COURT BATTLES LOOM AS PARTNERS FALL OUT IN SOUTH AFRICA
The joint owners of a software development house have become bitter enemies, with six separate court cases in play as each accuses the other of reneging on agreements and flouting their fiduciary duties. The clash within Authority Online has escalated into all-out litigation, with founder Chris Boyes-Moffatt claiming his business has been hijacked by the partner who invested in the venture and distributes its products.
The litigation demonstrates the risks owners face when they need external funding for their companies, and the problems investors face when they buy into a firm that runs as an ownercontrolled business.
Two cases have been instigated by Boyes-Moffatt against his partner, Deon Botha, and Botha's company, Ultimate Retail Solutions (URS), with a third case being prepared. The affidavits accuse URS of breach of copyright, illegally withholding licence fees paid by customers, flouting fiduciary duties and ignoring the rights of minority shareholders.
But URS has instigated action of its own, claiming it is entitled to the rights of the software's source code, accusing Boyes-Moffatt of defamation, and demanding compensation and a refund of some of its investments.
The battle will run for many months, because a backlog of cases in Pretoria means the hearings will begin only in May next year. The clash centres on the retail and point-of-sale software programs used by about 150 retailers.
Boyes-Moffatt invited Botha and URS to buy 50% of the business and appointed URS to market the software. But Authority Online's revenue began to dry up when URS reneged on a deal to share the licence fees paid by the clients, Boyes-Moffatt claims. He believes he has lost about R2m in licence fees.
He also accuses URS of adapting the source code and rebranding the products. "Putting it crudely, (they) have hijacked the software of which Authority Online is the owner," his affidavit says.
URS denies that allegation, and has yet to submit an answering affidavit. That is a stalling tactic costing Authority Online more money every day, says Boyes-Moffatt, who holds 37,5% of the company.
A second blow came when his co-founder, Andrew Higson-Smith, who holds 12,5%, resigned to join URS. With a total stake of 67,5% Higson-Smith and Botha voted themselves on to the board.
As new directors of the company, they voted to withdraw the litigation accusing URS of breaching the copyright of Authority Online. Boyes-Moffatt describes that as a "blatant and unlawful attempt" to withdraw legal action against themselves, and as a breach of fiduciary duty as the company's directors. He is now preparing action under the Companies Act, which grants protection to minority shareholders.
The legal battle has cost Boyes-Moffatt at least R200000. "I am absolutely not giving up. If you put 12 years of your life into developing something and someone steals it from you, you have to get it back," he said.
Deon Botha of URS declined to comment. But his lawyer, Nic Loubser, says the failure to file opposing affidavits in the copyright case is not a delaying tactic, but because Authority Online has failed to provide documents that URS is entitled to. If Boyes-Moffatt manages to re-instate the copyright infringement case, URS will oppose it, Loubser says. Bowes-Moffatt never obtained the consent of 80% of the shareholders, as required in the Shareholders Agreement, before launching the legal action, Loubser says.
Loubser also says URS has become the rightful owner of the software after Authority Online failed to honour a commitment to support the customers and illegally ended a contract giving URS the distribution rights.
Cases lodged by URS accusing Bowes-Moffatt of making defamatory statements to some clients and requesting the court to rule that URS is now the rightful owner of the software have been given trial dates in May next year. A third case, demanding repayment of expenses incurred by URS, is awaiting a trial date.