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[2012] ZAECPEHC 4
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Eayrs NO obo The Daku Trust v Strydom NO and Others (3704/11) [2012] ZAECPEHC 4 (31 January 2012)
IN
THE HIGH COURT OF SOUTH AFRICA
(EASTERN
CAPE, PORT ELIZABETH)
CASE NR: 3704/11
Heard: 15 December
2011
Delivered:
31 January 2012
In
the matter between
:
MICHAEL
BRADLEY EAYRS N.O. obo THE DAKU TRUST
….....................
Applicant
and
STEPHANUS
JOHANNES STRYDOM N.O.
DEAN
ALAN HOLDSTOCK N.O.
ADELE
KATHLEEN HOLDSTOCK N.O.
(In
their capacity as Trustees for the time being
of
the Holdstock Family Trust IT1102/99)
…....................................
First
Respondent
BARRY
NEIL CARTER N.O.
LINDA
CARTER N.O.
STEPHANUS
JOHANNES STRYDOM N.O.
(In
their capacity as Trustees for the time being
of
the Barry Carter Family Trust IT1099/99)
…..........................
Second
Respondent
PICK
‘N PAY RETAILERS (PTY) LTD
…..........................................
Third
Respondent
___________________________________________________________________
JUDGMENT
__________________________________________________________________
MAGEZA
AJ
[1] This matter came
before me by way of urgency with the principal relief sought being:
“
1…;
2. That the First and
Second Respondents be interdicted from transferring their shares in
Carter Trading (Pty) Ltd to the Third
Respondent or any other third
party until such time as they have adhered to the terms of the
Articles of Association of Carter
Trading (Pty) Ltd pertaining to the
procedures set out for the sale of shares in such company;
3. That the Respondents
opposing the application be ordered to pay the costs of the
Application on an attorney and client basis,
jointly and severally,
the one paying the other to be absolved;
4. …”
[2] The background to the
matter offers a history of intractable disputes between the parties
and these have to date culminated
in two Court Judgments of this
Division, one of which has since been confirmed by the Supreme Court
of Appeal. In light of the
relief sought, I intend to confine myself
to this appeal ruling having regard to its relevance to this dispute.
[3] The nub of the
current dispute revolves around competing pre-emptive rights in
favour of Applicant on the one hand, and the
Third Respondent on the
other, to shares held by the First and Second Respondents in Carter
Trading (Pty) Ltd, owned in the following
proportions:
First Respondent owns
7.5% of the issued shares, and
Second Respondent owns
42.5%, thus collectively making up a total of
50% of the issued share
capital in the Company.
The pre-emptive rights at
issue are those admittedly contained in,
(i) The Articles of
Association of the Company detailed therein in
favour of the Applicant,
and
The Terms and Conditions
of a franchise agreement concluded between the Company and the Third
Respondent as franchisor, which
terms provide,
inter alia,
a
pre-emptive mechanism triggered in the event of the occurrence of
particularised contingencies.
Applicant’s
case.
[4] Applicant is a
Trustee of the Daku Trust (IT658/2005) and litigates on behalf of the
Daku Trust as owner of the balance of the
50% share block in Carter
Trading (Pty) Ltd. This Company in turn operates a Pick ‘n Pay
supermarket franchise licenced to
it by Third Respondent. The genesis
of the Supreme Court of Appeal ruling commenced with an application
by Applicant (Daku Trust)
under case number 2145/2010, in which
application it sought an Order that First Respondent (Holdstock
Family Trust), Second Respondent
(Barry Carter Family Trust) and
Carter Trading comply with the terms of a Sale of Shares agreement
concluded on 22 April 2010,
and to take all steps necessary to ensure
transfer of the shares referred to in the said agreement. The matter
came before Eksteen
J, who found therein for Applicant, concluding
that Pick ‘n Pay had been afforded its pre-emptive right
(detailed in the
Franchise Agreement) in respect of the said shares
but had failed to exercise the same within the stipulated 30 day time
period,
thereby declaring the right of the Daku Trust to the shares
as constituting a stronger right, based on the
qui prior est
tempore potior est iure
common law rule, than the rights afforded
Third Respondent by an addendum agreement extending the period. An
appeal was lodged
against the judgment and the Supreme Court of
Appeal later confirmed the Judgment of Eksteen J on 26 September
2011.
