About SAFLII
Databases
Search
Terms of Use
RSS Feeds
South Africa: Supreme Court of Appeal
SAFLII
>>
Databases
>>
South Africa: Supreme Court of Appeal
>>
2010
>>
[2010] ZASCA 132
|
|
La Lucia Sands Share Block Ltd and Others v Barkhan and Others (37/2010) [2010] ZASCA 132; 2010 (6) SA 421 (SCA) ; [2011] 2 All SA 26 (SCA) (1 October 2010)
Links to summary
THE SUPREME COURT OF APPEAL OF
SOUTH AFRICA
JUDGMENT
Case no: 37/2010
In the
matter between:
LA
LUCIA SANDS SHARE BLOCK LIMITED
........................................
First Appellant
LENTZ,
JOHAN PAUL GERARD
.......................................................
Second
Appellant
WOLFE,
GEORGE
.................................................................................
Third
Appellant
PARKER,
JEANNE
..............................................................................
Fourth
Appellant
COLLINS,
PATRICK MICHAEL
..............................................................
Fifth
Appellant
and
BARKHAN,
HOWARD LESLIE
...........................................................
First
Respondent
GLASSER,
ERROL MAXWELL
.....................................................
Second
Respondent
MINISTER
OF TRADE AND INDUSTRY
...........................................
Third
Respondent
Neutral citation:
LA LUCIA SANDS SHARE BLOCK LTD v BARKHAN
(37/10)
[2010] ZASCA 132
(1 October 2010)
Coram:
NAVSA, MAYA, BOSIELO, SHONGWE JJA and
K PILLAY
AJA
Heard:
2 SEPTEMBER 2010
Delivered: 1 October 2010
SUMMARY: Company law ─ power of court in terms of s 113 of
the Companies Act 61 of 1973 to allow access to a register of members
– rationale for provision discussed ─ general rule is to
make information available ─ access rightly granted
─
delay in delivery of judgment discussed.
___________________________________________________________________
ORDER
___________________________________________________________________
On
appeal from
:
KwaZulu-Natal High Court
(Durban) (Van Zyl J sitting as court of first instance).
The
following order is made:
The appeal is dismissed with costs and the first appellant is ordered
to pay respondents’ costs.
___________________________________________________________________
JUDGMENT
___________________________________________________________________
SHONGWE JA (NAVSA, MAYA, BOSIELO JJA and K PILLAY AJA concurring):
[1] This is an appeal against a judgment of the KwaZulu-Natal High
Court, Durban, (Van Zyl J) ordering the first appellant, La
Lucia
Sands Share Block Limited (La Lucia Sands), to provide photocopies of
all the pages constituting its register of members
to the first and
second respondents, Messrs Howard Barkhan and Errol Glasser,
alternatively to make its register of members available
for
inspection by the respondents. La Lucia Sands was ordered to pay the
costs of the application, including the costs of two counsel
in
respect of the Minister of Trade and Industry. The latter order is
one about which more will be said later in this judgment.
The appeal
is with the leave of the court below. I shall refer to Messrs Barkhan
and Glasser as B and G, respectively.
[2] The question in this appeal is whether the court below, acting in
terms of s 113(4) of the Companies Act 61 of 1973 (the
Act),
correctly made the order referred to in the preceding paragraph.
[3] The dispute between the parties culminating in the present appeal
started in 2006 when B and G instructed their attorney to
obtain a
copy of the register of members of La Lucia Sands, as they intended
addressing letters to them offering to purchase their
shareholding.
La Lucia Sands is a share block company. It appears, however, that
antagonism had developed between the parties much
earlier and that
there is prior litigation in which they are involved that includes
other parties. La Lucia Sands also accused
B and G of being involved
with an entity called Flexi Holiday Club in an attempt to engineer a
‘hostile takeover’ of
La Lucia Sands.
[4] The first letter on behalf of B and G requesting copies of La
Lucia Sands’ register of members was sent to the latter
in May
2006. It was replied to by Mr George Wolfe, an attorney and
director of La Lucia Sands who is also the second appellant.
