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[2010] ZAGPJHC 103
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Gomes-Sebastiao v Quarry Cats (Pty) Ltd (A5015/2010) [2010] ZAGPJHC 103 (10 November 2010)
IN THE SOUTH GAUTENG
HIGH COURT
(JOHANNESBURG)
Case Number: A5015/2010
Date: 10/11/2010
REPORTABLE
In the matter between:
GERARDUS
GOMES-SEBASTIAO
.
Appellant/1st Respondent
a quo
and
QUARRY
CATS (PTY) LTD
Respondent/Applicant
a quo
JUDGMENT
C. J. CLAASSEN J
:
[1]
This is an appeal against the judgment and order handed down
by Lamont J on 9 March 2010. The appeal is with leave of the court
a
quo
.
[2] In the court
a quo
the respondent, as applicant, sought an order against the appellant,
as first respondent, to be declared the owner of all the ordinary
shares in the second respondent. The order sought was in the
following terms:
“
1.
That it be and is hereby declared that the applicant is the owner of
all the ordinary shares in the second respondent
(‘the
shares’);
2. That the
register of members of the second respondent be rectified in terms of
section 115 of the Companies Act 61 of 1973,
by deleting the name of
the first respondent as a member of the second respondent and
substituting the name of the applicant in
the place of the name of
the first respondent as the sole member of the second respondent;
3. That the first
respondent’s share certificate(s) be and is hereby cancelled
and second respondent be and is hereby
directed to issue a share
certificate in respect (the) shares to the applicant in his name;
4. That the
applicant bear the costs of this application, save in the event of
opposition.”
[3]
The
court
a
quo
refrained from granting the order in paragraph 1 aforesaid and
granted only the relief sought in paragraphs 2, 3 and 4 of the notice
of motion.
[1]
[4] For the sake of
convenience and due to the absence of the second respondent in this
appeal, reference will be made to the parties
as follows: I will
refer to the appellant as “Sebastiao”, the respondent as
“Quarry Cats” and the second
respondent as “Laezonia”.
THE FACTS
[5]
Prior
to 9 June 2004, Sebastiao was the holder of all the shares in
Laezonia. On 9 June 2004 Sebastiao concluded an agreement in
terms of
which
inter
alia
he
sold his shares in Laezonia to Bitflow Investments 195 (Pty) Ltd
(‘Bitflow’). This agreement of sale was in writing
and
will be referred to as “the Bitflow agreement”.
[2]
The shares were sold for an amount of R12 000 000.00. The effective
date was 1 April 2004 although the agreement was only signed
on 9
June 2004. It would appear that a standard form of agreement of sale
in respect of shares was used as certain clauses (clauses
5 and 6)
were deleted with the words, “not used”.
[6] Under the title
“BENEFIT AND RISK”, clause 7 states as follows:
“
Notwithstanding
the provisions of 6 above, the benefit and risk in and to the subject
matter and through it in the property and
the assets shall pass to
the Purchaser on the
effective date and the parties shall have
the same rights and obligations as they would have had if the
property itself and the
assets had been sold voetstoots by the Seller
to the Purchaser with the risk passing on the effective date.”
It will be noted that the
reference to the provisions of clause 6 is incorrect as clause 6 was
not used. It should also be noted
that the clause does not refer to
the “ownership” in the shares being transferred. The
benefit and risk in the shares
are to pass to the purchaser being
Bitflow on the effective date (1 April 2004), “voetstoots”.
[7]
Attached to this agreement of sale is “Annexure ‘A’”
consisting of a list of assets purchased stipulating
certain fixed
assets, two crushing plants and a farm. Clause 2.1.4 defines “the
assets” as the assets of the company
listed in annexure “A”.
The reference to “assets” in clause 7 must therefore be
interpreted as a reference
to the assets mentioned in annexure “A”.
[8] Of some moment is the
fact that this sale agreement does not impose any duty upon Sebastiao
to transfer the shares into the
name of Bitflow by delivering a
signed transfer form in respect thereof nor does it stipulate that
the share register in Laezonia
is to be corrected indicating Bitflow
as the holder of all the shares in Laezonia in the place of
Sebastiao.
[9]
On
13 November 2006 Bitflow in turn concluded an agreement of sale with
Quarry Cats in terms whereof Bitflow sold all the shares
in Laezonia
to Quarry Cats (‘the Quarry Cats agreement’).
