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[2021] ZAWCHC 193
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Lancaster 101 (RF) (Pty) Limited v Steinhoff International Holding NV and Others (16389/19; 6578/19) [2021] ZAWCHC 193; [2021] 4 All SA 810 (WCC) (29 September 2021)
IN
THE HIGH COURT OF SOUTH AFRICA
(WESTERN
CAPE DIVISION, CAPE TOWN)
CASE
NUMBERS 16389/19 and 6578/19
In
the matter between:
LANCASTER
101 (RF)(PTY)
LIMITED
Applicant/Plaintiff
And
STEINHOFF
INTERNATIONAL HOLDING N.V
Respondent/Defendant
MARKUS
JOHANNES JOOSTE
First
Third Party/Third Party
ANDRIES
BENJAMIN LA GRANGE
Second
Third Party
Coram:
Kusevitsky, J
Heard:
27 July 2021 (Virtual Hearing)
Delivered:
This judgment was handed down electronically by circulation to the
parties’ representatives via email. The date
of hand-down is
deemed to be 29 September 2021
JUDGMENT
KUSEVITSKY,
J
Introduction
[1]
I
have been seized with a portion of the dispute which relates to
Steinhoff International Holdings NV (“Steinhoff”)
and one
of its potential creditors, Lancaster 101(RF) (Pty) Ltd (“Lancaster
101”).
[2]
This
matter involves an application in terms of Rule 7 of the Uniform
Rules of Court, where Steinhoff challenges a resolution adopted
by
Lancaster 101 which purports to grant its director Mr Jayendra Naidoo
(“Naidoo”) authority to institute legal proceedings
against Steinhoff and its affiliates.
[3]
It
is common cause, that Lancaster 101 instituted an action against
Steinhoff on 17 April 2019, in which it seeks
inter
alia
, the rescission of a share
subscription agreement which Lancaster 101 concluded with Steinhoff
on 23 September 2016, and in terms
of which Lancaster 101 subscribed
for 60 million shares in Steinhoff at a price of R 75.98 per share
for the total sum of approximately
R 4.5 billion. On 14 September
2019, Lancaster 101 filed an application for the same relief sought
in the action, i.e. for the
rescission of subscription agreement. It
avers that this relief is sought on motion because Steinhoff is
ostensibly unable to genuinely
dispute the basis upon which Lancaster
101 is entitled to the relief sought.
[4]
The
adjudication of those matters is not before me. What is however
before me is an application
[1]
pursuant to two Rule 7 notices served by Steinhoff in the action and
application proceedings. The relief sought in both applications
[2]
is the same and will for purposes of expedience be dealt with
together. The relief sought is a follows:
1.1
granting the defendant, Steinhoff,
condonation for the late delivery of its notice in terms of Rule 7,
dated 1 February 2021;
1.2
declaring the Plaintiff’s response to
the Rule 7 notice, dated 4 February 2021, as its formal response to
the Rule 7 notice;
1.3
declaring Lancaster 101’s response as
being inadequate to satisfy this Court that Lancaster’s
attorneys of record, have
the requisite authority to represent
Lancaster 101 in these proceedings;
1.4
staying the proceedings and directing that
Lancaster’s attorneys may no longer act on behalf of Lancaster
101, until such
time as Lancaster 101’s attorneys have
satisfied this Court that they are so authorised to act;
1.5
Alternatively to the relief sought in 1.1
to 1.4 above, granting Steinhoff leave to serve a new Rule 7 notice
on Lancaster 101.
[5]
Lancaster
101 has also filed a Conditional Counterclaim, in the event that
Steinhoff is successful in the substantive relief sought.
The relief
claimed is as follows:
“
That
the unanimous resolution of Lancaster 101’s Board of Directors
dated 7 March 2019 is declared to be valid in terms of
section
75(7)(b)(ii) read with section 75(8) of the Companies Act,71 of 2008
(“the Companies Act”).
Summary
of the legal proceedings
[6]
Lancaster
101 has two pending proceedings against Steinhoff; action proceedings
(“the action proceedings”) instituted
during April 2019
under case number 6578/19 and application proceedings (“the
application proceedings”) instituted
on 16 September 2019 under
case number 16389/19.
[7]
The
action proceedings seek judgment against Steinhoff for various
claims, one of which is a claim based on a subscription agreement
concluded between Lancaster and Steinhoff. The amount sought in this
claim is R 4 558 800 000.00.
[8]
The
application proceedings, which was initially brought on an urgent
basis
[3]
, similarly seeks
judgment against Steinhoff in the amount of R 4 558 800 000.00. The
claim sought in the application is identical
to the claim referenced
above in the action proceedings, and is also premised upon the
aforesaid subscription agreement that was
concluded between Lancaster
101 and Steinhoff. It is common cause that Steinhoff has raised a
lis
pendens
defence as a consequence thereof.
[9]
According
to the founding affidavit deposed to by the company secretary to the
Steinhoff Group, Mr Nicholas Lewis (“Lewis”),
the issue
of authority became pertinent in the application proceedings.
[10]
Lewis
states that the deponent to the founding affidavit in the Lancaster
101 application proceedings, Naidoo, asserted that he
was duly
authorised to act on behalf of Lancaster 101 and to depose to the
founding affidavit on its behalf. Lewis states that
no proof of
Naidoo’s authority to act was annexed to the founding
affidavit.
[11]
It
is common cause that the authority was not specially raised as an
issue in those proceedings, but Lewis relies on a general denial
clause
[4]
which reads as
follows:
“…
any
assertion and/or allegation contained in the founding affidavit which
is not addressed specifically hereunder, which is contrary
to what is
stated in this answering affidavit is
taken
to be denied
.” (“own
emphasis
”
)
[12]
On
this basis, the contention is that Naidoo’s authority was
denied in those proceedings.
[13]
Lewis
contends that Naidoo was provided an opportunity to respond to the
denial of his authority to act on behalf of Lancaster 101
in the
replying affidavit. This he could have done by annexing a copy of the
resolution taken by Lancaster 101 to institute the
application and /
or the action, and which authorised him to represent Lancaster 101 in
those proceedings. It is alleged that his
failure to do so has now
put into question Naidoo’s authority to act on behalf of
Lancaster 101; Lancaster 101’s authority
to institute the
action and the application proceedings respectively; and by extension
the authority of Lancaster’s attorneys
of record to act on
Lancaster 101’s behalf.
[14]
As
a consequence of the above, a Rule 7 Notice was served on Lancaster
101 in both the action and application matters on 4 February
2021 and
1 February 2021 respectively.
[15]
On
4 February 2021, Lancaster 101 replied to the Rule 7 Notice by
stating that the attorneys ENS Inc. were indeed so authorised
to act
on behalf of Plaintiff, Lancaster 101, and annexed the following
resolution as proof of such authority which reads as follows:
“
WRITTEN
RESOLUTIONS OF THE BOARD OF DIRECTORS OF THE COMPANY
RECORDAL:
The following resolutions
have been submitted for consideration in terms of section 74 of the
Companies Act, 71 of 2008 (the “
Companies Act&rdquo
;) to the
board of directors of the Company (the “Board or “Directors”).
The Directors hereby confirm that each
Director has received notice
of the matters to be decided in these resolutions.
WHEREAS:
The Company is desirous
of instituting legal proceedings against Steinhoff International
Holdings NV and/or any of its related affiliates
(“Steinhoff”)
in respect of the loss suffered by the Company due to
misrepresentations made by Steinhoff and/or its
unauthorised
representatives (“Claim”)
NOW THEREFORE IT IS
RECEORDED THAT THE DIRECTORS HEREBY RESOLVE THAT:
1. RESOLUTION
NO 1:
Authorisation to institute the Claim
Jayendra Naidoo, in his
capacity as a Director of the Company, be and is hereby authorised
and mandated to Institute the Claim on
behalf of the Company, and is
authorised to represent the Company in any legal proceedings of the
Claim.
