents. Friedman J disposed of this by drawing attention to16 an
exception in the case of a statement made by a third party, where there
existed a privity or identity of interest between the person making the
statement and the party that was the subject of the statement. In this case
there is a clear identity of interest between Mr Gihwala in his personal
capacity and the Trust of which he is a trustee. The objection to the
admissibility of these statements was accordingly unfounded.

[43] Mr Kirk-Cohen SC also posed the rhetorical question whether after
the meeting Mr Gihwala could, without objection, have caused his
interest in SMI to be held by an entity other than the Trust, and answered
it in the affirmative. This he said demonstrated that the Trust could not
have been a party to the agreement. The problem is that the question is
hypothetical and the answer by no means certain. Such a change could
only have taken place if the incoming shareholder undertook the same
obligations as rested on the Trust in consequence of the agreement. That
they could only do by concluding a contract with the other contracting
parties. Absent such an agreement it is difficult to see on what basis Mr
Gihwala could have substituted some other entity for the Trust. In my
view the Trust was clearly a party to the agreement.

16 At 552B-G.

[44] I need spend less time on the position of SMI. Under the agreement
it would be required to issue the shares that were to be taken up by
Grancy. Mr Gihwala and Mr Manala were the directors of SMI and Mr
Gihwala was there representing both Mr Manala and SMI. Furthermore
loans in substantial sums would have to be made to SMI to enable it in its
turn to subscribe for shares in Ngatana and make loans to Ngatana. In
those circumstances to suggest that SMI was not a party to the agreement
is in my view unjustified. I accordingly agree with the contention on
behalf of Grancy that the parties to the agreement were Messrs Gihwala
and Manala, the Trust, SMI and Grancy.

Terms of the agreement
[45] Apart from the evidence of Mr Mawji that has been summarised
earlier, there were documents that conclusively supported his evidence
and dealt with the terms of the agreement. After the meeting Mr Mawji
and Mr Narotam remained in South Africa for a short period to attend to
other business and to tie up the loose ends of the deal. On 12 February Mr
Narotam met Mr Gihwala at the airport in Johannesburg. He prepared a
note of that meeting in diagrammatic form showing the structure of the
deal. It reflected each of Messrs Gihwala and Manala and Montague as
having a one-third interest in SMI. In turn SMI would hold 58 per cent of

the shares in Ngatana, which would hold approximately 13 per cent of
Spearhead. The note reflected the details of the loan to Mr Manala and
indicated that the cost to Grancy would be R3.5 million. Grancy had
already arranged to pay this amount to the trust account of Mr Gihwala‘s
legal firm.

[46] On 21 February 2005 Mr Gihwala sent an email to Mr Narotam
saying that the Spearhead deal had been announced and had been
favourably received. Ngatana had purchased at R15.50 per unit while the
current market price was R20 per unit. He went on to say that he needed
‗to regularise our relationship‘. Ngatana was acquiring 3.5 million
Spearhead units at R15.50 per unit and Standard Bank had agreed to
provide finance for 75 per cent of the cost of that number of units at R17
per unit. Accordingly the participants in Ngatana needed to fund R2.75
per unit plus all costs, which he estimated to be approximately R600 000.
As SMI‘s interest related to 58 per cent of the units it, needed to provide
R5 830 500. In the result he calculated that each of the three investors had
to contribute R1 976 833.33. The loans that he and Mr Mawji were to
make to Mr Manala were half of that, or slightly less than R1 million
each. When this email was sent, two and a half weeks after the meeting
where the agreement was concluded, Mr Gihwala calculated that Mr

Mawji had contributed a little over R450 000 more than was required to
effect the investment and asked what should be done with this.

[47] Other than on one aspect that is irrelevant to this case, Mr Narotam
confirmed the accuracy of this email in his response on the same day. His
approach was that ‗the structure of the Spearhead deal was done with
Karim and I at the hotel when we met‘. All that remained was for Mr
Gihwala to do what he had undertaken to do in his email, namely draft an
agreement in which he and Mr Manala would acknowledge Mr Mawji‘s
one third share in the company that was to be the vehicle for the
investment, which he identified as SMI.

[48] For reasons that are immaterial a portion of the R3.5 million
remitted to Mr Gihwala‘s law firm was used for the purposes of another
transaction. This resulted in a further exchange of emails between Mr
Narotam and Mr Gihwala concluding with one from Mr Gihwala on
10 May in which he again confirmed the terms of the agreement with
reference to his earlier email of 21 February. An additional amount was
transferred to Mr Gihwala‘s firm to bring the total lent to SMI up to
slightly more than R3 million.

[49] The documents are entirely supportive of Mr Mawji‘s description
of the agreement.  In addition, Mr Mawji testified that they discussed the
question of directorships and it was agreed that Messrs Gihwala and
Manala would remain as the sole directors of SMI and would be the
directors representing SMI‘s interests on the board of Ngatana. He was
perfectly willing to accept this in the light of his friendship with Mr
Gihwala and his faith in him. The entire relationship was based upon
mutual trust and confidence. It therefore demanded the utmost good faith
from Mr Gihwala and Mr Manala.

[50] On behalf of Mr Gihwala it was contended that the agreement
merely involved Grancy taking up a shareholding in a private company,
SMI, and enjoying the ordinary rights and incurring the ordinary
obligations that attach to being a shareholder. In other words that
Grancy‘s rights would be no different from those of a person who
purchased shares in a company on the Johannesburg Stock Exchange.  I
am unable to accept that characterization.  Mr Mawji was approached
through Mr Narotam on the basis of ties of friendship that he had formed
with Mr Gihwala.  The investment in Spearhead was presented as an
opportunity for them to do business together and it is plain from other
correspondence that at the time it was contemplated that this would be
one of a number of business ventures that they might undertake jointly.

The nature of the transaction; the fact that Mr Mawji‘s business
operations were conducted from a base in Switzerland; and the fact that
Messrs Gihwala and Manala were to be responsible for administering and
overseeing the investment, meant that Mr Mawji, and therefore Grancy,
were entirely dependent upon them for information regarding the
investment and upon their probity and good faith in dealing with it.  In
those circumstances it was too narrow a view of the nature of the
transaction to suggest that Grancy‘s rights would be delineated solely by
the memorandum and articles of SMI and Ngatana.

[51] The factors that I have mentioned all point in the direction of the
agreement being subject to a number of important tacit terms, necessary
in order to give it business efficacy.17  The issues that gave rise to this
litigation posed the following questions:
 Was SMI to be used as a vehicle solely for the purposes of
investing through Ngatana in Spearhead?
 If Ngatana wanted to make investments other than the acquisition
of the Spearhead units, or if SMI wished to make an investment
other than its shareholding in Ngatana, did this require the consent
of Grancy?

17 Wilkins NO v Voges [1994] ZASCA 53; 1994 (3) SA 130 (A) at 136H-137B.

 Was Grancy entitled to access to all the books and financial records
of SMI?
 Were Mr Gihwala, Mr Manala and the Trust obliged to account to
Grancy for the money invested in SMI and the proceeds thereof?
 Did Mr Gihwala, Mr Manala, SMI and the Trust owe duties of
good faith and fair dealing to Grancy?
 Were Mr Gihwala and Mr Manala, as directors of SMI, precluded
from enriching themselves at the expense of Grancy by charging
SMI with fees to which Grancy had not consented?
 Were the investors to be treated equally in regard to the receipt of
benefits from SMI?

[52] There is no doubt in my mind that had an interfering bystander
posed those questions to Messrs Mawji and Gihwala at the meeting the
answer in each case would have been an emphatic affirmative.  That
satisfies the ordinary test for a court to infer the existence of a tacit term.
There was some muted argument before us whether these terms operated
to limit the powers vested in either SMI or its directors in terms of the
memorandum and articles of association of SMI, and it was submitted
that to the extent they did they could not be accepted as tacit terms.
Reliance was placed upon the principle that a tacit term cannot be
inferred where it is contrary to the express terms of the contract.  Before a

court can infer the existence of a tacit term there must be room for
importing it in the light of the express terms of the agreement.18

[53] I see no conflict between the suggested tacit terms and the
memorandum and articles of association of SMI.  They do not alter those
provisions in any way. By agreement de hors the company‘s founding
documents, the parties agree as to the manner in which the company and
its directors will exercise those powers. Such an agreement is
commonplace in the commercial world and one was concluded by the
Ngatana shareholders.  It is the means whereby parties who intend to
conduct a business venture through the vehicle of a company arrange
their rights and obligations inter se.  In the oft-quoted words of Lord
Wilberforce19 ‗… there is room in Company Law for recognition of the
fact that behind it, or amongst it, there are individuals with rights,
expectations and obligations inter se which are not necessarily submerged
in the company structure‘.  Typical examples of provisions in such
agreements are those that provide that the investors, or some of them, will
be, or will appoint, the directors of the company; provisions relating to

18 Pan American World Airways Inc. v SA Fire and Accident Insurance Co Limited 1965 (3) SA 150
(A) at 175C.
19 Ebrahimi v Westbourne Galleries Limited [1973] AC 360 (HL) at 379b-380b; [1972] 2 All ER 492 at
500a-h. The passage has been quoted with approval by this Court. APCO Africa (Pty) Ltd and Another
v APCO Worldwide Inc [2008] ZASCA 64; 2008 (5) SA 615 (SCA) para 17. See also Bellairs v
Hodnett and Another 1978 (1) SA 1109 (A) at 1130D-F; Hulett and Others v Hulett 1992 (4) SA 291
(A) at 307E-308F.

decisions that will require the consent of the investors; provisions relating
to the incurring of credit or the sale of assets of the business; and
provisions relating to decisions critical to the strategic direction of the
company.20

[54] A shareholders‘ agreement of this type, dealing with the right to be
appointed as a director and operating to nullify a provision in the 1926
Companies Act that provided for the removal of directors, was enforced
in Stewart v Schwab.21  That judgment has been cited on a number of
occasions in provincial divisions.  Its correctness was assumed by Trollip
JA in Desai.22 Such agreements are frequently entered into in cases where
investors wish to regulate their relationship inter se when the investment
is to be made through the medium of a company. Mr Narotam and Mr
Mawji expected that Mr Gihwala would cause such an agreement to be
prepared. The email of 21 February contemplated such an agreement and
one was prepared in Mr Gihwala‘s legal office but never signed. Until
such an agreement was prepared and signed, the parties were bound by
the express terms of the agreement and any tacit terms that formed part of

20 The shareholders‘ agreement concluded in relation to Ngatana provided in clause 10 that a range of
what were termed ‗material decisions‘ would only be taken by means of a resolution supported by both
Prescient and SMI.
21 Stewart v Schwab and Others 1956 (4) SA 791 (T) at 793D-H.
22 Desai and Others v Greyridge Investments (Pty) Ltd  1974 (1) SA 509 (A) at 518G -H.

it.23  Such an agreement does not alter or vary the company‘s founding
documents.  It is an agreement between the parties thereto in terms of
which they agree as to the manner in which, and the purpose for which,
the powers of the company and its directors will be exercised.  There is
no reason why such an agreement should not ordinarily be given effect
and no reason why it should not be given effect in this case. Section 15(7)
of the 2008 Act expressly provides that this is to be the situation. The
qualification that the shareholders‘ agreement may not be inconsistent
with the Act and the Memorandum of Incorporation deals with situations
where there is a direct conflict between them, not with a qualification in
the shareholders‘ agreement on the manner in which general powers are
to be exercised, which may constrain the exercise of those powers.

[55] The last issue to be considered relates to the manner in which the
anticipated returns on the investment were to be dealt with. The nature of
Spearhead‘s business was described in paragraph 5. It was not such as to
require any active management on the part of either Ngatana or SMI. The
practical day to day business of acquiring properties and securing tenants
would be managed by Spearhead. Ngatana, as a 13 per cent shareholder,
would keep abreast of the operations of Spearhead so as to be aware if it

23 CGEE Alsthom Equipments et Enterprises Electriques, South African Division v GKN Sankey (Pty)
Ltd 1987 (1) SA 81 (A) at 92A-C. In Wilkins NO v Voges supra, at 144B-D Nienaber JA pointed out
that tacit terms are as much part of the agreement as express terms.

appeared to be running into difficulties. They would be alive to, and if
necessary respond to, major business decisions by Spearhead and
possibly suggest business opportunities if they encountered them. But
beyond that oversight role Ngatana‘s affairs would require little by way
of active management and the same was true of SMI. Their accounting
records would be straightforward and the costs of administration limited.
Neither company would need to have any full-time employees. Nor
would they need office premises or any of the administrative
infrastructure that characterises other businesses. The annual financial
statements of both Ngatana and SMI bear this out, whatever their other
defects.

[56] It could accordingly be anticipated that Ngatana would use the
revenue it would receive half-yearly from Spearhead to service the loan
from Standard Bank, pay its own limited expenses and distribute the
remainder to its shareholders, initially by repaying their loans and then by
way of dividends. If it realised any of the units – and there was a three
year lock-up period applicable to the BEE transaction that would preclude
it from doing so immediately – the proceeds would be used for the same
purposes. As far as SMI was concerned its position was even simpler. It
would receive loan repayments and dividends from Ngatana, pay its
extremely limited administrative expenses and distribute the balance by

way of repayment of the initial shareholder loans and dividends to its
shareholders.

