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[2014] ZASCA 81
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Butler and Others v Van Zyl and Others (554/13) [2014] ZASCA 81 (30 May 2014)
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THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
NOT
REPORTABLE
Case
No: 554/13
In
the matter between:
DANIELINA
CORNELIA
BUTLER
...................................................................
FIRST
APPELLANT
DANIELINA
CORNELIA BUTLER NO
PHILLIP
ARNOLDUS OLIVIER
NO
...........................................................
SECOND
APPELLANT
and
GERRIT
MARTHINUS VAN
ZYL
..................................................................
FIRST
RESPONDENT
NUCO
CHROME BOPHUTHATSWANA (PTY) LTD
............................
SECOND
RESPONDENT
GAPATSIE
MATTHEW
MKHWANAZI
......................................................
THIRD
RESPONDENT
THE
ROYAL BAFOKENG
NATION
.......................................................
FOURTH
RESPONDENT
MARTIN
ROSENBERG
.................................................................................
FIFTH
RESPONDENT
Neutral
citation:
Butler v Van Zyl
(554/13)
[2014] ZASCA 81
(30 May 2014)
Coram
:
Mpati P, Ponnan and Willis JJA, Van Zyl and Legodi AJJA
Heard:
16 May 2014
Delivered:
30 May 2014
Summary:
Company Law – removal of a
director at a shareholders meeting –
ss 61(3)
and
71
(1) of
the
Companies Act 71 of 2008
– shareholders requisition
shareholders meeting to consider removal of a director –
shareholders subject to court order
interdicting them from voting on
their shares – whether they are entitled to act in terms of
s
61(3)
– meaning to be attributed to the order of the court.
ORDER
On
appeal from:
South Gauteng High Court,
Johannesburg (Mathopo J sitting as court of first instance):
1 The appeal is
upheld with costs, including the costs of two counsel.
2
The order of the court below is set aside and substituted with the
following:
‘
The
application is dismissed with costs, such costs to include the costs
of two counsel where employed.’
JUDGMENT
Van
Zyl AJA (Mpati P, Ponnan and Willis JJA and Legodi AJA concurring)
[1]
This appeal concerns the right of shareholders of a company to
requisition a shareholders meeting to effect the removal of a
director. The majority shareholders of the second respondent, Nuco
Chrome Bophuthatswana (Pty) Ltd (Nuco), seek to remove its managing
director, Gerrit Marthinus Van Zyl (Van Zyl) from his position. The
majority shareholders are the co-executors (the executors)
of a
deceased estate. They hold 78 per cent of the issued share capital in
Nuco. The other shareholders are Van Zyl and an entity
described as
an association of persons representing the people of the Royal
Bafokeng nation. They are the first and fourth respondents
respectively. Van Zyl owns 12 per cent of the shares and the
association the remaining 10 per cent.
[2]
There are many reasons why the executors, the second appellant, want
to get rid of Van Zyl. The most important reason is an
accusation
that he had placed Nuco at risk of losing its only asset, namely its
right to prospect for chromite deposits on the
farms Boschfontein and
Kookfontein in the Rustenburg area. Van Zyl is said to have engaged
in, what has been referred to as bulk
sampling, and the mining and
disposal of minerals extracted from the farm Kookfontein for his own
benefit. He is alleged to have
done this, not only without the
permission of Nuco’s board of directors, but more importantly,
without first having obtained
the permission of the Minister of
Mineral Resources as is required by s 20 of the Mineral and Petroleum
Resources Development Act.
[1]
The result of his actions was that Nuco had been issued with a notice
in terms of s 47(2) of that Act to give reasons why its prospecting
right should not be cancelled. Whether there is any merit in this, or
any of the many other charges directed at Van Zyl, is not
relevant to
a decision on the issues raised in this appeal.
[3]
Section 71 of the Companies Act
[2]
(the Act) authorises the removal of a director by an ordinary
resolution adopted at a shareholders meeting by persons entitled
to
exercise voting rights in an election of a director. To achieve their
aim of removing Van Zyl as a director in terms of this
section, the
majority shareholders had to secure a meeting of Nuco’s
shareholders. The Act authorises the board of directors
of a company,
or any other person specified in the company’s Memorandum of
Incorporation or rules, to convene a meeting of
shareholders.
