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[2012] ZASCA 52
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Gaffoor NO and Another v Vangates Investments (Pty) Ltd and Others (330/2011) [2012] ZASCA 52; 2012 (4) SA 281 (SCA); [2012] 2 All SA 499 (SCA) (30 March 2012)
Links to summary
THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Case No: 330/2011
Reportable
In the matter between:
MOHAMMED AZEEM GAFFOOR
NO
…..........................................
First
A
ppellant
AYESHA-BI PARKER NO
(In their capacities
as Executors of the Deceased
Estate late Cassiem
Ebrahim Gaffoor)
…...................................
Second Appellant
and
VANGATES INVESTMENTS
(PTY) LTD
…..................................
First Respondent
ABDUL AZIZ BANDERKER
….................................................
Second
Respondent
GOOLAM MUSTAPHA BREY
…..................................................
Third
Respondent
MOHAMMED ALLIE DHANSAY
…............................................
Fourth
Respondent
ABDULLAH ESHACK
GANGRAKER
….......................................
Fifth
Respondent
ABDUL WAHAB BARDAY NO
(in his capacity
as Executor together
with Eighteenth and
Nineteenth
Respondents in the same capacity)
…...................
Sixth
Respondent
MOHAMED YOUSIF MOHAMED
…........................................
Seventh
Respondent
NISHAAD MURUDKER
…..........................................................
Eighth
Respondent
LAIKAT ALI SONDAY
…..............................................................
Ninth
Respondent
MAHMOOD KHATIB NO
….........................................................
Tenth
Respondent
UTHMAN BREY NO
…...........................................................
Eleventh
Respondent
MOHAMED ALLIE DHANSAY
NO
….......................................
Twelfth
Respondent
AMINA DHANSAY NO
….....................................................
Thirteenth
Respondent
AZGARI BEGUM HOOSAIN
NO
…....................................
Fourteenth
Respondent
ABDULLAH ESHACK
GANGRAKER NO
….........................
Fifteenth
Respondent
FATIMA GANGRAKER NO
…..............................................
Sixteenth
Respondent
RAUF KHAN NO
…..........................................................
Seventeenth
Respondent
HASEENA BEGUM KHAN NO
….......................................
Eighteenth
Respondent
AKBAR ALLIE LOGDAY NO
(Eighteenth
and Nineteenth
Respondents also NO in
their capacities as
Trustees of the Deceased
Estate late Rauf Khan)
…..................................................
Nineteenth
Respondent
MOHAMED YOUSIF MOHAMED
NO
…...............................
Twentieth
Respondent
ZOHRA MOHAMED NO
…...............................................
Twenty
First Respondent
MOOSA MOHAMED NO
….........................................
Twenty
Second Respondent
NAZEEM MOHAMED NO
…...........................................
Twenty
Third Respondent
EBRAHIM ALLIE ENOS
MURUDKER
NO
….............................................................................
Twenty
Fourth Respondent
GOOLAM MUSTAPHA BREY
NO
…...............................
Twenty
Fifth Respondent
UTHMAN BREY NO
…....................................................
Twenty
Sixth Respondent
MAHMOOD KHATIB NO
….......................................
Twenty
Seventh Respondent
VANGATE PROPERTY (PTY)
LTD
…..........................
Twenty
Eighth Respondent
ONE VISION INVESTMENTS
52 (PTY)
LTD
…..............................................................................
Twenty
Ninth Respondent
MAHMOOD KHATIB
..............................................................
Thirtieth
Respondent
Neutral
Citation
:
Gaffoor
NO v Vangates Investments (Pty) Ltd
(330/2011)
[2012] ZASCA 52
(30 March 2012)
Coram
: Mthiyane
DP, Van Heerden, Leach and Tshiqi JJA and Ndita AJA
Heard
: 9 March
2012
Delivered
: 30
March 2012
Summary
:
Section
115 of Companies Act 61 of 1973 – rectification of register of
members – purported transfers of shares unlawful
and invalid –
court’s discretion in terms of s 115 a discretion in the broad
sense – exercise of discretion to
order rectification.
Order
On appeal from:
Western Cape High Court, Cape Town (Koen AJ sitting as court of
first instance):
The appeal succeeds
with costs, including the costs of two counsel.
The order of the high
court is set aside and substituted with the following:
‘
(a)
The first respondent is directed to rectify its register of members –
(i) by deleting the
transfers of shares registered on 16 August 2004 from Cassiem Ebrahim
Gaffoor to the second to fifth respondents,
the seventh to ninth
respondents and Mr Rauf Khan, and all subsequent transfers of those
shares to other persons or entities; and
(ii) by registering the
deceased estate of the late Cassiem Ebrahim Gaffoor, as represented
by the applicants in their capacity
as executors, as shareholder in
respect of 444 and one-ninth of four shares in the first respondent
with effect from 16 August
2004.
(b) The first to fifth
respondents, the seventh to ninth respondents, the sixth, eighteenth
and nineteenth respondents in their
capacity as executors of the
estate late Rauf Khan and the thirtieth respondent are ordered to pay
the costs of the application,
including the costs of two counsel,
jointly and severally, the one paying the other to be absolved.’
JUDGMENT
van heerden ja (MTHIYANE
DP, LEACH & TSHIQI JJA & NDITA AJA concurring):
Introduction
[1]
The question in this appeal is whether,
in
the circumstances of this case, an alteration to the register of
members
1
by the shareholders of a
company,
appropriating
the shares of a deceased co-shareholder, without notice to his
deceased estate and without an approach to court, should
be allowed
to stand in the company’s register of members. The Western Cape
High Court (Koen AJ) refused an application by
the executors of the
deceased estate for rectification of the register of members so as to
record the shareholding of the deceased
estate. The present appeal by
the executors against that decision comes before us with the leave of
the high court.