[3]
[10] The
Quarry Cats agreement determined the effective date as 1 March 2006
although it was only signed on 13 November
2006. It further defined
in clause 2.1.4 the term “the documents of title” as
collectively meaning:
“
2.1.4.1
certificates in respect of the shares;
2.1.4.2 a transfer form
in respect of the shares, duly completed and signed by the registered
holder of the shares in accordance
with the memorandum and articles
of association of the company, dated not more than 3 (three) days
prior to the signature date
and blank as to transferee;
2.1.4.3 a
resolution by the board of directors of the company authorising the
sale of the shares to the purchaser;
2.1.4.4 a written and
signed cession of the claims in favour of the purchaser;”
[11] The term
“the shares” is defined as “100 ordinary par value
shares of R1 each” as issued
in Laezonia constituting 100% of
the entire issued share capital of that company.
[12] Clause 3.1 declares
the seller, being Bitflow in this case, to be the registered and
beneficial owner of the shares. Clause
4 records the fact that the
seller and purchaser agree to the sale and purchase of the shares
upon the conditions of the contract.
Clause 5 determines the price as
being R100.00.
[13]
In accordance with clause 6, the price had to be paid on the
effective date against delivery of the documents of title to the
purchaser.
Clause 6 further requires the seller to deliver the
documents of title to the purchaser on the effective date against
payment of
the purchase price. Of note is the fact that the actual
delivery date for the documents of title was said to be 1 March 2006.
Such
delivery should therefore have taken place no less than nine and
a half months prior to the actual date of signature. What is also
of
interest is that a similar provision did not appear in the Bitflow
agreement.
[14] Clause 7
is of importance in this case and states:
“
Ownership
of the risk in and benefit of the shares shall pass to the purchaser
on the effective date against delivery of the documents of
title to
the purchaser.” [Emphasis added]
Literally interpreted,
this clause deals with the
ownership of risk
in the shares and
ownership of the benefit
in the shares. This would be absurd
and such interpretation should be rejected. It will be accepted that
the clause purports to
deal with the time when ownership in the
shares will pass. However, the clause thus interpreted, creates a
further problem in that
ownership is to pass on the effective date
pari passu
with the delivery of the documents of title. As
indicated above, the effective date was 1 March 2006 which meant that
ownership
was to have passed on that date against the delivery of the
documents of title. Thus interpreted, this clause introduces a
fiction
into the contractual relationship between the parties. It is,
however, common cause that the documents of title as described in
clause 2.1.4 were not delivered by Bitflow to Quarry Cats since these
were still in the possession of Sebastiao. In fact, to the
present
day Sebastiao has failed to deliver these documents of title to
Bitflow and/or Quarry Cats.
[15]
The aforesaid conundrum is somewhat ameliorated by the
warranties contained in clause 8 which states as follows:
“
8.1
The seller hereby warrants in favour of the purchaser that, on the
signature date
and
the effective date –
8.1.1
the seller was
and will be
the true and lawful owner of
the shares and the claims;
8.1.2 the
seller was
and will be
entitled to dispose of the shares and
the claims; and
8.1.3
no person has any right including (but without limitation) any
option or right of first refusal to purchase any of the shares or
the
claims.” [Emphasis added]
It seems clear that the
parties contemplated past and future elements in their agreement
regarding the sale of the shares.
[16]
Quarry
Cats performed all its obligations to Bitflow in terms of the Quarry
Cats agreement. Notwithstanding the Bitflow and Quarry
Cats
agreements, Sebastiao is still currently reflected in Laezonia’s
share register as the registered holder of the shares.
When called
upon by the attorneys acting on behalf of Quarry Cats to hand over
the documents of transfer in respect of the shares,
Sebastiao
refused. His refusal was based on the fact that he would only do so
upon the return of the so-called “excluded
assets”, being
all assets not mentioned in annexure “A”.
[4]
Hence, Quarry Cats was compelled to seek relief through the courts by
initiating the application in the court
a
quo
.
JUDGMENT OF THE
COURT
A QUO
[17] The court
a quo
found that Quarry Cats indeed established that all its obligations in
terms of the Quarry Cats agreement had been complied with.
However,
because Bitflow did not deliver the documents of title to Quarry
Cats, the question arose whether ownership of the shares
did in fact
pass to Quarry Cats seen in the light of the provisions of clause 7
of the Quarry Cats agreement. The court
a quo
found that
ownership of the shareholding vested in Bitflow but not in Quarry
Cats. In this regard the court
a quo
held as follows:
“
It appears to me
that absent delivery of the documents, the Applicant (Quarry Cats)
did not become the owner of the shares. Currently
in my view
accordingly the ownership of the shareholding vests in Bitflow. This
being so the Applicant has no real right to the
shares, which he is
able to exercise against the world. It has only personal rights which
it is able to exercise against Bitflow.
This however, is not the end
of the matter as rights are conferred upon persons who are entitled
to be registered by Section 115
of the Act. (Companies Act 61 of
1973)”
[5]
The court also held that
rectification of the share register in terms of section 115 is not
reciprocal to the transfer of shares.