[3]
Who the members of Nuco’s board of directors are is one of the
issues in this appeal. What is, however, not in dispute is
that Van
Zyl and the first appellant, Danielina Cornelia Butler (Butler), are
duly elected directors of Nuco. Butler is also one
of the
co-executors.
[4]
The executors must have anticipated that Van Zyl would not be
too enthusiastic to agree to convene a meeting of the shareholders
to
consider a proposal by the majority of the shareholders that he be
removed as a director. For obvious reasons such a meeting
could only
have had one outcome. Instead, they chose to requisition a
shareholders meeting in terms of s 61(3) of the Act. This
subsection
provides that the board of a company, or such other person as may be
authorised to do so in the company’s Memorandum
of
Incorporation or rules, must convene a shareholders meeting if:
‘
one
or more written and signed demands for such a meeting are delivered
to the company, and-
(a)
each such demand describes the specific purpose
for which the meeting is proposed; and
(b)
in aggregate, demands for substantially the same
purpose are made and signed by the holders, as of the earliest time
specified in
any of those demands, of at least 10% of the voting
rights entitled to be exercised in relation to the matter proposed to
be considered
at the meeting.’
[5]
According to the executors the decision to proceed in terms of this
section was based on advice that its provisions were peremptory,
that
it places an obligation on the board of a company to convene a
shareholders meeting, and that it is not open to it to choose
not to
do so. What followed was the issuing of four written notices. The
first step was taken by the executors as the majority
shareholders.
In compliance with subsection (3) they directed a written and signed
demand to Nuco on 1 November 2012 to convene
a shareholders meeting.
In this notice, two resolutions were proposed for decision and
adoption by the shareholders. The first
was that Van Zyl be removed
as a director of the company with immediate effect. The second was
that the appointment of the third
respondent, Gapatsie Matthew
Mkhwanazi (Mkhwanazi), as a director of Nuco be confirmed,
alternatively, that he be so appointed.
[6]
The demand for a shareholders meeting was accompanied by a detailed
list of the grounds on which the proposed resolutions were
founded.
These grounds were repeated in all the notices which followed. On 5
November 2012 the company secretary advised the directors
in writing
that a demand in terms of s 61(3) of the Act had been received from
the majority shareholders. The next step was taken
by Butler in her
capacity as a director of Nuco. She gave Van Zyl written notice of
her intention to call a meeting of Nuco’s
board of directors.
This notice is dated 8 November 2012. The stated purpose of the
meeting was to give effect to the request of
the executors to convene
a shareholders meeting. The board meeting took place on the appointed
day and was attended by Butler and
Van Zyl. Although there are
different versions with regard to what exactly transpired at that
meeting, the parties are in agreement
that Van Zyl voted against the
holding of a shareholders meeting.
[7]
As she was of the view that the board had no choice, despite Van Zyl
voting against it, to convene a meeting of Nuco’s
shareholders,
Butler, on 16 November 2012, proceeded to notify the
shareholders, including Van Zyl, that a meeting was to
be held of all
the shareholders as requested by the executors in terms of s 61(3) of
the Act. The date of the shareholders meeting
was set in the notice
for 5 December 2012. Butler issued this notice in her capacity as a
director of Nuco. Under cover of a letter
by the company secretary
dated 19 November 2012 the executors, as the majority shareholders
requesting the meeting, also advised
Van Zyl, in his capacity as a
director of Nuco, of the date of the shareholders meeting, and the
resolutions which they intended
to propose for adoption at that
meeting.
