Simcha Properties 6 CC v San Marcus Properties (Pty) Ltd (256/09) [2010] ZASCA 54; [2011] 1 All SA 287 (SCA) (31 March 2010)

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[2010] ZASCA 54
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Simcha Properties 6 CC v San Marcus Properties (Pty) Ltd (256/09) [2010] ZASCA 54; [2011] 1 All SA 287 (SCA) (31 March 2010)

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THE
SUPREME COURT OF APPEAL
OF SOUTH AFRICA
JUDGMENT
Case
No: 256/09
In the
matter between:
SIMCHA
PROPERTIES 6 CC
APPELLANT
v
SAN
MARCUS PROPERTIES (PTY) LTD
RESPONDENT
Neutral citation:
Simcha
Properties v San Marcus Properties
(256/2009)
[2010] ZASCA 54
(31 March
2010).
Coram:
Lewis
and Mlambo JJA,and Hurt, Griesel and Seriti AJJA
Heard: 4
March 2010
Delivered: 31
March 2010
Summary:
Company Law – s
228 of the Companies Act – director’s authorisation by sole
shareholder to dispose of the company’s sole
asset.
________________________________________________________________
ORDER
________________________________________________________________
On appeal from:
South
Gauteng High Court, Johannesburg (Swart AJ sitting as court of first
instance).
The following order is made:
The appeal is dismissed with costs including the costs
of two counsel.
________________________________________________________________
JUDGMENT
________________________________________________________________
MLAMBO
JA
(Lewis JA, Griesel and Seriti AJJA
concurring)
[1] The respondent obtained an order in the South
Gauteng High Court (Swart AJ) in terms of which the appellant was
ordered to comply
with its obligations under an agreement concluded
between the parties. The appeal is with the leave of that court and
the issue is
the ambit of the authority of a director, for the
purpose of s 228 of the Companies Act 61 of 1973, to conclude a
transaction disposing
of the sole asset of a company.
[2] On 11
September
2007 the appellant and the respondent concluded a written agreement
in terms of which the appellant purchased from the respondent
certain
immovable property, described as portion 60 of the farm Blue Hills
measuring 8.5653 ha held by deed of transfer no T204051/1972,
for the
purchase price of R12 677 517. The property was the respondent’s
sole asset. The respondent was represented in concluding
the
agreement by its sole director, Davis Marcus Harris (Harris).
[3] The transaction was initially intended to be
concluded with a company called Dynadeals Three (Pty) Ltd
(Dynadeals). In further
discussions with Harris, it was agreed that
the appellant, which had an association with Dynadeals, be
substituted as the purchaser
and that Dynadeals be the surety and
co-principal debtor for the appellant’s obligations.
[4] The sale was subject to a suspensive condition that
a final arbitration award, not subject to any appeal or appeal award,
be obtained
confirming the respondent’s entitlement to cancel an
earlier sale agreement of the same property concluded between it and
a company
called JFS Properties No 10 (Pty) Limited (JFS). The
parties agreed that in the event that the suspensive condition was
not fulfilled
or waived by 31 October 2007 or such later date as the
parties could agree in writing prior to that date, the agreement
would automatically
lapse and would be of no further force and
effect. One of the issues in the arbitration proceedings was the
respondent’s entitlement
to resile from the earlier agreement of
sale concluded with JFS on the basis that Harris had not been
properly authorised to conclude
that transaction. It was the
respondent’s contention in those proceedings that the agreement
with JFS was invalid for lack of compliance
with the provisions of s
228 as Harris had lacked the requisite authority in terms of the
section to conclude the transaction concerned.
[5] The suspensive condition was not fulfilled on 31
October 2007 with the consequence that the agreement lapsed. The
parties, however,
concluded another agreement on 27 November 2007,
reinstating the original agreement concluded in September. The new
agreement included
an amendment altering the date by which the
suspensive condition had to be fulfilled from 31 October 2007 to 31
January 2008. Harris
again represented the respondent when concluding
that agreement. I refer to these agreements as the September and
reinstatement agreements
respectively. It is Harris’ authority to
conclude the reinstatement agreement that is the subject of this
appeal.