As a result of the aforesaid
finding the court
a quo
did not issue a declarator that Quarry
Cats was the owner of the shareholding in Laezonia as petitioned for
in paragraph 1 of the
notice of motion.
[18]
With reference to the provisions of section 115 of the
Companies Act, the court concluded that the “crisp question is
whether
or not a person whose name is without sufficient cause
omitted from the register, has the right to be so registered.”
After
referring to certain case law, the court concluded that Quarry
Cats established its entitlement against both Bitflow on the one
hand
and Sebastiao and Laezonia on the other for relief in terms of
section 115. The court held that in those circumstances Quarry
Cats
was entitled to be reflected as the shareholder of the shares in the
shares register of Laezonia.
[19] The court further
rejected the contention that Quarry Cats failed to make out a case in
the founding affidavit. The belated
reliance by Sebastiao on the
provisions of article 31 of Laezonia’s Articles of Association
was also rejected.
THE LAW
[20]
The
previous controversy
[6]
as to the manner in which ownership of incorporeal rights can be
transferred and the requirements for a valid cession have now
become
settled law. In
Botha
v Fick
[1994] ZASCA 184
;
1995 (2) SA 750
(AD) it was held that ownership in shares can pass
from the cedent to the cessionary in the absence of delivery of the
instrument
recording the rights and without the application of the
“all effort” doctrine. In this regard the unanimous
judgment
in the
Botha
case, held at pp 778F – 779B as follows:
“
Om op te som:
1.
Blote
consensus
is voldoende om sessie daar te stel.
Sessie geskied deur
middel van ‘n oordragsooreenkoms wat sal saamval met, of
voorafgegaan word deur, ‘n
justa causa
. Die
justa
causa
kan ‘n verbintenisskeppende ooreenkoms wees.
‘
n
Vorderingsreg wat in ‘n dokument beliggaam word en wat nie
onafhanklik van die dokument kan bestaan nie, soos ‘n
verhandelbare stuk, moet onderskei word van ‘n vorderingsreg
wat deur ‘n dokument bewys word en wat onafhanklik van
die
dokument bestaan, soos ‘n aandeel in ‘n maatskappy ten
opsigte waarvan ‘n aandelesertifikaat uitgereik is.
Waar laasgenoemde soort
vorderingsreg gesedeer word, is nóg lewering van die geskrif
aan die sessionaris nóg voldoening
deur die sedent aan die
sogenaamde leerstuk van ‘all effort’ ‘n
geldigheidsvereiste vir die sessie.
Die regsplig wat op ‘n
geregistreerde aandeelhouer rus wat sy aandele verkoop om ‘n
aandelesertifikaat en ‘n voltooide
oordragsvorm aan die koper
te lewer, spruit voort uit die verbintenisskeppende verkoopooreenkoms
en is nie ‘n geldigheidsvereiste
van die sessie deur middel
waarvan die reg en titel ten opsigte van die aandele oorgedra word
nie.
Die reël waarna in
Labuschagne
v Denny
[7]
(
supra
te 543
in
fine
–
544B) verwys is, is nie ‘n reël van die substantiewe reg
nie en dit stel geen geldigheidsvereiste vir sessie
daar nie.
Laasgenoemde reël
kom slegs op ‘n bewysaangeleentheid neer waarvolgens lewering
as ‘n belangrike faktor –
moontlik ‘n
deurslaggewende faktor – beskou sal word waar die vraag
ontstaan of sessie bewys is al dan nie. Hierdie
benadering is van
toepassing ook in ‘n geskil tussen sedent en sessionaris
inter
partes
.
In soverre die hierbo
vermelde
dicta
met hierdie uitspraak in stryd was, was hulle
verkeerd en behoort hulle nie gevolg te word nie.”
[21]
Had the court
a quo
applied the aforesaid
dictum
in
Botha v Fick
to the facts of the present case, it may have
led to a finding that Quarry Cats was vested with ownership. The
court
a quo
did not refer to this judgment, nor applied the
law as set out therein to the facts of the present case. No
investigation was pursued
to establish whether or not the aforesaid
rules of law were ousted by the express agreement of the parties in
clause 7 of the Quarry
Cats agreement. The fiction in clause 7 and
the interplay between such fiction and the warranties in clause 8
were not dealt with
either. Be that as it may, since there is no
cross-appeal against this particular finding of the court
a quo
in regard to Quarry Cats’ ownership of the shares, nothing need
further be said in regard to this aspect of the case.
[22]
Section 115 of the Companies Act reads as follows:
“
115.
Rectification of register of members
. –
(1) If –
(a)
the name of any person is,
without sufficient cause
,
entered in or omitted from the register of members of a company; or
(b) default is made
or unnecessary delay takes place in entering in the register the fact
of any person having ceased to be
a member,
the person concerned or
the company or any member of the company, may apply to the Court for
rectification of the register.