[8]
Van Zyl’s response to these notices was to make good on an
earlier threat which he had made in correspondence between
himself
and Butler to institute legal proceedings. On 21 November he launched
an urgent application in the South Gauteng High Court,
Johannesburg
(the high court) in which he sought an order: (i) that the four
notices, starting with the demand by the executors
for the holding of
a shareholders meeting, to the three notices which followed thereon,
be declared invalid, and that they be set
aside; (ii) that Butler and
the executors be interdicted from holding a shareholders meeting for
the purpose of dealing with any
of the proposed resolutions; (iii)
that it be declared that Mkhwanazi is not a director of Nuco; and
(iv), that the two executors
be convicted for being in contempt of an
interdict which was granted by the North West High Court, Mafikeng
(NW high court) in
proceedings instituted by a certain Martin
Rosenberg (Rosenberg). Van Zyl cited Rosenberg as a respondent in the
application. Rosenberg
is the fifth respondent in this appeal.
[9]
Van Zyl’s application was first heard in the high court on 4
December 2012. As an interim measure the respondents in the
application were interdicted from proceeding with the shareholders
meeting which was scheduled for the following day, and the matter
was
postponed for final determination. The matter subsequently came
before Mathopo J, who finally disposed of it. Van Zyl did not
persist
with the contempt proceedings in the high court and no order was
consequently made in respect thereof. The high court determined
the
matter in favour of Van Zyl. It proceeded to declare the four notices
invalid and they were set aside. The remainder of the
order of the
high court reads as follows:
‘
5.
It is hereby declared that the fourth respondent is not a director of
the first respondent.
6. The second, third
and fourth respondents are hereby interdicted and restrained from
holding a shareholders’ meeting for
the purpose of dealing with
any of the matters set forth in any of the notices referred to in one
or more or all of paragraphs
1 to 4 above.
7. That the second
and third respondents pay the applicants costs on the scale as
between attorney and own client to the exclusion
of the first
respondent, such costs to include those reserved on 3 December 2012
and 4 December 2012.
8. The second and
third respondents are ordered to pay the applicants costs on a party
and party scale such costs to include the
reserved costs of the 3
rd
December 2012 and 4
th
December 2012.
9. The conditional
counter application is dismissed with costs.’
With
the leave of the high court Butler and the executors have appealed
against the whole of the judgment.
[10]
In support of the relief he claimed, Van Zyl essentially relied on
two grounds. The first ground is premised on the existence
of the
aforementioned interdict of the NW high court. The relevant portions
of the interdict read as follows:
‘
1.
Pending the final determination of an action or application (the
proceedings) to be issued by [Rosenberg] within thirty (30)
days of
the date of this order seeking an order declaring that [Rosenberg] is
the owner of 45% of the insured share capital of
[Nuco] and or, in
the same or in a separate proceeding for final relief as set forth in
paragraph 1.3 to 1.6 herein [Nuco, the
executors and Van Zyl] are
interdicted and restrained from:
1.1
Directly or indirectly
voting on
or alienating or disposing of any shares in [Nuco].’
[11]
Van Zyl’s argument, both in the high court and in this court,
was that the effect of the interdict is that the shareholders
of Nuco
were prohibited from voting on their shares. That being the position,
the executors could no longer be said to be the holders
of 10 per
cent of the voting rights ‘entitled to be exercised in relation
to the matter proposed to be considered’
at the shareholders
meeting as required by s 61(3)
(b)
of the Act. The argument was that on a reading of the section, the
ability of shareholders who requisition a shareholders meeting
to
vote on the matter proposed to be considered at that meeting,
constitutes a jurisdictional fact, the existence of which is a
necessary prerequisite to a valid demand. Accordingly, if the
executors were unable to vote on their shares by reason of the
existence
of the interdict, it must follow that they could not
lawfully demand the holding of a shareholders meeting, and the board
of directors
of Nuco could not lawfully convene such a meeting. It
was argued that this, in turn, meant that the notice demanding the
holding
of the meeting, and any notice issued pursuant thereto, had
no legal effect and should be set aside.
[12]
Van Zyl’s second ground relates to the validity of the two
notices, dated 16 November and 19 November 2012, to the
shareholders advising them of the intended meeting on 5 December
2012. The issues raised in this regard were that the notices did
not
comply with the formalities prescribed by those sections in the Act
which deal with shareholders meetings and the proposed
removal of a
director and, in the absence of a decision by the board of directors
to convene a shareholders meeting, Butler could
not act alone and
convene such a meeting. The short answer to all of this is that by
the time that Van Zyl’s application
was finally heard in the
high court, the date of the proposed shareholders meeting had come
and gone. This rendered the issues
pertaining to the validity of the
notices moot and without any practical effect or result. In this
court counsel for the respective
parties correctly acknowledged that
to be the position and the second ground was, as a result, not
persisted with in argument.