Background
It
is necessary to set out the facts, which are largely common cause,
in some detail. During the 1990s a group of persons, consisting
of
the second to fifth, the seventh to ninth respondents, Mr Rauf Khan
2
and the deceased,
identified the potential for the development of a shopping mall on
what was then the Athlone Golf Course. This
group came to be known
as the Athlone Business Syndicate (the ABS). Some while after this
idea was conceived by the ABS, the
City of Cape Town invited
proposals for the development of the land. The closing date for
submissions was 25 February 2000. The
successful bidder would have
to purchase the land and then develop it according to its
development scheme.
The
ABS decided to submit a proposal and to form a company for this
purpose. The nine members of the ABS were the founding members
of
the company which was initially incorporated as a public company
under the name Vangates Investments Limited. However, as
the City of
Cape Town made it clear that it wished to deal with a private
company, the public company was converted to a private
company,
Vangates Investments (Pty) Ltd (the company), the first respondent
in this appeal. The total share capital of the company
was R4000,
divided into 4000 ordinary par value shares of R1 each. Each of the
nine founding members held 444 shares and one-ninth
of four shares,
the latter four shares being held by the ninth respondent as
nominee.
The
preparation of the bid by the ABS involved the expenditure of fairly
large sums of money. The process leading to the acquisition
of the
land was a long and expensive one. Members of the company invested
R1,4 million in the preparation of the bid. For some
reason,
unexplained on the papers and by counsel, the deceased’s
financial contribution at that time appears to have been
a smallish
one, which was after his death calculated by the company’s
auditors to be only R18 990.
The
bid was successful. In terms of the bid proposal, the company was
required to purchase the land from the City of Cape Town
for a
purchase price of R6,7 million. The company had to pay an initial
deposit of R670 000 and the members of the company
had to
finance that amount which was paid on 21 May 2002. The respondents
allege that, together with the technical team (later
becoming a
shareholder and represented by the twenty-ninth respondent), a
contribution of R67 000 was required from each
member towards
the payment of the deposit. Despite being called upon to do so, the
deceased did not make any contribution.
From
the outset, problems beset the proposed development. The technical
team had put together a defective scheme which had to
be discarded
and, by the second half of 2002, the company was technically
insolvent. By the time the deceased passed away on
21 October 2002,
the project appeared to be ‘dead in the water’.
The
first set of executors of the deceased estate (the wife and brother
of the deceased) was appointed on 14 February 2003. The
winding-up
of the estate did not progress smoothly. There were problems between
the executors and the other family members of
the deceased,
eventually giving rise to what the attorneys for the executors
described as ‘warfare’. The scale of
these difficulties
is evident from various letters addressed by the attorneys to the
executors and to the Master of the High
Court in late 2003 and early
2004, the relevant attorney describing himself as being ‘completely
at [his] wits end in connection
with this estate’.
In
the meantime, the company had not abandoned its plans to pursue the
development and soldiered on. It employed new people to
devise a new
scheme and a new technical team was put together to execute it. The
new scheme finally came to fruition at the end
of July 2004, when
the company found a financier in the Zenprop group which had
expertise in property development and management.
On
7 April 2004, a meeting was held between Mr Mustapha Murudker (the
father of the eighth respondent) and the ninth respondent
(Mr
Sonday), on the one hand, and one of the executors of the deceased
estate and the second appellant (Ms Parker), on the other.
The
respondents knew that the second appellant was at that time not an
executor of the estate, although she allegedly held herself
out as
representing the estate.
3
The purpose of the
meeting was to discuss the involvement of the estate in the new
project and to invite further contributions
from the estate relating
to the development, particularly towards payment of the purchase
price of the land.
On
6 May 2004, before the financier became involved, Ms Parker received
a letter from ABS requesting urgent payment of an amount
of R760 000
for the purchase of the land, as well as ‘the loan account
deficit of R216 000 . . . due by your
late father’. How
the amount of R760 000 was made up, or why a deficit of
R216 000 existed, is not explained.
In fact, the letter went on
to say that, if these amounts were not paid by 11 May 2004, ABS
would ‘immediately refund the
loan account of R19 000 . .
. due to the estate by Vangates Investments (Pty) Ltd’. As
Koen AJ in the high court pointed
out, why there should be a loan
account credit balance of R19 000, and at the same time a
deficit of R216 000, was
not explained and is difficult to
understand.
On
2 June 2004, the Master removed the first set of executors of the
deceased estate from office. Later that month, on 23 June
2004, the
attorneys acting for the company
4
addressed a further
letter to Ms Parker who at this point – to the knowledge of
the respondents – definitely had no
authority to make any
decisions on behalf of the deceased estate. In terms of this letter,
Ms Parker was given until 29 June
2004 to indicate whether the
estate would retain its shareholding in the company, in which event
it was expected to contribute
‘its portion of the purchase
price and other amounts due and owing’, or whether it wished
to be ‘paid out its
share’ in the company. The clear
implication of this letter was that,
in
the latter event, the deceased estate would forgo any claim to the
shares. By means of a further letter dated 25 June 2004,
the
deadline by which a decision was to be taken by Ms Parker was
extended to 2 July 2004. There was no response from Ms Parker
to
either of the two letters.
As
stated earlier, at the end of July 2004, Zenprop became involved in
providing bridging finance for the development. However,
the final
financing of the entire development project,
including
the
payment of the purchase price of the land, was done by Barclays Bank
at the end of 2004. All the members of the company were
then
required to bind themselves in favour of Barclays Bank as sureties,
each for an amount of R2 million. It would therefore
appear that the
other members of the company did
not
in fact make monetary
contributions towards the payment of the balance of the purchase
price of the land, as had earlier been
envisaged.
Unlike the other members
of the company, the deceased estate was never called upon to stand
surety in favour of Barclays Bank,
the ultimate financier of the
development.