(2) The application may
be made in accordance with the rules of Court or in such other manner
as the Court may direct, and the Court
may either refuse it or may
order rectification of the register and payment by the company, or by
any director or officer of the
company, of any damages sustained by
any person concerned.
(3) On any application
under this section the Court may decide any question relating to the
title of any person who is a party to
the application to have his
name entered in or omitted from the register, whether the question
arises between members or alleged
members or between members or
alleged members on the one hand and the company on the other hand,
and generally may decide any question
necessary or expedient to be
decided for the rectification of the register.” [Emphasis
added]
[23]
It
is trite law that section 115 is concerned with the title to be on
the shares register and not with ownership of shares in a
company,
although the court is empowered by the provisions of section 115(3)
to determine the issue of ownership.
[8]
The
causa
for rectification of the register under section 115 is, however, not
the same as that for ownership of shares. A court’s
jurisdiction under section 115 is unlimited. It has a wide discretion
in the circumstances of each case.
[9]
Section 115 creates a statutory right to apply to court for the
exercise by it of a statutory discretionary power.
[10]
The court’s jurisdiction in terms of section 115 extends to
instances where the inscription in a company’s register
was
initially correct, but subsequently rendered such entry “without
sufficient cause”, as is alleged in the present
case by Quarry
cats.
[11]
The court has both a discretion and jurisdiction to rectify a
company’s register even in instances where the company is
incapable or unable itself to do so.
[12]
In
Botha
v Fick
supra,
the rectification of the company’s share register was ordered
in the context of the enforcement of a purchase of shares.
The
company was ordered to issue the purchaser with a certificate in
respect of the shares since the original certificate had been
lost.
In effect, this decision bypassed the express provisions of section
133(2)
[13]
of the Act which prohibits the registration of a transfer of shares
in the absence of the delivery to the company of a proper instrument
of transfer. When the prohibition in section 133(2) finds
application, the absence of the name of the transferee in the share
register is justified by law and therefore not “without
sufficient cause”.
[14]
Despite this legal position the Supreme Court of Appeal applied
section 115 and ordered the rectification of the share register.
The
court may also order the rectification to take effect retrospectively
provided no injustice would result.
[15]
[24]
The importance of a company’s share register is to be
found in the fact that all who are reflected therein are regarded as
members of the company. In company law the members are regarded as
entitled to vote at meetings, appoint directors, receive declared
dividends and in general influence the affairs of the company. In
this regard section 103 of the Companies Act No 61 of 1973 states
the
following:
“
103.
Who are members of a company
–
(1) The subscribers
of the memorandum of a company shall be deemed to have agreed to
become members of the company upon its
incorporation, and shall
forthwith be entered as members in its register of members.
(2) Every other person
who agrees to become a member of a company and whose name is entered
in its register of members, shall be
a member of the company.
(3)
A company shall, subject to the provisions of its articles,
enter in the register as a member,
nomine officii
of the
company, the name of any person who submits proof of his appointment
as the executor, administrator, trustee, curator or
guardian in
respect of the estate of a deceased member of the company or of a
member whose estate has been sequestrated or of a
member who is
otherwise under disability or as the liquidator of any body corporate
in the course of being wound up which is a
member of the company, and
any person whose name has been so entered in the register, shall for
the purposes of this Act be deemed
to be a member of the company.
(4)
.........”
[25]
It
is evident from section 103(3) that the share register of a company
renders those reflected therein as deemed members of the
company. The
names actually appearing in the register of members may not in fact
be the actual owners of shares in the company.
Hence, the provision
for persons mentioned in the register to be deemed a member of the
company. There is a clear distinction between
membership of a company
and ownership of shares in the company. Thus, the registration of
transfer of shares must be distinguished
from transfer of the rights
of action (
jura
in personam)
in the shares which, as between the seller and the purchaser, occurs
(unless the terms of the contract indicate the contrary intention)
merely upon an effective cession of such rights. Delivery of neither
an instrument of transfer nor the share certificate is a requisite
for such a cession.
[16]
Shares may be freely sold and assigned even though the original
registration remains unaltered. They can pass from hand to hand
and
form the subject of many transactions without the original
registration in the shares register being disturbed. In such
instances,
it is the mere naked registration that remains, and the
fact that the original holder may still be in possession of the scrip
or
share certificates, makes no difference as such original holder no
longer possesses any beneficial interest in the shares, or put
differently, possesses no property in the rights of action which the
shares represent.