[13]
Butler, the two executors and Mkhwanazi opposed Van Zyl’s
application. Butler and the executors in response also filed
what
they referred to as a conditional counter application. The relief
claimed therein was made conditional upon Van Zyl being
successful in his application. That relief was twofold: a declaratory
order that the executors are entitled to vote in respect
of the
shares they hold in Nuco and, secondly, that Nuco be ordered to
convene a shareholders meeting to consider and decide upon
the
resolutions proposed by the executors in their demand in terms of s
61(3) of the Act. The conclusion reached in this appeal
on Van Zyl’s
application renders the conditional counter application academic.
[14]
In answer the appellants, Butler and the executors, denied that there
was any impediment to the shareholders of Nuco voting
on their shares
as contended by Van Zyl. The reason advanced was that the
interdict on which he was relying was discharged.
It was granted
pendente lite
and, so the contention went, its continued operation was made subject
to the finalisation of the proceedings which Rosenberg had
to
institute in the NW high court in compliance with the terms of the
order of that court. Accordingly, once those proceedings
had been
finalised, the interdict was,
ipso
facto
, discharged. The appellants
further contended that Van Zyl’s actions in voting against the
holding of a shareholders meeting,
and in relying on the interdict as
the reason for doing so, was nothing more than an attempt to prevent
the shareholders from taking
a decision on the proposal that he be
removed from his position. This, according to the appellants, had the
effect of creating
a deadlock and a situation where the continued
functioning of Nuco had been made impossible.
[15]
Rosenberg, in turn did not formally oppose Van Zyl’s
application. Instead, he elected to file what he referred to as
a
‘statement of position’, in which he made a number of
legal submissions aimed at explaining his position and protecting
his
rights in relation to the interdict on which Van Zyl was relying.
Rosenberg’s main concern was clearly Butler’s
contention
that the interdict had been discharged, and any finding the court
hearing Van Zyl’s application may make in relation
to that
contention. He accordingly placed it in issue, arguing that, on the
facts, it could not be said that the proceedings, which
he had
instituted in the NW high court in compliance with the terms of the
interdict, had been finalised. It is not necessary,
for present
purposes, to decide this issue. The reason is that counsel for the
appellants did not persist with the argument that
the interdict was
discharged. His decision in this regard was in response to a tender
made on behalf of Rosenberg during the course
of argument (which
tender was accepted by the appellants) to abandon that part of the
order of the NW high court which places a
restraint on the
shareholders of Nuco from voting on their shares. That abandonment
thus effectively disposed of any such dispute
as may have existed
between Rosenberg and the appellants and, but for Van Zyl’s
participation, would have disposed of the
matter in its entirety.
Moreover, had the court order truly served as an impediment as to the
holding of the contested meetings,
the abandonment cleared the way
for the convening of those meetings in the future. It thus for all
intents and purposes rendered
the matter moot. However, it was
submitted on behalf of Van Zyl that the interdict as originally
framed, served as an impediment
to the holding of the meetings and
that he was thus entitled to have approached the high court. Given
the lateness of the tender,
so the submission went, he would,
notwithstanding the tender, still be entitled to his costs both in
the high court and on appeal.
I may mention that Rosenberg did not
seek an order for costs either in this court or the one below.