[57] Did these factors give rise to any terms of the agreement? In my
opinion they did. Parties entering into this type of investment anticipate
that they will receive a flow of income in accordance with the nature of
the investment. Put simply, when funds were available they would be
distributed by Ngatana and SMI. Both Ngatana and SMI were presented
to Mr Mawji as passive investors, created as SPV‘s for the purpose of
holding linked units in Spearhead. As such, once the loan from Standard
Bank was repaid, he would have anticipated that the investment in SMI
would generate a regular flow of dividend income to Grancy and this is
precisely what he said he expected. There was no reason for either
Ngatana or SMI to accumulate income. If either wished to expand the
range of their investing activities Grancy would have to be consulted. The
fact that it stood at one remove from Ngatana was neither here nor there.
SMI held a majority share in Ngatana and in terms of the shareholders‘
agreement concluded in relation to Ngatana any decision of that character
required the consent of both Prescient and SMI. Unless and until there
was agreement on a change in the investment the position would remain
as described above. In the circumstances, and once again applying the test
of the interfering bystander, it seems to me that a question as to what

would happen to the income earned by Ngatana and SMI would have
provoked the response, ‗Why, it will be distributed to shareholders, of
course. What else could we do with it?‘

[58] In summary therefore the material terms of the agreement
concluded between the parties on 3 February 2005 were the following:
(a)
Mr Gihwala (through the vehicle of the Trust), Mr Manala and
Grancy would participate in the Spearhead BEE transaction and thereby
invest indirectly in Spearhead linked units.
(b)
The investment would be undertaken using SMI as a corporate
vehicle with each participant (Grancy, the Trust and Mr Manala) holding
one-third of the shares in SMI.
(c)
The parties would make their investment contributions by way of
subscription for shares in and the making of loans to SMI on the basis set
out in Mr Gihwala‘s email of 21 February 2005, which included the
making of loans to Mr Manala to enable him to lend his share of the
amount required by SMI.
(d)
SMI would use the funds so acquired to subscribe for 58 per cent
of the shares in Ngatana, which was the corporate vehicle that would hold
the 3.5 million Spearhead linked units acquired in terms of the BEE
transaction, and lend money to Ngatana to enable it to take up these
Spearhead units.

(e)
The investment would be directly managed by Messrs Gihwala and
Manala, who would be the directors of SMI and SMI‘s nominees as
directors of Ngatana.
(f)
Unless otherwise agreed by the investing parties the investment by
Ngatana would be restricted to an investment in the 3.5 million Spearhead
units and SMI‘s investment would be restricted to its investment in 58 per
cent of the shares of Ngatana.
(g)
In the management of the investment Messrs Gihwala and Manala,
the Trust and SMI owed Grancy a duty to exercise good faith and to
account fully for their stewardship of Grancy‘s investment. Their
relationship with Grancy was a fiduciary one.
(h)
Grancy would be entitled on request to be given access to all books
and records of SMI relating to its affairs and Grancy‘s investment in it.
(i)
The two directors would procure that the net income accruing to
Ngatana from the investment, after servicing the Standard Bank loan and
paying its administrative expenses, would be distributed to shareholders,
first by repaying shareholder loans and then as dividends.
(j)
The net income accruing to SMI after paying its administrative
expenses would be distributed to shareholders, first by repaying
shareholder loans and then by way of dividends.
(k)
The investors would be treated equally so that in the allocation of
benefits arising from the investment no investor would be treated less

favourably than another and no investor would secure for himself or itself
a benefit that was not afforded to the other investors. I refer to this as the
principle of parity of treatment.

Nature of the agreement
[59] In its particulars of claim in both actions Grancy characterised the
agreement as one of partnership, alternatively one of agency. Fourie J did
not accept either characterisation and held that it was rather something
akin to a joint venture. But in any event he refused to make declaratory
orders dealing with this issue on the basis that they would be academic. In
its cross-appeal Grancy sought such declaratory orders, although it
addressed no substantive argument in support of the contention that the
agreement was one of agency. Its enthusiasm for the argument that it was
a partnership waned somewhat after it was suggested that this might
mean that its claims could only properly be pursued by way of the actio
pro socio.24

[60]  Fourie J correctly said that this was not a partnership. Among the
essential elements of a partnership are that the business is carried on for

24 Morar NO v Akoo & another [2011] ZASCA 130; 2011 (6) SA 311 (SCA) paras 10-11.

the joint benefit of the partners and the intention is to make a profit.25 One
cannot separate the latter of these from the former. The intention must be
to make a profit jointly, that is, a profit that enures to the benefit of the
partnership. Its distribution thereafter to the individual partners is another
matter. Here there was no such intention. The parties intended that
dividends would flow from Spearhead to Ngatana, or that Ngatana would
have the proceeds of realisation of the investment, and that these funds
would then flow to Ngatana‘s shareholders. Once received from SMI they
would be distributed to SMI‘s shareholders. At no stage would the
participants in the venture hold the profits for their joint benefit. The aim
of the parties was to receive in their own right the dividends that would
be paid by SMI. That precluded the agreement from being a partnership.26

[61] The agreement could be described as a joint venture, a convenient
expression commonly used to describe a business agreement bearing
some resemblance to a partnership, but lacking one or more of its
essential elements. It does not convey any specific legal meaning, as
every joint venture is dependent on the specific terms on which the
parties agree. Sometime the distinction between a joint venture and a
partnership is blurred completely, and sometimes what is referred to as a

25 Bester v Van Niekerk 1960 (2) SA 779 (A) at 783H-784A; Purdon v Miller 1961 (2) SA 211 (A) at
218B-D; Pezzuto v Dreyer and Others 1992 (3) SA 379 (A) at 390.
26 Novick v Benjamin 1972 (2) SA 842 (A) at 851A-H.

joint venture is in fact a partnership.27 In this case the parties agreed to
invest in Spearhead units. They did so through corporate vehicles so that
elements of company law would necessarily affect their relationship.
They agreed on the terms of their relationship inter se, something that
bears a resemblance to a shareholders‘ agreement. Their relationship was
governed by mutual trust and imposed fiduciary obligations on Messrs
Gihwala and Manala as well as the Trust. In that it had some of the
characteristics of partnership. In regard to SMI they agreed to subscribe
for shares and make loans to SMI as well as the personal loans that Mr
Gihwala and Grancy were to make to Mr Manala. It can best be described
as an investment agreement with a range of terms drawn from differing
areas of law. There was no need to fit it into the jurisprudential
pigeonhole of either partnership or agency. It follows that, to the extent
that Grancy sought to do so, that part of the cross-appeal must fail.

Breaches of the agreement
[62]  From the very start there were wholesale breaches of the
investment agreement by Messrs Gihwala and Manala, as well as by the
Trust and SMI acting through Mr Gihwala, who was throughout the

27 United Dominions Corporation Ltd v Brian Pty Ltd and Others (1985) 60 ALR 741 (HCA) at 746.
R C I Banks Lindley and Banks on Partnership (8 ed, 2002) para 5-07 where the author expresses the
view that every partnership is a joint venture, but not every joint venture is a partnership. B Bamford
The Law of Partnership and Voluntary Associations 3 ed (1982) 11-12.

driving force in dealing with Grancy and the alter ego of the Trust. As he
said in his email of 11 September 2006 he had put the investment
agreement together and he was accordingly ‗the one to deal with‘. In
what follows I highlight the principal breaches.

[63]  The first and primary breach, which coloured all the others, was
the refusal from some stage in 2005 or 2006 – the date is unclear but the
breach was made manifest in the 11 September 2006 email – to accept
that Grancy had a right to a one third shareholding in SMI. This persisted
until March 2009 when Mr Gihwala and the other respondents in the
proceedings brought by Grancy capitulated and submitted to a court order
that it was entitled to a 31 per cent share in SMI. But the breach had more
far-reaching effects than merely an obdurate refusal to recognise and
implement the investment agreement. It was accompanied by an equally
obdurate refusal to afford Grancy access to books and records in SMI that
would have enabled it to ascertain what had occurred with the money it
had invested and a similar refusal to provide a proper account in relation
to that investment. Mr Gihwala and Mr Manala divided the benefits
accruing from the investment in Ngatana between themselves to the
exclusion of Grancy. The refusal to account has persisted from the
beginning until the present day. It is exemplified by the recent judgment
by Traverso DJP and the need for her to give a detailed order, declaring

the respects in which the account was inadequate and directing what
needed to be done to rectify the position

[64] Another area where there were significant breaches of the
agreement related to the investments by Ngatana. In October 2005 they
were altered by the acquisition of a further 2 million Spearhead units,
which of itself might not be thought to be relevant, had it not been
accompanied by Ngatana increasing its indebtedness to Standard Bank
from the original R38.5 million to R93.6 million. That was clearly a
significant increase in the potential risks inherent in the investment and
hence in the risks attaching to Grancy‘s investment. But Grancy was not
consulted over this. Nor was it consulted, notwithstanding its explicit
request, over the attitude that Ngatana should adopt to the offer by
Redefine to acquire all the linked units in Spearhead. It was not consulted
over the disposal of all the Redefine units obtained as a result of this
transaction or over the further acquisition of 20 million Redefine units.
Fortunately it does not appear as if this caused any financial loss to
Grancy, but it was nonetheless a most egregious breach of the investment
agreement. In effect, Grancy found itself engaged, entirely without its
knowledge and certainly without its consent, in a different investment to
the one in which it had agreed to become involved. That was a

fundamental breach of the principles of trust and good faith on which the
investment agreement rested as well as of a tacit term of the agreement.

[65] But these breaches were accompanied by several other breaches
that did have a detrimental financial impact on Grancy. From the very
outset Messrs Gihwala and Manala used SMI to provide themselves with
financial benefits to the prejudice of SMI‘s only other shareholder,
Grancy. This started in 2005 when Grancy made its initial payment of
R3.5 million to the firm of attorneys of which Mr Gihwala was a partner.
In terms of the email of 21 February 2005 the amount allocated to the
Spearhead transaction was R3 040 250. That was money that Grancy had
lent to SMI. It should have been reflected as such in Grancy‘s ledgers.
But it was not. It was credited to a loan account for Mr Manala. Had that
not been done that loan account would have been in debit from the time
of the first payment to Mr Manala in May 2007. In fact the account was
only maintained in credit by crediting it with ‗promotion fees‘, surety fees
and directors‘ fees improperly raised. None of these fees were
permissible but, as explained in more detail below, their improper
crediting to Mr Manala‘s loan account enabled him to withdraw over
R9 million from SMI between 2007 and 2009.

[66] An equally serious breach occurred in March 2007 when Ngatana
repaid the original loan it had received from SMI to enable it to conclude
the Spearhead transaction. Mr Gihwala and Mr Manala arranged for the
loan portions of their own contributions to be paid to them, but
deliberately did not repay Grancy the money it had lent to SMI. Not only
did SMI not do so, but it used those funds to invest in Scarlet Ibis,
without informing Grancy and without its consent. This was a flagrant
breach of the investment agreement, which was confined to an investment
in a relatively safe property investment trust. Fourie J described it as
misappropriating funds that should have been paid to Grancy and I can
only endorse that description. Grancy was now exposed to the risks
inherent in any property development, while its co-investors had secured
the repayment of the money they had invested in SMI, including in Mr
Gihwala‘s case the repayment of part of the money lent to Mr Manala.

[67] Although Grancy suffered no immediate financial detriment, the
simultaneous decision by Ngatana to pay an amount of R3 million to
Prescient and SMI in equal shares for their contribution to setting up the
BEE transaction, was a breach of the investment agreement. No plausible
justification was advanced for the board of Ngatana agreeing to do this,
and it was plainly directed at prejudicing the minority shareholders in
Ngatana, and Grancy as the minority shareholder in SMI. Restricting

myself to Grancy there is no question that it was not intended that it
would benefit from this, had it been paid. The attitude evinced by Mr
Gihwala and accepted by Mr Manala was that Grancy had only an
indirect interest in 630 000 Spearhead units and until that overall
investment was realised it was not entitled to anything at all. Only Mr
Manala and the Trust were intended to benefit from this payment.

[68] This general attitude manifested itself when Ngatana paid a
dividend to SMI of R5 272 727 in October 2008. This was immediately
declared as a dividend and paid in equal shares to the Trust and Mr
Manala. After this payment the Trust and Mr Manala had been repaid
their loans to SMI (insofar as they ever made those loans, which may be
doubted) and received a substantial dividend, exceeding the amount of
those loans. Grancy, however, had received nothing. On what basis Mr
Gihwala, as the moving spirit behind these transactions, could have
thought that this was permissible in terms of the agreement he had
concluded with Mr Mawji, is a mystery. Grancy and Mr Gihwala, via the
Trust, were making exactly the same financial investment in money
terms, yet they were receiving different returns on their investment. No
sensible businessperson would ever have agreed to that and there is no
evidence to suggest that Mr Mawji did so. One is led inevitably to the
conclusion that Mr Gihwala was simply exploiting his position as the

person in control of the affairs of SMI in order to prefer himself and Mr
Manala over Grancy.