[5] Pursuant to the
favourable ruling and no doubt galvanised by the same, Applicant
caused his legal representatives (Goldberg
& de Villiers Inc.),
to direct a letter dated 28 September 2011 to the legal
representatives of the First and Second Respondents
(Rushmere Noach
Attorneys), in which letter it tendered payment of the purchase price
against transfer of the shares to it. A separate
letter was
simultaneously dispatched to the accountants of Carter Trading, Fanie
Strydom of Strydom and Partners, requesting preparation
of the
appropriate company secretarial documentation to give effect to the
share transfer.
[6] On 3 October,
Applicant advised First and Second Respondent’s attorneys that,
as a 50% shareholder, it was entitled to
appoint a Director in the
Company. The response of the First and Second Respondents, by means
of a letter of same date, was to
deny the existence of this alleged
right, asserting in addition that this demand is viewed as an
introduction of new terms to the
sale of shares agreement and
amounted to Applicant repudiating the aforesaid agreement, a
contention denied by Applicant. Ironically,
Respondents
simultaneously advised Applicant that, despite First Respondent
having sold the majority of its shares in Carter Trading
to
Applicant, its Trustee Mr Alan Holdstock, would remain a Director
even though its remaining shares were only 7.5% in total.
[7] With the disputes
beginning to mount and Applicant insisting on timeous implementation
of the Supreme Court of Appeal ruling,
a shareholders meeting was
eventually held on 6 October 2011. At this meeting, Applicant
discovered that shortly after the decision
of the Supreme Court of
Appeal, a meeting of Shareholders and Directors of the Company had,
unbeknown to it, been convened on 2
October 2011 at which meeting
certain material resolutions were taken and agreed. In Applicant’s
view, these resolutions
were clearly intended to thwart the longer
term plans agreed to in the 22 April 2010 agreement with the First
and Second Respondents
to convert the business of Carter Trading to a
Spar.
[8] In addition, again
unbeknown to Applicant, Mr Alan Holdstock representing First and
Second Respondents, had on 4 October travelled
to Johannesburg to
meet with the representatives of Third Respondent, Pick ‘n Pay.
Applicant was then handed a letter from
the legal advisors of the
Third Respondent, directed to Carter Trading and stating that, in
spite of the Supreme Court of Appeal
decision, Third Respondent
persisted in the view that it would not approve the taking up of the
shares by Applicant in Carter Trading
and furthermore called upon the
Company to give an indication of how it intended resolving the issue.
In addition, that pending
a resolution of the difficulty:
“…
the
franchisor seeks an undertaking from the franchisee that neither the
Daku trust, nor trustees, nor Mike Ayers will have any
access to the
franchisor’s proprietary interests. The franchisor requests
either the resolution of this issue or the requested
undertaking to
be received by the franchisor by close of business 7
th
October 2011.”
[9] This shareholders
meeting finally resolved that Mr Barry Carter, as Managing Director
of the Company, would appoint independent
attorneys and Counsel to
advise Carter Trading on how to deal with Third Respondent’s
demand and that Third Respondent would
be advised of this as having
been a resolution taken at the said meeting. Advocate Rorke SC was
briefed and in due course, provided
a comprehensive Opinion advising
as to the appropriate steps that should be taken by Mr Carter as sole
Director of Carter Trading.
These included that:
9.1 the notice to
terminate the Franchise Agreement with Third Respondent not be
withdrawn;
9.2 steps be taken to
secure alternative finances so as to discharge Carter Trading’s
obligation to Third Respondent and thereby
removing the threat of the
perfection of Pick ‘n Pay’s notarial bond;
9.3 a new notice of
termination be given to Pick ‘n Pay terminating the Franchise
Agreement;
9.4 Carter Trading
investigate alternative franchisors;
9.5 steps be taken to
appoint other directors.
The Opinion of Counsel
having been finalised on 21 October 2011 and the Company having
received the same, Applicant requested confirmation
that Mr Barry
Carter would take all steps suggested in Counsel’s Opinion. As
we shall see, this did not materialise.
[10] Some three days
after the Opinion was received and considered, and at a meeting on 24
October 2011 attended by the parties’
respective legal
advisors, Applicant admits that the legal representatives of First
and Second Respondents first mooted that their
clients now wished to
dispose of their respective share interests in the Carter Trading.
[11] In tandem with the
aforegoing and on 26 October 2011, First and Second Respondents’
attorneys confirmed that Mr Barry
Carter had held discussions with,
and was taking steps to settle the amount owing to Pick ‘n Pay
in terms of the Notarial
Bond. They further confirmed the view that
once the Notarial Bond was settled, appropriate steps could then be
taken. The shareholders
then approached Nedbank to apply for loan
funding and a further shareholders meeting was scheduled for Monday,
31 October at the
offices of Applicant’s attorneys.