[16]
That therefore makes it necessary to consider whether Van Zyl’s
application should have succeeded before the high
court. That
requires a consideration of two issues. The first issue is whether
para 1.1 of the interdict, as it stood at the time
when the matter
was considered in the high court, prohibited the executors from
requisitioning a shareholders meeting in terms
of s 61(3). The second
issue is whether or not Mkhwanazi is a director of Nuco. In order to
deal with Van Zyl’s arguments
in relation to the first issue,
it is necessary to take a closer look at the interdict which he says
prohibited the shareholders
from exercising their voting rights at
the proposed shareholders meeting. The background to the grant of the
interdict is that
a company, Mogale Alloys (Pty) Ltd (Mogale), and
Rosenberg instituted legal proceedings in the NW high court against
Nuco, two
of its shareholders, namely Van Zyl and the executors, and
a company known as Uthango Mining Resources (Pty) Ltd. Both Mogale
and
Rosenberg asked the court to grant them interdictory relief which
was to operate pending the determination of proceedings which
they
intended to institute in that court.
[17]
It would appear from the judgment of the NW high court that the
claims of Mogale and Rosenberg were based on two separate and
distinct causes of action. The court, as a result, made two separate
orders. In terms of both of these orders the respondents to
the
application were interdicted, inter alia, from ‘directly or
indirectly voting on, alienating or disposing of any shares’
in
Nuco, ‘pending the final determination’ of an action or
application to be instituted. It is common cause that the
action
instituted by Mogale was subsequently dismissed, and that the
interdict which operated in its favour was discharged. It
consequently has no relevance to the present proceedings.
[18]
Whether Rosenberg’s interdict presented an obstacle to the
shareholders of Nuco in requisitioning the holding of a shareholders
meeting for the stated purpose is primarily a question of determining
the ambit of the interdict. On a reading of para 1.1
of the
order it is evident that it has been widely stated. The principles
applicable to construing documents also apply to the
construction of
a judgment or order of a court. The court’s intention is to be
ascertained primarily from the language of
the judgment or order, and
by reading the judgment or order, and the court’s reasons for
giving it, as a whole.
[4]
The
issue before the NW high court was confined to ownership in the
shareholding of Nuco. Rosenberg’s case was that he is
the
beneficial owner of 45 shares in Nuco. According to him, he was
instrumental in securing Nuco’s right to prospect for
chromite
ore on the two properties. In return for his services, and in terms
of a shareholders agreement, he was given shares in
Nuco. Those
shares were held by a certain Keeton as his nominee. The NW high
court found that there existed sufficient evidence
to support
Rosenberg’s claims, and that he had established, at least prima
facie, a right of ownership to shares in Nuco.
In this context the
court then proceeded to grant the interdict in para 1.1 of the order.
The remainder of the relief granted in
the order was aimed at
preserving the assets of Nuco.
[19]
The relevant portion of the interdict on which Van Zyl placed
reliance for the relief claimed in his application in the high
court,
was therefore clearly aimed at protecting Rosenberg’s prima
facie beneficial interest in Nuco’s shareholding.
It was not
aimed at preventing the shareholders of Nuco from voting on their
shares in respect of matters which have no bearing
on Rosenberg’s
claims in the contemplated proceedings in the NW high court. What the
interdict most certainly did not proscribe
were those matters which,
directly or indirectly, deal with the management and the continued
operation of the business of the company,
such as the appointment or
removal of a director. In terms of s 66(1) of the Act the business
and affairs of a company must be
managed by or under the direction of
its board of directors. To hold, as was suggested on behalf of Van
Zyl in argument, that the
intention of the NW high court can
only be consistent with the plain wording of the order, is to ignore
the context in which
it was granted and the purpose it was intended
to serve.
[20]
To give the order a literal construction may also have undesirable
consequences. It would mean that Nuco would not be able
to comply
with, for instance, its obligation to hold an annual general meeting
as required by s 61(7) of the Act, at which meeting
the shareholders
are obliged in terms of subsec (8) to deal with, and vote on, matters
such as the presentation of the directors’
report, the election
of directors and the appointment of an auditor for the ensuing
financial year. That would render the company
moribund, and could not
have been the intention of the NW high court when it granted the
interdict.
[21]
The executors were therefore entitled to demand that the board of
directors of Nuco convene a shareholders meeting for the
proposed
purpose, and Butler, in her capacity as a director, to respond to
that demand by convening a meeting of Nuco’s board.