[69] There were other equally untenable payments. On 24 June 2009
SMI lent R2 million to Mr Manala. The heads of argument on behalf of
Mr Gihwala said that Fourie J erred in finding that ‗the R2 million
payment to Manala was in breach of the agreement, the payment
constituted a loan to Manala, [and] that this payment resulted in the
depletion of SMI‘s assets by R2 million‘, but no argument was advanced
in support of these contentions. Nor did Mr Manala, who was separately
represented, attempt to justify the loan. The inescapable conclusion is that
with the connivance of Mr Gihwala he was permitted to treat SMI as a
personal piggy bank.

[70] Matters did not end there. On 8 April 2009, shortly after the grant
of the original order that Grancy be registered as a shareholder of SMI,
Messrs Gihwala and Manala, in a telephone conversation, agreed to pay
themselves directors‘ fees in SMI of R2.75 million each. As if that was
not enough they had in March 2008 agreed to pay themselves a further
R1 114 539 as ‗surety fees‘, that is, as compensation for the suretyships
they had given to Standard Bank. In 2009 these amounts were credited to
the loan accounts of the Trust and Mr Manala with SMI, and subsequent

withdrawals were made against the resulting credit balances. The fees
were utterly unjustifiable. The attempt to justify them when they were
previously considered by this Court28 met with this response:
‗… not only is the respondents‘ evidence on this score untenable but its shortcomings
are exacerbated by the absence of a cogent explanation as to why each payment was
made in the first place.‘
Neither Mr Gihwala, nor Mr Manala, made any attempt on this occasion
to justify these fees. In fact, Mr Gihwala‘s recognition that they were
untenable was evidenced by the fact that he repaid the money to SMI on
23 November 2010.

[71] The last payment to which I must refer as illustrative of a gross
breach of the investment agreement arose on 3 March 2009. It will be
recalled that two years earlier, when resolving to repay to shareholders
their initial loans, Ngatana also resolved to pay each of Prescient and SMI
an amount of R1.5 million, but at the time it lacked the funds to put this
into effect. On 3 March 2009, a month after the offer to settle the
litigation in which Grancy claimed its share in SMI, Ngatana passed a
fresh resolution. It provided for the payment to Prescient of a
‗management fee‘ of R1.5 million and for the payment to each of Mr
Gihwala and Mr Manala of R750 000 as ‗directors‘ fees‘. The earlier

28 Grancy Property Ltd v Manala supra para 35.

resolution would have paid this amount, that is, R1.5 million to SMI,
where it would have been available to the Trust and Mr Manala, on the
basis then being contended for that they were the only shareholders in
SMI. No explanation was advanced for this resolution, nor any
explanation of what had happened to the earlier resolution. The inference
is that it was simply a different way of giving effect to the original
intention. Mr Gihwala and Mr Manala would be enriched at the expense
of Grancy.

Grancy’s monetary claims
[72] The prime mover in committing these breaches of the investment
agreement appears to have been Mr Gihwala. But Mr Manala and the
Trust, as his collaborators in resisting Grancy‘s claims for recognition as
a shareholder in SMI as well as his claims for access to information and a
proper accounting in relation to its investment, were parties to those
breaches. Furthermore, one or other or both of them were the
beneficiaries of all the payments made in breach of the agreement.
Grancy‘s monetary claims must be considered against that background.

[73] The principle underpinning the claims was straightforward. Grancy
contended that, had there been no breach of the investment agreement,
funds that were diverted to other purposes in either Ngatana or SMI

would have flowed through to SMI‘s shareholders by way of dividends.29
As they were diverted the shareholders did not receive what they would
otherwise have received by way of a return on their investment. Grancy‘s
own loss was calculated on the basis that, if these funds had been
available for distribution by SMI and had been distributed, it would have
received 31 per cent of them. The amount that it did not receive
represented its monetary loss arising from the various breaches of the
agreement. The propriety of this mode of calculation was not in issue.

[74] Mr Gihwala and Mr Manala attacked the judgment in respect of
most of the monetary claims on the ground that, if valid, they were claims
in the hands of SMI and could not be pursued by Grancy in the light of
the rule in Foss v Harbottle. That is something to which I shall return.
First it is necessary to consider whether the claims were established on
the basis on which they were advanced. Although we received oral
argument on only three claims, they were all dealt with in the heads of
argument of Mr Gihwala and I shall likewise deal with each one
separately. In doing so I draw no distinction between the monetary claims
advanced in the 2010 action and those advanced in the 2011 action. Once
I have dealt with the merits of each claim and who is liable in respect of

29 In other words the investment agreement placed Grancy and the other shareholders in SMI in a
position to insist on the payment of dividends from available funds, which is a more extensive right
than a shareholder would ordinarily enjoy.

them I shall turn to consider whether any of them are excluded by the
application of the rule in Foss v Harbottle.

The repaid amount
[75] The largest monetary claim related to what was described as the
‗repaid amount‘. This was the amount of R6 657 673 paid by Ngatana to
SMI on 15 March 2007 as repayment of the initial loan by SMI to
Ngatana enabling it to acquire the Spearhead units in terms of
Spearhead‘s BEE transaction. These funds were used by SMI to refund
the loans made by the Trust and Mr Manala, with an adjustment to allow
for the fact that Mr Manala had borrowed money from Mr Gihwala in
order to contribute his share. The balance was used to make the
investment in Scarlet Ibis. Grancy received nothing in respect of its
contribution of R2 051 833.34.

[76] There were some minor quibbles over the trial judge‘s description
of the source of the R6 657 673, but any misdescription did not affect his
conclusion. The attack on the claim was based on the contention that the
loan by Grancy was only repayable when the Spearhead investment was
finally unwound and that the loan included an amount of R75 000 in
respect of SMI‘s costs, which was not repayable. Neither contention was
justified. It was irrelevant whether it was originally anticipated that the

initial loan would only be repaid when the Spearhead transaction was
unwound. The reality was that Ngatana repaid the entire loan before that.
When the decision was made to repay the Trust and Mr Manala, the
principle of parity of treatment of the investors dictated that Grancy
should also have been repaid. As regards the fact that the original loan
included an amount in respect of SMI‘s costs in setting up the transaction,
this was neither here nor there. The costs were funded by way of the loan
and the loan had to be repaid. Fourie J was correct to uphold this claim.

The Scarlet Ibis investment
[77]  Fourie J made a separate award of damages in respect of the
investment in Scarlet Ibis. He held that this amount would have been
available to fund further dividends in SMI and had been irrevocably lost.
In the result he awarded Grancy damages of R620 000, equivalent to 31
per cent of the R2 million investment. He rejected the submission that
this was a duplication of his award in respect of the failure to repay
Grancy‘s loan. In my respectful view he was wrong to do so. The source
of the funds used to make the investment was Ngatana‘s repayment of
SMI‘s original loan to it. Had those funds been dealt with in accordance
with the investment agreement they would have been used to repay
Grancy‘s loan to SMI. Instead they were invested in Scarlet Ibis and lost.
But Grancy‘s loss as a result cannot exceed the amount that it would have

received had it been repaid in compliance with the investment agreement.
In that event there would have been no funds available to invest in Scarlet
Ibis and no loss arising from such investment. The appeal against this
award of damages must succeed.

Promotion fees
[78] There was considerable confusion in regard to this claim. In his
email of 21 February 2005, Mr Gihwala said that SMI had incurred costs
of R225 000 in setting up the transaction. He included in the amount
Grancy was to invest an amount of R75 000 in respect of these costs. But
that amount was part of the overall loan made by Grancy and was
included in the claim in respect of the repaid amount.30 It could not form
part of another claim.

[79] It is unclear whether any costs were incurred as alleged by Mr
Gihwala. In his opening address at the trial counsel for Grancy said that
none were, and he added that the accounting treatment of these amounts
was inappropriate. Mr Greenbaum, Grancy‘s expert witness, confirmed
this. He drew attention to the fact that in SMI‘s ledgers the Trust‘s and
Mr Manala‘s loan accounts had each been debited with R75 000 as

30 The Grancy loan to SMI was R1 976 833.33. With the addition of the R75 000 in respect of the
alleged costs that amounted to R2 051 833.33, which was the amount for which Grancy obtained
judgment on the repaid amount claim.

promoter‘s fees for Mr Manala. Then Mr Manala‘s loan account had been
credited with R150 000 as promoter‘s fees. The net effect of this, as the
loan accounts show, is that the credit balance in Mr Manala‘s loan
account was increased by R75 000 at the cost of the Trust. It had no
impact on Grancy at all.

[80] In para 29 of the particulars of claim it was alleged that in the
financial year ending in February 2006, Mr Manala and either the Trust
or Mr Gihwala had impermissibly credited themselves with promotion
fees in an amount of R75 000. In para 47.7 it was alleged that these
promotion fees had been credited in an amount of R225 000 and
judgment was sought in favour of Grancy for R75 000. The discrepancy
between the two figures was apparent and made no sense.

[81] The judgment proceeded on the footing that a total amount of
R225 000 was credited to Mr Manala, Mr Gihwala and/or the Trust and
reflected in SMI‘s detailed income statement as at 28 February 2006. It
held that there should have been an equal distribution of this amount
among the investors in accordance with the principle of parity and
awarded damages equivalent to 31 per cent of that amount. But that
involved a misconception. This amount appeared in the income
statement, but as an expense item under the heading ‗legal fees‘. Mr

Greenbaum explained that this was incorrect because no legal fees had
been incurred. But he then characterised it as having been ‗designed
nominally to enrich Gihwala and/or Manala‘. What the basis was for that
statement he did not explain. When he came to give evidence on the topic
he drew attention to the entries in the loan accounts of the Trust and Mr
Manala and said that there was no invoice for the legal fees shown in the
trial balance and the annual financial statements. The R225 000 in the
income statement under the heading ‗legal expenses‘ was a red herring.
Its characterisation in the particulars of claim as promotion fees merely
added to the confusion.

[82] The correct position on the material before this Court is that the
R75 000 contributed by Grancy for costs of establishing SMI is included
in the amount for which judgment was given in respect of its loan to SMI
under the rubric of the repaid amount. Upholding that claim reverses the
effects of crediting Mr Manala‘s loan account with money obtained from
Grancy. There was no credit or payment to Mr Manala or anyone else of
R225 000. Instead Mr Manala‘s loan account was credited with a net
R75 000 at the expense of the Trust. This did not prejudice Grancy in any
way. Accordingly the appeal in respect of the damages awarded under
this head must succeed. On the evidence in this case that award should
not have been made. I note that Traverso DJP dealt with this in para 11.31

of her judgment and justifiably found the entries in respect of the amount
of R225 000 mystifying. The fact that the award of damages under this
head is set aside does not amount to a decision that once there has been a
proper explanation of these entries Grancy may not have a claim. All that
this judgment does is to hold that the claim pleaded in the 2010
particulars of claim was not proved.

Legal fees
[83] The foundation for this claim was a provision for legal fees in an
amount of R300 000 in the annual financial statements of SMI for the
year ended 28 February 2009. In the following year this provision was
reduced by R75 000. However, there is no mention in the evidence of any
accounts having been discovered that reflected these fees having been
charged and paid. Mr Gihwala argued that accordingly there was no proof
that any such fees had been paid. I agree that the mere fact of the
provision appearing in accounts, the correctness of which was highly
debatable, did not prove that SMI had paid any amounts in respect of
legal expenses, much less paid bills for which any of Mr Gihwala, the
Trust or Mr Manala, were responsible.

[84] But a number of fee notes were produced showing that SMI had
been charged various amounts by the firm of attorneys representing Mr

Manala and SMI in the litigation. The fee notes related, with two
exceptions, to fees charged during 2009 and 2010 by counsel representing
Mr Gihwala and the Trust. No explanation was proffered that would
justify Mr Gihwala‘s and the Trust‘s legal bills being paid by SMI. As
these on their face amounted to more than R300 000 that might have
provided a justification for this award of damages, but for what follows.

[85] The claim was dependent upon an analysis presented by Grancy‘s
counsel and annexed to its heads of argument. That analysis was
defective, as emerged when investigating a passing and unsubstantiated
submission on behalf of Mr Gihwala that a claim arising from a loan to
Mr Manala for the purposes of repaying Grancy‘s loan duplicated the
claim in respect of the repaid amount. On investigation it became
apparent that there was an overlap between the claim for legal expenses
and the claim in respect of that loan. The outcome must be that the
amount of the claim arising from the payment of legal expenses should be
reduced.