According
to the respondents, however, Zenprop had insisted that every member
of the company be involved in the payment of the
purchase price –
‘we had to sign suretyships in favour of Barclays Bank for the
ultimate loan and Zenprop was unwilling
to carry a deceased estate
as a member, especially with the family members at war with one
another’. Meanwhile, the Master
had not yet appointed a second
set of executors. The company received legal advice to the effect
that the impasse created by
the non-participation of the deceased
estate could be resolved by recourse to a draft (unsigned)
shareholders’ agreement
which had earlier been agreed to by
the members of the company, including the deceased, and which
(according to the respondents)
allowed members to ‘take up’
the shares of a deceased member. It appears from the register of
members that, on 16
August 2004, the deceased’s shares were
transferred out of his name and into the names of the second to
fifth respondents,
the seventh to ninth respondents, and Mr Rauf
Khan.
5
The thirtieth
respondent, in his capacity as company secretary, signed the share
transfer forms on behalf of the deceased estate.
It was this
purported transfer of shares which the appellants contend was
invalid and in respect of which they seek rectification
of the
register of members. On the same day, there were further transfers
of these shares to the family trusts of the second
to fifth, the
seventh to ninth respondents and Mr Khan and to the thirtieth
respondent ‘in trust’. Finally, the thirtieth
respondent
transferred the shares held by him in trust to two family trusts.
6
On
16 September 2004, ostensibly after the register of members had
already been altered, the shareholders of the company passed
a
resolution purporting to ‘take up’ the deceased’s
shares in terms of clause 18.4 of the abovementioned shareholders’
agreement at a total valuation of R19 434,
7
as determined by the
auditors of the company with reference to the date of death of the
deceased. This was followed by a directors’
resolution on 20
September 2004, ‘approving’ and confirming’ the
transfers of shares set out in the preceding
paragraph and
authorising the thirtieth respondent to sign all the share transfer
forms on behalf of the deceased estate.
Also
on 20 September 2004, the company’s attorneys wrote to the
attorneys representing Ms Parker who, as stated earlier,
had no
authority to represent the estate. The attorneys confirmed that they
‘held in trust’ the sum of R19 434
in respect of
the loan account owing to the deceased and the value of his shares.
They asked whether an executor had been appointed
and for details of
the estate banking account so that this amount could be paid to the
estate.
About
a week later, on 28 September 2004, a second set of executors was
appointed by the Master. The new executors were Messrs
Holt and
Kajee. On the same day, Mr Holt wrote to the attorneys acting for
the company, advising them of this appointment and
requesting that a
meeting be held. Sometime before 20 October 2004, a meeting was held
between Mr Holt and members of the company,
at which Mr Holt was
advised of the content of the shareholders’ resolution taken
on 16 September and of the directors’
resolution taken on 20
September. Mr Holt was informed that the deceased estate had been
divested of its shareholding in the
company and that those shares
had been transferred to the other shareholders. According to the
respondents, it was explained
to him that the reasons for the
resolutions were the failure of the deceased estate to make a
contribution to the purchase price
of the land and to ‘up its
loan account above the meagre outlay of just more than R19 000
’
.
Holt’s reaction
was that the executors would convey this to the heirs and take
instructions from them.
On
20 October 2004, Mr Holt wrote to the attorneys acting for the
company, stating that ‘the heirs want to retain the shares
in’
the company and asking to be provided with copies of the deceased’s
share certificates. The response to Mr Holt’s
letter, dated 25
October 2004, was that the deceased was not a shareholder of the
company.
Despite
this initial flurry of activity on the part of Mr Holt, the second
set of executors did little more to pursue the issue
of the
deceased’s shareholding, despite the fact that the heirs,
including Ms Parker, had apparently instructed them to
take steps in
this regard. A bank guaranteed cheque in respect of the deceased’s
loan account and the value of his shares,
with interest, was sent to
the second set of executors on 4 March 2005. It was returned on 22
April 2005 under cover of a letter
stating that the executors had
received ‘instructions to pursue this matter’.
In
the meantime, the property development was completed and the Vangate
Mall shopping centre was opened on 29 September 2005.
According to
the respondents, Vangate Mall operated at a loss for the years 2005
to 2008.
Messrs
Holt and Kajee submitted a liquidation and distribution account in
the deceased estate in July 2007. This account did not
reflect the
deceased’s shares in the company. On 22 January 2008, the
deceased’s heirs, including the present appellants
in their
personal capacities, wrote to the Master objecting to the account,
inter alia, because of the lack of progress made
by the executors in
recovering the shares. The letter records that the heirs had ‘been
advised that the estate’s
claim for the shares in [the
company] may have prescribed’ and that ‘[t]his may
represent a loss of millions of rands
to the estate’.
According to the heirs, the executors had failed in their duty to
administer the estate properly.
Mr
Holt and Mr Kajee then resigned as executors in June 2008 and
November 2008, respectively. On 12 December 2008, the appellants
were appointed as executors. On 18 December 2008, they addressed a
letter to the company’s auditors relying on s 113 of
the Act
and requesting inspection and copying of the register of members of
the company and the transfer register. A similar
letter dated 22
January 2009 was addressed by the appellants to the thirtieth
respondent in his capacity as company secretary.
There was no reply
to these letters and, on 28 January, yet another letter was
addressed to the thirtieth respondent by the appellants’
attorneys, referring to the previous requests and reiterating that
the appellants wanted to inspect and copy the company’s
register of members and transfer register as a matter of urgency.
This letter evoked a response from the thirtieth respondent
to the
effect that he did not have the share register and was trying to
locate it.