[12] At this meeting,
First and Second Respondents advised that they wished to dispose of
their shareholding in the company. Applicant
states in its papers
that both its legal advisors and those of the Respondents, were of
the view that such a conversation was premature
and could only be
dealt with once the issues raised in Counsel’s Opinion had been
dealt with. An agreement was, according
to it, reached that the said
discussion be regarded as “off the record” and not be
minuted. Applicant says he had in
general terms advised Respondents
that at that stage, he was not in a position to purchase the full 50%
shareholding but could
consider purchasing a portion thereof. He says
he did not apply his mind to this discussion and considered it a
“side conversation”
that would be dealt with in a more
formal manner and that the purchase price was not even mentioned.
[13] First and Second
Respondents’ attorneys, on 4 November 2011, sought to place
this conversation on record as having been
a formal conversation
where an offer was made for the sale of the said shares and that
Applicant had formally rejected the offer.
On the same day,
Applicants attorneys responded and advised that it was premature to
discuss the alienation of the shareholding
until such time as the
Notarial Bond application was disposed of and the Franchise Agreement
terminated. Three days later, on 7
November 2011, Applicants
attorneys received a letter from Respondents attorneys advising that
they had disposed of their respective
shares in the Company to the
Third Respondent.
[14] Applicant says there
being no binding shareholders agreement, it regarded this as an
exercise in contravention of the Articles
of Association of the
Company, which Articles provide as follows (paragraphs):
“
21.
If a member of the company desires to sell all or any of his shares
of the company he shall give notice, in writing, of his
intention to
sell, to the directors of the company, and state the price he
requires for the shares.
22. The directors shall
within one month of the date of receipt of the notice referred to in
Article 21 advise every member of the
company of the contents thereof
and each such member shall be entitled to acquire the shares so
offered within one month after
the date of receipt of such advice.
Provided that if more than one member makes an offer for all of the
shares so offered, the
shares shall be sold to each such member in
equal proportions, and where fractional proportions of shares remain,
such members
shall become joint holders of such fractional
proportions of the shares.
23…
24…”
First and Second
Respondents answer.
[15] In papers deposed to
by Mr Barry Neil Carter on behalf of both the First and Second
Respondents, their common position is,
crisply put, the following:
(a) They challenge that
Applicant has substantiated its basis for urgency and assert that it
has not provided adequate reasons why
it could not be afforded
substantial redress at a hearing in due course.
(b) The First and Second
Respondents collectively hold 50% of the issued share capital in
Carter Trading and Applicant holds the
other 50%. That First and
Second Respondents are obliged to afford the Third Respondent a
pre-emptive right to their shares.
(c) The First and Second
Respondents have sold their shares in the company to Third
Respondent.
(d) First and Second
Respondents furthermore contend that the right of pre-emption in
favour of the Third Respondent contained in
the Franchise Agreement
enjoys precedence over the rights of shareholders,
inter se,
contained in the Articles of Association.
They state in their
papers that:
“
The
Franchise Agreement primarily regulates the rights of the company to
trade as a Pick ‘n Pay store, which rights are fundamental
to
the company’s business. Third Respondent required that the
First and Second Respondents bind themselves to the pre-emptive
rights contained therein as a condition of granting the franchise.
Failure on the part of First and Second Respondents to comply
therewith could give rise to the cancellation of the Franchise
Agreement by the Third Respondent or the exercise by it of its rights
under a notarial bond held by it over the movable assets of the
company as security for an operating loan provided it to the company.
Should the First and Second Respondents dispose of their shareholding
without affording the Third Respondent the rights contained
in
annexure BNC1, they would be in breach thereof with the consequences
that would flow therefrom in law.”
[16] First and Second
Respondents in addition, contend that the provisions of the Articles
of Association, regulate the basis upon
which the Company conducts
its business and in particular, arrangements among the shareholders
themselves. That it is open to the
shareholders to depart from or
amend the provisions of the Articles of Association. They are of the
view that the overall interests
of the Company must trump the rights
of shareholders among each other when faced with potentially
conflicting rights. They explain
how they dealt with the matter as
follows in paragraph 19 of their papers:
“
On
24 October 2011, Mr Holdstock and I met with the attorney for First
and Second Respondent, Ms Theron, to advise her that both
of the
First and Second Respondents wished to dispose of the whole of their
respective shareholding in the company and instructed
her to advise
both the Third Respondent and the Applicant accordingly. Ms Theron
telephoned Mr Eugene Bester, the Third Respondent’s
attorney,
and informed him of our intention. She then contacted the Applicant’s
attorney, Mr Moodliar, and arranged to meet
him. The said meeting
duly occurred as reflected herein. On our instructions, Ms Theron
provided the Applicant’s attorneys
with a copy of a valuation
of the shares and advised that it reflected the price that the First
and Second Respondent sought for
their shareholding… The
Applicants attorneys undertook to revert to Ms Theron with a response
from the Applicant, but never
did so, as is recorded in the letter
annexed as MBE37 to the Founding Affidavit.”
