Davith Kahwa v Littlefish App (Pty) Ltd and Others

The applicant and third respondent were initially equal (50%) shareholders in Nybble Technologies (Pty) Ltd and the first respondent (Littlefish App (Pty) Ltd), a company developing a digital platform for small to medium enterprises. The tenth respondent later acquired 20% through the ninth respondent, reducing the applicant and third respondent to 40% each. In early 2023, the applicant introduced venture capitalist investors (seventh and eighth respondents) who agreed to invest $2.5 million, valuing the first respondent at $6.7 million pre-investment. Transaction Agreements were concluded in April 2023, creating the second respondent (a Delaware corporation) to hold intellectual property, and reducing the applicant's shareholding to 10.92% in both companies. The applicant agreed to resign as director in December 2023. A Founders Restricted Share Subscription Agreement (FRSSA) was concluded, giving the first respondent rights to repurchase the applicant's unvested shares at nominal value if his "continuous service status" terminated. The applicant's future role was reduced to a support function to be determined by the first respondent, while the third respondent retained active management involvement. By May 2024, disputes arose over KPIs and the applicant alleged oppressive conduct aimed at triggering the share repurchase clause.

• Whether section 163 of the Companies Act 71 of 2008 applies to foreign companies
• Whether this Court has jurisdiction over the second respondent (a Delaware corporation)
• Whether an order for compulsory purchase of shares can be made for two companies at one undifferentiated price
• What conduct constitutes oppressive or unfairly prejudicial conduct under section 163
• Whether a breakdown in shareholder relationships, absent oppressive conduct, justifies relief under section 163
• Whether conduct acquiesced to by the applicant can constitute unfairly prejudicial conduct
• Whether the court can determine the fair value of shares in the absence of evidence on valuation

The application was dismissed. The applicant was ordered to pay the respondents' costs on a party-and-party basis, on scale C.

Section 163 of the Companies Act 71 of 2008 does not apply to foreign companies. The definition of "company" in section 1 of the Act is exhaustive and excludes foreign companies, even those registered as external companies under section 23. In applications under section 163, the applicant bears the onus of proving all elements necessary for the relief sought, including establishing the value of shares if seeking a compulsory purchase order. The court will not refer valuation issues to trial under section 163(2)(l) where the applicant has failed to place any valuation evidence before the court or identify valuation as a genuine issue in dispute. Conduct acquiesced to by a shareholder through contractual agreements cannot constitute oppressive or unfairly prejudicial conduct under section 163. A breakdown in relationships between shareholders, without underlying oppressive conduct by other shareholders, does not justify relief under section 163.

The court made several non-binding observations. It noted that the phrase "any issue" in section 163(2)(l) should be interpreted consistently with the adversarial system to mean issues actually raised on the affidavits, not new issues the court might consider interesting or important. The court suggested that section 163(2)(l) should not be used to allow courts to raise and refer to trial issues not traversed by the parties, as this would undermine fundamental principles of the adversarial system and potentially impose unintended costs or evidential burdens on parties. The court observed that it is "not immediately obvious" why section 163 lacks the appraiser mechanism found in section 164(15)(c)(ii) and (iii), both sections dealing with compulsory share purchases. The court cautioned against taking the "commercial divorce" metaphor too far, noting that mere shareholding does not make shareholders "each other's commercial spouses" absent a legitimate expectation of active participation in management. The court noted that where one party claims an irretrievable breakdown in a relationship, this is "more or less conclusive" as functional relationships require shared belief in the relationship's functionality by both parties.

This judgment clarifies important principles regarding the oppression remedy under section 163 of the Companies Act 71 of 2008. It establishes that section 163 does not apply to foreign companies, even if registered as external companies in South Africa. The judgment emphasizes that the adversarial system places the burden on applicants to prove all elements of their case, including valuation evidence for compulsory share purchases. It distinguishes section 163 from section 164, noting the absence of court-appointed appraisal mechanisms in the former. The case provides important guidance on what constitutes oppressive or unfairly prejudicial conduct, holding that acquiescence to contractual arrangements regarding reduced management participation negates claims of unfair prejudice. It also clarifies that breakdown of shareholder relationships, without underlying oppressive conduct, is insufficient to trigger section 163 relief. The judgment cautions against over-extending the "commercial divorce" metaphor and emphasizes that mere shareholding does not create legitimate expectations of active management participation absent specific circumstances.