IN THE HIGH COURT OF SOUTH AFRICA
(TRANSVAAL PROVINCIAL DIVISION

UNREPORTABLE
Case No: 17743/05
Date heard: 10, 11 May'07	
Date of judgment: 3 August 2007
In the matter between:
Lurgi South Africa (Pty) Ltd
APPLICANT
and
Lurgi Environment (Pty) Ltd Minister Of Trade & Industry M. C. Mahlangu (Pty) Ltd
1ST RESPONDENT
2ND RESPONDENT
3RD RESPONDENT

JUDGMENT
DU PLESSIS J:
The applicant conducts business as a process-engineering contractor. It
previously was part of its business to install and maintain gas-cleaning
equipment known as electrostatic precipitators ("esp's"). The applicant is a

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wholly owned subsidiary of a German company, Lurgi AG and it represents the
latter's interests in sub-Saharan Africa. Lurgi AG is part of a group of companies
that own many specific technologies that are used in the relevant field of
endeavour. Some of these technologies have been made available to the
applicant in terms of an "Exclusive Co-operation and Licence Agreement".
Although the motivation is in issue, it is not in issue that the applicant
identified the first respondent for use in circumstances that require a black
economic empowerment (BEE) partner and that it alienated its esp spares and
maintenance business to the first respondent. While, in circumstances that will
become clear, the applicant's shareholding in the first respondent is in dispute,
there is no issue that the other, BEE, shareholder in the first respondent is the
third respondent. Furthermore, there is no dispute that the third respondent has
no black person as a shareholder. The only natural person involved as
shareholder in the third respondent is a certain Mr DR Alexander, a white man.
Although Alexander claims that the other shareholder is an Irish company, the
applicant's investigations revealed that the Irish company was dissolved in 2000.
The applicant contends that the first respondent was formed, not for the
purpose of bona fide meeting its BEE requirements, but as a vehicle to defraud
the applicant and its German parent company and to procure that it alienates its
business to the first respondent. In the circumstances the applicant seeks an

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order in terms of section 258(1) of the Companies Act, 61 of 1973 to have the
affairs of the first respondent investigated.
Section 258(1) provides that when "the Court by order declares that the
affairs of a company ought to be investigated, the Minister shall appoint one or
more inspectors to investigate the affairs of such company and to report thereon
..". The second respondent, the minister concerned, did not participate in the
proceedings. The first and third respondents, represented by Alexander, contend
that the applicant, having alienated the relevant part of its business to the first
respondent, suffers from seller's remorse, that that motivated the application and
that the applicant has not made out a case that the affairs of the first respondent
ought to be investigated. 
The court has "a wide power to order an investigation if it considers it right
or advisable to do so" (Sage Holdings Ltd v The Unisec Group Ltd 1982 (1)
SA 337 (W) at 359E to G). The applicant for an order in terms of section 258(1)
must show a "well-founded suspicion of some grave impropriety which has a
solid and substantial basis" (The Unisec Group Ltd and Others v Sage
Holdings Ltd 1986 (3) SA 259 (T) at 283C). As was pointed out in the latter
judgment, the factual allegations whereupon the suspicion is founded need not
be undisputed.

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For reasons that will become apparent, the applicant' relies heavily on the
results of an investigation conducted by its present managing director who was
not involved in the dealings giving rise to these proceedings. The case is largely
based on the interpretation of documentary evidence and inferences to be drawn
from those documents. The case is also based on inferences to be drawn from
the lack of certain documentary evidence. While not repeated in argument, the
respondents contend in the papers that the application is based on hearsay
evidence. That is not correct in all respects as the applicant's deponents can
and do testify from personal knowledge as to which documents exist and which
not. To the extent that the evidence might be hearsay, however, it must be borne
in mind that the applicant is not called upon to establish all the facts. It must
establish a well-founded suspicion and the facts will, if an order is made, be 
established in the course of the proposed investigation.
The applicant contends that the required suspicions are founded on,
briefly, the following. At all relevant times until November 2004 one Karel Vlok
was the applicant's managing director. In early 2002 Vlok proposed to the
applicant's board of directors that, in order for the company to grow in the spares
and maintenance area, it would have to "bring in a black empowerment partner".
At the time Vlok did not spell it out, but by June 2002 it became clear that his
proposal was that the applicant should form a new company in which the BEE
partner would be the controlling shareholder and that the applicant would transfer
its esp spares and maintenance business to the new company. Vlok, without any

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apparent approval from the applicant's board, proceeded to establish the new
company, the first respondent. Although Lurgi AG was represented on the
applicant's board of directors, VI ok in November 2002 addressed an e-mail to Dr
Schonung, Lurgi AG's then chairman, in which he explained the need for a BEE
partner and reiterated his proposal as to how the relationship with the first
respondent should be structured. For some reason Vlok at this stage also
proposed the involvement of another company, Lurgi (Pty) Ltd (not a member of
the Lurgi group). I find it unnecessary to deal with the detail of this latter
proposal. There is no doubt that VI ok represented to both the applicant's board
of directors and to Lurgi AG that the first respondent was to be a BEE company
by virtue thereof that at least half plus one of its shares were to be held by a BEE
entity and that the applicant would, directly or indirectly, retain at least a minority
interest in the first respondent.
It appears from correspondence annexed to the applicant's papers that
there may in early 2003 have been some unease among the executives of Lurgi
AG about the circumstances surrounding the establishment of the first
respondent and its involvement in the applicant's business. Vlok, by way of
replies to queries, attempted to address the unease. In the course thereof he
incorrectly stated on 3 June 2003 that the applicant was the holder of all the
shares in the first respondent. What Vlok at that stage did not disclose was that
he and one Viecenz, a director of the applicant and employee of Lurgi AG, held
the shares in the first respondent. Vlok also conveyed that he was in the process