In the meantime, on 22
January 2009, the appellants wrote to the attorneys acting for the
company and the remaining shareholders,
stating that –
‘
It
has become apparent that the deceased was a shareholder in Vangate
Investments (Pty) Ltd (“Vangate”) and that such
shareholding is listed as a claim in favour of the Estate. Our
instructions from the heirs of the Estate are to pursue this matter
of the Late Mr Gaffoor’s shareholding so that we may finalise
the Estate accordingly. We have further become aware that Vangate
was
in the process of selling its investments to a third party and have
been advised that your goodselves are acting on behalf
of the seller
herein. Should this sale have already been finalised we remind your
goodselves of the Estate’s shareholding
in Vangate and trust
that the Estate, as shareholder of the company, will also benefit
accordingly from this sale.’
The
sale referred to by the appellants was a sale concluded by the
company in February 2009, in terms of which the company sold
Vangate
Mall to the Public Investment Corporation. Transfer took place in
June 2009 and 50 per cent of the profit was shared among
the members
of the company. In the words of the respondents, ‘[t]his sale
saw the fruition of the investment which the members
of the ABS [had]
made over a decade and a half’.
In
July 2009, the appellants’ present attorneys were instructed
in this matter and, on 6 October 2009, they addressed a
letter to
the company and its shareholders, demanding that the shares
previously registered in the deceased’s name be forthwith
registered in the name of the deceased estate; that all dividends
and amounts paid in terms of resolutions taken by the company
through its board or its members in general meeting be accounted
for, and that the company and its members pay to the deceased
estate
all sums to which the deceased became entitled ‘during the
period from when the shares were invalidly transferred
(on the 18
th
[sic: 16
th
] August 2004) to date hereof’. The
respondents’ attorneys replied on 29 October 2009, ‘confirming
receipt .
. . and . . . that our client’s instructions are
that it notes the contents thereof’.
On 11 November 2009, the
appellants launched an application in which they claimed, inter
alia, the following relief –
‘
2.
That the Applicants are declared to be entitled to be registered as
the shareholders of 444 shares in the First Respondent [the
company]
and one-ninth of 4 shares in the First Respondent and are the
shareholders of the First Respondent in respect of one-ninth
of the
issued share capital of the First Respondent . . . .
3.
That the First to Ninth and Thirtieth Respondents are directed to
rectify the First Respondent’s register of shares by
deleting
the transfer of shares previously registered in the name of Cassiem
Ebrahim Gaffoor [the deceased] to the Second to Ninth
Respondents
reflected in the Register of Members’ Share Transfers to have
been transferred on the 16
th
of August 2004 and
reinstating the deceased estate as represented by the Applicants, as
members in their capacity as Executors
of the estate late C E
Gaffoor, in respect of 444 and one-ninth of 4 shares with effect from
16 August 2004.
4.
That the First to Ninth and Thirtieth Respondents are ordered to
account to the Applicants herein and to furnish the Applicants
herein
with all documentation and source documents relating to the
transactions so accounted in respect of:
4.1
The loan accounts of all members and directors during the period
February 2004 until date of furnishing such account herein
and
payments and repayments made in respect of such loan accounts.
4.2
The declaration of all and any dividends made between February 2004
and date hereof and the payment of any such dividends effected
whether in species or in cash or otherwise and the identity of each
payee in each instance or recipients of such dividend.
4.3
All payments including, but not limited to any distribution in kind
made by or on behalf of the First Respondent to each shareholder
and
each director during the period February 2004 to date whether made by
First Respondent or on its behalf and whether out of
any bank account
or the trust account of attorneys or otherwise.
5.
That the First to Fifth, Seventh to Ninth and Thirtieth Respondents
are ordered and directed to furnish the documentation referred
to
above and account as aforesaid within 30 days of the order of the
above Honourable Court in terms of paragraphs 1 to 3 above,
whereupon
the Respondents who have received dividends, payments or distribution
of whatever nature are ordered to effect payment
or restoration of
one-ninth of dividends, payments or distribution of whatever nature
paid to Respondents (be it the value of all
dividends paid in specie
to members or cash) to the Applicants herein forthwith.
6.
First Respondent is ordered to pay the proceeds of 5 above to the
Applicants. Applicants are given leave to apply for further
relief
consequent upon the accounting referred to in 5 above.
7.
That the First Respondent be ordered to pay the costs of the
application, including the costs of two counsel and that any other
Respondents opposing the application be ordered to pay the cost of
the application jointly and severally with First Respondent.’
No
relief was sought against the various family trusts, cited through
their trustees as the tenth to the twenty-seventh respondents,
nor
against the twenty-eighth and the twenty-ninth respondents. All
these respondents abided the decision of the high court.
The judgment in the
high court
The
respondents opposed the application on two grounds: first, they
contended that the applicant’s right to claim rectification
of
the register in terms of s 115 of the Act had prescribed, and second
(and in any event) that the delay in bringing the application
was
such that, in the exercise of the discretion vested in it by s 115,
the court would be justified in refusing the relief sought.
The relevant part of s
115 of the Act provides as follows –
‘
Rectification
of register of members
– (1) If –
(a)
the name of any person is, without sufficient cause, entered into or
omitted from the register of members of a company . . .
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.’
In
response to the prescription point, the high court expressed the
view that s 115 of the Act creates a statutory right which
is not a
‘debt’ within the meaning of that expression in Chapter
III of the
Prescription Act 68 of 1969
and that there can be no
extinction of such right by prescription.
8
As regards
s 115
, the
high court held that this section vested in the court a wide
discretion which is to be exercised according to the circumstances
of each case. It followed that the illegality of the share transfers
in this case did not automatically lead to an order in terms
of
s
115
in the appellants’ favour. Undue delay is one of the
factors which a court will take into account in the exercise of its
discretion under
s 115.
In this case, before the removal of the
first set of executors, there had been discussions with other
members of the company
about the role the estate would play in the
development. While it was so that the papers do not make it clear
why they were requested
to make the financial contribution required
of them at that stage, there is no evidence that any active steps
were taken to obtain
clarity in this regard.
