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[2011] ZASCA 87
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SA Mohair Brokers Ltd v Louw and Others (602/10) [2011] ZASCA 87 (27 May 2011)
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THE
SUPREME COURT OF APPEAL
OF
SOUTH AFRICA
JUDGMENT
Case No: 602/10
In
the matter between:
SA
MOHAIR BROKERS LTD
..........................................................................
Appellant
and
DOUGLAS CHRISTOPHER LOUW
...................................................
First
Respondent
ANDRE HERMANN DANKWERTS
...............................................
Second
Respondent
ARTHUR OLIVER RUDMAN
.............................................................
Third
Respondent
GEOFFREY GEORGE VAN COLLER
............................................
Fourth
Respondent
JOHANNES THEUNIS VILJOEN
.......................................................
Fifth
Respondent
BKB LIMITED
....................................................................................
Sixth
Respondent
RONALD JOHN SMITH
................................................................
Seventh
Respondent
Neutral
citation:
SA Mohair Brokers v Louw
(602/10)
[2011] ZASCA
87
(27 May 2011)
Coram:
Harms DP, Brand, Heher JJA and Meer and Plasket AJJA
Heard:
18 May 2011
Delivered:
27 May 2011
Summary:
Company law – limitation on sale of shares contained in
Articles – effect.
___________________________________________________________________
ORDER
___________________________________________________________________
On appeal from:
Eastern Cape High Court (Port
Elizabeth) (Y Ebrahim J sitting as court of first instance):
The appeal is dismissed with costs, including the costs
of two counsel.
___________________________________________________________________
JUDGMENT
___________________________________________________________________
HARMS DP (BRAND, HEHER JJA and MEER AND PLASKET AJJA
concurring)
[1] The appellant, SA Mohair Brokers Ltd, and BKB Ltd
(one of the respondents) carry on business as brokers in the mohair
industry.
They are competitors. The appellant’s main asset
consists of 66 per cent of the entire issued share capital of its
operating
company, CMW Operations (Pty) Ltd. The balance of the
shares belongs to Oos-Vrystaat Kaap Operations Ltd. The appellant
wished
to dispose of its shareholding in CMW to Oos-Vrystaat and for
that purpose it required a special resolution in terms of s 228 of
the Companies Act 61 of 1973. BKB, in turn, wanted to buy those
shares but was advised that it could encounter problems with the
competition authorities. Preferring to retain the appellant as its
competitor instead of Oos-Vrystaat, it then devised a plan to
stymie
the special resolution by purchasing a sufficient number of shares in
the appellant from some of its shareholders and obtaining
proxies
from them to defeat the proposal.
[2] The sellers completed four documents pursuant to
their willingness to dispose of their shares and handed them to BKB.
These
were (a) a sale agreement; (b) a request to the appellant to
issue the share certificate reflecting the seller’s
shareholding
to enable the seller to transfer the shares to BKB; (c)
a signed blank securities transfer form; and (d) a signed blank proxy
form
enabling the proxy holder to vote against the special
resolution. BKB paid the sellers in full.
[3] The terms of the sale agreement (a) were as follows:
‘
I, the
undersigned (“
the
Seller
”),
hereby sell all my shares in SA Mohair Brokers Limited (“
SA
Mohair
”)
(“
the
Shares
”)
and cede all my claims in and against SA Mohair (whether on loan
account or otherwise, “
the
Claims
”)
to BKB Limited or its nominee (“
the
Purchaser
”),
as reflected in the attached CM42 transfer form, which I have duly
signed.
I accept in full and final
payment for the sale of the Shares and of the Claims the sum of R2,
which shall be paid to me by the
Purchaser within 3 days of this
undertaking.
I hereby give BKB Limited (or
its nominee) (“
BKB
”) my irrevocable proxy to vote
the Shares as it in its sole discretion deems fit at the Annual
General Meeting of Shareholders
of SA Mohair which has been called
for 4 December 2009 and any adjournment or postponement of that
meeting. My signed proxy to
that effect is attached hereto.
I further undertake to forthwith
provide BKB with a signed proxy to vote all the Shares at any meeting
of shareholders in SA Mohair
(as it in its sole discretion deems fit)
which is called prior to the registration of transfer of the Shares
to into the Purchaser’s
name.
I also undertake to forthwith on
receipt to pay to the Purchaser any distribution or dividend or any
other payment which I may receive
from SA Mohair in the period from
the signature of this undertaking to the date of transfer of the
Shares to the Purchaser, up
to the amount of R2 per Share.’
[4] The proxies were duly lodged with the appellant
prior to the meeting but the chairman, acting on legal advice, ruled
that they
were invalid and refused the proxy holders permission to
speak or vote at the meeting. The advice was based on the terms of
the
articles of association dealing with the transfer and
transmission of shares:
’
14.1
The instrument of transfer of any shares in the company shall be in
the form required by Section 135 of the act or in such
other form
which the directors approve.