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of negotiating and finalising the BEE deal and that such would be subject to
approval by the boards of both the applicant and Lurgi AG. There is no record
that he ever sought such approval.
On 1 September 2003, apparently without the approval of the applicant's
board of directors, Vlok, purporting to act on behalf of the applicant and the first
respondent, entered into a "Shareholders Agreement" with "Mahlangu (Pty) Ltd".
Alexander purported to represent Mahlangu. At that stage, however, no
company, relevant to these proceedings, by the name of Mahlangu existed. It is
only much later, on 10 November 2003, that Alexander changed the name of his
company, Ghana Alexander Financial Services (Pty) Ltd to MC Mahlangu
Investments (Pty) Ltd. The Shareholders Agreement, not a mode! of clarity and
consistency, purports to be a joint venture agreement between the applicant and
Mahlangu, the joint venture vehicle being the first respondent in which the other
two parties were to hold the shares. In terms of the agreement the applicant is
purported to transfer intellectual property to the first respondent. Such transfer
goes way beyond the requirements for the applicant's esp spares and
maintenance business.
After the signature of the Shareholders Agreement, Vlok reported to Lurgi
AG's chairman that the deal with "our BEE partner has been done". VI ok
thereafter made certain payments to the applicant, purportedly in respect of the

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joint venture and purportedly because Mahlangu had incorrectly and by reason of
inexperience paid him.
In the meantime Consol Glass had awarded to the applicant a contract in
relation to Consol's flue gas treatment plant in Bellville. The contract does not
concern esp spares or maintenance nor does it have a BEE requirement. As a
matter of fact, however, the contract was entered into between Consol and the
first respondent. That, the applicant contends, VI ok procured without authority.
After it had contracted with Consol, the first respondent placed an order for the
contractual requirements with the applicant who executed it. The result of all
this, so the applicant contends, is that the applicant executed the contract at its
costs \Nhi!e the first respondent received all the profit from the contract.
Dr Schonung, Lurgi AG's chairman, passed away and Dr Plass replaced
him. In May 2004 Vlok wrote to Dr Plass that the applicant was faced with a
major risk in that its BEE partners may demand that the shares in the first
respondent be bought back. Plass met with Alexander who demanded that all
the shares in the first respondent be transferred to him. Without authority, Vlok,
to whom Alexander had forwarded a copy of the demand, agreed thereto.
Alexander persists in his contention that the shares must be transferred to him,
thus disputing the applicant's shareholding in the first respondent.

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Before Vlok's resignation as the applicant's managing director, the first
respondent conducted business from the same premises as the applicant. It
used some of the applicant's administrative personnel albeit that the applicant
paid their salaries. When the application was launched, the first respondent
competed with the applicant, using intellectual property belonging to the Lurgi
group and it held out to the public that it was associated in the course of business
with the applicant and the group.
An electronic message from Vlok to Alexander indicates that, as far back
as December 2002, the two were in contact concerning Vlok's proposal of a BEE
partner for the applicant. It is unnecessary now to go into detail as to the
possible inferences that could be drawn from this e-mail save to point out that it
reveals that Vlok, a director of the applicant, might have had a personal interest
conflicting with the applicant's interests.
In a nutshell, Vlok led the applicant to believe that the first respondent
would serve the purpose of BEE compliance in connection with the applicant's
esp spares and maintenance business. Instead of a black partner, the applicant
ended up with a partner that is a company without any black shareholding, a
company controlled by Alexander with whom Vlok had been in contact long
before the applicant's business had allegedly been transferred to the first
respondent. Moreover, there are indications that VI ok held an interest in the first
respondent contrary to his fiduciary duty as a director of the applicant. The

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authority for and validity of the Shareholders Agreement between the applicant
and, presumably, its BEE partner is open to serious doubt. Nevertheless, the
applicant's intellectual property and some of its business have been transferred
to the first respondent, and the authority for such transfer is in question. Instead
of being the applicant's partner, the first respondent competed with the applicant
and held out to the public that it was connected in the course of trade with the
applicant. The applicant's requests for adequate information, particularly those
addressed to Vlok, have met with inadequate response. In my view the applicant
has established a "well-founded suspicion of some grave impropriety which has a
solid and substantial basis", I conclude that, exercising the wide powers that the
section gives to the court, an order in terms of section 258(1) of the Companies
Act is called for.
The applicant was represented by two counsel. Mr Putter for the first and
third respondents rightly did not submit that the costs of two counsel were not
warranted.
The following order is made:
1. It is declared that the affairs of the first respondent ought to be
investigated in accordance with the provisions of section 258(1) of
the Companies Act, 61 of 1973.

Applicants Attorneys:		Bell Dewar & Hall I Gerhard Mare

Respondents Attorneys:	Smit & Marais I Savage Jooste & Adams

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2. The Minister of Trade and Industry is directed to appoint one or
more inspectors to investigate such affairs and to report thereon, in
accordance with the provisions of the said Act.
3. The first and third respondents are ordered to pay the costs of the
application, including the costs of two counsel.
					
B. R DU PLESSIS
Judge of the High Court