The
high court pointed out that the second set of executors knew, by 20
October 2004 at the latest, that the deceased’s
shares in the
company had been transferred to the remaining shareholders and how
this had come to pass. However, after an initial
flurry of activity
in October 2004, the second set of executors did nothing until April
2005 when, in response to the tender
of a cheque in respect of the
deceased’s loan account and shares, they indicated that they
intended to ‘pursue the
matter’. This was not done: no
effective steps were taken by the executors to seek rectification of
the register of members,
nor to obtain advice about this for
approximately four years. In fact, it was only after the appointment
of the third set of
executors in December 2008 that requests were
made to inspect and copy the company’s register of members and
transfer register.
These requests coincided with the sale (at a
profit) of the property to the Public Investment Corporation in
early 2009. Even
then, it took a further nine months for the
application to be launched in November 2009.
In dismissing the
application with costs, including the costs of two counsel, the high
court stated that –
‘
During
this time the remaining members conceived a new development, obtained
a financier, incurred liabilities on behalf of the
company, entered
into suretyships and brought the development to fruition. They did so
without any contribution, financial or otherwise,
from the deceased’s
estate. They had invited the estate to participate without receiving
any answer; they had disclosed to
the executors what they had done
with the deceased’s shares; and had been threatened that
matters would be pursued.
More
than five years passed without any steps being taken to alter the
membership of the company by the deceased estate. The development
was
initially not a financial success, and only after the sale to the
Public Interest Corporation, when a return on their investment
had
been obtained, were the members of the company faced with this claim.
.
. . In exercising the discretion vested in the Court I do not think
that fairness and justice demand that I should grant the order
sought
by the applican
ts.’
Conclusions
During
the course of the hearing before this court, counsel for the
appellants informed us that he was moving for only para 3
of the
relief claimed in the notice of motion.
9
In other words, the only
relief claimed was the rectification of the company’s register
in terms of s 115 of the Act.
10
Counsel for the
respondents, on the other hand, contended that the appellants’
‘right to recover the shares’
is a ‘debt’ as
envisaged in Chapter III of the
Prescription Act; that
the three
year period of prescription in respect of this right
11
had commenced running
before or on 20 October 2004,
12
and that the right had
been extinguished by prescription long before the application was
launched in the court below. This being
so, it was contended that,
as the appellants cannot establish that they are ‘entitled’
to the shares, there is no
basis on which they can claim
rectification of the register of members.
In
argument before the high court, the respondents conceded that the
transfer of shares from the deceased estate to the remaining
shareholders of the company was unlawful and invalid, despite their
earlier position in their answering affidavit, where they
had relied
on the provisions of the draft shareholders’ agreement to
defend the validity of the share transfers. The court
below recorded
that it was common cause that the disputed shares were invalidly
transferred from the name of the deceased into
the names of the
other shareholders ‘at least on the basis that the share
transfer documents were not signed in the manner
prescribed in the
articles of the company’.
In my view, the reason
for the invalidity of the purported share transfers goes much
further than this. A share is a collection
of personal rights which
is transferred by cession. In the words of Howie JA in
Botha
v Fick
in
respect of the transfer of shares:
13
‘
1.
Blote
consensus
is voldoende om sessie daar te stel.
2.
Sessie geskied deur middel van ’n oordragsooreenskoms wat sal
saamval met, of voorafgegaan word deur, ’n
justa
causa
.
Die
justa
causa
kan
’n verbintenisskeppende ooreenkoms wees.’
14
In
this case, the purported transfer of the shares did not comply with
either of these requirements. There was no contractual or
other basis
(
justa causa
) for the purported transfer. Neither was there
any intention on the part of the executors of the deceased estate to
relinquish
or pass title to the disputed shares to the remaining
shareholders or to anyone else.
In
terms of the Articles of Association of the company, ‘[t]he
executor of the estate of a deceased sole holder of a share
shall be
the only person recognised by the company as having any title to the
share’. As justification for the purported
share transfers,
the respondents initially relied on the shareholders’
resolution dated 16 September 2004 and the subsequent
resolution
adopted by the company’s board of directors on 20 October
2004. However, at the time of both resolutions, and
to the knowledge
of the remaining shareholders, the deceased estate was unrepresented
as the position of executor was temporarily
vacant.
15
In fact and in law, no
notice was given to the deceased estate. The only other basis on
which a transfer of shares could have
been compelled by the
respondents would have been by an approach to court on a basis
recognised in law. This is a further reason
why the two resolutions
were invalid. Thus, although the purported share transfers had been
registered in the company’s
register of members, the court is
‘entitled to go behind the register to ascertain the identity
of the true owner’.
16
This
puts paid to the respondents’ submission to the effect that
the appellants’ ‘right to recover the shares’
had
prescribed. The deceased estate (or, rather, its executors) had
never ceased to be the owner of the disputed shares. As dominium
remained vested in them, there was no need for them to claim
‘recovery’ of these shares. All that they needed was
to
have that ownership reflected in the company’s register of
members.
This
brings me to the appellants’ claim, under s 115 of the Act,
for the rectification of the company’s register of
members so
as to reflect the executors of the deceased estate as the holders of
444 shares and one-ninth of four shares in the
company. I agree with
the view of the high court
17
that s 115 creates a
statutory right to apply to the court for the exercise by it of a
statutory power; such right is not a ‘debt’
within the
meaning of that expression in Chapter III of the
Prescription Act
and
there can be no extinction of such right by prescription.
Section 115
is set out
in para 27 above. It has been said that ‘the Court’s
jurisdiction under this section is unlimited; it
has a discretion in
the circumstances of each case’.
18
The court is not,
however, obliged to rectify the register whenever it is shown that
the name of a person has, without sufficient
cause, been omitted
from the register or entered therein:
‘
The
power given to the Court under the section is a discretionary one:
Section 115
provides that the Court may either refuse the application
or may order rectification of the register . . . .