He
stated that La Lucia Sands and its members did not want to have their
addresses and ‘other pertinent private information’
divulged. During June 2006 the members of La Lucia Sands in a general
meeting passed a resolution to that effect. Even though there
appears
to have been later abortive attempts to provide at least some
information, what remained constant was La Lucia Sands’
refusal
to provide members’ addresses and ‘other pertinent
private information’. Communications and interaction
between
the parties remained tense. Predictably, the information sought was
ultimately not provided, leading to an application
by B and G in the
Durban High Court and the order referred to in para 1 above. It is
necessary to record that although initially
B and G intended to
approach members directly concerning their members’ interest,
without any regard to the board of La Lucia
Sands that position had
changed by the time the replying affidavit had been filed by them in
the court below. At the time of the
hearing in the Durban High Court
it was abundantly clear that they intended to approach both the
members and the board simultaneously.
[5] The Minister of Trade and Industry was joined as a respondent in
the proceedings in the court below. Initially it appeared
that the
Minister was not intent on being a contesting party. An affidavit was
filed on his behalf to be of assistance to the court.
However, during
the hearing in the court below, the Minister was represented and
submissions were made on his behalf. Before us,
La Lucia Sands sought
to reverse the costs order granted against it, in the court below,
even if it lost the appeal, on the basis
that an important
constitutional issue had been raised in the court below. It is
necessary to record that in the court below the
constitutionality of
s 113 had been challenged on the basis that it offended against
the right of privacy of company members
enshrined in s 14 of the
Constitution. The challenge was abandoned before us. That
notwithstanding, the appellants sought to reverse
the costs order on
appeal on the basis that granting a costs order against unsuccessful
parties in constitutional matters would
have a chilling effect on
potential future litigation involving important rights issues.
[6] The court below considered the provisions of s 113 of the Act and
held that accessibility to the register of members of a company
served an important public purpose. Van Zyl J concluded that the
provisions of s 113 of the Act entitled B and G to the information
sought and consequently made the order referred to above.
[7] I turn to a consideration of the relevant statutory provisions.
Section 105 of the Act reads as follows:
‘
Register
of Members
(1) Every company shall keep in
one of the official languages of the Republic a register of its
members, and shall forthwith enter
therein
–
(a) the names and addresses of
the members and, in the case of a company having a share capital, a
statement of the shares issued
to each member, distinguishing each
share by its number, if any, and by its class or kind, and of the
amount paid or agreed to
be considered as paid on the shares of each
member; and
(b) in respect of each member –
(i) the date on which his name
was entered in the register as a member; and
(ii) the date on which he ceased
to be a member.’
[8] The relevant parts of s 113 of the Act provide:
‘
Inspection
of register of members
(1) The register of members of a company shall, except
when closed under the provisions of this Act, during business hours
(subject
to such reasonable restrictions as the company in general
meeting may impose, so that not less than two hours in each day be
allowed
for inspection) be open to inspection by any member or his
duly authorized agent free of charge and by any other person upon
payment
for each inspection of an amount of R10 or such lesser amount
as the company may determine.
(2) Any person may apply to a company for a copy of or
extract from the register of members and the company shall either
furnish
such copy or extract on payment by the applicant of an amount
of R10 or such lesser amount as the company may determine for every
page of the required copy or extract, or afford such person adequate
facilities for making such copy or extract.
(3) If access to the register of members for the purpose
of making any such inspection or any such copy or extract or
facilities
for making any such copy or extract be refused or not
granted or furnished within fourteen days after a written request to
that
effect has been delivered to the company, the company, and every
director or officer of the company who knowingly is a party to
the
refusal or default, shall be guilty of an offence.
(4) In the case of any such refusal or default the Court
may, on application, by order compel an immediate inspection of the
register
and index or direct that the copy or extract required shall
be sent to the applicant requiring it and may direct that any costs
of or incidental to the application shall be borne by the company or
by any director or officer of the company responsible for
the refusal
or default.’