2. RESOLUTION
NO 2:
Authorisation
Jayendra Naidoo, in his
capacity as a Director of the Company or, be and is hereby
authorised:
2.1 to
do all such things and sign all such documents as are necessary to
give effect to the resolutions set out
above and generally do all
such things and sign all such documents which may be necessary for
the implementation the resolutions
above, including, without
limitation, to the deposing to of any and all affidavits and the
instructing and appointment of the Company’s
attorneys (being
Edward Nathan Sonnenbergs Incorporated); and
2.2 Insofar
as such signature and/or acts occurred before the adoption of this
Resolution No. 2, such signature
and/or acts are hereby ratified and
approved;
provided that if Jayendra
Naidoo has disclosed a personal financial interest of a matter or
disclosed that he knows that a related
person has a personal
financial interest in the matter, he is nonetheless authorised to
execute any of the aforesaid documents
on behalf of the Company as
contemplated in
section 75(5)(g)
of the
Companies Act.”
>
[16]
Steinhoff
disputed the correctness of the aforesaid resolution and denied that
it constituted compliance with the
Rule 7
notices. It accordingly
filed a
Rule 30A
notice on the basis of the alleged deficiencies. The
relevant concerns
[5]
raised in
the
Rule 30A
notice were
inter
alia
as follows:
“
3.3
section
75
(5) of the
Companies Act contemplates
that a board meeting must be
held to approve any matter in which a director (‘
Relevant
Director’
) (or a person
related to a relevant director) has a personal financial interest.
Furthermore,
section 75
(5) prescribes the procedure that must be
followed at the meeting and requires, inter alia, that the Relevant
Director must not
take part in the consideration of the matter; other
than to disclose material information, observations and insights
relating to
the matter;
3.4 the
directors’ resolution provided by the applicant indicates that
a board meeting was not convened,
and instead written resolutions
were purportedly ‘passed’. The directors’
resolution merely confirms that each
director ‘has received
notice of the matters to be decided in these resolutions’.
Furthermore, Naidoo took part in
the consideration of the matter, as
evidenced by the fact that he signed the written resolutions;
3.5 the
aforementioned directors’ resolution does not record whether or
not the resolution was either:
-
3.5.1
subsequently
ratified by the ordinary resolution of the shareholders of the
applicant, following disclosure of that personal financial
interest,
as required in terms of
section 75
(7) (b) (i) of the
Companies Act;
or
3.5.2
declared
to be valid by a Court, as required in terms of
section 75
(7) (b)
(ii) read with
section 75
(8) of the
Companies Act.”
[17]
In
reply to the
Rule 30A
Notice
[6]
,
the attorneys of record for Lancaster 101 raised various objections,
inter
alia
disputing that Steinhoff was entitled to deliver a
Rule 7
notice at
this stage of the proceedings and that it had pertinently disputed
Naidoo’s authority in its answering affidavit
in the
application proceedings.
[18]
Steinhoff
states that Lancaster 101’s refusal to comply with
section 75
of the
Companies Act may
arise due to its shareholding. This is
because 50% of Lancaster 101’s issued shares are held by the
Government Employees
Pension Fund (“the GEPF”), who is
represented by the Public Investment Cooperation (“PIC”),
and the remaining
50% is held by entities controlled by Naidoo. This,
argues Steinhoff, leads them to the conclusion that Lancaster 101 is
unable
to provide proper evidence to gainsay the inference that they
are unable to provide proof of:
18.1
Lancaster 101’s attorney’s authority to act on behalf of
Lancaster 101; and
18.2
Lancaster 101’s authority to have instituted the aforesaid
mentioned proceedings.
[19]
This
is the basis upon which Steinhoff is
inter
alia
seeking condonation for the late
delivery of its
Rule 7
notice, the two applications having been
launched in April 2021.
[20]
This
is perhaps the most appropriate time to deal with the application for
condonation for the late delivery of its notice in terms
of
Rule 7
dated 1 February 2021.
The
condonation application
[21]
Rule
7(1)
provides that the authority of anyone acting on behalf of a
party may, within 10 days after it has come to the notice of a party
that such person is so acting, or with the leave of the court on good
cause shown at any time before judgment, be disputed, whereafter
such
person may no longer act unless he satisfied the court that he is
authorised so to act, and to enable him to do so the court
may
postpone the hearing of the action or the application.
[22]
According
to Erasmus
[7]
, the challenge may
be brought at any time before judgment and may be raised in a variety
of ways,
inter
alia
in appropriate circumstances by notice, with or without supporting
evidence, in a defendant’s plea or special plea; in an
answering affidavit or orally at the trial.
[23]
In
this case, the summons in the action was served on Steinhoff during
April 2019, and the notice of motion was served on Steinhoff
during
September 2019. According to Lancaster 101, Steinhoff would have been
aware that ENS represented Lancaster 101 in the action
proceedings
approximately 22 months before it served its
Rule 7(1)
notice in
those proceedings; and approximately 15 months before it served its
Rule 7(1)
notice in the application proceedings.
[24]
Rule
27
(1)
[8]
provides as follows:
“
In
the absence of agreement between the parties, the court may upon
application on notice and on good cause shown, make an order
extending or abridging any time period prescribed by these rules or
by an order of court or fixed by an order extending or abridging
any
time for the doing of any act or taking any step in connection with
any proceedings of any nature whatsoever upon such terms
as to it
seems meet.”
[25]
Rule
27(3)
provides that the court may, on good cause shown, condone any
non-compliance with these rules.
[26]
In
dealing with good cause in the context of
Rule 27
(1),
inter
alia
the following principles have
emerged:
“
A
full and reasonable explanation, which covers the entire period of
delay, must be given. If there has been a long delay, the court
should require the party in default to satisfy the court that the
relief sought should be granted, especially in a case where the
applicant is
dominus
litis
.
It is not sufficient for the applicant to show that condonation will
not result in prejudice to the other party. An applicant
for relief
under this rule must show good cause; the question of prejudice does
not arise if it is unable to do so. The court will
refuse
to grant the application where there has been a reckless or
intentional disregard of the rules of court, or the court is
convinced that the applicant does not seriously
intend
to proceed. The application must be bona fide and not made with the
intention of delaying the opposite party’s claim.”
[9]
[27]
Steinhoff
contends in the founding affidavit that when Lancaster 101's action
and application were first instituted, there was no
reason for
Steinhoff to have doubts that Lancaster’s attorneys had
authority to represent Lancaster 101 in those proceedings.
It says
that when the PIC report became publicly available, it became
apparent that the issue of the underwriting commission evidenced
the
personal financial interest. Is says that given that Steinhoff’s
answering affidavit in the Lancaster 101 application
was due to be
filed shortly thereafter, it was seen as an opportune time to dispute
authority in that affidavit.
[28]
Steinhoff
disputed authority in its answering affidavit. It says that it was
only on receipt of Lancaster 101’s replying affidavit
at the
end of January 2021 that it became apparent that the issue of
authority was not dealt with by Lancaster 101. This, combined
with
information which by then had become available pursuant to the
Judicial Commission of Inquiry and the PIC Report regarding
the
underwriting commission and the personal financial interest, that the
full weight and import of Lancaster 101’s lack
of authority
became apparent.
[29]
Lancaster
101’s replying affidavit was served on 25 January 2021.
Steinhoff says that it acted without delay thereafter: the
Rule 7
notice was served a mere five Court days thereafter. In the
circumstances, they contend that they acted with no undue delay.
[30]
They
finally contend that the dispute in regard to authority is a recent
one, premised on facts that only recently came to light.
It says it
was not an issue that could have been raised at the outset of this
matter, and within the 10-day period contemplated
in
Rule 7
(1). They
aver that it is, however, a point of considerable importance, now
that the lack of authority has become clear and that
it is in the
interests of justice that Steinhoff be permitted to bring this
application now.
[31]
In
support of this contention, reliance was placed on
Ferris
v FirstRand Bank Ltd
[10]
where the Constitutional
Court held that lateness is not the only consideration in determining
whether condonation should be granted.
A court must also consider
whether it is in the interests of justice to grant it, and that in
making this determination the applicant’s
prospects of success
and the importance of the issue to be determined are all relevant
factors.
Ferris
also stated that one of the factors to be taken into consideration in
deciding if condonation should be granted is that of the
importance
of the issue to be determined. Steinhoff points out that the issue of
the authority is clearly of considerable importance.