[17] At paragraph 20
deponent goes on to state that:
“
On
25 October 2011, pursuant to our instructions, Ms Theron wrote to the
Third Respondent’s attorneys and confirmed her earlier
telephonic advices that the First and Second Respondent wished to
sell their shares.”
Further that:
“…
It
must be mentioned however that also on 26 October 2011, Mr Holdstock
and I met Mr Eayrs at the store, when we enquired from him
as to his
response to our indication that we wished to dispose of the First and
Second Respondents’ shareholdings. He stated
that the Applicant
would like to purchase the shares, but could not afford to do so and
speculated whether he could bring in a
third party purchaser to
acquire the shares. We advised him that the share valuation had been
handed to his attorneys and he enquired
whether that reflected our
price, or whether we were negotiable. We confirmed that the valuation
reflected the price we wished
to achieve and further confirmed that
we wished to dispose of the First and Second Respondents’
shareholding in their entirety.”
(paragraph 22)
[18] On 31 October 2011,
a shareholders meeting was duly convened at which Respondents state
they tabled their intention to sell
at the valuation price which had
been handed to Applicants attorneys on 24 October. Respondents say
Applicant advised that whilst
it was interested in acquiring the
shares, it did not have the resources to acquire the full block of
shares on offer as it was
still repaying funds relating to the
purchase of the first 50% share block and countered by suggesting
that he could possibly purchase
a portion thereof.
[19] The Respondents
then, having alluded to what in their view was a difficulty
occasioned by:
“…
an
apparent conflict between the rights arising from the provisions of
the Articles of Association of the company on the one hand
and from
the terms of the Franchise Agreement on the other…”
later state that;
“
The
First and Second Respondent
were
willing and remain willing to dispose of their respective
shareholdings in the company for value to either of the Applicant
or
the Third Respondent
.”
(my emphasis).
First and Second
Respondents do not explain how this would still be achieved in light
of their clear contention that the shares
have since been sold to
Third Respondent, a contention that is also made by the Third
Respondent.
Third Respondent’s
answer.
[20] Third Respondent
admits that it held a meeting with Mr Holdstock in Johannesburg and
had subsequently addressed to Carter Trading,
the letter referred to
above.
[21] Whilst acknowledging
that Applicant’s right to the transfer of 50% of the shares on
payment of the purchase price to
Applicant, was as a consequence of
the lawful Order of the Supreme Court of Appeal, Third Respondent
says it informed Carter Trading
that Applicant had not been approved
by it, a position which it viewed as resulting in breach of the terms
of the Franchise agreement.
In the same vein, Third Respondent
communicated that it regarded the Franchise agreement as continuing
to be of full force and
effect, but emphasised that Applicant would
never be approved as a shareholder in the Company and furthermore
that Third Respondent
would in no way waive the provisions of clause
15.1.12 as access to confidential information, trade secrets, price
structuring,
advertising and promotional activities would then be
addressed and become known to the opposition in the retail trade as
Applicant
has interests in opposition retail businesses.
[22] Third Respondent
also points out its pre-emptive rights set out in paragraph 25 of the
Franchise agreement set out as follows:
“
25.1.2.1
If the franchisee intends to sell or otherwise dispose of or transfer
the business or any part thereof … it shall
deliver to the
franchisor a written notice offering to sell the business or the
relevant part thereof the franchisor at a price
which is sounding in
money in South African currency and on such remaining terms as may be
stipulated in the written offer…”
25.1.2.2 The franchisor
shall be entitled within 30 days after receipt of the written offer
to accept it, in whole but not in part
by giving written notice to
that effect to the franchisee…”
[23] Third Respondent
recounts that First and Second Respondents were made aware of their
obligations in terms of clauses 28 read
with clause 25 of the
franchise agreement as is evident from a letter dated 27 October
2011. The letter from Third Respondents
attorneys, Cliffe Dekker
Hofmeyer, alludes at paragraph 3 to this that:
“
Our
client requires a written offer from the (perspective) shareholders
concerned offering to sell their shares at a price sounding
in Rands.
On receipt of such an offer our client will consider its options.”