[86] The attorneys‘ ledger account annexed to Grancy‘s heads of
argument included six invoices from the attorneys in respect of the fees of
counsel appearing for Mr Gihwala and the Trust. They totalled
R241 303.78. These invoices were debited to SMI‘s ledger account with

the attorneys. However, the ledger reflected only R134 720 as paid by
SMI in respect of these fees. An amount of R58 140 was transferred from
another account and Mr Gihwala paid the balance personally. So, on the
face of it, the only improper charging of fees to SMI related to the
R134 720.  The remaining fee accounts annexed to Grancy‘s heads of
argument were debited to a different ledger account in the name of Mr
Manala. The transfer of R58 140 also came from that account. The funds
used to pay these accounts came from the second loan made to Mr
Manala dealt with in the following section of this judgment. As that is
subject to a separate claim, the claim for legal expenses based on these
accounts involved a duplication of claims. Accordingly Fourie J correctly
upheld this claim, but the amount must be reduced to take account of this
duplication. The correct figure is R41 763.20, being 31 per cent of
R134 720.

Loans to Mr Manala31
[87] On 24 June 2009 pursuant to a resolution of the directors of SMI,
that is, Mr Gihwala and Mr Manala, dated 15 June 2009, SMI advanced
what was referred to as a loan of R2 million to Mr Manala. In fact the
resolution said that it was a payment in reduction of his loan account, but

31 The first of the two payments to Mr Manala dealt with under this heading was claimed in the 2010
action and the second in the 2011 action.

that could not be correct because it would have resulted in his loan
account reflecting a debit balance. Mr Gihwala told the auditors that it
was a payment made in error. It was reflected as an ‗overpayment‘ in Mr
Manala‘s loan account in the general ledger of SMI. What is certain is
that this sum was paid to Mr Manala on 24 June 2009. However the
payment was characterised it was plainly made in breach of a number of
the provisions of the investment agreement, as well as the provisions of
s 226 of the 1973 Act, and it was not suggested otherwise in argument
before us. Instead it was argued that in 2011, when a dividend of
R3 450 000 was due to Mr Manala, it was credited to his loan account
less the amount of the loan and interest. It was submitted that this ‗set off,
with interest, the payment previously (and erroneously) paid to Manala,
resulting in a repayment of the loan‘. For the purposes of considering this
argument I assume that it was open to Mr Manala to appropriate the
dividend credited to his loan account to the repayment of the loan.

[88] The difficulty is that in cash terms SMI was no better off after the
crediting of Mr Manala‘s loan account. When the loan was advanced Mr
Manala received R2 million in cash. Had the loan not been made SMI
would have had that R2 million at its disposal. In accordance with the
terms of the investment agreement those funds, being surplus to its needs,
could and should have been distributed to the shareholders. In that event

Grancy would have received R620 000. It has received nothing as a result
of the repayment of this loan and no attempt was made to show that SMI
was thereby placed in a position where it could distribute R2 million (or
anything at all) to shareholders. This highlights the fact that the question
whether Grancy suffered losses is not to be determined by book entries,
but by having regard to the actual flow of money in consequence of the
disputed transactions. That is why the appeal in respect of the award of
damages arising from the Scarlet Ibis investment must succeed and why
the appeal against the award in respect of the loan to Mr Manala must
fail.

[89] Also on 24 June 2009, a further amount of R1 976 523.34 was paid
to Mr Manala as a loan. The ostensible reason was to enable him to repay
Grancy its original loan to SMI, less the R75 000 in respect of the alleged
costs of establishment. Doing this reflected the contention advanced by
Mr Gihwala in the email of 28 June 2006 quoted in para 16 above, that
Grancy came in ‗behind‘ Mr Manala and that strictly speaking its
investment ‗was with Lance‘. From this flowed the attitude that it was the
latter who was responsible for repaying the loan made by Grancy to SMI.
Of course, in the light of the concession that Grancy was entitled to a
shareholding in SMI this was palpable nonsense. Mr Manala tendered to
pay this amount to Grancy but the tender was justifiably refused. The

money was then used by Mr Manala to fund his legal expenses and for
other personal purposes. It has not been repaid.

[90] This loan was as unjustifiable and unlawful as the payment to Mr
Manala of R2 million made at the same time. It has not been repaid and
SMI‘s resources for the purpose of making distributions to investors were
diminished thereby. Mr Gihwala submitted that only Mr Manala had an
obligation to repay it, which may be correct insofar as SMI is concerned,
but that does not bear upon his liability for breaches of the investment
agreement. He also submitted that the claim in this respect was a
duplication of Grancy‘s claim to the Repaid Amount. That is incorrect. In
relation to the Repaid Amount there was money available to repay
Grancy‘s loan, which was diverted to the Scarlet Ibis investment and lost.
Here a further amount was diverted to Mr Manala and not repaid. Had
that not occurred it would have been available for distribution to investors
and hence, in part, to Grancy. This claim was properly upheld.

Ngatana directors’ fees
[91] The train of events in this regard was dealt with in paras 67 and 71.
In 2007 Ngatana resolved to pay SMI and Prescient R3 million in equal
shares. Had the payment been made it would have enured to the detriment
of the minority shareholders in Ngatana and, for so long as Grancy was

excluded as a shareholder in SMI, it too would have been excluded from
the benefit of SMI‘s receiving this amount. In March 2009, after the offer
to settle the proceedings in which Grancy sought to be registered as a 31
per cent shareholder in SMI, Ngatana passed a new resolution agreeing to
distribute R3 million, by way of a payment of R1.5 million to Prescient
and by way of the payment of directors‘ fees of R750 000 to each of Mr
Manala and Mr Gihwala.

[92] Fourie J held that there was no evidence linking the two
resolutions. I disagree. The identity of the total amount involved –
R3 million – and the peculiar structure of the resolution in March 2009,
where the two SMI directors received directors‘ fees and the two
Prescient directors did not, cried out for an explanation, which was not
forthcoming. The earlier resolution had not been rescinded and it revealed
a clear intention to appropriate R3 million of funds in Ngatana for the
benefit of Prescient and SMI, which, at the time, meant for the benefit of
Messrs Gihwala and Manala. Then, out of the blue in 2009, a fresh
resolution appropriating the same sum for the benefit of the same parties
was passed by Ngatana. This occurred at precisely the time when Messrs
Gihwala and Manala were reluctantly conceding that Grancy was entitled
to a shareholding in SMI. Furthermore, when Messrs Gihwala and

Manala agreed to this resolution, that involved a breach of the provisions
of the investment agreement set out in paras 58 (g), (i) and (k).

[93]   It follows that, subject to the argument in relation to the
application of the rule in Foss v Harbottle, the cross-appeal in respect of
this item should succeed. Messrs Gihwala and Manala received in total
R1.5 million that should have been available to SMI for distribution.
Grancy was thereby deprived of its 31 per cent interest in that amount. Its
claim for payment of R465 000 plus interest at 15.5 per cent per annum
from 3 March 2009 to date of payment should have been upheld by the
trial court.

Late payment of dividends
[94]  In October 2008 SMI received a dividend of R5 272 727 from
Ngatana. It promptly declared a dividend in that amount and paid it in
equal shares to the Trust and Mr Manala. But for their breaches of the
investment agreement, Grancy would have received a dividend at that
time of R1 634 545.37. Instead that amount was only paid to it on 29 June
2009. It claimed the loss of interest of R213 789.57 from Messrs Gihwala
and Manala.

[95] One other dividend received by SMI from Ngatana was in due
course distributed to SMI‘s shareholders in proportion to their respective
shareholdings. But those distributions took place substantially after SMI
received the dividend from Ngatana in March 2009. The claim was for
the lost interest on the basis that a dividend should have been paid to the
investors by 26 March 2009. Instead it was paid in two tranches on
19 August 2009 and 6 January 2010. Grancy‘s claims were for interest on
the amount of each dividend paid to it from 26 March 2009 to the two
payment dates.

[96] The judgment proceeded on the footing that Messrs Gihwala and
Manala had been paid their share of this latter dividend before Grancy.
That was incorrect. But no excuse was advanced for the delay in making
payment. SMI had no reason to delay the payment of dividends once the
money was received from Ngatana. That was evidenced by the celerity
with which the October 2008 dividend was paid to Messrs Gihwala and
Manala. The fiduciary duty owed to Grancy, combined with the
obligation to distribute funds received from Ngatana referred to in para
58(j) above, required prompt distribution of dividends. There was
therefore a breach of their obligations under the investment agreement.
The calculation of Grancy‘s resultant loss on the basis of a loss of interest
was not challenged. These claims were correctly held to be good claims.

Directors’ remuneration and surety fees
[97] It is convenient to deal with these together. I have already
described in para 70 how these amounts were credited to the loan
accounts of the Trust and Mr Manala, enabling withdrawals to be made
against those accounts at a later stage. Mr Manala did not deal with these
credits. Mr Gihwala advanced no argument to justify the directors‘
remuneration as not being in breach of the agreement. There was some
attempt to justify the surety fees, but it was without merit. He argued that
because he had repaid these amounts to SMI his liability was discharged
and that Mr Manala was separately liable for his share. I will need to
revert to the issue of joint and several liability when I deal with the
liability of the Trust, so content myself, at this stage, with saying that the
claim in respect of the amounts credited to Mr Manala under this head
was sound.

Share of the Residue
[98] Under this heading Grancy sought an order in the 2010 action for
payment of what it termed its portion of the share of the residue. It asked
for an order that this be paid to it together with interest from 26 March
2009. The pleaded basis for this claim was that Grancy‘s investment in
Spearhead units was realised fully when by 12 March 2009 Ngatana had

disposed of all the Redefine units obtained in return for the Spearhead
units. It claimed that the amount of its share of the residue could be
calculated in accordance with a formula.

[99] I have considerable difficulties with this claim. Its underlying
premise is that Grancy invested in a defined number of Spearhead units
and that this investment came to an end in March 2009, so that it was
entitled to be paid whatever remained of that investment as at that date.
This effectively disregarded the corporate identity of both SMI and
Ngatana and treated the investment as one in Spearhead units. But that
was impermissible. Although both Ngatana and SMI were SPV‘s
established for the purpose of implementing and participating in the
Spearhead BEE transaction, Grancy‘s interest was not directly in the units
but in SMI, subject to the terms of the investment agreement.

[100] Another problem is that the claim ignored the fact that the original
Spearhead investment by Ngatana had been transformed. The initial
acquisition of 3.5 million units with a loan facility of R38.5 million had
become an investment in 5.5 million units with a loan facility of R93.6
million. Those units had become 33.99 million Redefine units in 2006.
Prior to the implementation of the order recognising Grancy as a
shareholder in SMI, the original block of Redefine units had been sold

and a further 20 million acquired through fresh loans. The investment in
SMI remained the same, as did SMI‘s stake in Ngatana, but the
underlying investment had altered, initially in extent and subsequently in
substance. This cannot be ignored. The moving finger had writ and
moved on and, as the poet instructs us, it is not possible to disregard that
or overlook it.32

[101] There is a further objection. After Grancy secured its stake in SMI
it received substantial payments by way of dividends totalling in all about
R14.5 million. These payments were generated from the disposal of the
original holding of Redefine units. Grancy has been happy to accept these
payments from that source, but they were not paid on the basis of the
original investment in Spearhead. They were the product of the
transformed investment. The first and second loans from Standard Bank
have been repaid and Grancy retained an interest in SMI, which in turn
had an interest in Ngatana. As at the most recent set of annual financial
statements Ngatana held 20 million Redefine shares. Assuming that is
still the position, and we were not told otherwise, it is a substantial

32 Edward Fitzgerald The Rubáiyát of Omar Khayyám quatrain 51:
‗The Moving Finger writes; and, having writ,
Moves on: nor all thy Piety nor Wit
Shall lure it back to cancel half a Line,
Nor all thy Tears wash out a Word of it.‘

investment.33 But even if it is no longer in existence, bearing in mind that
the loan facilities granted to purchase the 20 million shares were both due
for repayment prior to the trial, that does not affect the matter. To uphold
this claim would involve Grancy receiving and retaining benefits from the
changes in investment by Ngatana, while seeking to be paid on the basis
of the original investment by that company. That is not in my view
permissible. Accordingly Fourie J was correct to dismiss this claim and
the cross-appeal relating to it must fail.

Liability for the monetary claims
[102] Fourie J held Mr Gihwala and Mr Manala liable to pay the
monetary claims jointly and severally. The cross-appeal seeks to add the
Trust as liable jointly and severally with them in relation to certain of
those claims.34 By contrast the appeal challenges the finding that the
liability of the contracting parties was joint and several. I will address
each point in turn.

[103] I have already held that the Trust was a party to the investment
agreement. As such it owed the same fiduciary duties to Grancy as did Mr

33 In recent times Redefine shares have traded on the JSE at a price between R9 and R11 per share
giving a total value for the investment of between R180 and R220 million. It paid dividends in the last
year of about 80 cents per share.
34 The relevant claims are those relating to the repaid amount, the legal expenses, both loans to Mr
Manala and the claims in respect of directors‘ fees and surety fees.