[32]
According
to their argument, Lancaster 101 seeks judgment against Steinhoff
amounting to many billions of rand. If the issue of
authority is
determined against Lancaster 101 and the relief in paragraph 1.4 of
the notice of motion is granted, then ENS may
no longer act on behalf
of Lancaster 101 until such time as they have satisfied the Court
that they are so authorized to act. It
contends that the prejudice
that would be suffered by Steinhoff in the event that the Lancaster
101 action and application are
not authorized is significant and
irremediable. Furthermore, in the event that a costs order is granted
in favour of Steinhoff,
there would be no ability on its part to
recover those costs since the plaintiff/applicant, as cited, would
not have been party
to the proceedings and cannot be held liable. In
addition, Steinhoff would bear additional and usually non-recoverable
costs in
relation to unauthorized litigation against it, for no
purpose. It says that is fundamentally important, that the issue of
whether
the proceedings are authorized needs to be resolved.
[33]
Lancaster
101, in opposition to the application for condonation, placed its
reliance on a Full Bench decision of this court per
Binns-Ward
J, which held that a delay in challenging authority in terms of
Rule
7(1)
is “
inimical
to the efficient administration of justice”
,
and that such challenges to the authority of an attorney to represent
a litigant, “
if
they are to be raised at all, should be raised promptly at the
earliest opportunity…”
.
[11]
That Court went on to find that it is for this reason that the rule
provides that a challenge must be made promptly, within the
10-day
period, save where the party raising the challenge obtains the leave
of the court to do so outside of this time period on
“
good
cause shown”
.
[12]
[34]
Lancaster
101 states that there
is
an important distinction drawn in the relevant case law between a
challenge to the authority of an attorney to represent a litigant,
and a general challenge to the authority of a deponent instituting
proceedings on behalf of a juristic person.
In
South
African Allied Workers’ Union v De Klerk NO
[13]
,
the Court held that
Rule 7(1)
is concerned with the authority which
is given by a litigant to an attorney to represent them in
proceedings by taking certain
formal procedural steps, such as the
issuing of court process.
[14]
Put differently, it contends that it is not concerned with, for
example, the authority of a deponent to depose to an affidavit,
or to
the institution of proceedings on behalf of a juristic person.
[35]
Lancaster
101 argues that according to the Supreme Court of Appeal, it has held
that if a party wishes to dispute the authority
of an attorney to
represent a party, they are required to do so in terms of
Rule 7(1).
It is not to be raised “
based
on no more than a textual analysis of the words used by a
deponent”
.
[15]
The party raising the dispute
must
invoke
Rule 7(1).
[16]
It
contends that Steinhoff’s purported explanation for the
inordinate delay in filing its
Rule 7
notices is thus unsustainable.
[36]
Lancaster
101 further contends that Steinhoff had no intention of disputing
ENS’s authority when it filed its answering affidavit
in
December 2020. It says that if it had intended to do so, it would
have expressly stated as much in its answering affidavit,
and
presumably would have sought to file a
Rule 7(1)
notice then –
i.e. in December 2020. In states that in truth, the challenge to
ENS’s authority was an after-thought,
calculated to delay. They
say the explanation that the delay was occasioned by the public
release of the PIC report, which alluded
to the
personal
interest
,
is far fetched given that the PIC report became publicly available on
12 March 2020, nearly a year before it filed the
Rule 7(1)
notices
and approximately 9 months before it filed its answering affidavit in
the application proceedings. Thus although the deponent,
Mr Lewis,
stated that “
[g]iven that
[Steinhoff’s] answering affidavit in the L101 application was
due to be filed shortly thereafter
[i.e.
shortly after the PIC report]
, it was an
opportune time to dispute authority in that affidavit, and make a
determination as to the next steps thereafter, once
the replying
papers were delivered”
. Steinhoff
only filed its answering affidavit some 9 months later on 14 December
2020 after the PIC report became available on
12 March 2020.
[37]
Steinhoff
did not in its answering affidavit plead that ENS was acting without
authority, or that the application had not been properly
authorised
by Lancaster 101’s
board of
directors.
[38]
Lancaster
101 states that it did not respond to Mr Naidoo’s allegation in
paragraph 3 of Lancaster 101’s founding affidavit
that he was
duly authorised to represent Lancaster 101 and to depose to its
founding affidavit. Instead, what Steinhoff did was
to
bury
in its affidavit a general “
catch-all
”
denial of any allegations contained in the founding affidavit which
it chose not to specifically address. This bald and
general denial
reads as follows:
“…
any
assertion and/or allegation contained in the founding affidavit which
is not addressed specifically hereunder, which is contrary
to what is
stated in the answering affidavit is taken to be denied.”
[39]
In
an attempt to explain away its inordinate delay, Steinhoff now
contends that when Lancaster 101 did not address the “issue”
of authority in its replying affidavit, Steinhoff was prompted to
file the
Rule 7(1)
notices and accordingly has “
good
cause”
to explain its delay.
[40]
They
say it is clear that Steinhoff did not intend in its answering
affidavit to dispute ENS’s authority, or for that matter
the
authority of Mr Naidoo. If it had intended to do so it would have
stated this in terms. It is in any event contrary to the
well-established principles of pleading that issues such as this are
to be raised explicitly on the pleadings.
[17]
They say that it should accordingly have come as no surprise to
Steinhoff that Lancaster 101’s replying affidavit did not
address the issue of authority. This was because it had not been
raised by Steinhoff in its answering affidavit as a point which
required a response. It argues that it was not, and could never have
been Lancaster 101’s replying
affidavit
which prompted Steinhoff to file the
Rule 7(1)
notices.
[41]
In
Pretoria
City Council v Meerlust Investments (Pty) Limited
1962 (1) SA
321
Ogilvie
Thompson JA stated as follows
[18]
:
“
The
question of authority having been raised,
the
onus
is
on the petitioner to show that the prosecution of the appeal in this
Court has been duly authorised
by the
Council; that it is the Council which is prosecuting the appeal, and
not some unauthorised person on its behalf (cf.
Mall
(Cape) (Pty.)
Ltd v Merino
Ko-operasie Bpk.
,
1957 (2) SA 347
(C)
at pp. 351-2).
As
was pointed out in that case, since an artificial person, unlike an
individual, can only function through its agents, and can
only take
decisions by the passing of resolutions in the manner prescribed by
its constitution, less reason exists to assume, from
the mere fact
that proceedings have been brought in its name, that those
proceedings have in fact been authorised by the artificial
person
concerned. In order to discharge the abovementioned
onus
,
the petitioner ought to have placed before this Court an
appropriately worded resolution of the Council. … This the
petitioner
has failed to do.” (“own emphasis”)
[42]
In
Firstrand
Bank v Fillis
2010 (6) SA 565
,
the court stated that if an attorney’s authority to act on
behalf of a party is challenged, then in terms of Rule 7 of the
Uniform Rules of Court, the attorney is required to satisfy the court
that he is properly authorised to act on behalf of the litigant.
[19]
Until he has done so, he is precluded from acting further. The
obligation to establish this authority only arises when the authority
to prosecute the process is challenged.
[20]
[43]
In
South African Allied Workers Union v De
Klerk NO
1990
(3) SA 425
, Jansen J referred to
Mall
(Cape) (Pty) Ltd v Merino Ko-operasie Bpk
1957 (2) SA 347
(C)
at 351 D-H, where Justice Watermeyer stated as follows:
“
I
proceed now to consider the case of an artificial person, like a
company or co-operative society. In such a case
there
is judicial precedent for holding that objection may be taken if
there is nothing before Court to show that the applicant
has duly
authorised the institution of notice of motion proceedings.
(see for example Royal Worcester Corset Co. v Kesler’s Stores,
1927 C.P.D. 143
; Langeberg Ko-operasie Beperk v Folscher and Another,
1950 (2) S.A. 618
(C)). Unlike an individual,
an
artificial person can only function through its agents
and it can only take decisions by the passing of resolution in the
manner provided by its constitution. An attorney instructed
to
commence notice
of motion
proceedings by, say, the secretary or general manager of a company
would not necessarily know whether the company had
resolved to do so,
nor whether the necessary formalities had been complied with in
regard to the passing of the resolution.
It
seems to me, therefore, that in the case of an artificial person
there is more room for mistakes to occur and less reason to
presume
that it is properly before the Court or that proceedings which
purport to be brought in its name have in fact been authorised
by it
.