In response to this
letter and on 2 November 2011, the First and Second Respondents’
attorneys forwarded to Third Respondent
a valuation from the auditors
of the franchisee confirming the value of the shares held by them in
the franchisee. No mention is
made whether the “written offer”
was availed by First and Second Respondents and none has been
produced despite the
alleged sale of shares. Third Respondent says it
exercised its pre-emptive right in terms of the provisions of the
franchise agreement
on 3 November 2011 and purchased the shares.
[24] It denies that there
exists any contravention of the Articles of Association and states
that there being no new Shareholders
Agreement, the Shareholders are
bound by the Shareholders Agreement concluded between the founding
shareholders, prior to the Applicant
acquiring the 50% shares. It
states at paragraph 18.9 of its papers that:
“
On
becoming a shareholder in the franchisee on or about 4 October 2011,
the applicant became subject to the terms of the shareholders’
agreement as the shares were transferred to it by an existing
shareholder, the first respondent. The sale was conditional upon
the
applicant undertaking in writing to be bound by all of the provisions
of the shareholders’ agreement. This condition
has not been met
and accordingly it is doubtful whether the applicant is a shareholder
in the franchisee.”
[25] Finally, that as the
provisions of the franchise agreement prevail over the provisions of
the Articles of Association of the
franchisee, there is no basis for
the Applicant to seek the relief as set out in the notice of motion.
Applicant’s
reply.
[26] Applicant in reply;
(a) Denies that the
history of his dealings with the Respondents is irrelevant and points
out that the Respondents have continuously
attempted to thwart all
proper implementation in respect of agreements between them and this
includes undermining the effect of
the Supreme Court of Appeal
decision.
(b) Challenges the
assertion that First and Second Respondents are obliged to afford the
Third Respondent a pre-emptive right to
their shares in precedence to
the right that it is given in terms of the Articles of Association of
the Company.
(c) Any purported sale
would be subject to the approval of the Competition Commission and is
thus not “a done deal”
as purported by the collective
Respondents. None of the Respondents have made available to this
Court a copy of a document (notice)
setting out the full terms of
their alleged sale agreement.
(d) The relief sought by
the Applicant is based on a clear right as determined in terms of the
Articles of Association which governs
the relationship between
Applicant and the Respondents in the absence of a Shareholders
Agreement governing the relationship of
the parties.
(e) Denies any suggestion
by Respondents that it had at any stage agreed to depart from the
provisions of the Articles of Association.
(f) That generally, the
interests of the Company would have been well protected had Mr Carter
as Managing Director of the Company,
had chosen to follow the advice
of Advocate Rorke SC, which advice, sourced by the Company, had
proposed and Respondents had agreed
to, that steps be taken to
formally terminate the Franchise Agreement insofar as same may not
have already terminated and settle
any amounts due to Third
Respondents, if any.
(g) Applicant repeats
that he viewed the discussions of the possible sale as being “off
the record” and could not be
seriously entertained before the
validity of the Franchise Agreement had been resolved. Applicant
insists that if he regarded these
as formal, he would have insisted
on compliance with the Articles of Association in order to properly
consider the position and
have sufficient time to consider whether to
raise additional finances to purchase the shares. Applicant says it
at no time waived
its rights which it enjoyed in terms of the
Articles of Association.
(h) The Third Respondent
refers to a Shareholders Agreement entered into in April 2001 when
Applicant was not a Shareholder. That
a new Shareholders Agreement
was discussed and drafts prepared and ultimately signed by Applicant
on the understanding that the
terms were agreed with First and Second
Respondent. That the Third Respondent makes bold to say that the sale
of shares of shares
to the Applicant was premised on an undertaking
in writing to be bound by all the provisions of the Shareholders
Agreement. Applicant
knows of no such sale conditional upon such a
condition and no legal or factual basis is provided to support this
averment.
(i) It is apparent that
none of the Respondent’s wish to take this Court into their
confidence regarding the exact terms and
conditions of the Sale of
Shares Agreement concluded between them by discovering the alleged
written offer.
The Legal position.
[27] Applicant has
formulated the relief sought in the form of an Interim Interdict
restraining the Respondents from transferring
the disputed shares
until such time as they have adhered to the terms of the Articles of
Association governing the procedures for
the sale of shares in the
Company.