[17]
[26] As far back as 1922
it was recognised that the court was empowered to order the
rectification of a company’s share register
subject only to the
conditions of the Companies Act. In
Adams v Central India Estates,
Ltd and the Directors
1922 (WLD) 135 at 139 this was held to be
so by Ward J in circumstances where the transferor of shares had
agreed to a clean transfer
of the shares to the applicant as
transferee. The court overruled the directors’ refusal to
rectify the share register and
ordered that the applicant should be
registered as a member of the company. This case was approved of by
Coetzee J in
Herbert Porter and Another v Johannesburg Stock
Exchange
1974 (4) SA 781
(WLD) at 795H where the learned judge
held as follows:
“
A
body of substantive law has developed around
company’s
legislation during the last century and one should be careful not to
equate contractual with company situations
when superficial
likenesses appear. The case of
Adams v. Central India Estates Ltd.
and the Directors
,
1922 W.L.D. 135
…illustrates this
danger. The
locus standi
of even the transferee of shares to
seek such an order is confirmed, whereas it is quite unthinkable
that,
ex contractu
, a person who is not in privity
with another could have a similar remedy
.” [Emphasis added]
As I understand this
decision, Coetzee J held that third parties, who are not privy to a
contract of sale of shares, would not have
locus standi
to
apply for a rectification of a company’s share register.
[27] Section 115 provides
a
sui generis
remedy for the rectification of a share register
of a company, divorced from any actual ownership of shares in the
company. It
is a summary procedure akin to spoliation. The section
provides for judicial intervention based largely on equitable
principles
in order to rectify the share register. It enables a court
to go behind the share register and enquire what the true position
is.
The provisions of section 115 are intended to secure a reflection
of the correct and/or
de facto
position in regard to
membership of the company. It is not concerned with the formalities
applicable to the sale and transfer of
shares.
EVALUATION
[28]
Sebastiao raised two points on appeal:
1.
The
first point relates to an alleged non-joinder of Bitflow to these
proceedings;
[18]
and
The second point is
whether, absent a finding that Quarry Cats is the owner of the
shares, the relief ordered by Lamont J is competent.
Non-joinder
[29]
From the outset, Sebastiao raised a defence of non-joinder
contending that Bitflow allegedly had a substantial and legal
interest
in the present proceedings and should therefore have been
joined since the court has no jurisdiction in this regard. Mr
Gautschi
for Sebastiao submitted that the finding of the court
a
quo
that Bitflow was the owner of the shares, gives Bitflow such
an interest so that the court could not grant an order in the absence
of Bitflow. To do so would potentially cause conflicting decisions if
Bitflow at some future date may wish to seek registration
as a member
of Laezonia. He submitted further that the affidavit of Mr Blackstock
did not prove the current attitude of Bitflow
to the application.
[30]
Although
Sebastiao denies it, Bitflow accepts that the Quarry Cats agreement
came into effect and was implemented. Bitflow asserts
no right in
respect of the shareholding in Laezonia nor to be recorded in the
share register as a member of Laezonia. Mr Brian
Blackstock, a past
director of Bitflow, confirms these facts in two confirmatory
affidavits.
[19]
It is common cause that Blackstock acted on behalf of Bitflow and
signed both agreements on its behalf.
[20]
On these facts, any substantial legal or other interest on the part
of Bitflow is ousted. In my view, it is not the current attitude
of
Bitflow which is decisive, but the intention of the parties to the
Quarry Cats agreement at the time of its conclusion. In that
regard
it is only Mr Blackstock who can testify to the attitude of Bitflow
when the agreement was concluded.
[31]
The notice of motion in paragraphs 2 and 3 seeks no relief
against Bitflow. Quarry Cats’ desire to be reflected as a
member
of Laezonia does not affect Bitflow, because Bitflow’s
name does not even appear on the current share register. The name of
Sebastiao does so appear. It is the latter inscription which requires
rectification according to Quarry Cats.
[32]
In failing to grant the relief in prayer 1 of the notice of
motion, the court
a quo
effectively removed the necessity to
join Bitflow to these proceedings. The order can be executed without
the participation of
Bitflow. Such execution will not be to the
prejudice of Bitflow. In any event, should Bitflow in future for some
reason deem it
entitled to be a registered member of Laezonia, the
order granted by the court
a quo
would not affect Bitflow’s
rights to apply for a further rectification of the share register.
[33]
The circumstances of the present case is comparable to the
facts in the case of
Dreyer and MacDuff v New Marsfield Collieries
Ltd
1935 AD 318.
In that case a party issued summons
against a company to rectify its share register. But the company also
wished to rectify its
share register in conformity with the position
prior to the taking of invalid special resolutions affecting entries
in the share
register. The appellants, Dreyer and MacDuff, were
shareholders in the respondent company. They raised the question of
the illegality
of the resolutions. They sued for an order
interdicting the directors of the company to proceed with the
execution of such resolutions.