[6] On 15 December 2007 the suspensive condition was
fulfilled when a final arbitration award was published, confirming
the respondent’s
entitlement to cancel the sale agreement concluded
with JFS. No appeal against the arbitration award was made within the
five business
days provided for in the arbitration agreement and this
rendered the September agreement, as reinstated, unconditional and of
full
force and effect.
[7] Despite the fulfilment of the suspensive condition
the appellant failed to comply with its obligations in terms of the
agreement.
The appellant’s breach persisted despite a demand by the
respondent for compliance. This led the respondent to launch motion
proceedings
in the South Gauteng High Court seeking to enforce the
agreement against the appellant and Dynadeals. In these proceedings
the appellant
contended that it was entitled to resile from the
agreement as Harris was not properly authorised in terms of s 228 to
conclude the
reinstatement agreement on behalf of the respondent.
[8] The appellant’s counsel’s argument on appeal was
on two bases. In the first place it was argued that the reinstatement
agreement
was not properly authorised. In this regard appellant’s
counsel argued that when the September agreement lapsed a new and
specific
authorisation was required for the reinstatement agreement
to comply with s 228. The second basis is that when the reinstatement
agreement was formally ratified by Monica Harris almost a year later,
in 2008, s 228 had been amended (the amendment took effect
in
December 2007) and at that stage a special resolution of the company,
duly registered, was required for the ratification to be
effective.
It was common cause that no special resolution had been taken or
registered.
[9] In essence the enquiry on the first basis of the
appellant’s argument must therefore focus on whether the
reinstatement agreement
was properly authorised. This requires that
attention be given to s 228 as it applied when the September
agreement was concluded.
The section provided:
‘
(1) Notwithstanding anything
contained in its memorandum or articles, the directors of a company
shall not have the power, save with
the approval of a general meeting
of the company, to dispose of –
(a) the whole or substantially
the whole of the undertaking of the company; or
(b) the whole or the greater
part of the assets of the company.
(2) No resolution of the company
approving any such disposal shall have effect unless it authorises or
ratifies in terms the specific
transaction.’
[10] The authorisation relied on by the respondent is in
the form of a resolution signed by Monica Harris on 29 June 2007.
Monica
Harris is the sole shareholder of the respondent and is
Harris’s mother. The resolution reads:
‘
RESOLUTION PASSED BY THE
COMPANY
IN TERMS OF SECTION 228 OF THE
COMPANIES ACT
NO 61 OF 1973 AT SANDTON
ON 29 JUNE 2007
RESOLUTION THAT –
1. the Company dispose of its
property, Portion 60 of the Farm Blue Hills 397, J.R, Province of
Gauteng, measuring 8,563 hectares,
held by the Company under Deed of
Transfer No 204051/1972, to Dynadeals Three (Proprietary) Limited
(Registration No 1999/27597/07)
in terms of a sale agreement which
will be concluded between the Company and Dynadeals Three
(Proprietary) Limited; and
2.
David
Marcus Harris is hereby authorised to conclude the abovementioned
sale agreement on behalf of the company and to sign all such
documents and do all such acts and things as may have be required to
give effect to Resolution No. 1 above.’
[11] The respondent also relies on a subsequent
resolution signed by Monica Harris on 3 October 2007 in which it was
recorded that:
‘
1. The signature of the
Agreement by David Marcus Harris as director of the Company on 11
September 2007 be and hereby is ratified;
and
2. David Marcus Harris be, and
hereby is, authorized to sign all such documents and do all such
things as may be necessary to give
effect to the Agreement.’
[12] Section 228 is clear in its terms that when a
company wishes to dispose of all its assets or a major part thereof
the transaction
by which this objective is to be achieved requires
the authorisation to be expressed by the shareholders. In a
one-shareholder company,
as we have here, it is that shareholder’s
explicit expression of her authorisation, being her will regarding
the transaction concerned,
that will suffice for the transaction to
comply with s 228.