[28] In
L F Boshoff
Investments (Pty) Ltd v Cape Town Municipality
1969 (2) SA 256
(C) at
267A-F
, Corbett J, as he then was, articulated these requirements
as follows:
“
Briefly
these requisites are that the Applicant for such temporary relief
must show-
(a) that the right which
is the subject matter of the main action and which he seeks to
protect by means of interim relief is clear
or, if not clear, is
prima facie established, though open to some doubt;
(b) that, if the right is
only prima facie established, there is a well grounded apprehension
of irreparable harm to the Applicant
if the interim relief is not
granted and he ultimately succeeds in establishing his right;
(c) that the balance of
convenience favours the granting of interim relief; and
(d) that the Applicant
has no other remedy”.
[29] In
National
Gambling Board v Premier, Kwa-Zulu Natal and Others 2002(2) SA 715 CC
at 730-731
, the Court commented:
“
An
interim interdict is by definition a ‘court order preserving or
restoring the
status
quo
pending the final determination of the rights of the parties. It does
not involve a final determination of these rights and does
not affect
the final determination.’ The dispute in an application for an
interim interdict is therefore not the same as
that in the main
application to which the interim interdict relates. In an application
for an interim interdict the dispute is
whether, applying the
relevant legal requirements, the
status
quo
should be preserved or restored pending the decision of the main
dispute. At common law, a court’s jurisdiction to entertain
an
application for an interim interdict depends on whether it has
jurisdiction to preserve or restore the
status
quo.”
[30] Once an Applicant
has shown a
prima facie
right, and an apprehension that such
right is threatened, the consideration as to balance of convenience
becomes decisive. See:
S A Motor Racing v Peri Urban Areas
Health Board
1955 (1) SA 334
(T)
.
[31] In
‘The Law
and Practice of Interdicts’ by Prest at p 50
it is said,
“Where the right asserted by the Applicant is, in the
terminology of Innes JA
(Setlogelo v Setlogelo
1914 AD 221
),
‘
prima facie
established … (though) open to some
doubt’, the Applicant may be granted an interim interdict if
the continuance of
the thing against which an interdict is sought
would cause irreparable harm”. In this regard it becomes
necessary for the
Court to take account of the balance of
convenience. The Court must then consider the nature of the injury to
Applicant if the
interdict is not granted, as opposed to the injury
to Respondent if the interdict is granted.
Analysis
.
[32] The real dispute
between First and Second Respondents can be stated as centred on the
following, that is, whether:
it is open to the
shareholders to depart from or amend the provisions of the Articles
of Association, something which the First
and Second Respondent
contend did occur in this instance.
the right of pre-emption
in favour of the Third Respondent contained in the Franchise
Agreement enjoys precedence over the rights
of shareholders,
inter
se
, contained in the Articles of Association;
and
First and Second
Respondent have, as contended by them, complied with the Articles of
Association and have afforded Applicant
an opportunity to acquire
their shares but that Applicant has waived or elected not to
exercise its rights as aforesaid;
[33]
Departure from
Articles of Association
:
It is common for the
Articles of Association of private companies to provide that, when a
member wishes to sell his shares, such
member must first offer them
for sale to the other members. In other words, the other members have
a right of pre-emption. The
memorandum and articles of association,
once registered, binds the company and the members to abide by all
the provisions of the
memorandum and articles. In other words, the
memorandum and articles have the effect of a contract. – See
RC
Williams “Concise Corporate Law” – Butterworths
page 51-2
;
De Villiers v Jacobsdal Saltworks (Pty) Ltd
1959
(3) SA 873
(O)
. The contract is between each member and the
company and also between the members
inter se
. The articles
can be altered by means of a special resolution. – See the
comments of
Vaisey J in Rayfield v Hands
[1958] 2 All ER 194
.
Applicant herein is not a
founding member of the company, but has acquired the shares from
existing shareholders. Applicant is also
not itself a signatory to
the existing shareholder’s agreement. In fact, prior to the
Respondents putting in train the events
that led to the current
dispute, Applicant was expending all its efforts in,
inter alia
,
ensuring agreement on a new shareholders agreement to govern the new
community of shareholders in Carter Trading (Pty) Ltd. During
all
times prior to the conclusion and signature of the said agreement,
the Articles of Association enjoyed supremacy as between
the
shareholders
inter se
. See
LSA UK Ltd (formerly
Curtainz Ltd) and Others v Impala Platinum Holdings Ltd and Others
[2000] JOL 6308
(A)
. The first observation to make therefore
is that First and Second Respondents were not free to ‘depart’
from the Articles
or ‘amend’ the relevant provision, save
by way of a special resolution. Secondly, the Applicant denies any
suggestion
that he entered into an agreement with the Respondents to
deviate from the prescripts of the Articles in relation to the
pre-emptive
procedures set out therein.