[9] The original object of giving non-members a
statutory right of inspection, as contained in s 113 of the Act, was
to enable them
to ascertain the identities of the shareholders and
the extent of capital not paid up. See
Pathescope
(Union) of South Africa Ltd v Mallinick
1927
AD 292
at 301 and Meskin, J A Kunst, Professor P Delport and Q
Vorster
Henochsberg on the Companies Act
Vol 1 p 218.
1
The following comment by Meskin et al
Henochsberg
on the Companies Act
on s 113 at p 218
is important:
‘
The continued existence of
this right is valuable, however, notwithstanding that shares cannot
be issued as partly paid up (s 92(1))
since a non-member may require
knowledge of the identities of the members for a variety of purposes,
eg to organise an arrangement
under s 311 or a takeover . . . to
establish whether the company is a subsidiary of another company, to
canvass support for a particular
proposed resolution.’
[10] Section 113 of the Act does not oblige a person requesting
information to provide motivation for doing so. It has been held
that
a person who seeks to inspect the register need not give reasons for
doing so. See
Holland v Dickson
(1888) 37 Ch. D. 669
at
671-672 and
Labatt Brewing Co Ltd v Trilon Holdings Inc
, 41 O.
R. (3d) 384 para 6). Meskin et al
Henochsberg on the Companies Act
(above), with reference to
Dickson
, state the following:
‘
But in any event the company
cannot require the disclosure of the reason for the inspection as a
condition precedent to allowing
it . . .’
[11] The parties were agreed that a court called upon to act in terms
of s 113(4) may, in appropriate circumstances, decline to
make an
order in favour of the person requesting the information. For
example, where it is shown that the information is sought
for some
unlawful purpose. In
Pelling v Families Need Fathers Ltd
[2001] EWCA Civ 1280
;
[2002] 2 All ER 440
(CA) the Court of Appeal, dealing with a similar
provision in the English Companies Act, said the following concerning
a court’s
discretion to order the production of information in
a register of members (para 23):
‘
The statutory discretion must
be exercised judicially in accordance with established legal
principles and having regard only to
relevant considerations. We
agree with Dr Pelling that, as a general rule, the court will make a
mandatory order to give effect
to a legal right. But, as stated by
Lord Evershed MR in
Armstrong
v Sheppard & Short Ltd
[1959] 2 All ER 651
at 656,
[1959] 2 QB 384
at 396 “[i]t is not a matter of unqualified
rights”. There may be something special in the circumstances of
the case
which leads the court to refuse to make the usual order. The
scope of the residual discretion to refuse such an order may be
narrow,
but Dr Pelling is, in our view, wrong in his assertion that
it is non-existent.’
This dictum is instructive.
[12] In the present case, we know the motivation for the request for
information ─ to make an offer to purchase the shareholding
of
members. B and G dispute any alliance or conspiracy with Flexi
Holiday Club. That is a dispute that cannot be resolved on the
papers
but, in any event, even if they were involved commercially with Flexi
Holiday Club to any extent, I fail to see how that
could preclude
them from being afforded access to the information sought. It appears
that Mr Wolfe and other directors and members
of La Lucia Sands are
of the view that B and G and their cohorts should not be permitted to
exert influence on members of La Lucia
Sands. It was submitted on
behalf of La Lucia Sands that members of share block schemes should
be protected from ‘predatory
practices’. Mr Wolfe and
others are not precluded from persuading members of La Lucia Sands to
the contrary. Section 3(2)
of the Share Blocks Control Act 59 of 1980
provides that the provisions of the Act ‘shall apply to a share
block company
in so far as those provisions are not in conflict with
the provisions of this Act’. Counsel for La Lucia Sands failed
to
persuade me that because share block schemes are set up in a
specific manner their members are entitled to greater protection
against
disclosure of members’ information in the register of
members of other types of companies.