There is a considerable amount of
authority for the proposition that, where a company commences
proceedings by way of petition,
it must appear that the person who
makes the petition on behalf of the company is duly authorised by the
company to do so
(see for
example Lurie Brothers Ltd v Archache,
1927 N.P.D 139
, and the other
cases mentioned in Herbstein and van Winsen, Civil Practice of the
Superior Courts in South Africa, at pp. 37, 38).
This seems to me to
be a salutary rule and one which should apply also to notice of
motion proceedings where the applicant is an
artificial person. In
such cases some evidence should be placed before the Court to show
that the applicant has duly resolved to
institute the proceedings and
that the proceedings are instituted at its instance.
(“own
emphasis”)
[44]
Given
the above, I am not persuaded by Lancaster 101’s argument that
a distinction is to be drawn between an attorney’s
mandate to
act, and an authorisation given to an agent that he or she is so
authorised by the artificial person, to so act, in
this case, to
institute legal proceedings.
[45]
Given
the above, it is clear that a litigant is entitled, despite the
10-day limit contained in Rule 7(1), to challenge a party’s
authority at any stage before judgment. Furthermore, if due regard is
had to the dictum in
Ferris supra
,
then I am of the view that it is in the interest of justice that
condonation be granted, given the implications and importance
of the
matter.
The
Applicant’s submissions
[46]
The
basis of Steinhoff’s challenge lies in
section 75
of the
Companies Act. Steinhoff
submits that the resolution indicates that a
board meeting was not convened, but rather that the resolutions were
purportedly “
passed”
.
The resolution merely confirms that each director “
has
received notice of the matters to be decided in these resolutions”
.
They say that Naidoo took part in the consideration of the matter,
given that he signed the written resolution.
[47]
Section
75
of the
Companies Act relates
to a Director’s personal
financial interests. Subsection (4) provides that at any time, a
director may disclose any personal
financial interest in advance, by
delivering to the board, or shareholders in the case of a company
contemplated in subsection
(3), a notice in writing setting out the
nature and extent of that interest, to be used generally for the
purposes of that section
until changed or withdrawn by further
written notice from that director.
[48]
Subsection
(5) provides that if a director of a company, other than a company
contemplated in subsection 2(b) or (3), has a personal
interest in
respect of a matter to be considered at a meeting of the board, or
knows that a related person has a personal financial
interest in the
matter, the director (a) must disclose the interest and its general
nature before the matter is considered at the
meeting; (b) must
disclose at the meeting any material information relating to the
matter and known to the director; and ; must
not take part in the
consideration of the matter, except to the extent contemplated in
paragraphs (b) and (c).
[21]
[49]
According
to Steinhoff, by virtue of Naidoo’s shareholding in the
Lancaster Group, he is defined ‘
a
person related to a director
” of
Lancaster 101 as contemplated in the
Companies Act, and
the disputed
subscription agreement is the genesis of this relationship.
[50]
In
my view, it is necessary to set out the background to the
subscription agreement. The subscription by Lancaster 101 occurred
in
the context of what has been described as a fully funded black
economic empowerment transaction, which envisaged the acquisition
of
Steinhoff shares by Lancaster 101, wholly funded by the PIC and which
was Steinhoff’s second largest shareholder.
[51]
At
the time of the conclusion of the subscription agreement, the PIC
held 50% of the issued shares in Lancaster 101. The remaining
50%
were held by the Lancaster Group and Naidoo is the
sole
shareholder
of the Lancaster Group.
[52]
It
was alleged that the subscription agreement makes no mention of the
payment of an underwriting commission to any party. However,
when the
Steinhoff’s capital increase was announced on 28 September
2016, it included a recordal that Lancaster 101 would
be paid an
underwriting commission of 2.5% of the total subscription price under
the subscription agreement. This appears to have
been calculated on
60 million shares, although it subsequently became apparent that
approximately 51 million shares were subscribed
for by Lancaster 101,
whilst the GEPF appears to have subscribed for over 8 million of the
remaining shares making up the balance
of the 60 million shares.
[53]
However,
matters changed and instead of Lancaster 101 being paid the
underwriting commission, from which the PIC would have benefitted
indirectly given that it held 50% of Lancaster 101’s shares,
Steinhoff was informed that the Lancaster Group would invoice
Steinhoff for the underwriting commission instead.
[54]
The
instruction to provide Steinhoff with the bank details of Lancaster
Group, as opposed to Lancaster 101, was made by Naidoo
personally
,
in an email sent by Naidoo from his Lancaster Group signature, dated
3 October 2016. The invoice was emailed to Steinhoff on 21
October
2016. The latter email followed a reference, in an email from Naidoo
dated 18 October 2016, to a discussion between Naidoo
and Dr. Dan
Matjila (“Matjila”), the chair of the PIC at the time,
which states as follows:
“
After
further discussions with Dr. Dan, I confirm that the underwriting fee
due to Lancaster 101 in respect of the 60m SNH shares
is to be paid
to the Lancaster Group.
Lancaster
Group is in the process of acquiring a Vat registration number which
will be available before the end of this week
…”
[55]
Shortly
thereafter, the Lancaster Group invoiced Steinhoff for an
‘underwriting commission’ in the amount of
R129 925 800.00.
This amount made up a component for Vat in
the amount of R 15 955 800.00 despite the fact that the alleged
announcement made no
reference to whether or not the ‘underwriting
commission’ to be paid to the Lancaster Group would be Vat
inclusive
or Vat exclusive.
[56]
What
is telling however, is an email sent by Naidoo advising that the
Lancaster Group would be registered for Vat before the end
of that
week of 18 October 2016. It was unknown by the hearing of this matter
upon enquiry by the court whether the company had
in fact been so
registered. This is however not a matter that should detain me.
[57]
Steinhoff
contends that the payment of the underwriting commission was the
subject of criticism in the PIC Report, prepared following
the
conclusion of a Judicial Commission of Inquiry into events at the
PIC.
[58]
According
to the PIC Report, Matjila denied any knowledge of the underwriting
commission, or its basis; and Naidoo took the approach
that the
underwriting commission was paid by Steinhoff, and not by the PIC,
for services rendered in concluding the transaction.
It also appears
that Naidoo saw no conflict with the position of the PIC, which
funded the transaction, and would traditionally
have been entitled to
the underwriting commission.
[59]
According
to the founding affidavit, it states that when Naidoo was questioned
as to why the Lancaster Group, and not Lancaster
101, had received
the payment of the underwriting commission, Naidoo’s response
was that the commission was paid at the discretion
of Steinhoff for
the efforts the Lancaster Group had made in contributing to what they
saw as capital raising efforts. Steinhoff
argues that Naidoo failed
to recognize that Lancaster 101 was a recipient of the capital raise
and that the reason for the change
in the recipient was not
clarified.
[60]
It
argues that
section 75
(7) of the
Companies Act will
apply to the
resolution, which authorizes Naidoo to institute a claim against
Steinhoff on behalf of Lancaster 101 (“the
Relevant Decision”),
if Naidoo, or a person related to Naidoo, has a personal interest in
the Relevant Decision.
[61]
Section
1 of the Act defines:
A “personal
financial interest” of a person as “a direct material
interest of that person, of a financial, monetary
or economic nature,
or to which a monetary value may be attributed”; and
“
material”
as “significant in the circumstances of a particular matter, to
a degree that is –
(a)
Of consequence in determining the matter;
or
(b)
Might reasonably affect a person’s
judgment or decision – making in the matter”;
[62]
Subsection
7 thereof provides that:
(7)
A
decision by the board, or a transaction or agreement approved by the
board, or by a company as contemplated in subsection (3),
is valid
despite any personal financial interest of a director or person
related to the director, only if-
(a)
it
was approved following disclosure of that interest in the manner
contemplated in this section; or
(b)
despite
having been approved without disclosure of that interest, it-
(i)
has
subsequently been ratified by an ordinary resolution of the
shareholders following disclosure of that interest; or
(ii)
has
been declared to be valid by a court in terms of subsection (8).
[Sub-s.
(7) substituted by s.48 (
b)
of
Act No.3 of 2011.]
(8)
A
court, on application by any interested person, may declare valid a
transaction or agreement that had been approved by the board,
or
shareholders, as the case may be, despite the failure of the director
to satisfy the disclosure requirements of this section.
[Sub-s
(8) substituted by s. 48
(b)
of act No. 3 of 2011.]