[34]
Do the rights of
Third Respondent enjoy supremacy?
:
I accept that there
exists some form of protective (or defensive) right of pre-emption in
favour of the Third Respondent triggered
in an event where a
franchisee seeks to dispose of shares to a third party. No doubt
prior to the conclusion of a sale to an outsider
(third party), the
pre-emptive rights in favour of Third Respondent would be capable of
less contentious implementation as such
an outsider would have no
claim for reliance on the Articles of Association of the franchisee.
The difficulty with which the Respondents
are confronted with in the
present matter is that Applicant’s acquisition of the shares
has been perfected and its claim
to a right of pre-emption as between
shareholders admits of no doubt. In these circumstances, I am unable
to follow the First and
Second Respondents argument that Third
Respondent’s rights “enjoy precedence over the rights of
shareholders among
each other”. It may be so that were the
First and Second Respondent to dispose of their shareholding without
affording the
Third Respondent the rights contained in the franchise
agreement, they would put the business at risk, but firstly this is
precisely
why they had at a shareholders meeting agreed to seek the
opinion of eminent Counsel, which opinion they neglected to
implement.
It appears Mr Barry Carter was attending to ensuring
settlement of the debt in favour of Third Respondent and had to that
end with
the other shareholders, approached Nedbank for loan funding.
This course seems to have been abruptly abandoned by the First and
Second Respondents without a plausible reason. All appeared to be
proceeding for once, on the basis advised in the opinion. There
was
no need to create conditions that could militate towards breach.
In addition, if they
intended to put up their shares for sale in a transparent and
bona
fide
manner all they needed to do was to simply follow the
austere process outlined in the Articles and to present both the
Applicant
and Third Respondent with a notice of such offer in writing
at a specified price sounding in Rands. This would have rendered them
compliant and provided Applicant with enough time to weigh and
consider his position, whilst Third Respondent would also be apprised
of the developments.
[35]
Did the First and
Second Respondents adhere to the Articles?
:
From a perusal of the
papers it appears safe to say that by the time the ruling of the
Supreme Court of Appeal was handed down,
First and Second Respondents
had lost their earlier commitment to the April 2010 agreement with
Applicant including the prospect
of the conversion of the store to a
Spar. From 28 September 2011 and in the lead up to 24 October when
the first verbal intimation
was made by their legal representatives
that they were considering selling their shares, a discernible degree
of reluctance was
evident. These indicators include delays at
implementing the share transfer and the refusal to avail Applicant a
Directorship in
Carter Trading. The Respondents visited Third
Respondent in Johannesburg and took material decisions in a
shareholders meeting
just prior to the share transfer to Applicant.
There were delays in convening meetings whilst discussions were
ongoing with Third
Respondent without Applicant’s knowledge.
The sole positive step taken by agreement was sourcing Counsel’s
Opinion,
an Opinion which should have put everyone at ease and duly
implemented to avoid risk to Carter Trading.
Whilst it is not
necessary for this Court to go into all the aforegoing, it appears to
me important as in my view, what followed
in the verbal intimations
that the Respondents were looking to sell was consonant with this
earlier reluctant stance to openly
and transparently engage all
concerned in the matter of the future of the business. It must have
been confusing that at the time
Mr Barry Carter was negotiating with
Nedbank on 26 October the attorneys were orally making these
overtures to sell.
The
bona fides
of
the exercise are further undermined by the remarkable developments
that;
Although the legal
representatives first sought to put this conversation in writing on
4 November 2011, the Third Respondent in
fact says it had by then
bought the shares the day before on 3 November 2011.
Although Third
Respondent alleges a purchase on 3 November, it was only on 7
November that First and Second Respondents’
attorneys conveyed
the news that the shares had been sold to Third Respondent.
Even more remarkable is
the fact in the answering papers they contradict this by stating
that they are still willing to sell the
shares to Applicant.
The final dramatic
correspondence between the Respondents legal advisors alluding to
this that “the fight” would shift
to Applicant and Third
Respondent in lieu of the (contentious) sale, is another clear
indicator of the probable collusion and
lack of desire to deal with
the Applicant in a
bona fide
and transparent manner, with due
deference to its rights.
Despite various requests
and in any event until to date, the Respondents have collectively
been unable to produce the written
notice or offer containing all
the terms and conditions to which the putative sale to Third
Respondents is subject.
[36]
Third Respondents
position
.
Third Respondent raises a
separate and novel contention. According to it, no new shareholders
agreement had, as at the time of transfer
of these shares been
concluded between Applicant and the First and Second Respondents.