[13] Section 32(1)(b) of the Constitution provides that everyone has
the right of access to any information that is held by another
person
and that is required for the exercise or protection of any rights.
Section 32(2) obliges the State to enact national legislation
to give
effect to this right. That legislation is the
Promotion of Access to
Information Act 2 of 2000
. In a constitutional state in which freedom
of association and access to information is valued courts should be
slow to make orders
that have a limiting effect. It bears repeating
that in terms of s 113(3) of the Act a failure to comply with a
legitimate request
for access to the register of members renders a
company and every director or officer who knowingly is a party to the
refusal guilty
of a criminal offence.
[14] It is necessary to deal briefly with the submission on behalf of
La Lucia Sands, that the request for information by B and
G for the
purpose of a direct approach to members as part of a takeover scheme,
was in contravention of statutory rules regulating
takeovers, and
that consequently the court below had erred in granting the order
referred to in para 1 above. Section 440A of the
Act defines an
‘affected transaction’, inter alia, as follows:
‘
[A] . . . transaction . . . or
scheme, whatever form it may take, which ─
(a)
taking into account any
securities held before such transaction or scheme, has or will have
the effect of ─
(i) vesting control of any company (excluding a close
corporation) in any person, or two or more persons acting in concert,
in whom
control did not vest prior to such transaction or scheme; or
(ii) any person, or two or more persons acting in
concert, acquiring, or becoming the sole holder or holders of, all
the securities,
or all the securities of a particular class, of any
company (excluding a close corporation); . . .’
[15] Section 440L of the Act provides:
‘
Subject to any exemption by
the panel, no person shall enter into or propose an affected
transaction, except in accordance with
the rules.’
The rules referred to are the rules promulgated by the Securities
Regulation Panel, established under the provisions of s 440B
of the
Act. The rules established a code regulating takeovers and mergers.
Rule 1
(a)
, under section D of the rules, provides that when a
takeover offer is made it should be put to the board of the offeree
company
or to its authorised advisors. Rule 1
(c)
stipulates
that a board so approached is entitled to be satisfied on reasonable
grounds that the offeror is, or will be, in a position
to implement
the offer in full.
[16] As stated in para 4 above, as matters stood in the court below
and before us, B and G have disavowed any intention to bypass
the
board. The request referred to above can therefore not be said to be
in contravention of the rules which have statutory force.
I interpose
to State that the other litigation involving the parties is for
present purposes wholly irrelevant.
[17] For completeness, I record that a new
Companies Act 71 of 2008
has been assented to but has not yet come into operation. Section 113
of the Act has not been repeated in the new legislation.
Section 26
of the new Act is entitled ‘Access to company records’.
Section 26(3) provides that ‘any member’
and ‘any
other person’ is entitled to inspect the register of members
during business hours. Section 26(4) provides:
‘
The rights of access to
information set out in this section are in addition to, and not in
substitution for, any rights a person
may have to access information
in terms of ─
(a) section 32 of the Constitution
(b) the Promotion of Access to Information Act, 2000
(Act No. 2 of 2000); or
(c) any other public regulation.’
[18] It appears that in future the provisions of the
Promotion of
Access to Information Act 2 of 2000
will have to be employed by
non-members seeking access to the register of members. The rationale
set out above for obtaining information
contained in the register of
members will probably continue to apply, notwithstanding that the
request for information will now
have to be made in terms of that
Act. Happily, it is not an issue we need to address comprehensively
or at all. Section 113 applies
to the present matter.
[19] Before turning to the question of costs it is necessary to deal
with the fact that it took so long for judgment to be delivered
in
the court below. Almost two years had passed from the time that the
matter had been argued. This is in itself an undesirable
state of
affairs. Courts should strive to promote swift and efficient justice.
In the present case one of the consequences of the
delay in
delivering the judgment was that the costs order in the court below
incorrectly recorded that the Minister of Trade and
Industry was
entitled to the costs of two counsel. The judgment referred to a
junior counsel who was not present during the hearing.