However, both the appellants and the
respondent company agreed that proper legal steps to effect a
reconstruction of the share
register had not been taken. As such, the
directors of the respondent company could not execute the special
resolutions affecting
the share register. At 321
in fine
,
Curlewis ACJ held as follows:
“
Now
in the application before the court below there was no claim by the
company against the appellants; the company merely sought
to rectify
its register of members in which certain entries had been made in
pursuance of certain invalid special resolutions,
to delete those
names which had been illegally placed thereon, and to restore the
register to its condition prior to the date of
those resolutions.
Nothing was claimed against appellants: there was no claim for
anything due by them to the company. The appellants’
names do
not even appear on the list Y, and those whose names do appear there
do not object to the rectification. There was no
contestatio
between the company and the appellants, no
lis
or suit or
action. As was pointed out during the course of argument, an
application to have a shareholder’s name removed
from, or
placed on, the register of members might under certain circumstances
imply a suit or action as between the company and
the party, but
those circumstances are not present here.
As there was no claim
quod sibi debetur
by the company against the appellants, there
was no suit or action pending between them in the court below, and no
appeal lies
to this Court against the decision of the court below.”
[34] The Y list showed
the entries which had been made in the register subsequent to the
passing of the illegal special resolutions.
Neither of the
appellants’ names appeared on this list. Similarly, in the
present case the name of Bitflow also does not
appear in the share
register. If the appeal court in the
Dreyer and MacDuff
case
held that potential shareholders whose names are not on the share
register or list have no interest in the litigation, then
I see no
reason why Bitflow should have been joined in the present case. In
the
Dreyer and MacDuff
case the matter was simply removed from
the roll with costs as Dreyer and MacDuff had no legal or substantial
interest in the rectification
of the share register in that case. For
the aforesaid reasons, I am of the view that the point
in limine
was correctly dismissed by the court
a quo
.
Relief in terms of
Section 115 absent ownership of the shares
[35]
When
applying the legal principles
[21]
to the present case, the court
a
quo
was
correct in exercising its wide discretion when it ordered
rectification of the share register of Laezonia to reflect the name
of Quarry Cats in place of Sebastiao. The
de
facto
position is that Sebastiao neither claims ownership in the
shareholding of Laezonia nor a right to be reflected as a shareholder
in its share register. He no longer alleges any beneficial interest
in the shares. The mere naked registration of his name
in the
share register did not afford him any rights, only duties, i.e. to
act as trustee for and on behalf of the person who does
have a
beneficial interest in the shares. As such, he has no valid basis to
oppose the rectification applied for by Quarry Cats.
His motivation
in refusing delivery of the documents of title also has no basis in
law or fact. Whether or not Sebastiao is entitled
to the return of
the so-called “excluded assets” in terms of his agreement
with Bitflow, has no bearing whatsoever
on Quarry Cats’
entitlement to be reflected as the proper shareholder in Laezonia’s
share register. The dispute regarding
the excluded assets is
res
alios inter acta
as
far as Quarry Cats is concerned. On Sebastiao’s own showing,
his rights against Bitflow regarding the excluded assets depend
upon
a rectification of the Bitflow agreement first being successful.
Whether the Bitflow agreement is to be rectified or not,
the rights
of Quarry Cats cannot be influenced by it since its rights flow
exclusively from the Quarry Cats agreement.
[36]
The
contentions of Sebastiao on appeal seem to fly in the face of the law
in regard to the sale of shares as set out in the
Botha
v Fick
case and the other authorities cite above. The contention is that no
delivery took place of the shares either from Sebastiao to
Bitflow or
from Bitflow to Quarry Cats. As stated in the
Botha
v Fick
case, such delivery of the share certificates is no longer a
precondition for a valid cession in regard to such shares. Sebastiao
has divested himself of all beneficial interest in the shares in
Laezonia when he took receipt of the R12, 000,000-00 from Bitflow.
In
circumstances where neither Bitflow nor Sebastiao claim any
beneficial interest in the shares, I see no reason why the name
of
Quarry Cats should not be reflected as a member in the share register
of Laezonia. The position taken by Blackstock seems to
be the true
intention of both Quarry Cats and Bitflow, despite the failure to
comply with the exact provisions of clause 7 of their
agreement.
Failure to comply with clause 7 is no impediment to relief under
section 115 of the Act. Further more, it does not lie
in the mouth of
Sebastiao to rely on any alleged breach of the Quarry Cats agreement,
to which he is not a party.
[22]
It is of no concern to him if the parties to another contract to
which he is not privy, do not seek to enforce any of its terms.
Hence, the court
a
quo
was
correct in holding that rectification of the share register is not
reciprocal to the actual transfer of the shares.