14.2 The transferor shall be
deemed to remain the holder of the share until the name of the
transferee is entered in the register
of members as holder thereof.
15.1 Any decision by the
directors of the company shall be final and binding on a shareholder
of the company for the purposes of
this clause 15.
15.2 A shareholder of the
company may not sell, alienate, donate or burden in an manner
whatsoever the shares that he is the owner
of, without prior approval
of the directors of the company.
15.3 A shareholder in whose name
any share or shares has been registered, contrary to the provisions
of clause 15.2, shall not in
respect of such shares –
15.3.1 be entitled to exercise
any vote, provided that any decision taken on the strength of such
shares shall be deemed to be valid
if a similar decision would have
been taken by the required majority of votes;
15.3.2 be entitled to receive
any dividend or other advantage, which dividend or advantage shall
revert to the company to be utilized
to the advantage of the company
as the directors may determine.’
[5] The advice was this. A sale of shares without prior
approval of the directors, being in conflict with clause 15.2 of the
articles
of association, is null and void. The proxy was part and
parcel of the void agreement. It was an indivisible transaction. The
resultant
proxy was, accordingly, also void. The chairman of the
meeting could therefore reject the proxies.
[6] The advice, which was accepted, was based on an
incorrect premise. An agreement can only be null and void if it is in
conflict
with the law, statutory or otherwise. A sale of shares
without the prior approval of the directors is not void as much as
the sale
of another’s property is not void. The only effect is
that the appellant is not obliged to register the purchaser as
shareholder.
But the sale is inter partes binding. It might be that
the seller may not be able to obtain registration of the shares in
the name
of the purchaser which could amount to breach of contract by
the seller, but nothing more. It would then be for the purchaser to
pursue its ordinary contractual remedies if it so wished.
[7] The quoted clause 15.3 supports the conclusion that
a sale without prior approval is not void. It postulates a case where
shares
are transferred to a purchaser in spite of the lack of prior
approval. In that instance non-compliance only means that the
purchaser
may not vote or receive dividends. It does not mean that
the purchaser may not take cession of the claim for dividends or that
the purchaser may not hold a proxy – all matters that were
provided for in the cited agreement. Clause 15.4 in addition states
that the appellant may waive the requirement of prior approval,
another indication that such a sale in not without legal effect.
[8] Furthermore, the sale agreement was res inter alios
and did not involve the appellant. BKB duly lodged proxies in the
prescribed
form. The reasons or motives of the shareholders (who also
were sellers) in giving proxies did not concern the appellant from a
legal or administrative perspective. The appellant had to accept
proxies that were on their face valid because they were given
by the
sellers who, as at that date, were still shareholders.
[9] There is another matter that needs mentioning. The
first respondent, Mr Louw, was the chairman of BKB but also a
shareholder
in the appellant. He did not sell his shares to BKB but
gave it a proxy to speak and vote on his behalf. His proxy was also
rejected,
presumably because the chairman of the meeting, Mr Short,
believed that Louw had also sold his shares. This misapprehension
resulted
from the preceding correspondence in which BKB’s
attorneys did not draw a distinction between the proxies held
pursuant to
a sale and those that did not involve a sale of shares.
The letter was misleading because it was written on behalf of the
‘proxies
appointed by the Selling Shareholders’. And at
the meeting, when Short dealt with the proxies of the sellers, the
proxy holder
did not inform him that he also had proxies from
shareholders who had not sold their shares. In view of these facts I
prefer not
to express any view on whether the disallowance of Louw’s
proxy – something only raised in reply – would have
been
a ground for setting aside the resolutions taken at the meeting.
[10] The court below was correct in setting aside the
resolutions taken at the impugned meeting of 4 December 2009. It
needs to
be mentioned, however, that the court below, taking its cue
from the submissions made by the respondents – and repeated in
the heads of argument in this court – based its decision on the
provisions of s 252 of the Act which entitles a court to
set aside at
the behest of any shareholder an act or omission by a company that is
unjustly prejudicial, unjust or inequitable.
On the view I take of
the matter namely that the rejection of the proxies was unlawful, the
equitable jurisdiction under s 252
does not arise.
[11] The appeal is dismissed with costs, including the
costs of two counsel.
____________________
L T C Harms
Deputy President
APPEARANCES
APPELLANT/S J J Gauntlett SC (with him R G Buchanan SC)
Instructed by Spilkins Inc, Port Elizabeth
Symington & de Kok, Bloemfontein
RESPONDENT/S: S du Toit SC (with him F Odendaal SC)
Instructed by Mike Nurse Attorneys, Port Elizabeth
Webbers, Bloemfontein