Aberdeen International Incorporated v Simmer and Jack Mines Ltd (273/09) [2010] ZASCA 24 (25 March 2010)

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[2010] ZASCA 24
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Aberdeen International Incorporated v Simmer and Jack Mines Ltd (273/09) [2010] ZASCA 24 (25 March 2010)

THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Case No:
273/09
ABERDEEN
INTERNATIONAL INCORPORATED
Appellant
and
SIMMER
AND JACK MINES LTD
Respondent
Neutral
citation
:
Aberdeen
International Incorporated v Simmer and Jack Mines
(273/09)
[2010] ZASCA 24
(25 March 2010)
Coram:
NUGENT,
HEHER, VAN HEERDEN, MHLANTLA AND TSHIQI
JJA
Heard:
23
February 2010
Delivered:
25
March 2010
Updated:
Summary:
Contract
- Approach to interpretation of an ambiguous clause – reliance on
factual matrix - term ‘financing’ in the relevant
clause of a
loan agreement excludes equity financing.
____________________________________________________________________________________
ORDER
On
appeal from:
North Gauteng High Court (Pretoria) (Ellis AJ sitting as court of
first instance).
The
appeal is dismissed with costs including the costs of two counsel
.
JUDGMENT
___________________________
__________________________________________
TSHIQI
JA (NUGENT, HEHER, VAN HEERDEN AND MHLANTLA JJA concurring):
[1] The
appellant, Aberdeen International Incorporated (Aberdeen), is a
Canadian based company whose business entails provision of
financing
to companies in the resources industry. The respondent, Simmer and
Jack Mines Ltd (Simmer), is a South African based company
conducting
gold mining operations in the country. This appeal relates to the
interpretation of clause 2.11 of the amended version
of a loan
agreement that was concluded between Simmer and Aberdeen on 6
November 2006. The controversial clause 2.11 reads:
‘
Additional
Consideration.
As
additional consideration for the Facility, the Borrower agrees to
grant the Lender a right of first refusal for the financing of
all of
the Borrower’s properties until the Final Repayment Date, excluding
. . .
Subject
to the aforementioned exclusions, in the event the Borrower seeks
financing for its properties and obtains financing terms
from a third
party before the Final Repayment Date, the Borrower shall present
such terms to the Lender and the Lender shall have
a period of 60
(sixty) days to agree to match such terms to provide financing to the
Borrower.’
[2] Aberdeen
launched an application in the Pretoria High Court for an order
declaring that Simmer had acted in breach of the clause
and for
further ancillary relief. At issue was whether the provision for a
right of first refusal for the financing of all Simmer’s
properties
contained in that clause was intended by the parties to include an
issue of shares for cash. The Court below concluded
that it was not.
Aberdeen now appeals to this Court with leave of the court below.
[3] The
background leading to the conclusion of the agreement may be
summarised as follows: During 2005 the parties entered into
negotiations
for the financing by Aberdeen of two gold mines which
Simmer intended purchasing. This culminated in a loan agreement that
was signed
on 30 March 2006. On 6 November 2006 the agreement was
amended for purposes not related to the present dispute and that is
the agreement
that is now in issue. Subsequent to the conclusion of
the agreement in 2006, Simmer issued shares for cash in order to
raise additional
capital on six occasions. No objection was raised by
Aberdeen. The reason advanced for this failure by Aberdeen is that
they were
not aware of these previous issues. In June 2007 Simmer
again initiated a private share placement for cash to raise funding
for further
exploratory and development work to be conducted in the
mines. It is this placement that led to the present dispute.
[4] It
is the use of the term ‘financing’ in clause 2.11 that is the
source of this controversy. Aberdeen contends that the term
‘financing’ should not be restricted to loan financing because it
includes equity financing such as the issue of shares by Simmer,
and
further contends that Aberdeen was consequently entitled to a right
of first refusal in regard to these shares. Simmer contends
that the
term only refers to loan financing and not equity financing, and that
it was therefore not obliged to offer the shares to
Aberdeen before
it accepted the offers from successful subscribers.
[5] It
is trite that the correct approach in interpretation of an ambiguous
term is to refer to its context or factual matrix.
1
Counsel for Aberdeen submitted that, in interpreting the clause, no
reliance should be placed on the Johannesburg Stock Exchange
Listing
Requirements nor the Black Economic Empowerment Requirements imposed
by the Department of Minerals and Energy because these
may not have
been within the knowledge of Aberdeen, a Canadian based company. This
submission has no merit. The agreement expressly
stipulates that it
will be governed by the laws of the Republic of South Africa and
subjects the parties to the jurisdiction of the
courts in this
country. Moreover clause 3(1)(c) of the agreement contains a warranty
to the effect that:
‘
The
execution, delivery and performance by the Borrower [Simmer] of the
documents to which it is a party and the consummation of the
transactions contemplated therein do not conflict with, result in
any
breach or violation of, or constitute a default under the terms,
conditions or provisions of the articles or by-laws of, or any
unanimous shareholder agreement or declaration relating to the
Borrower or
of any
Applicable Law binding on or applicable to the Borrower
.’
(Emphasis added.)
The definition of ‘Applicable
Law’ in terms of clause 1.1 of the agreement clearly includes the
JSE Listing Requirements and
all other relevant regulatory rules such
as the abovementioned Black Economic Empowerment requirements. The
specific reference to
South African law shows that the parties
intended to be bound by South African law and the JSE Listing
Requirements and other regulatory
rules must indeed be considered as
part of the factual matrix within which clause 2.11 must be
interpreted.