Gihwala and Mr Manala. It is so that the monetary claims arise from the
actions and decisions of Mr Gihwala and Mr Manala. Were the Trust
represented by someone other than Mr Gihwala, so that it could claim
ignorance of their actions, the position might have been different. But
when Mr Gihwala, in his capacity as a party to the investment agreement
and as a director of SMI and Ngatana, took the decisions that gave rise to
these claims, he was obliged in his capacity as trustee of the Trust not to
do so. That would have been the obligation of an independent trustee and
it is unaltered by the fact that Mr Gihwala was acting in two capacities.
He could not discard his trustee hat when acting as a director.
Accordingly I am of the view that the Trust was as much a party to the
breaches of the investment agreement as were Messrs Gihwala and
Manala. Grancy‘s damages claims arising from those breaches therefore
lie against the Trust as well.

[104] We were referred to the passage in Christie35 where the authors say
that there is a presumption that obligations entered into jointly are joint
and not joint and several and that the presumption is a strong one. But the
same authors say36 that where the contract by express words or necessary
implication imposes liability in solidum that liability is joint and several.

35 RH Christie and GB Bradfield Christie’s The Law of Contract in South Africa 6ed (2011) at 262.
36 At 263.

The issue must be determined by having regard to the terms of the
contract and the nature of the relationship thereby created among the
parties to that contract.

[105]  The duty of good faith that formed an integral part of the terms of
this contract could in this case only be breached by the joint conduct of
Messrs Gihwala and Manala (because they were the directors and acted
jointly) and, through Mr Gihwala, the Trust. The obligations they
undertook to Grancy were indivisible. They carried with them fiduciary
duties of good faith that are characteristic of partnership, where liability is
joint and several. In Langermann v Carper37 Solomon J said that whether
a transaction among businesspeople was described as a joint venture or a
partnership ‗the same consideration must apply to the dealings of the
several parties among themselves as would be applied in the case of an
ordinary partnership‘. Grosskopf AJ cited that passage with approval in
Koornklip Beleggings,38 a case bearing some similarity to the present one.
It involved an agreement among various parties to make an investment by
way of subscription for shares in a company formed to exploit a diamond
concession. Grosskopf AJ described the relationship as analogous to a
partnership. The same is true here. In my view, the closer the relationship

37 Langermann v Carper 1905 TH 251 at 261.
38 Koornklip Beleggings (Edms) Bpk v Allied Minerals Ltd 1970 (1) SA 674 (C) at 677H.

between the parties to that which one expects to exist between partners,
the more likely it is that any liability will be joint and several.

[106] A helpful explanation of when liability in solidum arises appears in
Wessels.39 Liability as debtors in solidum exists if the debtors have
promised the same thing to the creditor in such a way that the creditor can
demand from each debtor performance of the entire obligation. Two
essentials must be present. The first is that each debtor must be separately
liable as completely as if they were the sole debtor. The second is that
each debtor should be debtor of the same thing or the same amount of
money, not merely a similar thing or a similar amount of money. In my
view that is the case here. Grancy was entitled to demand the same thing
from each of Mr Gihwala, the Trust and Mr Manala. They each had to
discharge the same duty of good faith in the same way. They are each
liable in this case for the same thing, namely the same breach of
obligation and the same damages. In my view their liability was joint and
several and Fourie J was correct in holding that.

39 A A Roberts (ed) Wessels’ The Law of Contract in South Africa 2 ed (1951) Vol 1 paras 1496 to
1502.

Foss v Harbottle
[107] It is a curious feature of this case that we are asked to apply a rule,
or more accurately a combination of rules, of ancient origin that has been
abolished in the country of its birth.40 The rule has two components. The
first recognises that a company is a separate legal entity from its
shareholders and accordingly, in the ordinary course, any loss caused to
the company must be recovered by the company, and not by its
shareholders on the basis of the diminution in the value of their shares or
the loss of dividends they had anticipated. The second recognises the
need for exceptions to this principle in order to avoid oppression and
permits a shareholder to recover loss caused to the company by way of
what is termed a derivative action. In certain circumstances it also permits
recovery of the shareholder‘s own loss.

[108] A helpful summary of the rule and its different elements is to be
found in the following passage from the leading case of Prudential
Assurance Co Ltd v Newman Industries Ltd and Others (No 2)
(Prudential Assurance):41

40 See Part 11 of the United Kingdom Companies Act 2006, which provides a detailed structure for the
bringing of derivative claims.
41 Prudential Assurance Co Ltd v Newman Industries Ltd and Others (No 2) [1982] 1 All ER 354 (CA)
at 357j - 358b. The principles enunciated in this case were approved and applied by the House of Lords
in Johnson v Gore Wood & Co (a firm) [2001] 1 All ER 481 (HL) (Gore Wood).

‗The classic definition of the rule in Foss v Harbottle is stated in the judgment of
Jenkins LJ in Edwards v Halliwell [1950] 2 All ER 1064 at 1066 - 7 as follows. (1)
The proper plaintiff in an action in respect of a wrong alleged to be done to a
corporation is, prima facie, the corporation. (2) Where the alleged wrong is a
transaction which might be made binding on the corporation and on all its members
by a simple majority of the members, no individual member of the corporation is
allowed to maintain an action in respect of that matter because, if the majority
confirms the transaction, cadit quaestio; or, if the majority challenges the transaction,
there is no valid reason why the company should not sue. (3) There is no room for the
operation of the rule if the alleged wrong is ultra vires the corporation, because the
majority of members cannot confirm the transaction. (4) There is also no room for the
operation of the rule if the transaction complained of could be validly done or
sanctioned only by a special resolution or the like, because a simple majority cannot
confirm a transaction which requires the concurrence of a greater majority. (5) There
is an exception to the rule where what has been done amounts to fraud and the
wrongdoers are themselves in control of the company. In this case the rule is relaxed
in favour of the aggrieved minority, who are allowed to bring a minority shareholders'
action on behalf of themselves and all others. The reason for this is that, if they were
denied that right, their grievance could never reach the court because the wrongdoers
themselves, being in control, would not allow the company to sue.‘

[109] The parameters of the rule are apparent from this passage. It
precludes shareholders from suing in their own right where the claim is
one in respect of a wrong done to the company causing it to suffer loss.
That is so even where the result is to diminish the value of the

shareholder‘s shares or deprive them of a dividend and the company has
declined or failed to take steps to recover the loss. On the other hand,
where there is no wrong to the company, but only one to the shareholder,
there is no reason to bar the shareholder from suing. That is so even if the
measure of the shareholder‘s loss is the diminution in value of their
shareholding. Those two propositions appear clearly from the speeches of
Lord Bingham of Cornhill42 and Lord Millett43 in Gore Wood.

[110]  There is a third case described by Lord Bingham44 in Gore Wood
in the following terms:
‗Where a company suffers loss caused by a breach of duty to it, and a shareholder
suffers loss separate and distinct from that suffered by the company caused by a
breach of duty independently owed to the shareholder, each may sue to recover the
loss caused to it by breach of the duty owed to it but neither may recover loss caused
to the other by breach of the duty owed to that other.‘

[111] It was unclear under which leg of the rule it was contended that
Grancy‘s claims were precluded. Grancy‘s claims were undoubtedly
claims arising from breaches of obligation separate and distinct from any
claim that SMI may have had. They arose from obligations owed to

42 At 503a-f.
43 At 528b-h.
44 At 503f-g.

Grancy by Mr Gihwala, the Trust and Mr Manala under the investment
agreement. As such they appeared to fall in the third category referred to
in para 110.  It is true that in respect of all of them, save that for loss of
interest on the late payment of dividends, the measure of Grancy‘s loss
was the pecuniary loss arising from SMI‘s failure either to repay its loan
account or distribute surplus funds to its shareholders by way of
dividends. But the fact that SMI did not have the funds available for this
purpose because they had been diverted elsewhere does not mean that
SMI had a claim to recover those amounts. A brief examination of the
different claims is called for.

[112] The claim for the repaid amount cannot, as I have held, be
separated from the decision to invest in Scarlet Ibis. The funds that
should have been used for the former purpose were used for the latter.
That is why Fourie J said that this was a ‗wilful misappropriation of
Grancy‘s funds‘. But the investment in Scarlet Ibis was an investment
that SMI was entitled to make. The impropriety arose not because it
exceeded the permissible limits of SMI‘s investment powers, but because
the investment agreement imposed an obligation not to engage in such an
investment without Grancy‘s consent and an obligation to use these funds
to repay Grancy‘s loan. No basis was suggested for saying that SMI could
recover the money invested in Scarlet Ibis from anyone. Nor could it

recover from the Trust and Mr Manala the money used to refund their
initial loans to SMI. It follows that this claim is not affected by the Foss v
Harbottle rule.

[113] Under the investment agreement SMI should not have paid legal
fees on behalf of Mr Gihwala and the Trust. That does not mean that it
would have a claim to recover those fees from the attorneys. If they
agreed to pay the fees, as seems to have been the case, the attorneys were
entitled to receive and keep them. There is nothing wrong in principle
with a person paying another‘s debt. Nor was there evidence explaining
on what basis this was done as between SMI and Mr Gihwala. Not
surprisingly it was not argued on his behalf that he breached his fiduciary
duties to SMI in making that arrangement. So we are in the dark in regard
to the basis for any claim by SMI against anyone to recover the amount of
the fees.

[114]  The directors‘ fees and surety fees may have been irregular in that
they were not approved as required by article 107 at a general meeting of
shareholders. But it was not suggested that, if divorced from the
investment agreement, SMI could not have decided to make these
payments. They seem grossly extravagant in relation to the actual
contribution of the directors – a common plaint by shareholders – but that

alone does not mean that the company would have been entitled to
recover them if properly sanctioned by a general meeting. And at a
general meeting Grancy would have been outvoted. Grancy‘s claim is not
an altruistic claim to recover these amounts for the benefit of SMI. Its
claim is that as a result of breaches of the investment agreement it has
suffered financial loss. That is not precluded by the rule.

[115] That leaves the two loans to Mr Manala. Apart from breaching the
investment agreement they were unlawful in terms of s 226 of the 1973
Act. This rendered them void ab initio and incapable of ex post facto
ratification.45 In Prudential Assurance it was said that the rule in Foss v
Harbottle did not apply when the matter was ultra vires the company or
required a special resolution in order to authorise the act in question. The
reason for these exceptions, which must apply equally to conduct that is
prohibited by statute, is that the minority shareholder has no means of
compelling the errant majority to take steps to remedy the conduct in
question, in this case to sue Mr Manala to recover the amount of the
loans. Absent an exception to the rule it would be possible for the
majority to perpetuate conduct that was contrary to law or the articles of
the company, by the simple expedient of doing nothing. Under s 226 an

45 See the majority judgment in Neugarten and Others v Standard Bank of South Africa Ltd [1988]
ZASCA 140; 1989 (1) SA 797 (A) at 808F-J.

unauthorised loan to a director could not be authorised after it had been
made. So both loans fell within the exception to the rule. That conclusion
renders it unnecessary to consider whether they also fell within the fraud
exception referred to in that case or the interests of justice exception
referred to in Foss v Harbottle itself and applied in McLelland v Hulett.46

[116]  For those reasons it seems to me that the reliance on the rule in
Foss v Harbottle was misplaced in relation to all of the monetary claims
advanced by Grancy. They must succeed or fail in accordance with paras
75 to 101.

Section 424 liability
[117] In the particulars of claim in the 2010 action Grancy invoked s 424
of the 1973 Act as a ground of liability in relation to three claims. They
were the claim in respect of the repaid amount and those in respect of
promotion fees and legal expenses. In the 2011 action it sought to found
liability for all the monetary claims it advanced in either s 424 or
alternatively s 77(3) of the 2008 Act. Fourie J rejected all these claims,
save that in relation to the repaid amount, but Grancy pursued them by
way of its cross-appeal. Indeed it went further by seeking to extend the

46 McLelland v Hulett and Others 1992 (1) SA 456 (D) at 467C-I.

application of s 424 to all the monetary claims in the 2010 action, both
those that had been upheld by Fourie J and those that were the subject of
the cross-appeal.

[118] It was throughout unclear why Grancy should continue to pursue
s 424 relief if it was successful in its contractual claims. A declaration
under s 424 would add nothing to the liability of Mr Gihwala, Mr Manala
and the Trust to pay the damages awarded. The proposition in the heads
of argument that it would ‗impose statutory and unlimited personal
liability‘ on them does not identify on what basis this was any greater
liability than a judgment ordering them to pay the damages that were
claimed. But this need not detain us because I am satisfied that the claims
based on s 424 must fail.

[119] In at least three relatively recent decisions of this Court it has been
held that s 424 is only available to a claimant where the company is
unable to pay its debts and therefore recovery of the claimant‘s claim is
imperilled.47 Not only did Grancy not plead a case based on SMI‘s
inability to pay any of the claims it was advancing, but it led no evidence

47 L & P Plant Hire BK en andere v Bosch en andere [2001] ZASCA 147; 2002 (2) SA 662 (SCA)
paras 39-40; Saincic and Others v Industro-Clean (Pty) Ltd An [2006] ZASCA 83; 2009 (1) SA 538
(SCA); and Fourie v Firstrand Bank Ltd and Another NO [2012] ZASCA 119; 2013 (1) SA 204 (SCA)
paras 28-29.

in support thereof. Instead it relied in argument on the contents of some
emails sent by independent directors of SMI when seeking funds to
conduct an investigation into the affairs of SMI. Even that evidence did
not emerge in the course of presenting Grancy‘s case. It emerged when
counsel for the Trust was cross-examining Mr Mawji on a completely
different issue. I agree with Mr Gihwala‘s counsel that to permit reliance
on them for the purpose of showing that SMI was unable to pay its debts
would be unfair and amount to trial by ambush.