“
When
the Court entertains the application it is bound to go into all the
circumstances of the case, and to consider what equity
the applicant
has to call for its interposition.’’
Halsbury
[
Laws
of England
4
ed vol 7 art 308].
’
19
On
behalf of the respondents, it was contended that the discretion
vested in the court by
s 115
is a ‘discretion in the narrow or
strict sense’ and that an appellate court can only interfere
in the exercise of
such discretion in limited circumstances; for
example, if it is shown that the court a quo has misdirected itself
by taking irrelevant
considerations into account; that it has
exercised its discretion for no substantial reason; that the
discretion was not exercised
judicially or was exercised based on a
wrong appreciation of the facts or wrong principles of law.
20
Counsel for the
appellants disagreed, submitting that the discretion is one in ‘the
broad sense’ and that this court’s
powers of
interference are not limited in this way.
The
distinction between the two categories of discretionary power was
drawn by EM Grosskopf JA in
Media
Workers Association of South Africa & others v Press Corporation
of South Africa (‘Perskor’)
21
and
Knox
D’Arcy Ltd & others v Jamieson & others.
22
The essence of ‘a
discretion in the narrow or strict sense’ involves a choice
between two or more different, but equally
permissible alternatives,
while ‘a discretion in the broad sense’ means no more
than a power to have regard to a
number of disparate and
incommensurable features in arriving at a conclusion. It is only
when the court exercises a discretion
in the narrow or strict sense
that an appeal court’s powers of interference are said to be
limited. With regard to the
exercise of a discretion in the broad
sense, there is no reason why the powers of an appeal court should
be so restricted. Since
these matters can be determined equally
appropriately by an appeal court, the latter may substitute its own
discretion for that
of the trial court if it differs from such court
on the merits and may make the order which it deems just.
23
As indicated above,
24
the court’s
jurisdiction under s 115 of the Act has been described as unlimited
and the exercise of its discretion based
on what equity requires. So
too, in
Botha
v Fick,
25
Howie JA stated that –
‘
Die
Hof het ’n wye diskresie by ’n aansoek ingevolge hierdie
artikel [s 115] om toe te sien dat billikheid en geregtigheid
geskied.
26
En
dit is “to make it reflect the state of affairs which the
appellant is entitled to claim that it ought to reflect”
(
Orr
NO and Others v Hill
1929
TPD 885
te 892) en, soos dit in die saak van
In
re The Contributories of the Rosemount Gold Mining Syndicate in
Liquidation
1905
TH 169
te 188 gestel is,
“
to
fix with the obligations of membership those persons and those
persons only upon whom such obligations should justly and equitably
rest”.’
In
determining whether to grant or refuse an application for
rectification, the court makes a judgment in the light of all the
relevant considerations. As with s 344
(h)
of the Act, which
provides that ‘[a] company may be wound up by the Court if –
(h)
it
appears to the Court that it is just and equitable that the company
should be wound up’, there is nothing about the power
conferred by s
115
of the Act which results in the court of first instance having any
special advantage that would enable it to exercise the
power any
more appropriately than a court of appeal. The power is one that the
court of appeal is in as good a position as the
court of first
instance to exercise.
27
That being so, and
bearing in mind the equitable nature of the court’s discretion
in terms of s
115,
this discretion can rightfully be described as a discretion in the
broad sense. This court is therefore empowered to re-examine
all the
relevant material and, if satisfied that the discretion has not been
appropriately exercised, to substitute its own opinion
for that of
the court of first instance. It is not necessary to show that the
exercise of its discretion by the court below was
flawed in one of
the respects mentioned in para 38 above.
In declining to rectify
the company’s register of members, Koen AJ relied almost
exclusively on what he perceived to be
the undue delay by the
appellants in bringing the application in terms of s 115.
28
He relied in this regard
on
Verrin
Trust & Finance Corporation (Pty) Ltd v Zeeland House (Pty) Ltd
& others,
29
in which Corbett J
stated the following –
‘
The
jurisdiction which the court exercises under sec 36 [the equivalent
of s 115] is a discretionary one and an applicant under
the section
is not entitled to an order
ex
debito justitiae
. . . [T]he English Courts have held that an application for
rectification must be made promptly and that undue delay may deprive
an applicant of his remedy . . . This rule was adopted by
Vieyra, J in
Pretorius
and Another v Natal South Sea Investment Trust Ltd (under judicial
management)
,
1965 (3) SA 410
(W) at pp. 420-2).’
While
delay is of course one of the factors to be taken into
consideration, there are other aspects of this case that bear
emphasis.
The respondents’ complaint was that the remaining
shareholders had carried the risk of total failure of the Vangate
Mall
project whilst neither the deceased nor the executors of his
estate carried any risk by making a contribution towards the deposit
which was payable by the company to the Cape Town City Council for
the acquisition of the development land, or to the later amounts
required to be raised from the shareholders. It is clear from the
‘auditor’s valuation’ that the deposit was
indeed
funded by shareholders’ loans. Although it is common cause
that the deceased did not contribute towards this deposit,
there was
nothing in the papers to indicate what had been done to call for
this deposit (eg a shareholders’ resolution
or the like). Nor
was there any clarity about the basis of calculation of each
shareholder’s initial monetary contribution,
more particularly
why the deceased’s asserted contribution appeared to be
significantly smaller than that of the other
shareholders.
As
regards the later amounts called for from the deceased estate, it
has already been stated
30
that, because of the
intervention of Zenprop and thereafter Barclays Bank, it would
appear that the other shareholders did
not
in
fact make monetary contributions towards the payment of the balance
of the purchase price of the land. And, while the other
shareholders
apparently stood surety in favour of Barclays Bank to the tune of R2
million each, there is nothing to show that
the deceased estate
(even if it
was
represented by executors
at the relevant time) was ever called upon to furnish a suretyship.