[6] The
agreement between the parties was a loan agreement and the clause
should be interpreted in that context. The right of first
refusal
contemplated in the clause means that Simmer would present to
Aberdeen whatever loan financing terms it had been offered
by a third
party or third parties before accepting them. Aberdeen would in turn
have 60 days to consider whether they were willing
to match the terms
of the third party. The main problem with the interpretation
contended for by Aberdeen is that equity financing
operates in a
converse manner. Loan financing envisages that, should it seek
additional finance, Simmer would approach a third party
who would
propose terms of a new loan agreement. The final decision to grant
the loan would be made by the third party which would
probably
prescribe most of the terms. Equity financing on the other hand,
envisages that Simmer would issue its own shares, with
the authority
of its shareholders, several interested investors would apply and
there would be no financing terms applicable because
the shares would
be issued for cash. The final decision to whom the shares are
allocated and the conditions would be determined by
Simmer without
having to negotiate with any single third party.
[7] The
language used by the parties is a clear indicator that the parties
envisaged a loan agreement. Clause 7 of the first letter
of intent
dated 22 July 2005 addressed by Aberdeen to Simmer provides that
‘Simmer and Jack would grant Aberdeen a right of first
refusal . .
. such that Aberdeen would be able to enter into a similar agreement
with Simmer and Jack.’ The use of the words ‘similar
agreement’
shows that the parties contemplated a loan agreement.
[8] Clause
2.10 of the agreement provides for the conversion of existing loan
liability into shares ‘subject to the approval of
the shareholders
of the Borrower’. It can be inferred from the provisions of this
clause that the parties were mindful of the
requirement of
shareholder approval for any issue of shares and specifically
included that proviso in this clause. If it was their
intention that
‘financing’ would also include equity financing they would have
specifically stated so in Clause 2.11 as well.
[9] Any
contrary interpretation of this term would be unworkable in view of
the following further consequences that would flow from
such an
interpretation, which could not have been intended.
[10] The
extension of this clause to include funding by means of share capital
would mean that Aberdeen is given a preferential right
to acquire the
shares before the shareholders are able to exercise this option.
Apart from the fact that this undermines one of the
fundamental
rights usually reserved for shareholders, it deprives them of the
right to decide the conditions applicable to the allocation
of such
shares. Aberdeen would have a preferential right to that of the
shareholders and would be at liberty to acquire the shares
before the
shareholders are able to exercise this option. The practical effect
of this is that the shareholding of Simmer would inevitably
be
diluted. Such dilution would occur beyond the control of the
shareholders because if they made a contrary decision in a general
meeting, they would be acting contrary to the terms of the agreement
concluded on their behalf by the directors of the company. It
is
unlikely that the directors would have agreed to restrict the
shareholders’ rights at the behest of a creditor, without having
sought an agreement by the shareholders at a general meeting.
[11] It
was not disputed that Simmer was bound to comply with Black Economic
Empowerment (BEE) requirements. The dilution caused by
a preferential
issuing of shares to Aberdeen would lower the BEE shareholding below
the minimum requirements stipulated by the Department
of Minerals and
Energy. This in turn would jeopardise the mining rights of Simmer,
the acquisition of which was premised on a minimum
BEE shareholding.
That this was a major concern is evident from the fact that this
disputed private share placement was heavily oversubscribed
and the
allocation had to be made in such a manner that non-BEE subscribers
were allocated 7% of their request and the BEE subscribers
90% of
their requests to ensure that the BEE shareholding remained above
26%.
[12]
Various listing requirements place limitations on the issue of shares
for cash. Any issue of shares for cash would have to comply
with the
listing requirements of the Johannesburg Stock Exchange, which the
JSE exercises in terms of the
Securities Services Act 36 of 2004
.
Section 5.52(d)
of the JSE listing requirements provides:
‘
The
maximum discount at which equity securities may be issued is 10% of
the weighted average traded price of such equity securities
measured
over the 30 business days prior to the date that the price of the
issue is determined or agreed by the directors of the
issuer. The JSE
should be consulted for a ruling if the applicant’s securities have
not traded in such 30 business day period.’
The
60 day period given to the applicant to exercise its right of first
refusal would render
section 5.52(d)
ineffective because an
acceptance later than the 30 day period, even if within the 60 day
grace period given to Aberdeen, would be
contrary to the provisions
of this section and would require approval by the JSE. If the parties
intended to deviate from this listing
requirement, they would have
specifically provided for this in the agreement. This is so because
the stipulated 30 day period is
to prevent manipulation of the share
market and to safeguard the interests of existing shareholders. It is
unlikely that the JSE
would readily grant such approval.
[13] It
follows from the above that clause 2.11, seen in context and with
regard to the relevant ‘factual matrix’ does not apply
to equity
financing but to loan financing. Simmer therefore did not breach
clause 2.11 and the appeal must fail. I make the following
order:
The
appeal is dismissed with costs including the costs of two counsel.
____________________
Z
L L TSHIQI
JUDGE
OF APPEAL
A
ppearances:
APPELLANT
: B
H Swart SC (with him K W Lüderitz)
Instructed
by Couzyn Hertzog & Horak, Pretoria;
Schoeman
Maree Attorneys, Bloemfontein
RESPONDENT
: W
Trengove SC (with him W la Grange)
Instructed
by Routledge Modise Attorneys, c/o Jacobson & Levy Inc, Pretoria;
Honey
Attorneys, Bloemfontein
1
KPMG Chartered Accountants (SA) v Securefin Ltd & another
2009 (4) SA 399
SCA.