[120] We were also urged to hold that the three cases I have mentioned
were wrongly decided because they overlooked the use of the words ‗or
otherwise‘ in s 424 and also because, so it was said, the judgments
overlooked s 219(1)(d) of the 1973 Act. The circumstances in which this
Court will overrule one of its own decisions, much less three, particularly
when they are of recent origin, are limited. It suffices for me to say that I
am not satisfied that these decisions were clearly wrong. Accordingly the
cross-appeal insofar as it relates to s 424 must fail, whether that related to
claims in the 2010 action or claims in the 2011 action. In relation to the
latter the claim was advanced in the alternative under s 77(3) of the 2008
Act. That section, in this departing from s 424, does not involve a
declaration by the court, but creates a statutory claim in favour of the
company against a director, imposing liability on the latter for any loss,

damages or costs incurred by the company in certain circumstances,
including where the director acquiesces in the company engaging in
reckless trading. It is not a provision that can be invoked to secure
payment to a creditor or shareholder in respect of their claim against the
company or a director. So the attempt to rely on s 77(3) must also fail.

Right to an account and access to accounting records
[121]    At the outset of his argument counsel for Mr Gihwala accepted
that the investment agreement gave rise to a relationship of trust and good
faith as between Grancy, Mr Gihwala and Mr Manala. This implied that
Mr Gihwala and Mr Manala owed Grancy a duty to account for their
stewardship of its investment in SMI and indirectly in Ngatana. It also
included an obligation to provide Grancy with access to the books and
accounting records of SMI. Counsel for Mr Manala and counsel for the
Trust did not question the correctness of these concessions. Once it is
held, as I have done, that the Trust and SMI were also parties to the
investment agreement, they owed the same obligations.

[122] Details of the gross deficiencies in the books of account and
records of SMI were canvassed in the evidence and are summarised in the
judgment of the High Court. The accounting records were plainly in a
deplorable state. Fourie J ordered SMI, Mr Gihwala and Mr Manala to

deliver to Grancy, within 30 days, proper and full books of account and
such accounting records as would be necessary fairly to present the state
of affairs and business of third defendant, and to explain the transactions
and financial position of the business of third defendant for the period
January 2005 to date of his judgment.

[123] My concern with this order is two-fold. First, the requirement that
proper and full books be produced as well as explanations for the
transactions and financial position of the business overlaps to a
substantial degree with the existing order to render an account that has
been the subject of the various orders referred to above, most recently
that of Traverso DJP. The detail that she has ordered to be produced will
inevitably clarify the uncertain picture that emerged at the trial. Second,
and more importantly, if such books of account and records did not exist
or existed only in an imperfect form and had to be reconstructed, albeit
unsuccessfully, for the purposes of the trial, the order made in this case
relates to books and records that did not exist. An entitlement to access to
books and records is not a right to a meticulous set of books properly kept
and accurately reflecting the affairs of the business. It is a right to have
access to whatever books and records the business has kept. But the terms
of the order granted by Fourie J would oblige SMI to create a ‗full and

proper‘ set of books of account and accounting records and provide
explanations that would be part of an accounting.

[124] It is not disputed that Grancy has been denied access to the books
of account and accounting records of SMI. It is accordingly entitled to an
order, but the terms of that order must be limited to the books of account
and accounting records that exist. The order granted by Fourie J must be
varied accordingly.

[125] Turning then to the accounting that was ordered, the scope for
argument was narrowed by the concessions referred to in para 121. It was
confined to two issues. First that the orders in relation to an accounting
related to monetary claims disposed of by the judgment, and those orders
rendered further accounting unnecessary. Second that the account ordered
by Fourie J overlapped with the account ordered by the High Court in
2009. Traverso DJP dealt with the accuracy of that account and a detailed
order as to the requirements for a satisfactory account has been made. A
further order would necessarily cover the same ground and be oppressive
to the parties required to render the account.

[126] The contents order granted by Fourie J in regard to the provision of
an account was set out in prayers 6 and 7 in the 2010 action and prayers

12 and 13 in the 2011 action. Those prayers detailed in multiple sub-
paragraphs the scope of the accounting being called for. On analysis,
however, they covered all the matters giving rise to Grancy‘s monetary
claims including the use to which the repaid amount was put; the payment
of dividends by SMI; the payment of fees to Mr Gihwala and Mr Manala
and an item described as ‗any transactions pursued with funds which
were unlawfully paid to Gihwala, [the Trust] and/or Manala‘ or
unlawfully retained by them. The prayers in the 2011 action extended this
to all payments made by SMI to Mr Gihwala, the Trust, Mr Manala, the
Auditors and ‗any third party‘ and ‗any and all transactions pursued by
them with the said amounts‘. The sweep of the final prayer was
breathtaking. It required an account from Mr Gihwala, the Trust, SMI and
Mr Manala of:
‗… any profits or losses which Gihwala, Manala and/or [the Trust] made in
connection with or arising from the breaches set forth in paragraphs 24C to 43F of the
plaintiffs‘ particulars of claim‘.
How any sense was to be made of that order, much less how anyone
could be expected to comply with it, escapes me. It is hopelessly vague
and overbroad. I mention only one example by way of illustration.
Paragraphs 40A and 40B of the particulars of claim in the 2011 action
dealt with the failure of Mr Gihwala and Mr Manala to discharge their
statutory obligations in regard to the preparation of annual financial

statements for SMI. There was no evidence that suggested that this
caused anyone to make a profit or that any account could be rendered in
that regard.

[127] There is no doubt that these orders overlapped with the existing
order for the rendering of an account. In addition they were formulated
when the two actions commenced and do not appear to have been
reconsidered by Grancy at the end of the trial, having regard to the
possible implications of the monetary claims succeeding. They are
couched in extremely general language so that it is impossible to
ascertain with any degree of certainty what must be done to comply with
them. They cover matters that are irrelevant to Grancy, such as the fate of
the Scarlet Ibis investment. The evidence in that regard shows that SMI
invested R2 million in that venture that should have been used to repay
Grancy‘s loan. The development failed with the company being placed in
liquidation. Grancy sued for and obtained an award of damages arising
from the misuse of funds that should have accrued to it. No basis has
been advanced for a further account in this regard.

[128] The order also covered matters on which Grancy was already fully
informed if its representatives simply read the documents already in their
possession. An area covered by the order in the 2010 action was the

conversion of Spearhead units into Redefine units. The details of this
appeared
from the circular to
unitholders that preceded the
implementation of the scheme of arrangement under which the
conversion was effected.48 The number of Spearhead units exchanged for
Redefine units was set out quite clearly in Ngatana‘s audited annual
financial statements that formed part of the record. What more Grancy
needed by way of an account was unclear. It was common cause that all
of these Redefine units were disposed of in 2008 and 2009. The brokers‘
notes in respect of those disposals were also part of the record and the
core bundle prepared for the hearing of the appeal. What then was the
basis for making an order that an account be rendered to Grancy
concerning those disposals?

[129] It is incumbent on a party, seeking an order for an account to be
rendered to it in relation to a business relationship or a particular
transaction or particular transactions, to define with precision the
accounting that it is seeking. It is inappropriate for it to set out a broad
and general list of questions to which it would like to have answers and
incorporate them in an order. That is especially the case where the order
is sought at the end of lengthy litigation in which there has been extensive

48 The allegation in the 2010 particulars of claim that there had been a non-disclosure in regard to the
terms of this transaction is extraordinary bearing in mind that Mr Narotam was aware of the transaction
and the details of the scheme were contained in public documents.

discovery. The order should then be reformulated to require an account in
relation to outstanding matters, not in relation to matters that have been
clarified in the course of the litigation, much less matters that may be, and
as it happened were, resolved by way of awards of damages. An order to
produce an account is a precursor to a debatement of that account and an
award of what is owing consequent upon that debatement. Where
potential monetary claims have been dealt with by judgment there is no
room for a further account.

[130] For those reasons the order to render an account granted in this
case was inappropriate. Its deficiencies are so manifest that it is incapable
of being remedied by way of a variation of its terms. I reach that
conclusion reluctantly as it is apparent that Mr Gihwala and Mr Manala
have adopted every possible stratagem to avoid discharging their
fiduciary obligation to account properly to Grancy for its investment in
SMI. But that did not justify the grant of an award that was vague,
overbroad, dealt with matters already disposed of by judgment and
overlapped an existing order that was in the course of being enforced by
the Western Cape Division of the High Court. The appeal against these
orders must succeed. It follows that the further order relating to the
appointment of independent directors is unnecessary and must also fall
away.

Delinquency declarations
[131] Mr Gihwala and Mr Manala were both declared delinquent
directors in terms of s 162(5)(c) of the Act, which reads:
‗A court must make an order declaring a person to be a delinquent director if the
person—
…
(c)
while a director—
(i)
grossly abused the position of director;
(ii)
took personal advantage of information or an opportunity, contrary to
section 76 (2) (a);
(iii)
intentionally, or by gross negligence, inflicted harm upon the company
or a subsidiary of the company, contrary to section 76 (2) (a);
(iv)
acted in a manner—
(aa)
that amounted to gross negligence, wilful misconduct or breach of trust
in relation to the performance of the director‘s functions within, and duties to,
the company; or
(bb)
contemplated in section 77 (3) (a), (b) or (c) … ‘

[132] Mr Gihwala challenged the delinquency order made against him,
contending that it was based on an incorrect appreciation of the evidence,
without specifying in what respects Fourie J erred. This argument was
without merit and counsel did not deal with it in oral argument. For my
part I agree with and endorse Fourie J‘s findings in regard to the conduct

of Mr Gihwala and Mr Manala and this judgment should not be read as in
any way detracting from those findings.

[133] In what follows I propose to refer to Mr Gihwala as the main actor
because that appears to have been the situation in fact. That does not
excuse Mr Manala from responsibility for the misconduct that will be
catalogued. He owed the same fiduciary duty to SMI and to Grancy and
was aware of what was being done in his name. He was also a director of
Ngatana and party to those matters concerning Ngatana. He was equally
responsible for what happened and must bear the same consequences.

[134] The directors of SMI were under an obligation in the performance
of their duties to ensure that the share register of the company properly
reflected the persons who were entitled to be registered as shareholders.
For four years from 2005 to 2009 they breached that duty by refusing to
register Grancy as a shareholder and resisting its attempts to secure that.
They failed to ensure that SMI kept proper accounting records as required
in terms of the 1973 Act and the 2008 Act. That failure was compounded
because it led directly to their failure to cause annual financial statements
to be prepared fairly reflecting the financial position of the company. On
the pretext that Grancy was not a shareholder in the company they
refused to provide even the statutory information to which Grancy was

entitled. After it was registered as a shareholder they produced hopelessly
inaccurate and incomplete annual financial statements and represented
them as fairly reflecting the financial position of the company.

[135] One of the more egregious defects in SMI‘s accounting records
involved the loan made by Grancy to the company as its contribution
towards the cost of acquiring the 58 per cent interest in Ngatana. This was
reflected in the company‘s ledger account as a loan made by Mr Manala.
That can only have occurred as a result of information given by Mr
Gihwala. It was, to his knowledge, false as the money was being lent by
Grancy pursuant to the investment agreement. The credit thereby created
in Mr Manala‘s loan account, in conjunction with other improper credits
to which I will revert, was then used to enable Mr Manala to be paid over
R9 million by SMI, to none of which was he entitled. Part of this sum
included the two loans totalling slightly less than R4 million made in June
2009. The one was given on the pretext that Grancy‘s loan was to him
personally and that he had on-lent that amount to SMI and could
withdraw his loan to repay Grancy. Had there been any bona fides about
that version of matters one would have expected him to repay the money
as soon as Grancy refused his tender. But he did not do so. He used some
of it to pay his legal fees and the bulk of it he caused to be paid to
himself. He has never explained what happened to that money.

[136] The two loans contravened the provisions of s 226 of the 1973 Act.
They caused loss to SMI because it has not been able to recover them
from Mr Manala. At best that loss was undoubtedly due to gross
negligence on the part of both Mr Gihwala and Mr Manala. As I
mentioned in the opening paragraph of this judgment Mr Gihwala is a
businessman and attorney. He was at the material time the chairman of
one of South Africa‘s largest firms of attorneys and the chairman of
Redefine, one of the largest property loan stock companies listed on the
JSE. His failure to observe the requirements of s 226 was inexcusable.

[137] Earlier in this judgment the many respects in which the investment
agreement was breached to the detriment of Grancy and the personal
advantage of Messrs Gihwala and Manala have been summarised. All of
those constituted breaches of fiduciary duty on their part as directors of
SMI, which was a party to the investment agreement and bound by it. The
directors of SMI owed a fiduciary duty to SMI to ensure that it complied
with its obligations under that agreement. They consistently breached that
duty. Furthermore they involved SMI in litigation when Grancy sought to
enforce its rights. That resulted, when they were forced to capitulate
shortly before the hearing, in an adverse order for costs, leaving aside
SMI‘s obligation to pay its own legal costs.