It is not
in dispute that Butler was otherwise authorised to convene a board
meeting. In terms of article 45 of the Articles of
Association of
Nuco the directors may meet, adjourn and otherwise regulate their
meetings as they think fit and importantly, any
director may convene,
or direct the company secretary, to convene a meeting of the board of
directors. The high court accordingly
erred in setting aside the two
notices dated 1 November 2012 and 8 November 2012.
[22]
That leaves the issue of Mkhwanazi’s status as a director of
Nuco. The whole substance of Van Zyl’s case in this
regard was
the allegation that he does not know who Mkhwanazi is, and that
Butler unilaterally and without his knowledge appointed
Mkhwanazi as
a director. Butler disputed this in her answering affidavit, stating
that Mkhwanazi was appointed as a director in
November 2010, that his
appointment was confirmed with Van Zyl and the other shareholders,
that Van Zyl had been aware of the appointment
since at least January
2011 and that he had failed to raise any objection or issue in
relation to the appointment until he instituted
the application
proceedings in the high court nearly two years later.
[23]
The high court, for reasons which do not appear from the judgment,
granted the declaratory order sought by Van Zyl in this
regard.
[5]
It erred in doing so. Firstly, affidavits filed in motion proceedings
must contain sufficient factual averments to support the
cause of
action on which the relief that is being sought is based.
[6]
It is not clear on what basis, legal or factual, it was contended
that Mkhwanazi’s appointment was unlawful. The allegations
made
by Van Zyl in this regard are rather vague and insubstantial.
Secondly, an applicant in motion proceedings, where there are
disputes of fact in the affidavits, may only be granted final relief
in the circumstances outlined in
Plascon-Evans
Paints Ltd v Van Riebeeck Paints (Pty) Ltd
.
[7]
The applicant must accept the version set up by his opponent, unless
the latter’s allegations are, in the opinion of the
court, not
such as to raise a real, genuine or bona fide dispute of fact or are
so far-fetched or clearly untenable that the court
is justified in
rejecting them merely on the papers. Butler denied the allegation
that Mkhwanazi’s appointment was unlawful.
It was not
contended, quite correctly, that this denial must be rejected as
being ‘far-fetched or clearly untenable’.
The high court
should therefore have decided the issue on Butler’s version and
not have granted the declaratory order sought
by Van Zyl.
[24]
In the result the appeal must succeed and the following order is
made:
1 The appeal is
upheld with costs, including the costs of two counsel.
2
The order of the court below is set aside and substituted with the
following:
‘
The
application is dismissed with costs, such costs to include the costs
of two counsel where employed.’
____________________
D
Van Zyl
Acting
Judge of Appeal
APPEARANCES
For Appellant: J J
Brett SC (with him D Mahon)
Instructed
by:
Gary
Rachbuch Attorneys, Johannesburg
Lovius-Block,
Bloemfontein
For First
Respondent: H J Eiser
Instructed
by:
Eiser
& Kantor, Johannesburg
Matsepes
Inc, Bloemfontein
For
Fifth Respondent: P Levenberg SC
Jay
Mothobi Inc, Johannesburg
E
G Cooper & Majidt Inc, Bloemfontein
[1]
Act
28 of 2002.
[2]
Act
71 of 2008. Section 71(1) reads: ‘Despite anything to the
contrary in a company's Memorandum of Incorporation or rules,
or any
agreement between a company and a director, or between any
shareholders and a director, a director may be removed by an
ordinary resolution adopted at a shareholders meeting by the persons
entitled to exercise voting rights in an election of that
director,
subject to subsection (2).’
[3]
Section
61(1).
[4]
See
Firestone
South Africa (Pty) Ltd v Genticuro AG
1977 (4) SA 298
(A) at 304D-E; and more recently,
Van
Rensburg NO & another v Naidoo NO & others; Naidoo NO &
others v Van Rensburg NO & others
[2010] 4 All SA 398
(SCA) para [42].
[5]
In
para 5 of the order granted earlier.
[6]
See
for example
Swissborough
Diamond Mines (Pty) Ltd & others v Government of the Republic of
South Africa & others
1999 (2) SA 279
(T) at 323F-325C.
[7]
[1984] ZASCA 51
;
1984
(3) SA 623
(A) at 634D-635C.