[37]
Mr Gautschi further contended that no allegation of any
cession was made by Quarry Cats in its founding affidavit. In my
view, this
argument has no substance. It is unnecessary to expressly
refer to a cession when reliance is placed upon an agreement of sale
of shares to which the parties had reached consensus. It is this
agreement of sale which constitutes the
justa causa
for the
cession of the shares from the cedent to the cessionary. The facts
clearly indicate that Bitflow and Quarry Cats had the
animus
transferendi
and the
animus acquirendi,
respectively. This
much is confirmed by the fact that the Quarry Cats agreement (as in
the Bitflow agreement) determines the delivery
date at a point in
time several months prior to the actual signing of the agreement of
sale. It cannot be said that the agreement
contemplated a future
transfer of rights which had not yet occurred, thus preventing the
transfer of ownership. The agreement was
merely the written recordal
of the consensus which had already been reached in the past regarding
their intention to pass transfer
of ownership in the shares.
[38] Mr Gautschi also
submitted that the articles of association, clause 31, prevented the
transfer of shares and thus the rectification
of the share register.
Clause 31 states the following:
“
31. The instrument
of transfer of any share in the company shall be in writing, and
shall be executed by or on behalf of a transferor
and, if the
director so decide, by or on behalf of the transferee. The transferor
shall be deemed to remain the holder of such
share until the name of
the transferee is entered in the register in respect thereof.”
[39]
It
is noticeable that the deeming provision refers to “the holder
of such shares”. It does not deal with membership.
In any
event, it is a mere deeming provision. This entire case is concerned
with the intention of Quarry cats to set the record
straight by
applying for a court order rectifying the register. In my view,
clause 31 is a restatement of the principle that the
seller, prior to
transfer of a share to the purchaser, is in fact a trustee on behalf
of such purchaser.
[23]
As trustee, the transferor is bound to act upon the instructions of
the transferee. In this instance Sebastiao would be obliged
to
transfer the shares on the instructions of Quarry Cats as beneficial
holder of the shares to Bitflow alternatively to Quarry
Cats itself.
In
In
Re
Joint Stock Discount Company v Nation’s Case
[1866-67] L.R. 3 Eq 77
the articles of association had similar
wording. These read:
“
8. The
instrument of transfer of any share in the company shall be executed
both by the transferor and transferee, and
the transferor shall be
deemed to remain a holder of such share until the name of the
transferee is entered in the register book
in respect thereof.”
Despite the deeming
provision, the court rectified the share register of the company in
line with the true facts in accordance with
a Companies Act section
similar to section 115 of our Companies Act.
[24]
In that case the Articles of Association contained a clause
empowering the directors with a veto entitling them to decline the
register of transfer of shares. Despite such veto the court rectified
the share register.
[40] Finally, Mr.
Gautschi submitted that section 115 finds application in cases which
are limited to instances where the examples
listed in section 103(3)
apply and where the applicant for relief under section 115 was
previously registered as a member in a
company’s share
register. There is no substance in this argument. Section 115 is not
exhaustive of the court’s powers
to order rectification of a
share register. It does not negative all cases of alteration of the
register other than those enumerated
therein.
[25]
[41] All told, this
appeal proceeds on the curious premise that a party with no right to
the shares, and with no significant interest
in the relief sought, is
the party actually seeking to prevent the court from ordering the
company’s register to be amended
in order to record the current
de facto
position. The correct
de facto
position is
indeed that Quarry Cats is the sole member of Laezonia. I agree with
the submission made by counsel for Quarry Cats
that Sebastiao
attempted to steal a march on Bitflow by seeking to extract a benefit
from Bitflow and/or Quarry Cats in opposing
this application for the
rectification of Laezonia’s share register. In so doing,
Sebastiao attempted to obviate the necessity
for itself to institute
an action for rectification of the Bitflow agreement and specific
performance in terms of such rectified
agreement. It would appear to
me that the opposition to Quarry Cats’ application was
ill-motivated and subject to ulterior
motives which borders on the
vexatious.
[42] Taking into
consideration the aforesaid facts, I am of the view, that the court
a
quo
correctly exercised its equitable discretion in granting the
orders it did in regard to the rectification of Laezonia’s
share
register.
CONCLUSION
[43] For the reasons
aforesaid I am of the view that the appeal against the judgment of
Lamont J cannot succeed and I therefore
make the following order:
The
appeal is dismissed with costs which include the costs occasioned by
the employment of two counsel.
DATED
THE ________ DAY OF NOVEMBER 2010 AT JOHANNESBURG.
C.
J. CLAASSEN
JUDGE
OF THE HIGH COURT
I
agree
D.
S. S. MOSHIDI
JUDGE
OF THE HIGH COURT
I
agree
C.
E. NICHOLLS
JUDGE
OF THE HIGH COURT
It
is so ordered.