[138] This conduct falls squarely within s 162(5)(c) of the 2008 Act. It
involved gross abuses of the position of a director. Grancy was excluded
from the benefits of an investment, which it had substantially financed,
while Mr Gihwala and Mr Manala took those benefits for themselves. In
four instances they sought their own personal enrichment:

The use of the repaid amount to repay themselves and to invest in
Scarlet Ibis in an attempt to secure a 50 per cent profit in 24
months.

The payment to themselves of the full amount of the first dividend
received from Ngatana in an amount in excess of R5 million.

The taking of director‘s fees of R750 000 each from Ngatana to the
detriment of SMI.

The taking of director‘s fees of R2.75 million from SMI together
with surety fees in excess of R1 million.
To that I would add the loans to Mr Manala.

[139] These actions caused harm to SMI. It was in my view wilful
misconduct on the part of Mr Gihwala and Mr Manala because it was
entirely intentional and with knowledge of the obligations owed to
Grancy under the investment agreement. But at the very least it was gross
negligence akin to recklessness. It involved a breach of trust in relation to

their performance of their duties as directors. It was entirely inexcusable
and ongoing as evidenced by their endeavours to avoid complying with
their obligation to provide a proper accounting to Grancy in regard to its
investment. A declaration of delinquency was entirely justified.

[140] Realising that this was the case the argument on this issue centred
on the challenge to the constitutionality of s 162(5). This had two legs.
The first was that the entire section was unconstitutional because it was
alleged to be retrospective in its operation. The argument was based upon
the fact that the events relied upon to justify the order occurred before the
commencement of the Act on 1 May 2011. By then Mr Gihwala had
resigned as a director of SMI49 and Mr Manala did so soon afterwards.50
The second argument, while expressed in general terms, effectively
attacked s 162(5)(c), as read with s 162(6)(b)(ii), alone. It focused on the
fact that there was no discretion vested in the court either to refuse to
make a delinquency order if the requirements of s 162(5)(c) were
satisfied, or to moderate the period of such order to a period of less than
seven years. No argument was addressed to the consequences of the
absence of discretion in relation to the other sub-sections of s 162(5).

49 He resigned on 28 February 2011.
50 He resigned on 18 September 2011.

Whether they may be subject to constitutional attack is a matter that must
await another day.

[141] The first of these arguments fell away when counsel‘s attention
was drawn to the established principle of our law that a statute is not
retrospective merely ‗because a part of the requisites for its action is
drawn from time antecedent to its passing‘.51 The argument was then
confined to the proposition that the absence of flexibility in regard to the
imposition of delinquency had the potential to infringe the constitutional
rights to dignity,52 the right to choose a trade occupation or profession53
and the right of access to courts.54 In argument the focus fell on the right
to dignity.

[142] In order to assess these arguments it is appropriate first to examine
the purpose of s 162(5). Contrary to the submissions on behalf of Mr
Gihwala and Mr Manala it is not a penal provision. Its purpose is to
protect the investing public, whether sophisticated or unsophisticated,
against the type of conduct that leads to an order of delinquency, and to
protect those who deal with companies against the misconduct of

51 R v St Mary, Whitechapel (Inhabitants) 116 ER 811 ((1848) 12 QB 120) at 814; Krok and Another
Commissioner, South African Revenue Service [2015] ZASCA 107; 2015 (6) SA 317 (SCA) para 40.
This is all that item 7(7) in Schedule 5 to the 2008 Act provides.
52 Section 10 of the Constitution.
53 Section 22 of the Constitution.
54 Section 34 of the Constitution.

delinquent directors.55 What is that conduct? It is helpful to examine
some of the other provisions of the section. Under subsec 5(a) consenting
to serve as a director, or acting in that capacity or in a prescribed office,
while ineligible or disqualified from doing so attracts delinquency. Under
subsec 5(b) acting as a director while under a probation order in terms of
s 162, or the corresponding provision dealing with close corporations,
results in delinquency as both orders are directed at preventing that very
conduct.

[143] Turning to subsec 5(c) one starts with a person who grossly abuses
the position of director, conduct of which I have found Mr Gihwala and
Mr Manala guilty. We are not talking about a trivial misdemeanour or an
unfortunate fall from grace. Only gross abuses of the position of director
qualify. Next is taking personal advantage of information or opportunity
available because of the person‘s position as a director. This hits two
types of conduct. The first, in one of its common forms, is insider trading,
whereby a director makes use of information, known only because of
their position as a director, for personal advantage or the advantage of
others. The second is where a director appropriates a business opportunity
that should have accrued to the company. Our law has deprecated that for

55 Re Gold Coast Holdings Pty Ltd (In Liq); Australian Securities & Investments Commission v Papotto
[2000] WASC 201 para 22

over a century.56 The third case is where the director has intentionally or
by gross negligence inflicted harm upon the company or its subsidiary.57
The fourth is where the director has been guilty of gross negligence,
wilful misconduct or breach of trust in relation to the performance of the
functions of director or acted in breach of s 77(3)(a) to (c). That section
makes a director liable for loss or damage sustained by the company in
consequence of the director having:
‗(a)
acted in the name of the company, signed anything on behalf of the company,
or purported to bind the company or authorise the taking of any action by or on behalf
of the company, despite knowing that the director lacked the authority to do so;
(b)
acquiesced in the carrying on of the company‘s business despite knowing that
it was being conducted in a manner prohibited by section 22 (1);
(c)
been a party to an act or omission by the company despite knowing that the act
or omission was calculated to defraud a creditor, employee or shareholder of the
company, or had another fraudulent purpose …‘

[144] All of these involve serious misconduct on the part of a director. In
the affidavits raising the constitutional issue there was a complaint that

56 Robinson v Randfontein Estates Gold Mining Co Ltd 1921 AD 168; Phillips v Fieldstone Africa
(Pty) Ltd and Another [2003] ZASCA 137; 2004 (3) SA 465 (SCA).
57 The section qualifies this by reference to s 76(2)(a) of the Act but that section does not limit its
scope. It reads:
‗(2)  A director of a company must—
(a)
not use the position of director, or any information obtained while acting in the capacity of a
director—
(i)
to gain an advantage for the director, or for another person other than the company or
a wholly-owned subsidiary of the company; or

(ii)
to knowingly cause harm to the company or a subsidiary of the company …‘

gross negligence could trigger a delinquency order. There is no merit in
this complaint. There is a long history of courts treating gross negligence
as the equivalent of recklessness, when dealing with the conduct of those
responsible for the administration of companies,58 and recklessness is
plainly serious misconduct. It was urged upon us that there might be
circumstances of extenuation, or perhaps that, notwithstanding the
seriousness of the conduct, the company might not have suffered any
loss. But neither of those is relevant to the protective purpose of the
section. Its aim is to ensure that those who invest in companies, big or
small, are protected against directors who engage in serious misconduct
of the type described in these sections. That is conduct that breaches the
bond of trust that shareholders have in the people they appoint to the
board of directors. Directors who show themselves unworthy of that trust
are declared delinquent and excluded from the office of director. It
protects those who deal with companies by seeking to ensure that the
management of those companies is in fit hands. And it is required in the
public interest that those who enjoy the benefits of incorporation and
limited liability should not abuse their position. The exclusion is for a

58 Philotex (Pty) Ltd and Others v Snyman and Others; Braitex (Pty) Ltd and Others v Snyman and
Others [1997] ZASCA 92; 1998 (2) SA 138 (SCA) at 143C-144A; Ebrahim and Another Airport Cold
Storage (Pty) Ltd [2008] ZASCA 113; 2008 (6) SA 585 (SCA) para 13; Tsung v Industrial
Development Corporation of South Africa [2013] ZASCA 26; 2013 (3) SA 468 (SCA) paras 29 to 31..

minimum period of seven years,59 but the court has the power to relax
that after three years and instead place the person under probation in
terms of the section.60 So there is power to relax the full effect of a
declaration of delinquency once the delinquent has demonstrated that this
is appropriate. In addition the court may restrict the operation of the
declaration of delinquency to one or more particular categories of
company. A director declared delinquent in relation to a financial services
company may be permitted to be a director of an engineering firm.

[145] It is noteworthy that the section was not attacked on the ground
that it was irrational. It is a requirement of our Constitution that all
legislation must serve a rational purpose.61 There must be a rational
connection between the purpose of the legislation and the provision under
consideration. Section 162 passes that test. Patently it is an appropriate
and proportionate response by the legislature to the problem of delinquent
directors and the harm they may cause to the public who place their trust
in them. We were referred to legislation in other countries where their
legislatures have seen fit to vest their courts with a wider discretion in
this regard. But I fail to see why that should render the response of our

59 Section 162(6)(b)(ii) of the Act.
60 Section 162(11)(a).
61  New National Party of South Africa v Government of the Republic of South Africa and Others
[1999] ZACC 5; 1999 (3) SA 191 (CC) para 24.

legislature constitutionally problematic. Rationality is the touchstone of
legislative validity and s 162(5)(c), read with s 162(6)(b)(ii), is rational.

[146] Section 22 of the Constitution provides:
‗Every citizen has the right to choose their trade, occupation or profession freely. The
practice of a trade, occupation or profession may be regulated by law.‘
The background to the section was explained by the Constitutional Court
in Affordable Medicines Trust.62 In para 60 Ngcobo J said:
‗Limitations on the right to freely choose a profession are not to be lightly tolerated.
But we live in a modern and industrial world of human interdependence and mutual
responsibility. Indeed we are caught in an inescapable network of mutuality. Provided
it is in the public interest and not arbitrary or capricious, regulation of vocational
activity for the protection both of the persons involved in it and of the community at
large affected by it is to be both expected and welcomed.‘
Even if it is assumed in favour of Mr Gihwala and Mr Manala that being
a director of companies is an occupation, trade or profession, a
proposition the correctness of which is by no means obvious, they did not
suggest that s 162(5) is either capricious or arbitrary. On that ground
alone the constitutional challenge under this head must fail.

62 Affordable Medicines Trust and Others v Minister of Health and Others [2005] ZACC 3; 2006 (3)
SA 247 (CC) paras 57-60.

[147] The challenge under s 34 was misconceived. The court is involved
at every stage of an enquiry under s 162(5). It is the court that makes the
findings on which a delinquency order rests. It is the court that decides
whether the period of delinquency should be greater than seven years or
should be limited to particular categories of company and whether
conditions should be attached to a delinquency order and, if so, their
terms. It is to the court that a delinquent director turns if they believe that
the period of delinquency should be converted into one of probation. The
fact that a delinquency order of a specific duration follows upon the
factual finding by a court that the director is delinquent is no different
from any other provision that provides for a statutory consequence to
follow upon a finding in judicial proceedings. It is apparent therefore that
before a declaration of delinquency is made the errant director has an
entirely fair hearing before a court. It is not the absence of a fair hearing
that is in issue but the consequences of an adverse decision. That
consequence cannot be challenged under s 34 on the basis that the
delinquent director has been deprived of a right of access to court. It can
only be challenged on the basis that it is an irrational legislative response
to the particular problem, in this case that of directors‘ delinquency. It
stands on the same footing as any statutory provision that disqualifies a
person from pursuing a trade, occupation or profession in consequence of
their
disability
or
misconduct.
Countless
examples
of
such

disqualifications such as minority, insanity, insolvency, criminal conduct,
other misconduct or absence of qualification are to be found in
legislation.63

[148] That leaves the challenge based on the right to dignity. Central
though that is in our constitutional dispensation,64 it is difficult to see on
what basis it is engaged in this case. I stress that unlike Makwanyane and
Dodo65 this case is not concerned with a sentence in criminal proceedings
or a sanction for misconduct. Makwanyane engaged the right to life in
s 12 of the Constitution and Dodo the doctrine of the separation of
powers, the right to be free from cruel, unusual or degrading punishment
and the rights conferred on a criminal accused under s 35 of the
Constitution. None of those are relevant in this case. It does not involve
questions of the individualisation of punishment, but the appropriateness
of the protective measures the legislature has prescribed to deal with
delinquent directors.

63 The constitutionality of citizenship as a requirement for registration as a security guard was upheld in
Union of Refugee Women and Others v Director: Private Security Industry Regulatory Authority and
Others [2006] ZACC 23; 2007 (4) SA 395 (CC).
64 See eg S v Makwanyane and Another [1995] ZACC 3; 1995 (3) SA 391 (CC) para 144; Bhe and
Others v Magistrate, Khayelitsha and Others (Commission For Gender Equality as Amicus Curiae);
Shibi v Sithole and Others; South African Human Rights Commission and Another v President of the
Republic of South Africa and Another [2004] ZACC 17; 2005 (1) SA 580 (CC).
65 S v Dodo [2001] ZACC 16; 2001 (3) SA 382 (CC).