[13] The court a quo, in rejecting the appellant’s
argument, reasoned that Harris was properly authorised to conclude
both agreements,
in view of the application of the principle of
unanimous assent. In this regard the court found that the resolution
signed on 3 October
2007 empowered Harris to dispose of the property
in terms of the September 2007 agreement. That court further found
that the fact
that that agreement had lapsed and then been reinstated
in November was irrelevant. In this regard the court found that until
the
authority bestowed on Harris in terms of the resolution of 3
October 2007 was revoked, Harris was and remained authorised to
dispose
of the property in terms of the September 2007 agreement. The
court found that that was exactly what the reinstatement agreement
sought to achieve.
[14] The reasoning of the court a quo, and the
authorities there cited,
1
cannot be faulted. The appellant’s argument loses sight of the fact
that on a formal level Harris was properly authorised in two
important respects. In this regard the earlier resolution authorised
him in the first place to conclude the transaction on behalf
of the
respondent, ie the sale per se, and in the second place to sign ‘all
such documents and do all such acts and things as may
be required to
give effect’ to that transaction. In so far as the reinstatement
agreement is concerned that too fell under the
ambit of the earlier
formal authorisation as Harris was empowered to sign all documents
necessary to give effect to the sale. This
effectively rendered
irrelevant the lapsing of the September 2007 agreement.
[15] The resolutions signed by Monica Harris in June and
October 2007 represent her explicit expression of will that as the
sole shareholder
she gave Harris the authority, to conclude the sale
transaction and to sign all and any documents necessary to give
effect to that
transaction.
[16] The argument suggesting that new and specific
authorisation for the reinstatement agreement was required loses
sight of the fact
that that agreement did not introduce a new
transaction. It was the same transaction that Harris had authority to
conclude and that
agreement became necessary when the September
agreement lapsed due to the non-fulfilment of the suspensive
condition. There is nothing
to displace the clear foresight implicit
in the earlier authorisation to cover future circumstances requiring
attention ‘to give
effect’ to the resolution disposing of the
property. The authorisation of 3 October was, in my view, not
necessary, but it put
the issue beyond doubt in terms of Harris’s
authority to sign the September agreement, by ratifying his signature
thereon, as well
as authorising him to sign all other necessary
documents to give effect to the transaction.
[17] That Monica Harris was clear in her intent is borne
out by her experience in the arbitration proceedings. She was clearly
aware
of the ambit of the authority she had to bestow on Harris for
the transaction to be concluded successfully. The resolutions she
signed
evince this awareness and were clearly compliant with s 228.
[18] This conclusion effectively disposes of the
appellant’s argument on the first issue and inevitably determines
the outcome of
the appeal. The second leg of the appellant’s
argument about an enquiry regarding the need for a special resolution
in terms of
the amended s 228 need therefore not be undertaken.
[19] The following order is under the circumstances
granted:
The appeal is dismissed with costs including the costs
of two counsel.
_________________
D MLAMBO
JUDGE OF APPEAL
Hurt AJA (Lewis JA, Griesel and Seriti AJJA concurring):
[20] I have read the judgment of my colleague Mlambo JA.
I agree with the result but write separately in order to expand upon
the
issues. Two questions arise for decision. The first is whether
the contract was invalid for want of proper authorisation of the
person
who concluded the contract on behalf of the respondent. The
second is whether, at the material times, the respondent had acted in
conformity with the current provisions of s 228 of the Companies Act
61 of 1973.
[21] As its name indicates, the respondent is a
property-owning company. In fact its sole asset is an immovable
property in Midrand,
to which I shall refer simply as ‘the
property’. The sole shareholder in the respondent is Ms Monica
Harris and her son, Mr David
Marcus Harris (‘Harris’), is the
sole director.