This notwithstanding, in an attempt
to justify the ‘taking up’
of the deceased’s shares by the remaining shareholders (and
the two resolutions
passed in this regard),
31
the respondents alleged
that –
‘
It
was necessary to take these steps to give effect to the terms of the
deed of sale which the first respondent had with the City
of Cape
Town. The estate could not co-operate because there was at that time
no executor . . . at any rate the estate was not in
a position to
make any contribution at all; and the beneficiaries in terms of the
will of the deceased could not make the required
contribution to the
purchase price of the land which had to be paid to the City of Cape
Town at that time. As shown previously,
they were in a state of war
with one another. The fact that the deceased estate could not
co-operate to keep the project on track,
surely also meant that it
would and could not stand surety in favour of Barclays Bank which
financed the development. It was therefore
crucial that the remaining
members had to take up the shares of the deceased in terms of the
shareholders’ agreement.’
It
was never the respondents’ case that some form of sanction
existed whereby a shareholder could be forced to forfeit his
shares
or involuntarily transfer them if he or she failed to contribute
loan account capital or was unable to stand surety for
the company.
In any event, self-help is not countenanced in our law. As pointed
out above, the reliance on the draft shareholders’
agreement
as a valid and binding document was later abandoned by the
respondents. In view hereof, both the shareholders’
resolution
of 16 September 2004, which relied on the shareholders’
agreement, and the directors’ resolution of 20
September 2004,
which purportedly gave effect to the shareholders’ resolution,
were invalid and ineffective.
Another
important point is that the ‘valuation’ at which the
remaining shareholders purported to acquire the disputed
shares was
(even on the basis of the unsigned shareholders’ agreement)
not a proper valuation. Although dated 10 September
2004, it valued
the shares at the date of death of the deceased (21 October 2002),
viz at a time when the company was technically
insolvent and the
development project ‘was to all intents and purposes dead in
the water’. Because the cheque in
respect of the deceased’s
loan account and the value of his shares, with interest, was
returned to the company’s
attorneys, the ‘expropriation’
of the deceased shares took place without any compensation.
The
deceased was one of the founding members of the company and was
described as the ‘pioneer’ of the development
at the
‘turning of the soil’ ceremony in 2004. Apart from the
letters to Ms Parker dated 6 May 2004 and 23 June 2004,
32
the deceased estate was
not given any prior notice of the purported transfer of shares from
the deceased estate to the remaining
shareholders. In fact, at the
time of passing of the two resolutions in September 2004, the
deceased estate was unrepresented
as the position of executor was
vacant, and hence no notice of the relevant meetings
could
have been given to the
deceased estate.
The
remaining shareholders thereafter received various indications that
the executors of the deceased estate wished to retain
the estate’s
shareholding in the company. When Messrs Holt and Kajee were
appointed as executors on 28 September 2004,
they were confronted
with a
fait
accompli
,
namely the deprivation of the shareholding of the estate. However,
on 20 October 2004, Mr Holt wrote to the attorneys acting
for the
company, stating that ‘the heirs want to retain their shares
in’ the company. Instead of this alerting the
remaining
shareholders to potential problems with the purported share
transfer, their attorney responded by stating simply that
the
deceased was not a shareholder in the company. The same applies to
the return of the abovementioned cheque by the executors
to the
company’s attorneys.
33
If the remaining members
had taken the trouble to properly investigate the position of the
second set of executors, they would
have had ample opportunity to
reverse the 2004 decisions, taken in the absence of representation
on the part of the estate, before
the end of 2004. This was when the
balance of the purchase price was apparently due, some three months
after the appointment
of the second set of executors.
It
is true that the executors of the deceased estate took no further
action in respect of the share transfers until the appointment
of
the third set of executors on 12 December 2008. This delay was the
main reason why the high court refused the application
for
rectification. However, when weighed up against the manner in which
the remaining shareholders purported to transfer the
deceased’s
shares to themselves and the other considerations set out above, I
am of the view that justice and equity demand
that the register of
members be rectified in the manner required by the appellants. What
the deceased’s true entitlement
is in respect of his restored
shareholding is not a matter which we have to decide. So too, we do
not have to deal with questions
such as whether there were other
company liabilities that had been borne by shareholders and the
effect of accumulated losses
over a sustained period vis-à-vis
final profits.
The
relief claimed in para 3 of the notice of motion seeks to direct the
‘First to Ninth and Thirtieth Respondents’
to rectify
the company’s register of members with effect from 16 August
2004. Even though the respondents indicated that
this date was a
mistake as the relevant directors’ resolution was taken only
on 20 September 2004, the date of the transfers
as reflected in the
register of members is 16 August 2004 and it is these and subsequent
entries which need to be rectified.
It is therefore the latter date
which should appear in the order made by this court. Moreover, it
should be the company (the
first respondent) that is directed to
rectify the register, not also the second to ninth and thirtieth
respondents who, it would
seem, are themselves no longer registered
as members.
As
regards costs, counsel for the respondents contended that, as the
appellants had limited the relief sought by them only during
the
hearing before this court, this should, were the appellants to
succeed, have an effect on the costs order. Counsel pointed
out that
the relief originally sought was very far-reaching and also involved
the question of title to the disputed shares as
well as
comprehensive consequential relief. This may well be so, but the
respondents’ arguments were based on the premise
that
‘ownership’ of the shares passed when the deceased’s
shares were ‘taken up’ by the remaining
shareholders and
that the appellants’ right to recover the shares had
prescribed. Counsel for the respondents submitted
in their heads of
argument that the question of title to the shares is interlinked
with the question of whether the register
should be rectified and
that this court should find that the claim for rectification had
fallen away as the claim for the shares
had clearly prescribed. Both
these aspects have been dealt with in this judgment. This being so,
I see no virtue in making only
a partial costs order in favour of
the appellants.