[63]
The
Applicant argues that Naidoo was personally interested in the
subscription because the entity of which he was the sole shareholder,
Lancaster Group, took an underwriting commission from the
transaction. They argue that it is clear that Lancaster Group had a
personal financial interest as defined, in the conclusion of the
subscription agreement by Lancaster 101 which would have triggered
the operation of
section 75
of the
Companies Act. This
, in turn,
would have given rise to a conflict between Naidoo’s personal
interest and his duties as a director of Lancaster
101 in relation to
the conclusion of the subscription agreement.
[64]
Thus
by virtue of Naidoo’s shareholding in Lancaster Group,
Lancaster Group is ‘
a person
related to a director’
of
Lancaster 101, as contemplated in the
Companies Act.
[65
]
Furthermore,
so the argument goes, Naidoo had a direct interest of a financial,
monetary or economic nature in the Relevant Decision
that was
significant to a degree that it was of consequence in determining
whether to institute a claim against Steinhoff; or might
reasonably
have affected Naidoo’s judgment in relation to the Relevant
Decision. The latter point is illustrated by the fact
that the
pleadings in the proceedings make no reference to the underwriting
commission and assert, inaccurately, that 60 million
shares were
subscribed for. Absent Naidoo’s financial interest, there would
be no reason to plead in that way, they argue
and in any event, no
evidence was presented in these proceedings that Naidoo’s
personal interest was disclosed to the Lancaster
101’s Board of
Directors when authority, as embodied in the Resolution to bring the
action and application proceedings, was
granted.
The
Respondents’ submissions
[66]
Lancaster
101 opposes the
Rule 7
application and have simultaneously filed a
Notice of Conditional Counter-Application. The counter application
will only be triggered
if it is held that Steinhoff is entitled to
the relief in paragraphs 1.1 to 1.5 of its notice of motion, in which
case Lancaster
101 will then seek relief that the unanimous
resolution of Lancaster’s board of directors dated 7 March
2019, is declared
to be valid in terms of
section 75(7)(b)(ii)
read
with
section 75(8)
of the
Companies Act, 71 of 2008
.
[67]
But
first I deal with the Respondent’s defence - the main
contention being that Steinhoff has launched these applications
to
further delay the finalization of the pending proceedings and that
these applications, which form part of various interlocutory
steps
which Steinhoff has taken, is purely an abuse of process.
Discussion
[68]
Rule
7
provides as follows:
“
7
Power of Attorney
(1)
Subject
to the provisions of subrules (2) and (3) a power of attorney to act
need not be filed, but the authority of anyone acting
on behalf of a
party may, within 10 days after it has come to the notice of a party
that such person is so acting, or with the
leave of the court on good
cause shown at any time before judgment, be disputed, whereafter such
person may no longer act unless
he satisfied the court that he is
authorised so to act, and to enable him to do so the court may
postpone the hearing of the action
or application.
(2)
The
registrar shall not set down any appeal at the instance of an
attorney unless such attorney has filed with the registrar a power
of
attorney authorising him to appeal and such power of attorney shall
be filed together with the application for a date of hearing.
(3)
An
attorney instructing an advocate to appear in an appeal on behalf of
any party other than a party who has caused the appeal to
be set down
shall, before the hearing thereof, file with the registrar a power of
attorney authorising him so to act.
(4)
Every
power of attorney filed by an attorney shall be signed by or on
behalf of the party giving it, and shall otherwise be duly
executed
according to law; provided that where a power of attorney is signed
on behalf of the party giving it, proof of authority
to sign on
behalf of such party shall be produced to the registrar who shall
note that fact on the said power.
(5)
(a)
No power of
attorney shall be required to be filed by the State Attorney, any
deputy state attorney or any professional assistant
to the State
Attorney or a deputy state attorney or any attorney instructed, in
writing, or by telegram by or on behalf of the
State Attorney or a
deputy state attorney in any matter in which the State Attorney or a
deputy state attorney is acting in his
capacity as such by virtue of
any provision of the State Attorney Act, 1957 (Act 56 of 1957).”
(references omitted)
[69]
It
is common cause that Rule 7(1) applies to both actions and
applications. Erasmus states that the sub-rule does not prescribe
the
method of establishing authority where such authority is
challenged.
[22]
This point
becomes relevant later on. In any event, when such authority is
challenged, the requirement of the sub-rule is that
the person
concerned shall satisfy the court ‘
that
he is so authorised to act
.’
[23]
This the person concerned may do by adducing any acceptable form of
proof and not necessarily by filing a written power of attorney.
In
the event of any of the parties being a company, such as in this
case, a resolution of such company that the proceedings have
been
properly authorised, may constitute such proof.
[24]
[70]
I
have no difficulty in accepting Steinhoff’s proposition that
Naidoo has a personal financial interest as defined, in the
matter,
given his directorship in Lancaster 101 and the subsequent “windfall”
that he received as sole shareholder
and director of the Lancaster
Group, pursuant to the subscription agreement.
[71]
Now
turning to the Resolution and an evaluation as to whether Lancaster
101 has placed sufficient evidence before this court to
show that the
applicant has duly resolved to institute the proceedings and that the
proceedings are instituted at its instance.
See
Mall (Cape)(Pty) Ltd v Merino Ko-Operasie Bpk
supra
.
[72]
If
one has regard to the wording of the Resolution, paragraph 2.2 does
not
specifically
state that Naidoo disclosed his personal financial interest as
required. The relevant portion reads as follows:
2.2 Insofar
as such signature and/or acts occurred before the adoption of this
Resolution No. 2, such signature and/or
acts are hereby ratified and
approved;
provided that if
Jayendra Naidoo has disclosed a personal financial interest of a
matter or disclosed that he knows that a related person has a
personal financial interest in the matter, he is nonetheless
authorised to execute any of the aforesaid documents on behalf of
the
Company as contemplated in
section 75(5)(g)
of the
Companies Act.&rdquo
;
(“my emphasis”)
[73]
This
is evident from the word ‘provided’ contained therein.
Section 75(7)
specifically provides that a decision of a board is
valid despite any personal interest of a director, only if (a) it was
approved
following disclosure of that interest in the manner
contemplated in the section, or (b) despite having been approved
without disclosure
of that interest, it (
i
)
has subsequently been ratified by an ordinary resolution of the
shareholders of that interest. If one has regard to subsection
(a),
the wording of paragraph 2.2 in the resolution does not
specifically
indicate, that there was personal disclosure. The remaining content
of that paragraph similarly does not indicate that a disclosure
was
made. It states the following – “
or disclosed
that he knows that a related person has a personal financial interest
in the matter
”. Whilst clearly the paragraph was crafted so
as to cover alternate scenarios, this in my view is insufficient.
There is
no indication that the personal interest,
was in fact
disclosed
, so as to fall within the provisions of subsections
(a), or (b)(i), which provides that a subsequent ratification by an
ordinary
resolution of the shareholders
following
disclosure
of that interest. As was held in
Pretoria City Counsal v Meerlust
supra
, the petitioner ought to have placed before this court
an appropriately worded Resolution. This he has failed to do. The
resolution,
in my view, is therefore invalid and the automatic
consequence thereof is that there is no proof before this court that
Naidoo
has satisfied it that he is so authorised to act. This also
means that if he does not have any authority to act, then any
instruction
that he has given to any legal representative to act on
Lancaster 101’s behalf, in these proceedings, is similarly
invalid.
[74]
This
then leads me to the remaining provision under
section 75(7)(b)(ii)
,
which provides that such a decision, may be valid only if it has been
declared to be valid by a court in terms of subsection (8)
and
Lancaster 101’s counter application in terms of
section 75
(8)
of the
Companies Act.
Counter
- Application
[75]
Section
75
(8) of the
Companies Act reads
as follows:
“
A
court, on application by any interested party, may declare valid a
transaction that had been approved by the board, or shareholders,
as
the case may be, despite the failure of the director to satisfy the
disclosure requirements of this section.”
[76]
Lancaster
101 argues that although it is clear from the context of
section 75
that
section 75(8)
refers to a “transaction or agreement”,
it necessarily includes the power to declare as valid any resolution
that a
company may take. I agree.