The History
[22] In July 2004, Harris, purporting to represent the
respondent, concluded a contract for the sale of the property to JFS
Properties
No 10 (Pty) Ltd. Disputes arose between JFS Properties and
the respondent as to the validity of the contract, the respondent
contending
that it was not bound by the contract and JFS claiming to
be entitled to enforce it. In the first half of 2007 these disputes
were
referred to arbitration. In June 2007, while the arbitration was
still pending, Harris negotiated the sale of the property to a
company
called Dynadeals Three (Pty) Ltd. On 29 June, Ms Harris, in
her capacity as the sole shareholder in the respondent, signed a
document
headed ‘Resolution Passed by the Company in Terms of
Section 228 of the Companies Act No 61 of 1973’. It recorded that
the company
had resolved to dispose of the property to Dynadeals. It
also recorded that Harris was authorised to conclude the necessary
sale
agreement and to perform any other acts necessary to dispose of
the property.
[23] During September 2007 there were discussions which
resulted in the parties agreeing that the property would be purchased
by the
appellant, a company in which Dynadeals was the sole
shareholder. Dynadeals was to stand surety for the due performance by
the appellant
of its obligations in terms of the contract. According
to the unchallenged evidence of Ms Harris in this connection, she was
aware
of the change in identity of the proposed purchaser and was
satisfied that the sale would proceed on this basis. There was,
however,
one stumbling block in the way of the sale and that was that
the arbitration was still pending. If the arbitrator’s award
turned
out to be in favour of JFS Properties, the respondent would
not be able to perform its obligations to the appellant. To cater for
this contingency, it was agreed that the sale to the appellant would
be subject to the respondent obtaining a favourable award from
the
arbitrator. As a matter of practicality, 31 October 2007 was set as
the limiting date for this suspensive condition.
[24] Accordingly, on 11 September 2007 a written
contract of sale was concluded by which the appellant purchased the
property for
R12 677 517. In clause 3.1 the contract (save for
certain executory provisions) was stated to be subject to the
respondent being
held, in the arbitration proceedings or in any
appeal therefrom, to be entitled to cancel the contract with JFS. The
following stipulation
was set out in clause 3.2:
‘
In the event that the
aforementioned condition is not fulfilled or waived by the Parties,
on or before 31 October 2007, or such later
date as the Parties may
agree to in writing prior to the said date, this Agreement shall
automatically lapse and be of no further
force and effect between the
Parties.’
[25] Ms Harris stated in her replying affidavit that she
had been alerted to the requirement of proper authorisation of Harris
to
conclude contracts on behalf of the respondent, by the dispute
with JFS Properties. Accordingly, and notwithstanding the ambit of
the resolution passed on 29 June 2007 and her acceptance of the
decision to substitute the appellant as purchaser of the property
in
the place of Dynadeals, she had executed a further resolution
(expressly stated to be ‘in her capacity as sole shareholder’
of
the respondent) on 3 October 2007, which was in the following terms:
‘ WHEREAS
:
The Company entered into a sale
of property agreement with Simcha Properties 6 CC on 11 September
2007 (“the Agreement”).
NOW THEREFORE IT IS RESOLVED
THAT:
the signature of the Agreement
by David Marcus Harris as director of the Company on 11 September
2007 be and hereby is ratified;
and
David Marcus Harris be, and
hereby is, authorized to sign all such documents and do all such
things as may be necessary to give
effect to the Agreement.’
[26] On 31 October 2007 the contract of sale lapsed
because the arbitration award had not yet been received, nor had the
parties
waived or extended the period of the suspensive condition
before that date. However, on 27 November 2007 the parties concluded
what
they referred to as a ‘reinstatement agreement’. The
preamble to this agreement recorded the fact that the contract
concluded
on 11 September 2007 had lapsed and stated that the parties
wished ‘to reinstate the Sale of Property Agreement and make
certain
amendments thereto’. The reinstatement and amendment were
then set out in the following terms:
‘2 REINSTATEMENT OF SALE OF
PROPERTY AGREEMENT
Notwithstanding that –
the suspensive condition
stipulated in clause 3.1 of the Sale of Property Agreement was not
fulfilled on the date stipulated
therefor; and
the Sale of Property
Agreement has lapsed as a result thereof,
the parties hereby reinstate the
Sale of Property Agreement and agree to be bound by the terms and
conditions thereof with effect
from the original date of signature,
but subject to the amendment contained in clause 3 below.