Before us the
parties were agreed that in the court below the Minister had been
represented by only one counsel. I have no doubt
that the Minister
will not seek to recover more than the costs of one counsel.
[20] Before us the Minister was represented by counsel who informed
us that his presence in court was confined to dealing with
the costs
order in favour of the Minister, which La Lucia Sands sought to have
reversed. When important constitutional issues are
raised courts
have, in appropriate circumstances, not awarded costs against
unsuccessful litigants. In this regard see
Chirwa v Transnet Ltd
2008 (4) 367 (CC) para 78. In the present case, Mr Wolfe, on
behalf of La Lucia Sands, adopted and promoted an inflexible and
hostile
attitude from the outset. The other directors, the second,
fourth and fifth appellants supported him.
[21] The constitutional point was rightly abandoned in the court
below. More than 14 years ago the Constitutional Court in
Bernstein
v Bester
[1996] ZACC 2
;
1996 (2) SA 751
(CC) stated clearly that the
establishment of a company as a vehicle for conducting business is
not a private matter and that there
was a statutory obligation of
proper disclosure and accountability to shareholders. It said the
following (para 85):
‘
It is clear that any
information pertaining to participation in such a public sphere
cannot rightly be held to be inhering in the
person, and it cannot
consequently be said that in relation to such information a
reasonable expectation of privacy exists. Nor
would such an
expectation be recognised by society as objectively reasonable. This
applies also to the auditors and the debtors
of the company. On the
facts of this case the conclusion seems to be unavoidable that no
threat to or infringement of any of the
applicants’ right to
privacy as protected by s 13 of the Constitution has been
established.’
The importance of the constitutional point was more illusory than
real.
[22] Furthermore, courts would be particularly slow to visit a costs
order on litigants who were struggling financially and whose
personal
circumstances are precarious. In the present case there is every
indication that La Lucia Sands is financially viable
and that it
authorised litigation fully aware of the costs implications and that
it maintained its inflexible attitude throughout,
notwithstanding
that threat.
[23] I have difficulty in understanding the submission on behalf of
La Lucia Sands that the Minister did not assist the court below
as
fully as he should have and that the affidavit filed on his behalf
was vague. It was submitted that this failure to fulfil a
‘constitutional mandate’ in itself was an issue that
called for a reversal of the costs order. To my mind the affidavit
filed on behalf of the Minister was lucid. It set out in broad
outline the rationale for statutory provisions such as s 113 of
the
Act. The gist of the affidavit is in line with what is set out above.
[24] For all the reasons set out above, the appeal must fail, both in
respect of the merits and the costs order. The following
order is
made:
The appeal is dismissed with costs and the first appellant is ordered
to pay respondents’ costs.
_________________
J SHONGWE
JUDGE OF APPEAL
APPEARANCES:
For
Appellants: N Tee
Instructed
by:
George
Wolfe Attorney
ORCHARDS
Matsepe
Inc
BLOEMFONTEIN
For 1
st
and 2
nd
Respondents: G B Rome
Instructed
by: Eversheds
SANDTON
Lovius
Block
BLOEMFONTEIN
For 3
rd
Respondent: F Boda
Instructed
by: The State Attorney
PRETORIA
The State
Attorney
BLOEMFONTEIN
1
In
Oakes v Turquand
(1867) L.R. 2 H.L. 325
at 366-367
(cited with approval in
Pathescope
)
Lord Cranworth said:
‘
But
when the Legislature enabled shareholders to limit their liability,
not merely to the amount of their shares, but to so much
of that
amount as should remain unpaid, it is obvious that no creditor could
safely trust the company without having the means
of ascertaining,
first, who the shareholders might be, and, secondly, to what extent
they would be liable. This is obviously
the reason why the new
statute opened the register to the inspection of all the world . . .
The legislature took care to provide
the register as the means of
enabling persons dealing with the company to know to whom and to
what they had to trust’.