[77]
Perhaps
it is appropriate to start at the initial response to the
Rule 7(1)
by Lancaster 101
[25]
. On 8
March 2021, the attorneys for Lancaster 101 sent a letter to
Steinhoff’s attorneys. In that letter, they aver that
the
Rule
7
notices are an abuse of process and defective. They
inter
alia
raise the issue of the time periods in which it was filed. They
furthermore contend the following
[26]
:
“
In
any event, none of the directors who signed the resolution had a
personal financial interest contemplated in
section 75(7)
of the
Companies Act. Furthermore
…
section 75
of the
Companies Act
codifies
the common law principle that directors are obliged to avoid
conflicts of interest on matters where they have a ‘
direct
material interest of a financial, monetary or economic nature, or to
which a monetary value may be attributed
.’
There is no conceivable conflict of
interest in this case
. Moreover, and in
any event,
section 75(2)(a)(i)(aa)
of the
Companies Act is
of
application in that the resolution generally affects all of the
directors given that they were
bound by
fiduciary duty to resolve that L101 institute proceedings against
Steinhoff for the recovery of L101’s losses
due to Steinhoff’s admitted fraud.”
[78]
According
to the answering affidavit, Naidoo contends that Steinhoff is seeking
the relief described on the basis that a unanimous
resolution of
Lancaster 101’s directors on 7 March 2019 authorising the
institution of the pending proceedings is purportedly
invalid. He
states that Lancaster 101 is a private company. Its shareholders are
the PIC which holds 50% of Lancaster 101’s
shares on behalf of
the GEPF, the Lancaster Foundation
[27]
which holds 25% of Lancaster 101’s shares and Lancaster Group
(Pty) Ltd, which holds the remaining 25% of Lancaster 101’s
shares. Lancaster 101 has four directors, two of whom represent the
PIC, one who represents the Lancaster Foundation and one whom
represents the Lancaster Group.
[79]
Naidoo
further states that at the time the resolution was adopted by
Lancaster 101’s Board, the directors were the following:
Naidoo
represented the Lancaster Group, his daughter, Ms Parusha Naidoo
represented the Lancaster Foundation and Mr Horatius Maluleke
and Mr
Roshan Morar represented the PIC, with Ms Botsang Morobe acting as an
alternate director. He states that at all material
times, the
directors and shareholders in Lancaster 101 were aware that he held
shares in and was a director of the Lancaster Group.
As support for
this contention, he attached a computer generated document dated 9
February 2018 in which he purports that these
interests were
disclosed by virtue of the fact that it was signed. He avers that on
7 March 2019, Lancaster 101 held a board meeting
at its offices in
Johannesburg and the minutes of that meeting recorded that all of the
directors were in attendance and that no
conflict of interests were
declared.
[28]
According to
Naidoo, item 5.2 on the agenda was the institution of legal claims
against Steinhoff to recover losses. Given Maluleke’s
new
position at the PIC, he recused himself from the meeting. Naidoo
states that the minutes reflect that the claims against Steinhoff
were discussed and that Lancaster 101’s legal representative
addressed the meeting. The minutes were redacted but in any
event,
that which was not redacted related to the claims process against
Steinhoff and at the end of the discussion, the minutes
indicate
[29]
that the Board of Directors resolved to proceed with the Steinhoff
claim. It also, in a redacted paragraph
[30]
,
indicated that “
the
Board proceeded with signing the resolution and agreed to proceed
with filing the claim
.”
The resolution authorising the institution of these claims and the
appointment of ENS was therefore signed by Ms Morobe,
Mr Morar, Ms
Naidoo and Naidoo himself.
[80]
Naidoo
contends that the fact that his vehicle, Lancaster Group received a
commission is nothing irregular. The underwriting commission
was
publicly disclosed prior to the Board meeting in a Steinhoff SENS
[31]
announcement dated 28 September 2016 which announcement referred to
the fact that the commission would be paid to Lancaster 101.
However,
it is common cause that it went to the Lancaster Group and there is
no indication that a revised SENS announcement reflecting
this change
was ever made. Naidoo states that the payment of the commission fee
does not mean that he had a ‘
personal
financial interest’
as contemplated in
section 75(5)
of the
Companies Act in
the decision
of Lancaster 101’s Board to institute claims against Steinhoff
for the losses suffered by it.
[81]
In
answer, Steinhoff contends that Naidoo’s apparent effort to
demonstrate a separation between his personal interests and
that of
Lancaster 101 is but a ruse. He does so by indicating that Lancaster
101 has four directors, including himself and his
daughter. They also
contend that it is doubtful that the remaining PIC directors were
aware of Naidoo’s conduct. They say
that this is evident from
the particular relation that Naidoo had with Matjila, then head of
the PIC and the fact that Naidoo could
easily have sought
confirmatory affidavits from the PIC directors who attended the
relevant board meeting. I am in agreement with
this contention –
it is perhaps quite telling that both of these directors failed to
file a confirmatory affidavit to confirm
the contents of the
answering affidavit. This deduction, in my view, is supported by
correspondence annexed to Steinhoff’s
answering affidavit and
which is a letter which was sent by the legal representatives of the
PIC to the legal representatives of
Lancaster 101 in other
proceedings in the Netherlands. I need not concern myself with this
either - but what is relevant for these
purposes is that most
certainly, Lancaster and the PIC do not seem to be singing from the
colloquial hymn sheet, which would lend
credence to the suspicion
that the PIC may not have been aware of Naidoo’s conduct, hence
the absence of a confirmatory affidavit.
The letter, insofar as the
content may be relevant
in casu
inter alia
states the following:
“
On
behalf of my clients the Public Investment Corporation, the
Government Employees Pension Fund, the Compensation Fund and the
Unemployment Insurance Fund (hereafter jointly referred to as “PIC”)
I send you this letter.
On 27
April and 2 May 2021, you sent a letter and an information request,
purportedly on behalf of Lancaster 101 (Pty) Ltd (“Lancaster”)
to counsel for Steinhoff International Holdings N.V. (“Steinhoff’)
and to the administrators of the suspension of payments
of Steinhoff.
On 3 May 2021, you sent a letter on behalf of Lancaster to the Court
of Amsterdam.
The
PIC has recently familiarized itself with the contents of these
letters and instructed me to request further information, advise
you
that Lancaster’s correspondence to the court is unauthorized,
an urge you to stop using the names of the PIC and its
clients in
your correspondence….
I
have been advised that the positions taken in the letters you sent,
purportedly on behalf of Lancaster, have not been discussed
with the
PIC or any of its representatives
. As
far as the PIC is the aware, no board meeting took place in the board
resolved…” (“own emphasis”)
[82]
In
another letter dated 14 May 2021, Baker McKenzie, the Dutch counsel
for Lancaster 101 responded to a letter, in which the authority
of
Naidoo was questioned as follows:
“
It
transpires from your letter that you are not aware of the internal
board organisation in Lancaster and the powers under which
we are
being instructed. Mr. Jayendra Naidoo was in fact given authority by
the board of Lancaster in 2020 to represent Lancaster
in court and
other processes in any jurisdiction, which includes the suspension of
payments process. Mr. Naidoo is also mandated
to instruct legal and
other representatives in relation to such processes.”
[83]
From
this letter, it is evident that reliance is placed on another similar
resolution made on 20 October 2020 which mandated Naidoo
“
to
instruct legal and other representatives
”.
[84]
On
18 May 2021, Bureau Brandeis responded to Baker Mckenzie’s
letter. Relevant for these proceedings is the fact that another
resolution was seemingly passed in 2020, incorporating similar terms
as the 7 March 2019 resolution viz; “
authorises
Mr Naidoo to institute any claims on behalf of Lancaster 101
”
and Resolution 2, authorises him only “
to
do all such things…as are necessary to give effect to
resolution 1
and
…
to appoint attorneys for such
purpose’.
Whilst that 2020
resolution was not annexed to these papers, one finds it curious that
Lancaster 101 sought the need to issue another
resolution,
purportedly on the same terms, as the 2019 resolution.
[85]
Be
that as it may, Steinhoff contends that this pattern of conduct
reinforces the contention that Naidoo alleges authority in multiple
instances where multiple parties deny such authority. It is trite
that the reliance by Steinhoff on such conduct amounts to a reliance
on similar fact evidence. Authors
Schwikkard
and Van der Merwe
describe
similar fact evidence as facts that are directed at showing that a
party to proceedings has behaved in the same manner
as he is alleged
to have behaved in the circumstances presently being considered by
the court.