AMENDMENT
The parties hereby amend clause
3.2 of the Sale of Property Agreement by deleting “
31
October 2007
” and
inserting “
31
January 2008
” in
the place thereof.
REMAINING PROVISIONS
All the remaining terms and
conditions of the Sale of Property Agreement shall continue in full
force and effect.’
[27] The final arbitration award, upholding the
respondent’s contention that it was entitled to resile from the
contract with JFS
Properties, was delivered to the arbitration
parties on 15 December 2007 and, neither party having given notice of
an appeal within
the prescribed period of five business days, the
award became final on 21 December 2007. On that date, too, the
suspensive condition
in clause 3 of the reinstatement agreement was
fulfilled and the contract of sale took effect.
[28] For the purpose of completing the history of the
transactions between the parties, it will suffice to say that, during
the early
part of 2008 the respondent sought, without success, to
enforce the delivery, by the appellant and/or Dynadeals, of the
guarantees
necessary to enable the conveyancer to proceed with the
transfer of the property to the appellant. Eventually, in June 2008,
the
respondent lodged the application which resulted in it obtaining
the order referred to in para 1, above. The basis upon which Swart
AJ
granted the order will be discussed shortly.
[29] The sequence of events and facts set out above
reflect those aspects of the affidavits in the application which were
common cause
together with certain findings of fact made by the
learned judge in the course of reaching his conclusions on the merits
of the matter.
Although counsel for the appellant sought to question
the reliability of the evidence of Ms Harris by reference to certain
evidence
she had given in the arbitration proceedings, he candidly
acknowledged, in the course of argument, that the appellant was not
in
a position to challenge the assertions in Ms Harris’s replying
affidavit, and the facts which are set out above treat those
assertions
as having been satisfactorily proved.
2
The Provisions of the Companies Act
[30] As indicated, the property was the sole asset of
the respondent. It is common cause, therefore, that the respondent
could not
dispose of it without a general resolution of the
respondent’s shareholders authorising such disposal. This was a
specific requirement
of s 228 of the Companies Act prior to 14
December 2007. The section read:
‘
228 (1) Notwithstanding
anything contained in its memorandum or articles, the directors of a
company shall not have the power, save
with the approval of a general
meeting of the company, to dispose of –
the whole or substantially the
whole of the undertaking of the company; or
the whole or the greater part
of the assets of the company.
(2) No resolution of the
company approving any such disposal shall have effect unless it
authorizes or ratifies in terms the specific
transaction.’
[31] Swart AJ held, and his finding in this regard was
not challenged on appeal, that the resolution of 3 October 2007
complied with
the statutory requirements in force at that date. In
this regard, he relied on the well-established principle of
‘unanimous assent’:
where all the shareholders of a company
unanimously assent to a transaction, such assent is as effective as
would have been a resolution
passed at a formal general meeting of
the company.
3
[32] On 14 December 2007, an amendment to s 228 took
effect. It is not necessary for the purpose of this judgment to quote
the amended
section in full. It is sufficient to state that the new
section required a special resolution for the valid authorisation of
a disposal
of the sole asset, or the greater part of the assets, of a
company. By virtue of the provisions of ss 200 and 202 of the
Companies
Act, a special resolution is not effective unless it has
been registered by the Registrar of Companies within a month of its
passing.
Although there was a belated attempt by Ms Harris to ratify
the reinstatement contract by special resolution in August 2008, I
consider
that this matter falls to be decided on the basis that the
provisions of the amended s 228 had not been complied with at any
material
time.
The Judgment of the High Court
[33] Swart AJ found, as a matter of fact, that Harris
had been properly authorised, and the conclusion of the contract of
11 September
ratified, by the resolution of 3 October 2007. That
resolution, the learned judge held, was equivalent to a general
resolution, based
on the principle of unanimous assent and the fact
that Ms Harris was the only shareholder in the respondent. Therefore
the fact that
no general meeting had been held did not detract from
the validity of the ratification. In regard to the contention that
the reinstatement
agreement constituted a different contract to the
agreement of 11 September, Swart AJ said:
‘
The fact that the (11
September) agreement lapsed and was later reinstated in terms of the
November 2007 agreement is irrelevant.