This being the case, so the argument proceeds,
no contravention of
the Articles of Association has occurred in that the sale of shares
to Applicant was conditional upon the Applicant
undertaking in
writing to be bound by all the provisions of the old shareholders
agreement. It furthermore contends that this condition
has not been
met and that accordingly, it is in its view, “doubtful”
whether Applicant is a shareholder in the Company.
I do not intend to dwell
at length into this contention for the simple reason that it is
evident on the papers that First and Second
Respondents concede that
Applicant is a 50% shareholder in Carter Trading and these shares
have been transferred to it. First and
Second Respondents contradict
the Third Respondent in its view that Applicant acquired the shares
on the conditions alleged by
it and accept the sale of shares has
been perfected. They correctly accept that the Applicant has lawfully
acquired the stated
shares and is the beneficial owner thereof.
Furthermore, First and Second Respondents also correctly acknowledge
the fact that
Applicant,
qua
shareholder, does enjoy the
rights enshrined in the Articles of Association.
Urgency.
[37] In short, the
Applicant relies for the stated urgency primarily on the fact that it
has called upon the Respondents to provide
it with an undertaking
that it will not transfer the shares owned by First and Second
Respondents to the Third Respondent pending
the resolution of the
dispute pertaining to the demand for proper compliance with its
pre-emptive rights set out In the Company’s
Articles of
Association. It sets out that the Respondents have refused to provide
the requested undertaking. It is thus concerned
that its rights and
commercial interest will be prejudiced should the transfer of shares
to Third Respondent take place.
Whether a matter should
be enrolled as an urgent application is governed by the provisions of
Rule 6(12) of the Uniform Rules. The
sub-rule allows the Court to
dispense with the forms and service provided for in the Rules and to
deal with such matter in accordance
with such procedure as to it
seems meet. The Rules allow for the Court to come to the assistance
of a litigant if the latter would
in an application in due course not
obtain substantial redress. The unrelenting conduct of Respondents is
the basis for the risk
that Applicant seeks to arrest pending
compliance. It is also so that there are varying degrees of urgency:
See
Luna Meubel Vervaardigers (Edms) Bpk v Makin and Another
1977(4) SA 135 (W)
.
Furthermore,
“
The
urgency of commercial interest… may justify the application of
Rule 6(12) no less than other interests and, for purposes
of deciding
upon urgency, I must assume that the applicant’s case is a good
one and that it has a right to the relief which
it seeks.” –
See
Twentieth
Century Fox Film Corporation v Anthony Black Films (Pty) Ltd 1982(3)
SA 582 (W)
approved in
Bandle
Investments (Pty) Ltd v Registrar of Deeds and Others 2001(2) SA 203
(SE) at 213E-F
.
[38] On the facts before
me, I am persuaded the matter is sufficiently urgent so as to entitle
the Applicant to a hearing out of
the ordinary course. The Applicant
requires the relief solely to ensure the proper lawful procedure is
followed. A hearing in due
course may not be of practical value given
the Respondents continued cooperation in their efforts to carry out
this charade.
[39] I am of the view
that in this matter the right that the Applicant seeks to protect is
established and there is a well grounded
apprehension of irreparable
harm if the relief is not granted. A refusal to confirm this Interim
Interdict pending adherence to
the terms of the Articles of
Association will militate detrimentally against Applicant’s
interests.
[40] In the result:
1. The Application
succeeds and the First and Second Respondents are interdicted from
transferring their shares in Carter Trading
(Pty) Ltd to the Third
Respondent or any other third party until such time as they have
adhered to the terms of the Articles of
Association of Carter Trading
(Pty) Ltd pertaining to the procedures set out for the sale of shares
in such company.
2. First, Second and
Third Respondents are ordered to pay the costs of this Application on
an attorney and client scale, jointly
and severally, the one paying
the other to be absolved.
________________
MAGEZA AJ
For Applicant: Adv RG
Buchanan SC
Instructed by: Goldberg &
De Villiers Inc.
13 Bird Street, Central
Port Elizabeth
Ref- C Moodliar
Tel- 041 501 9806
For 1
st
and
2
nd
Respondents: Adv EAS Ford SC
Instructed by: Rushmere
Noach Inc.
5 Ascot Office Park
Conyngham Road
Greenacres
Port Elizabeth
Ref- Ms Judy Theron
Tel- 041 399 6700
For Third Respondent: Adv
H J Smith SC
Instructed by: Anthony
Inc.
9 Bird Street, Central
Port Elizabeth
Ref- Ms J Anthony.
Tel- 041 582 5150
23