[32]
And our courts
have generally erred on the side on disallowing such evidence
primarily because of its potential prejudice effect
in relation to
its probative value. In
S
v D
1991 (2) SACR 543
(A)
,
FH Grosskopf JA (with Corbett CJ and Kriegler AJA concurring)
referred with approval to
DPP
v Boardman
and in particular as follows”
“
The
basic principle must be that the admission of similar fact evidence
(of the kind now in question) is exceptional and requires
a strong
degree of probative force. This probative force is derived, if at
all, from the circumstance that the facts testified
to by several
witnesses bear to each other such a striking similarltiy that they
must be true, or have arisen from a cause common
to the witnesses or
from pure co-incidence.”
[33]
[86]
In
Savoi and Others v National Director of
Public Prosecutions and Another
2014 (1) SACR 541
(CC),
Madlanga referred to
S v D
which stated the following at para 55:
“
The
insistence on striking similarity may lead to sophistry and
technicality and raise more questions that provide answers. The
real
question should be whether, when looked at in its totality, evidence
of similar fact ‘
has sufficient
probative value to outweigh its prejudicial effects
’
and that is a matter of degree in each case
.”
[87]
Given
the above I am not inclined to place any weight on the fact that
Naidoo’s authority has been disputed in other jurisdictions,
given the potential prejudicial effect that it may have. Now turning
to the fiduciary duty of a director and shareholder.
[88]
In
CDH
Invest NV v Petrotank South Africa (Pty) Ltd and Another 2018 (3) SA
157 (GJ)
[34]
,
the court had to,
inter
alia
consider setting aside a board resolution in that case, increasing
the number of authorised shares. Van der Linde J set out the
general
principles of company law. First, courts generally decline to
interfere in the running and management of companies unless
there is
lack of fair dealing or probity. Second, shareholders do not owe
their company a fiduciary duty, and may thus vote their
selfish
interest, unless in doing so a majority acts in a way that is
oppressive or unfairly prejudicial of the minority. Third,
board
power must be exercised
bona
fide
and in the best interest of the company as a whole, and if not, it
will be set aside, even if technically speaking the power exists.
[35]
[89]
The
court stated as follows:
“
[47]
The duty to act
bona fide
and in the best interests of the company, “…
is
the fundamental duty which qualifies the exercise of any powers which
the directors in fact have ….”
The concept of
bona fides
does not, as will appear, have a wholly subjective content: “
But
in deciding whether the duty has been observed the Court may properly
consider whether in the circumstances a reasonable man
could have
believed that the particular act was in the interests of the
company
.
”
(“My emphasis”)
“
[53] In
Teck Corporation Ltd v Millar et al the British Columbian Supreme
Court examined the question as to what the nature
of the board’s
objective in issuing fresh shares would have to be to invite court
interference. Berger J was urged to follow
Hogg v Cramphorn Ltd which
held that even where the board had acted in good faith, believing
they were serving the best
interests of the
company, an issue of shares would be set aside if they issued the
shares in order to defeat an attempt to secure
control of the
company.
[54]
The
learned judge declined to follow that principle, but posed the
following question (emphasis supplied):
“
How
can the Court go about determining whether the directors have abused
their powers in a given case? How are the Courts to know,
in an
appropriate case, that the directors were
genuinely
concerned about the company and not merely pursuing their own selfish
interests?
”
[36]
[90]
The
court referred to an Australian court of appeal judgment which dealt
with the directors’ conduct in issuing shares. Van
der Linde J
opined that the question whether the director has exercised a power
for an improper purpose is an objective assessment,
not determined by
the subjective belief of the individual director.
[91]
With
regard to the exercise of power, the court stated the following:
“
[60] In
relation to the duty to exercise powers for proper purposes, the
learned judge founded its origin in the concept of
the prohibition of
a fraud on power. He said:
“
These
authorities show that in the context of the fiduciary relationship
between directors and their company, the way the law gives
meaning
and content to a duty and a power of directors, once they are
identified as fiduciary ones, is by requiring them to be
exercised
bona fide for the benefit of the company and for proper purposes.”
[61] Fundamentally
important for present purposes, where the
s.76
duties are not a
codification of the common law fiduciary duties, but rather an
affirmation of them, the learned judge examined
whether the duty to
act bona fide in the best interests of the company are proscriptive;
put differently, perhaps colloquially,
whether they are only of the
“
Thou shalt not”
kind. He held that they were
not so limited:
“
In
my opinion, until the High Court declares the law to be otherwise,
long established authority requires the duties of company
directors
to act bona fide in the interests of the company and to exercise
their powers for proper purposes to be accepted as fiduciary
ones
even though they may require the directors to take positive action.
Further, that the directors' own interests may be involved
or that
they may be in a situation of conflict will not necessarily mean that
they have breached their fiduciary obligations in
taking such action,
if their actions have benefited the company.” (footnotes
omitted)
[92]
In
Beadica
231 CC and Others v Trustees for the time being of the Oregon Trust
and Others
[2020] ZACC 13
,
the court, speaking of the need to infuse the law of contract with
constitutional values stated that in
Tuckers
Land
Jansen JA developed the law of contract
,
finding that there is an implied duty not to commit anticipatory
breach. This development was based on the requirement that contracts
are to be performed in good faith. Similarly, in
BK
Tooling
,
the Appellate Division developed the law of contract to permit a
relaxation of the principle of reciprocity where a party to a
reciprocal contract had used the other party’s partial
performance. It did so on the grounds of fairness. These cases
illustrate
the development of clear doctrines that brought our law of
contract in line with the values of fairness, reasonableness and
justice.
[37]
[93]
Indeed,
it is clear that these values play a profound role in our law of
contract under our new constitutional dispensation. However,
a court
may not refuse to enforce contractual terms on the basis that the
enforcement would, in its subjective view, be unreasonable
or unduly
harsh. These abstract values have not been accorded autonomous,
self-standing status as contractual requirements. Their
application
is mediated through the rules of contract law; including the rule
that a court may not enforce contractual terms where
the term or its
enforcement would be contrary to public policy. It is only where a
contractual term, or its enforcement, is so
unfair, unreasonable or
unjust that it is contrary to public policy that a court may refuse
to enforce it.
[38]
[94]
At
para [81], the court continued as follows:
“
[81]
The rule of law requires that the law be clear and ascertainable. As
stated by this Court in
Affordable
Medicines
: “
The
law must indicate with reasonable certainty to those who are bound by
it what is required of them so that they may regulate
their conduct
accordingly
.” The application of
the common law rules of contract should result in reasonably
predictable outcomes, enabling individuals
to enter into contractual
relationships with the belief that they will be able to approach a
court to enforce their bargain. It
is therefore vital that, in
developing the common law, courts develop clear and ascertainable
rules and doctrines that ensure that
our law of contract is
substantively fair, whilst at the same time providing predictable
outcomes for contracting parties. This
is what the rule of law, a
foundational constitutional value, requires. The enforcement of
contractual terms does not depend on
an individual judge’s
sense of what fairness, reasonableness and justice require. To hold
otherwise would be to make the
enforcement of contractual terms
dependent on the “idiosyncratic inferences of a few judicial
minds”. This would introduce
an unacceptable degree of
uncertainty into our law of contract. The resultant uncertainty would
be inimical to the rule of law.
(footnotes omitted) (“own
emphasis”)
[95]
At
para 82, the court referred to
Pridwin
[39]
,
where the Supreme Court of Appeal
set
out what its views as the “most important principles”
governing the judicial control of contracts through the instrument
of
public policy. It said:
“
(i)
Public policy demands that contracts freely and consciously entered
into must be honoured;
(ii) A court will
declare invalid a contract that is prima facie inimical to a
constitutional value or principle, or otherwise
contrary to public
policy;
(iii)
Where a
contract is not prima facie contrary to public policy, but its
enforcement in particular circumstances is, a court will
not enforce
it
;
(iv) The party who
attacks the contract or its enforcement bears the onus to establish
the facts;
(v)
A court will use
the power to invalidate a contract or not to enforce it, sparingly,
and only in the clearest of cases in which
harm to the public is
substantially incontestable and does not depend on the idiosyncratic
inferences of a few judicial minds
;
(vi)
A court will decline to use this power where a party relies directly
on abstract
values of fairness and
reasonableness to escape the consequences of a contract because they
are not substantive rules that may be
used for this purpose.”