Until the authority bestowed
in terms of the resolution of 3 October 2007 was revoked, Harris was
and remained empowered to dispose
of the property in terms of the
September 2007 agreement. That is exactly what the reinstatement
agreement sought to achieve.’
The Appellant’s Contentions
[34] As indicated in para 1 above, two issues were
debated by counsel in argument before us. It will be convenient to
dispose of the
second of those issues first. It concerned the
applicability of the amendment to s 228 of the Companies Act to the
transactions between
the parties. The contention of counsel for the
appellant was that, since the contract of sale had not yet taken
effect (because the
suspensive condition had not yet been fulfilled)
by 14 December 2007, it was hit by the provisions of the
amendment. The attempt
by Ms Harris to ratify the conclusion of that
agreement in August 2008 had come after the appellant had already
sought to resile
from the contract and was therefore too late to
‘breathe life into’ the contract.
[35] It seems to me that the short answer to this
submission is that the reinstatement was not, as a matter of fact or
law, hit by
the amendment to s 228. As counsel for the respondent
submitted, the conclusion of the 11 September agreement, whether
subject to
a suspensive condition or not, was the result of a
decision on the part of the company (at least the sole director
thereof) to dispose
of the asset. The ratification which took place
on 3 October was plainly a ratification of ‘the specific
transaction’ within
the contemplation of the then s 228. That
transaction was simply an agreement by the company to sell the
property to the respondent
provided it was liberated from any
possible obligations to JFS Properties. This was the ‘transaction’
which was ratified and
which Harris was authorised to proceed with to
finality. To hold that the advent of the amended s 228 could affect
the authority
thus conferred would be to vest the amendment with
retrospective effect. That would be contrary to the fundamental
principle that
statutes are not to be construed as having such effect
unless their language specifically provides for it. There is nothing
in the
amended s 228 which can be so construed. It follows that Swart
AJ was correct in his view that the amendment to the section did not
affect the legal relationships between the parties.
[36] That leaves the first issue. In this regard,
counsel for the appellant very properly conceded that if it is found
that Harris
was authorised to conclude the reinstatement agreement,
the appeal could not succeed. The submission that he was not (the
issue about
the effect of the statutory amendment having been
disposed of) depended upon the court taking the view that the
reinstatement agreement
was something different from the agreement of
11 September 2007. There is no basis for taking such a technical and
artificial view
of the transactions in which the parties were
involved. The shareholder specifically approved of the company’s
asset being disposed
of. She intended to ratify whatever her son had
done, up to 3 October 2007, to dispose of it and to authorise him to
proceed to finality
with such disposal on the terms set out in the
September agreement. It is idle to suggest that what he did to
resuscitate that agreement,
on its original terms save for the
termination date of the suspensive condition, constituted a resort to
a different form of ‘disposal’.
As Swart AJ stated, the
reinstatement agreement was aimed at achieving precisely what Harris
had been authorised (and impliedly instructed)
to achieve.
[37] I thus agree that the appeal should be dismissed
with costs, such costs to include the costs of two counsel.
__________________
N V HURT
ACTING JUDGE OF APPEAL
APPEARANCES
APPELLANT: P J van Blerk SC
Instructed by Geoffrey Sutherns Attorneys, Johannesburg
Lovius-Block Attorneys, Bloemfontein
RESPONDENT: A Subel SC; M F Welz
Instructed by Rudolph Bernstein & Associates,
Johannesburg
Matsepes Incorporated, Bloemfontein
1
Levy & others v Zalrut Investments (Pty)
Ltd
1986 (4) 479 (W) where it was
stated at 485F that: ‘I am hence of the opinion that the
unanimous consent of the shareholders
of a company to a specific
transaction has the same effect and validity as the approval of such
transaction by a general meeting
of the company.’
2
As, indeed, they were found to be proved by the judge in the lower
court.
3
Gohlke and Schneider & another v Westies Minerale (Edms) Bpk
& another
1970 (2) SA 685
(A) at 693 to 694.