[149] It must be borne in mind that a delinquency order can only be made
in consequence of serious misconduct on the part of a director. It is that
conduct that results in delinquency. In the same way if an attorney is
guilty of serious misconduct they will lose their right to practice as an
attorney. I find the suggestion surprising that the grant of a striking off
order or an order suspending an attorney from practice infringes their
right to dignity. That ignores the fact that the commission of the
misconduct is what leads to that result. And it is the director or the
attorney who is guilty of that misconduct. The court investigates the
conduct and if it is established by evidence the striking off or suspension
or delinquency order is the necessary consequence.

[150] At the end of the day the argument under this head was reduced to
saying that the terms of the statute do not permit the court to take into
account the individual director‘s circumstances and degree of
blameworthiness. But that is merely an attack on the legislative decision
that a delinquency order in particular terms must follow from conduct of
the type specified. Such an attack can only be pursued by attacking the
rationality of that legislative decision, and that case was not made. It
follows that Fourie J correctly rejected the attacks on the constitutionality
of s 162 as a whole and that on s 162(5)(c), read with s 162(6)(b)(ii),
separately. The appeal against the delinquency orders must fail.

The cross-appeal
[151] The Trust was a party to the investment agreement and Mr Gihwala
was its alter ego. Grancy was a co-investor with the Trust in SMI. In
those circumstances the Trust was bound in the same way and by the
same duties as were Mr Gihwala and Mr Manala in their personal
capacities. In those circumstances Grancy sought an order that the Trust
be jointly and severally liable with Mr Gihwala and Mr Manala for
certain of its monetary claims. The relevant claims were those in respect
of the repaid amount, the legal expenses, the loans to Mr Manala and the
claims in respect of directors‘ fees and surety fees. In my view this part of
the cross-appeal must succeed. So must the cross-appeal against the
dismissal of the claim against Mr Gihwala and Mr Manala in relation to
the Ngatana directors‘ fees.

[152] The cross-appeal in respect of alleged liability under s 424 of the
1973 Act and s 77 of the 2008 Act must be dismissed. In addition there
was a cross-appeal against the trial court‘s refusal to grant a declaratory
order that the investment agreement constituted a partnership and an
order appointing a liquidator to the alleged partnership. That too must be
dismissed, as must the cross-appeal in regard to the share of residue
claim. There was initially a cross-appeal against its refusal to make

declaratory orders spelling out details of specific breaches, but wisely that
was not pursued.

Costs
[153] Mr Gihwala and Mr Manala have enjoyed some success in their
appeal in that their appeals in relation to the Scarlet Ibis claim and the
claim for promotional expenses must succeed in full and the amount of
the award in regard to legal expenses must be reduced. In addition the
appeal in relation to the order to render an account has succeeded,
although that is something of a Pyrrhic victory given the proceedings in
regard to an account at present underway in Cape Town. They have also
successfully resisted some of the relief claimed in the cross-appeal. The
Trust has succeeded in having the order to render an account set aside but
on grounds other than those it advanced. Its primary contention that it
was not a party to the investment agreement failed. As a result it is now to
be held liable in respect of the bulk of Grancy‘s monetary claims.

[154] From a monetary perspective the successful appeals in relation to
the Scarlet Ibis claim, the promotional fees claim and the partial success
of the legal expenses claim are largely offset by Grancy‘s successful
cross-appeal in relation to the Ngatana directors‘ fees and in holding the

Trust liable for the bulk of the monetary claims. The setting aside of the
order to account is not a major triumph for the appellants.

[155] The major arguments on behalf of the appellants related to the
nature of the investment agreement and the obligations arising
thereunder; the application of the rule in Foss v Harbottle; and the
delinquency orders. On all those issues the appellants have been
unsuccessful. In my view they must pay the costs of the appeal and
Grancy is entitled to the costs of the cross-appeal. In both instances those
costs must include the costs of two counsel. Grancy sought an order that
its costs be paid on an attorney and client scale, but the arguments
advanced in the appeal were not without merit and enjoyed some success.
It cannot be said that there was any impropriety in seeking to challenge
the findings of the trial court. Costs must be on the ordinary scale. In
regard to the costs occasioned by the constitutional challenge the parties
were agreed that the ordinary rule applies that no adverse costs order
should be made in that regard.

The order
[156] The order that I make is as follows:
The appeal succeeds to the following extent:

(a)
Paragraphs 1(b) and (e) of the first paragraph 1, and paragraphs 3
and 5 of the order in the High Court are set aside;
(b)
The amount in paragraph 1(c) is reduced to R41 763.20;
(c)
Paragraph 2 of the order in the High Court is varied to read as
follows:
‗The First, Second and Third Defendants are to make available to
the First Plaintiff for inspection and, if desired, the making of
copies of all books of account and accounting records, including all
supporting vouchers and documents, in their possession relating to
the transactions undertaken by and the financial position of the
business of the Third Defendant.‘
The cross-appeal succeeds to the following extent:
(a)
Paragraph 1(g) is inserted into the order of the High Court reading
as follows:
‗The amount of R465 000 plus interest calculated at 15.5 per cent
from 3 March 2009 to date of payment.‘
(b)
The Dines Gihwala Family Trust is declared to be jointly and
severally liable, the one paying the others to be absolved, with the
first and second defendants, for payment of the amounts referred to
in paragraphs 1(a), (b), (c) and (f) and 2(a) to (c) of the order of the
High Court.
The order of the High Court is accordingly amended to read as
follows:
‗IT IS ORDERED THAT:
1.
First and Second Defendants are declared liable, jointly and
severally with each other and, in the case of paragraphs (a), (b), (c)
and (f), jointly and severally with the Dines Gihwala Family Trust,
to pay the following to First Plaintiff:

(a)
The amount of R2 051 833,34, together with interest thereon at the
rate of 15,5% per annum, calculated from 20 March 2007 to date of
final payment.

(b)
The amount of R41 763,20 together with interest thereon at the rate
of 15,5% per annum, calculated from 28 February 2009 to date of
final payment.

(c)
The amount of R620 000,00 together with interest thereon at the
rate of 15,5% per annum, calculated from 15 June 2009 to date of
final payment.

(d)
The amount of R213 789,57, together with interest thereon at the
rate of 15,5% per annum, calculated from 19 August 2009 to date
of final payment.

(e)
The amount of R326 740,00, together with interest thereon at the
rate of 15,5% per annum, calculated from 19 August 2009 to date
of final payment.

(f)
The amount of R165, 660,60, together with interest thereon at the
rate of 15,5% per annum, calculated from 6 January 2010 to date of
final payment.

(g)
The amount of R465 000 plus interest calculated at 15.5 per cent
from 3 March 2009 to date of final payment.

2.
That the First and Second Defendants and the Dines Gihwala
Family Trust are declared liable, jointly and severally, to pay the
following to First Plaintiff:

(a)
The amount of R852 500,00, together with interest at the rate of
15,5% per annum on the amount of R1 705 000,00 calculated from
8 April 2009 to 23 November 2010 and on the amount of R852
500,00, calculated from 23 November 2010 to date of final
payment.

(b)
The amount of R345 507,09, together with interest at the rate of
15,5% per annum on the amount of R691 014,18, calculated from 1
March 2008 to 23 November 2010, and on the amount of R345
507,09, calculated from 23 November 2010 to date of final
payment.

(c)
The amount of R612 722,24, together with interest thereon, at the
rate of 15,5% per annum, calculated from 24 June 2009 to date of
final payment.

3.
The First, Second and Third Defendants are to make available to
the First Plaintiff for inspection and, if desired, the making of
copies of all books of account and accounting records, including all
supporting vouchers and documents, in their possession relating to
the transactions undertaken by and the financial position of the
business of the Third Defendant.

4.
The First and Second Defendants are declared delinquent directors
as contemplated in section 162(5)(c) of the Companies Act 71 of
2008.

5.
No order as to costs is made in respect of the constitutional
challenge.

6.
The First Plaintiff is declared liable for the costs of the application
for amendment, which were reserved on 6 February 2014,
including the costs incurred by Second Defendant in opposing
same.

7.
Save for paragraphs 6 and 7 above, the First and Second
Defendants and the Dines Gihwala Family Trust, represented by
the Fourth to Eighth Defendants, are declared liable, jointly and
severally, for the payment of First Plaintiff's costs of suit on the
scale as between attorney and client, which costs are to include the
following:

(a)
The costs of two counsel, where employed;

(b)
The attendance fees and qualifying expenses of the expert witness,
Mr H J Greenbaum;

(c)
The reasonable costs and disbursements, as followed on taxation
incurred by First Plaintiff in respect of Mr KI Mawji, who is
declared a necessary witness.‘

The amended paragraph 3 of the order of the High Court is to be
complied with within 30 days of the date of this judgment and the
obligation to comply therewith will not be suspended or postponed
pending the outcome of any further application for leave to appeal
in this or any other case.

The appeal is otherwise dismissed with costs, such costs to include
those consequent upon the employment of two counsel, but to
exclude
all
costs
occasioned
by
the
challenge
to
the
constitutionality of section 162(5) of the Companies Act 71 of
2008, in respect of which each party will pay its or their own costs.

The first and second appellants and the Dines Gihwala Family
Trust are to pay the costs of the cross-appeal, such costs to include
those consequent upon the employment of two counsel.

M J D WALLIS
JUDGE OF APPEAL

Appearances

For first appellant:
L A Rose-Innes SC (with him G G M Quixley)

Instructed by:

Adriaans Attorneys, Cape Town

Honey Attorneys, Bloemfontein.
For second appellant: J Blou SC (heads of argument prepared by J Blou
SC and I Goodman)

Instructed by:

Edward Nathan Sonnenbergs Inc, Sandton

Webbers, Bloemfontein.
For third to seventh appellants (the Trust): S C Kirk-Cohen SC

Instructed by:

Adriaans Attorneys, Cape Town

Honey Attorneys, Bloemfontein
For first and second respondents: P B Hodes SC (with him J P V
McNally SC)

Instructed by:

Webber Wentzel Attorneys, Johannesburg

Symington & De Kok, Bloemfontein.
For third respondent: H J de Waal (with him S Mahomed)

Instructed by:

The State Attorney, Cape Town and Bloemfontein

Supreme Court of Appeal of South Africa

MEDIA SUMMARY– JUDGMENT DELIVERED IN THE SUPREME
COURT OF APPEAL
From:
The Registrar, Supreme Court of Appeal
Date:
24 March 2016
Status:
Immediate
Please note that the media summary is intended for the benefit of the
media and does not form part of the judgment of the Supreme Court of
Appeal.
Gihwala v Grancy Property Ltd

The SCA today handed down judgment in a commercial dispute
between, on the one hand, Mr Dines Gihwala and Mr Lance Manala and
Grancy Property Ltd (Grancy). The dispute arose from a BEE transaction
in which Spearhead Property Holdings Ltd made available 3.5 million
units at a favourable price below the then current market value of the
units. A company called Seena Marena Investments (Pty) Ltd (SMI),
owned jointly by Mr Gihwala’s family trust and Mr Manala, was given
the opportunity to acquire a 40% interest in a company specially
established to acquire the BEE units. When a further 18% interest became
available they involved a British businessman and friend of theirs, Mr
Karim Mawji. The agreement concluded with him led to this dispute.

On 3 February 2005 the parties concluded an agreement in terms of
which Mr Mawji, through Grancy, would acquire a one-third share in
SMI, which would in turn acquire a 58% stake in the company owning
the Spearhead units. To that end Grancy provided funding of around
R3.5 million. Disputes arose when Mr Gihwala and Mr Manala refused to
recognise that Grancy was entitled to a shareholding in SMI or any
information about its business or how its money had been invested. This

has led to extensive litigation both in the Western Cape Division of the
High Court and in the SCA.

In the trial the High Court granted judgment in favour of Grancy
on a number of monetary claims arising from the breach of the
3 February agreement. It also ordered that books of account be produced
and made available to Grancy and that there be a debatement of account
between the parties. Lastly it declared Mr Gihwala and Mr Manala to be
delinquent directors, an order that had the effect of precluding both of
them from being directors of companies for a period of seven years.
The SCA upheld the majority of the monetary claims and a cross-
appeal in regard to one claim, as well as a cross-appeal that Mr Gihwala’s
family trust should be jointly and severally liable with him and Mr
Manala for most of those claims. It set aside the judgment in regard to
two claims and reduced the amount payable in terms of a third. It also
varied the order in regard to the provision of access to books and records
of SMI and set aside the order to furnish an account, in part on the basis
that this was a matter already being dealt with by the High Court in the
Western Cape.
A constitutional challenge to section 162(5)(c) of the Companies
Act 71 of 2008 was rejected. The SCA held that the disqualification of
delinquent directors was a proportionate response by the legislature to the
problem of delinquent directors. It upheld the orders of delinquency in
relation to both Mr Gihwala and Mr Manala, holding that they had been
guilty of gross abuses of their positions as directors of SMI, to which they
owed a fiduciary duty to ensure that it complied with the terms of the
agreement concluded with Grancy. They had grossly misconducted
themselves as directors of SMI and conducted themselves in a fashion
that amounted to recklessness. All of this justified the orders declaring
them to be delinquent directors.