The Constitutional Court has shut down a foreign investor’s latest attempt to force Dines Gihwala and Lancelot Manala to surrender profits from a black economic empowerment (BEE) investment, ending a legal battle that has dragged on for about 16 years.
The unanimous court refused Grancy Property Limited and Montague Goldsmith AG leave to appeal, leaving intact lower-court rulings that rejected Grancy’s claims over the Cape Gannet investment and interest owed in a separate mining deal.
The applicants were ordered to pay the legal costs of Gihwala, Manala and the relevant trustees of the Dines Gihwala Family Trust, including the costs of two counsel where employed.
In a judgment handed down on 9 October, Deputy Chief Justice Mlambo said Grancy had failed to establish that the Constitutional Court’s jurisdiction was engaged in either dispute.
The litigation began with Grancy’s attempts to establish how its money had been used in investments it entered into with Gihwala, his family trust and Manala, and to quantify the claims it believed it had against them.
The dispute involved several investment companies and two separate BEE transactions, an investment in Spearhead Property Holdings and a mining investment involving Scharrig Mining.
In February 2005, Grancy, Gihwala’s family trust and Manala agreed to acquire units in Spearhead. They used Seena Marena Investments as a corporate vehicle, with each party holding a third of its shares.
Seena Marena was to hold a stake in Ngatana Property Investments, which acquired Spearhead units through the BEE transaction.
Gihwala and Manala served as directors of the relevant companies.
In 2007, they approved a further investment through Cape Gannet Properties, which was to acquire 20 million units in Redefine Income Fund on behalf of incoming investors, including Ngatana.
Grancy argued that the Cape Gannet investment breached the original agreement because it had not consented to the transaction. It also alleged that Gihwala and Manala breached their fiduciary duties and should surrender the profits they made.
The lower courts rejected the claim, finding that Grancy’s interests were aligned with those of Gihwala and Manala and that the investment was not secret. Grancy had also benefited from the transaction.
The Constitutional Court found no basis to overturn the Supreme Court of Appeal’s approach to the law governing conflicts of interest and secret profits.
Grancy wanted the court to order the men to surrender all profits from the transaction, rather than simply account for the returns attributable to its own investment.
Such an order would strip wrongdoers of benefits gained through misconduct, rather than merely compensate the party that suffered the loss.
But the court found that Grancy had not established the legal basis required for it to reconsider the lower court’s decision.
It also criticised Grancy’s shifting arguments, saying they had put the court “in the undesirable position of deciphering what Grancy’s argument actually is”.
The judges noted that the finding that the parties’ interests were aligned was a factual one, rather than a statement of law that could be challenged in the manner Grancy sought.
The latest defeat does not mean Grancy lost every dispute arising from its investments with Gihwala and Manala.
In a separate case involving the Strand investment, the Supreme Court of Appeal found that the respondents had secretly invested Grancy’s funds and kept the resulting profits instead of accounting for them.
That earlier outcome stands apart from the Cape Gannet dispute now before the Constitutional Court.
In the latest case, the judges did not overturn the earlier Strand ruling. They refused to reopen the separate Cape Gannet and Scharrig disputes brought before them.
Grancy also lost its attempt to escape the in duplum rule in the Scharrig Mining dispute.
In that investment, Grancy alleged that Gihwala had represented that his family trust held 4% of the shares without disclosing that it had actually received 7.5%.
Grancy sought an accounting of the investment and challenged the way interest on the money owed to it was calculated.
The in duplum rule generally stops arrear interest from accumulating once it equals the outstanding capital debt.
Grancy argued that the cap should not apply where a debtor had delayed providing a full account of the money owed. It proposed changing the common law to prevent debtors from benefiting from such delays.
The company described its proposed change as “simple and narrow”.
The Constitutional Court disagreed, saying the proposal was “anything but simple and narrow” in substance.
The judges warned that the proposed approach could allow a creditor to claim indefinitely that an account remained incomplete, potentially leaving a debtor exposed to accumulating interest without a clear limit.
The court also criticised Grancy for failing to plead the proposed development of the common law in the High Court. The respondents had not been properly warned of the case they would have to meet, and allowing the argument at a later stage would prejudice them.
The judges further found no basis to interfere with the lower courts’ conclusion that the claims were liquidated, meaning the amounts were specified or capable of prompt and speedy calculation.
The Constitutional Court’s refusal of leave to appeal leaves those decisions undisturbed.