(“own emphasis”)
[96]
Directors
act beyond their authority when they act in breach of their duty to
perform with good faith and in the interests of the
company.
[40]
Naidoo is a director of Lancaster 101. He had a direct interest of a
financial monetary or economic nature in the Relevant Decision
that
was significant in the determination whether to institute a claim
against Steinhoff. In my view, the decision that he exercised
was not
exercised in good faith and in the best interest of the company. On
an objective test, the consequence of the impugned
decision would
mean that Lancaster 101 would by necessity have to repay the monies
advanced as a result of the intended action
to set aside the
subscription agreement. This will of course also have financial
implications for the PIC, who is a 50% shareholder
in Lancaster 101.
It is common cause that the GEPF is a subsidiary of the PIC, who
manages and administers the pensions and benefits
of more than a
million government employees in South Africa.
[41]
In my view the subscription transaction would include the
subscription commission paid in respect of the capital raised. The
payment
of the commission would not have materialised without payment
of the share subscription and it therefore follows that if these
proceedings, to set aside the share prescription are set aside, then
by implication it follows that monies paid to the Lancaster
Group
would also of necessity be set aside. Of course the plain implication
of this would mean that Lancaster Group and Naidoo
would need to
repay the commission received and therefore it is no wonder that this
leg of the transaction was omitted in the pleadings.
In my view this
is a clear indication that no
bona
fides
exist and this court would be slow to condone such actions by a
director and shareholder in circumstances such as this. The decision,
taken by Naidoo and the Board of Lancaster 101 in my view is contrary
to public policy and will result in economic harm to the
public as
envisaged in
Beadica
.
[97]
In
my view, Naidoo by his conduct, breached and violated his fiduciary
duty. The motivation by Naidoo was purely self-serving and
devious.
As mentioned above, an indication of this is the obvious failure to
include or make mention of the subscription commission
that he
received as sole shareholder of the Lancaster Group.
[98]
With
regard to the ratification of the decision, Naidoo has, according a
letter from Bowmans, representing the PIC/GEPF dated 28
May 2021, a
casting vote in the directors’ meeting and whatever objections
there may be does not matter, given that his daughter
is the fourth
director of Lancaster 101 and a co-director in the Lancaster Group.
Directors act beyond their authority when they
act in breach of their
duty to perform with good faith and in the interests of the
company.
[42]
[99]
In
my view, I can find no reason to declare the resolution of 7 March
2019 to be valid in terms of
section 75(7)(b)(ii)
read with
section
75(8
) of the
Companies Act.
Conclusion
[100]
Since
Naidoo and by extension, Lancaster 101’s authority is derived
solely from the impugned resolution, Naidoo was not empowered
to
authorize ENS to institute legal proceedings.
[101]
In
so far as relief is sought directing that ENS may no longer act on
behalf of Lancaster 101, this seems to be too broad a request.
No
case has been made for a blanket prohibition for ENS to not represent
Lancaster 101. Most certainly, the relief would only be
applicable to
these proceedings.
[102]
Accordingly,
the following order is made:
The
Defendant, Steinhoff, is granted condonation for the late delivery
of its notice in terms of
Rule 7
, dated 1 February 2021.
The
Plaintiff’s response to the
Rule 7
notice dated 4 February
2021 is declared its formal response to the
Rule 7
Notice.
The
Plaintiff’s response to the notice in terms of
Rule 7
is
declared inadequate to satisfy this Court that Plaintiff’s
attorneys of record have the requisite authority to represent
Lancaster 101 in these proceedings.
The
Plaintiff’s counter-claim is dismissed.
The
proceedings in case numbers 16389/19 and 6578/19 are stayed until
such time as Lancaster 101’s attorneys have satisfied
this
Court that they are so authorised to act.
The
Plaintiff (Lancaster 101) is directed to pay the costs of this
application, such costs to include the costs of two counsel
where
employed.
DS
KUSEVITSKY
Judge
of the High Court, Western Cape Division
Counsel
for Applicant/Plaintiff: Advocate
SP Rosenberg SC
Advocate
C Kelly
Counsel
for Respondent/Defendant: Advocate
A Subel SC
Advocate
AM Smallberger
[1]
In respect of both the action and application matters
[2]
Case No. 6578/19 and Case No.16389/19
[3]
The
matter having been struck off the roll for want of urgency
[4]
In
paragraph 192 of the answering affidavit in the application
proceedings
[5]
paragraphs
3.3 to 3.5 of the
Rule 30A
Notice
[6]
Dated 8 March 2021
[7]
D1-94
[8]
Which
makes provision of Extension of time and removal of bar and
condonation
[9]
See
Erasmus
at D1 – 323
[10]
2014
(3) SA 39
(CC) at 43G – 44A
[11]
Janse
van Rensburg v Obiang and Another
(A338/2018, 22470/2015)
[2019] ZAWCHC 53
(10 May 2019) at para 17.
[12]
Ibid.
[13]
1990
(3) SA 425 (E).
[14]
De
Klerk NO
(supra) at 435F-I.
[15]
Unlawful
Occupiers, School Site v City of Johannesburg
2005
(4) SA 199
(SCA) at para 16.
[16]
Unlawful
Occupiers
(supra)
at para 15 with reference to the judgment of Flemming DJP in
Eskom
v Soweto City Council
1992
(2) SA 703
(W) at 705D-H.
[17]
See,
for example,
Minister
of Land Affairs & Agriculture v D & F Wevell Trust
2008
(2) SA 184
(SCA) at para 43; and
Swissborough
Diamond Mines (Pty) Ltd v Government of the Republic of South Africa
1992
(2) SA 279 (T).
[18]
At
325C-F; Pretoria City Council v Meerlust Investments Ltd 1962 (1) AD
at 325C-F
[19]
At
para 12A-B
[20]
Id
para 13C
[21]
Subsection (e)
[22]
Gainsford
NNO v Hiab AB
2000 (3) SA 635
(W) at 639J – 640A
[23]
FirstRand
Bank Ltd v Fillis
2010 (6) SA 565
(ECP) at 569A
[24]
Poolquip
Industries (Pty) Ltd v Griffin 1978 (4) SA 353 (W)
[25]
This
was also a response to a
Rule 30A
Notice that was filed
[26]
paragraph
3.6
[27]
a
non-profit company
[28]
other
than Mr Maluleke having been appointed as the Acting Head of the PIC
Listed Equities
[29]
at
paragraph 5.2.2.7
[30]
5.2.2.10
[31]
Stock
Exchange News Announcement
[32]
Principles
of Evidence 2ed at 66
[33]
at
para 444D-E
[34]
(22312/2015
[2017] ZAGPJHC 324; [2018] 1 All SA 450 (GJ)
[35]
CHD
Invest NV v Petrotank South Africa (Pty) Ltd and Another
(22312/2015) [2017] ZAGPJHC 324;
[2018] 1 All SA 450
(GJ);
2018 (3)
SA 157
(GJ) (17 November 2017) At para 44
[36]
Footnotes
omitted
[37]
B
eadica
at para 77; See also
Tuckers
Land and Development Corporation (Pty) Ltd v Hovis
1980 (1) SA 645
(A)
(
Tuckers
Land
)
at 652D-F;
Bk
Tooling (Edms) Bpk v Scope Precision Engineering (Edms) Bpk
1979 (1)
SA 391
(A)
(
BK
Tooling
)
at 421A-B.
[38]
Beadica
at para 80
[39]
AB
v Pridwin Preparatory School 2018 ZASCA150; 2019(1) SA 32
(SCA)
(
Pridwin
)
at para 27.
[40]
CDH
Invest NV v Petrotank South Africa (Pty) Ltd & Others (483/2018)
[2019] ZASCA 53
(1 April 2019) at para 24; See also MS Blackman
‘Directors’ Duties to Exercise their Powers for an
Authorised Purpose
(1990) 2 S A Merc LJ 1 at 6-8
[41]
www.gepf.gov.za
[42]
CDH
Invest NV v Petrotank South Africa (Pty) Ltd & Others (483/2018)
[2019] ZASCA 53
(1 April 2019) at para 24; See also MS Blackman
‘Directors’ Duties to Exercise their Powers for an
Authorised Purpose
(1990) 2 S A Merc LJ 1 at 6-8