The following order is
therefore made:
The appeal succeeds
with costs, including the costs of two counsel.
The order of the high
court is set aside and substituted with the following:
‘
(a)
The first respondent is directed to rectify its register of members –
(i) by deleting the
transfers of shares registered on 16 August 2004 from Cassiem Ebrahim
Gaffoor to the second to fifth respondents,
the seventh to ninth
respondents and Mr Rauf Khan, and all subsequent transfers of those
shares to other persons or entities; and
(ii) by registering the
deceased estate of the late Cassiem Ebrahim Gaffoor, as represented
by the applicants in their capacity
as executors, as shareholder in
respect of 444 and one-ninth of four shares in the first respondent
with effect from 16 August
2004.
(b) The first to fifth
respondents, the seventh to ninth respondents, the sixth, eighteenth
and nineteenth respondents in their
capacity as executors of the
estate late Rauf Khan and the thirtieth respondent are ordered to pay
the costs of the application,
including the costs of two counsel,
jointly and severally, the one paying the other to be absolved.’
______________________
b j van heerden
JUDGE OF APPEAL
appearances:
appellantS: L KUSCHKE SC
Instructed by Shepstone &
Wylie Attorneys, Cape Town
Honey and Partners Inc,
Bloemfontein
respondeNTS: Z F JOUBERT
SC (with him m verster)
Instructed by M Z Barday
& Associates, Athlone
Hill McHardy & Herbst
Inc, Bloemfontein
1
Followed
by a shareholders’ and then by a directors’ resolution.
2
Mr
Khan is now deceased and his estate is represented in these
proceedings by the sixth, eighteenth and nineteenth respondents.
3
The
appellants in fact alleged in their replying affidavit that Ms
Parker had been specifically authorised by the executors to
represent them in meeting with Messrs Murudker and Sonday.
4
MK
Attorneys, the sole proprietor of which is the thirtieth respondent.
5
According
to the respondents, the date of the transfers was incorrectly
reflected in the register of members and that the transfers
actually
took place only on 20 September 2004. As will be seen below, the
relevant directors’ resolution was only taken
on 20 September.
6
There
is some uncertainty as to the date on which the last-mentioned
transfers took place, but this is not relevant for the purposes
of
this appeal.
7
R18 990
in respect of the deceased’s loan account and R444 in respect
of his shares.
8
J
A Kunst, P Delport & Q Vorster (eds)
Henochsberg on the
Companies Act
5ed (1994, with loose-leaf updates) Volume 1
Service Issue 25 at 222-222(1). As the high court did not regard
this issue as being
decisive of the matter, it did not deal with it
any further.
9
See
para 24 above.
10
The
full text of which is set out in para 27 above.
11
Section
11
(d)
of the
Prescription Act.
12
By
which date, at the latest, the appellants had knowledge of the
identity of the debtor and the facts from which the debt arose,
or
could have acquired such knowledge by the exercise of reasonable
care, as required by
s 12(3)
of the
Prescription Act.
13
Botha
v Fick
[1994] ZASCA 184
;
1995 (2) SA 750
(A) at 778G-779B.
14
‘
1.
Mere consensus is sufficient to constitute cession. 2. Cession takes
place by mean of a transfer agreement which will coincide
with, or
be preceded by, a
justa
causa
. The
justa
causa
can be an
obligationary agreement.’ (My translation.) See also
Jeffrey
v Pollak and Freemantle
1938
AD 1
at 22.
15
As
indicated above, the first set of executors was removed from office
on 2 June 2004 and the second set of executors only appointed
on 28
September 2004.
16
See
Kalil v Decotex (Pty) Ltd & another
1988 (1) SA 943
(A)
at 970H-971A.
17
Based
on the views expressed in
Henochsberg on the Companies Act
above
fn 8 at 222-222(1).
18
Henochsberg
on the Companies Act
above fn 8 Service Issue 33 at 220(1).
19
Bauermeister
v CC Bauermeister (Pty) Ltd
1981 (1) SA 274
(W) at 277F-H.
20
Giddey
NO v JC Barnard and Partners
[2006] ZACC 13
;
2007 (5) SA 525
(CC) para 19;
MTN
Service Provider (Pty) Ltd v Afro Call (Pty) Ltd
2007 (6) SA 620
(SCA) paras 9-10. See also
Ex Parte Neethling & others
1951
(4) SA 331
(A) at 335D-E.
21
Media
Workers Association of South Africa & others v Press Corporation
of South Africa (‘Perskor’)
[1992] ZASCA 149
;
1992 (4) SA 791
(A) at
796H-I and 800C-J.
22
Knox
D’Arcy Ltd & others v Jamieson & others
[1996] ZASCA 58
;
1996 (4)
SA 348
(A) at 361G-I.
23
See
also
Bezuidenhout v Bezuidenhout
2005 (2) SA 187
(SCA) paras
16-17.
24
Para
37.
25
Footnote
13, at 780C-D.
26
‘
The
Court has a wide discretion in an application in terms of this
section to ensure that fairness and justice prevail.’
(My
translation.)
27
Mahomed
v Kazi’s Agencies (Pty) Ltd & others
1949 (1) SA 1162
(N) at 1167-1169;
Tjospomie Boerdery (Pty) Ltd v Drakensberg
Botteliers (Pty) Ltd
1989 (4) SA 31
(T) at 40A-41B and 44D-45B.
See also
mv Achilleus v Thai United Insurance Co Ltd & others
1992 (1) SA 324
(N) at 335C-D.
28
See
paras 28-29 above.
29
Verrin
Trust & Finance Corporation (Pty) Ltd v Zeeland House (Pty) Ltd
& others
1973 (4) SA 1
(C) at 10C-H.
30
See
para 12 above.
31
See
para 14 above.
32
See
paras 10-11 above.
33
See
paras 18 and 46 above.