Counsel
for the Appellant:
Adv
A. Gautschi SC and Adv N. Konstantinides
Counsel
for the Respondents:
Adv
A. Subel SC and Adv M. F. Welz
Attorney
for the Appellant:
Van
Hulsteyns Attorneys
Attorney
for the Respondents:
Rudolph,
Bernstein & Associates
The
appeal was argued on 27 October 2010
Date
of Judgment: 10th November 2010
[1]
The official order of court at p 266 of the record is incorrect and
should be corrected to read as follows:
“
1.
The register of members of the second respondent is rectified in
terms of section 115 of the Companies Act 61 of 1973 by deleting
the
name of the first respondent as a member of the second respondent
and substituting the name of the applicant in the place
of the name
of the first respondent as the sole member of the second respondent.
2.
The first respondent’s share certificate(s) is
cancelled and the second respondent is directed to issue a share
certificate
in respect of the shares in the name of the applicant;
3.
The first respondent is ordered to pay the costs of the application
including the costs consequent upon the employ of senior
and junior
counsel.”
[2]
See the agreement attached to the Founding Affidavit as Annexure PB3
at pp 31 – 44 of the Record
[3]
See the Agreement attached to the Founding Affidavit, Annexure PB2,
on pp 19 – 30.
[4]
See the letters in Annexure PB5 dated 9 March 2009 and Annexure PB6
dated 20 March 2009, Record pp 126 – 129.
[5]
See Record p 262, lines 13 – 16
[6]
See Scott “The Law of Cession” Second Edition paragraphs
4.1.2, 4.1.3, pp 27 – 44.
[7]
1963 (3) SA 538 (AD)
[8]
See
Verrin
Trust & Finance Corporation (Pty) Ltd v Zeeland House (Pty) Ltd
and Others
1973 (4) SA 1
(C) at 9G – H where Corbett J said:
“
A
Court hearing such an application may, therefore, quite properly
confine itself to the minor and direct dispute as to whether
the
register should be rectified or not and leave it to the parties
thereafter to debate the question of ownership in a trial
action. On
the other hand, in terms of sub-sec. (3), the Court is empowered to
investigate all questions in dispute between the
parties and would,
accordingly, be entitled to determine the issue as to ownership, if
so advised.”
See
also
Boorman v Steynberg NO and Another
2001(2) SA 1116 (CPD)
at 1123/4.
[9]
See Henochsberg on the Companies Act, by Meskin, Volume 1, p 220;
Botha v
Fick
supra
at 780C - D
[10]
As a general rule rectification ought not to be effected without an
order of court.
[11]
See
Re
Imperial Chemical Industries Ltd
[1936] 2 All ER 463
(Ch) at 469.
[12]
See Henochsberg
supra
at p 222 and cases there cited.
[13]
Section
133(2) states: “Notwithstanding anything in the articles of a
company, it shall not be lawful for the company to
register a
transfer of shares of or interest in the company unless a proper
instrument of transfer has been delivered to the
company; Provided
that nothing in this section shall prejudice any power of the
company to register as a member any person to
whom the right to any
share of the company has been transmitted by operation of law.”
[14]
See
Konrad M Kritzinger “Share Transfer by mere Consensus?”
(1995) 112 SALJ 389
at 398 – 400; J T Pretorius “Hahlo’s
South African Company Laws Through the Cases”, 6
th Edition
(1999) at 166 – 167; Blackman, Jooste, Everingham, “Commentary
on the Companies Act” Volume
1, p 5 – 319.
[15]
See
In
re
Sussex Brick Co
[1904] 1 Ch 598
(CA);
In
re
MI Trust (Pty) Ltd v Morny’s Motor Supplies (Pty) Ltd
1952 (3) SA 262
(W);
Orr
NO and Others v Hill and Others
1929 TPD 885.
[16]
See
McGregor’s
Trustees v Silberbauer
[1891] 9 SC 36
at 38-9;
Randfontein
Estates Ltd v The Master
[1909] TS 978
at 981-2;
Botha
v Fick
supra
at 778
[17]
See
Randfontein
Estates Ltd
supra
at 982
[18]
See Judgment, p 265, lines 5 – 15
[19]
See Record pp 130 – 131 and pp 205 – 206.
[20]
See paras 9 and 13 of the Founding Affidavit as read with paras 17
and 21 of the Answering Affidavit.
[21]
See
paragraphs [20] to [27]
[22]
See
Herbert
Porter
supra
at p 795H
[23]
See
Moosa
v Lalloo
1956 (2) SA 237
(D) at 239
[24]
See
also
In
Re
Joint
Stock Discount Company v Fyfe’s Case
[1868-69] L.R. 4 Ch App 768.
[25]
See
Blackman Jooste and Everingham, “Commentary on the Companies
Act” p 5 – 310 and the cases there cited.