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[2021] ZAKZPHC 91
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Derby Downs Management Association v Assegaai River Properties (Pty) Ltd and Another (AR1/2021) [2021] ZAKZPHC 91; 2022 (2) SA 71 (KZP) (12 November 2021)
IN
THE HIGH COURT OF SOUTH AFRICA
KWAZULU-NATAL
DIVISION, PIETERMARITZBURG
Appeal Case No:
AR1/2021
REPORTABLE
In the matter between:
DERBY DOWNS MANAGEMENT
ASSOCIATION APPELLANT
and
ASSEGAAI RIVER
PROPERTIES (PTY) LTD FIRST
RESPONDENT
MUZIKAYISE MOSES
NTANZI N.O. SECOND
RESPONDENT
ORDER
The
following order is made:
1.
The
appeal against the judgment of the court
a quo
delivered on 7 July 2020 is upheld with costs, which shall be paid by
the first respondent.
2.
The
order made in the court
a quo
is set aside and
substituted with the following order.
‘
The applicant’s
appeal against the adjudication order of the first respondent, and
the applicant’s application for a
declaratory order, are
dismissed with costs.’
JUDGMENT
Delivered
on: Friday, 12 November 2021
OLSEN
J (STEYN J et PLOOS VAN AMSTEL J concurring)
[1] This
appeal (which comes to us with the leave of the court
a quo
,
Masipa J) concerns the affairs of the appellant, the Derby Downs
Management Association, which was formed and registered in 1997
in
terms of s 21 of the Companies Act, 1973. As its memorandum of
association records, the appellant is a non-profit company having
as
its main business and main object the promotion and protection of the
interests of property owners in an office park known as
Derby Downs
Office Park.
[2] The
first respondent in the appeal is Assegaai River Properties
(Proprietary) Limited. It owns property in
the office park.
[3] The
second respondent in the appeal (who took no part in the proceedings
in the court
a quo
or before us) is Muzikayise Moses Ntanzi,
who is cited in his capacity as the duly appointed adjudicator under
the Community Schemes
Ombud Service Act, 2011. As will be seen the
second respondent adjudicated upon an application made by the first
respondent against
the appellant. He dismissed the application. In
the court
a quo
the first respondent sought and was granted an
order upholding an appeal against the second respondent’s
decision, and a
declaratory order along the lines of the one the
first respondent had sought before the second respondent.
THE
FACTUAL BACKGROUND AND EARLIER DECISIONS
[4] The
office park comprises a number of separately owned properties on
which office buildings have been constructed.
The appellant manages
the office park. Its directors make rules from time to time for the
control and administration of the office
park and it attends to the
repair and upkeep of the area in question. For that it requires an
income. It is a condition of ownership
of any land within the
precinct of the office park that the owner shall be a member of the
appellant. Such membership obliges each
owner to pay levies to meet
the expenses of the appellant.
[5] Matters
of irrelevant detail aside, the articles of association as originally
registered provided for the liability
to pay the total sum required
by the appellant to discharge its duties to be apportioned between
owners according to the area of
land comprising each owner’s
property. The larger the owner’s land, the higher the levy the
owner would have to pay.
[6] For
a number of reasons which are not relevant to this appeal, by 2007 it
had become apparent that it would
be advantageous to change the basis
upon which levies were apportioned between the owners from the
original method based on land
area to a system based on the extent of
each owner’s gross lettable area (“GLA”). A special
resolution to amend
the articles of association was put before the
annual general meeting of the appellant on 12 December 2007. The
resolution somewhat
inelegantly changed the levy distribution system
to base it on the GLA of each property. The resolution referred to a
list of Erf
numbers and the proportion of the levy charges each Erf
would bear, being one approved at the meeting of 12 December 2007 and
carrying
the signature of the Chair of the appellant. However a Mr
Diab, a director of the first respondent, recorded his
dissatisfaction
with the GLA allocated to the first respondent’s
property. The minute of the meeting recorded that the GLA system of
apportionment
was “unanimously approved” but that it had
been agreed that Mr Diab would review the area allocated to the first
respondent’s
unit as it appeared “to be in excess of the
area actually built”.
[7] Although
it is not fully dealt with in the papers, it does appear that the
co-operative spirit regarding the
first respondent’s complaint,
which apparently prevailed at the annual general meeting in 2007, was
not maintained after
the meeting. Levy claims were raised against the
first respondent which it resisted upon the basis that there had not
been a proper
adjustment of the GLA attributed to the first
respondent’s property. There was a referral to arbitration, the
outcome of
which is not dealt with on the papers. The first
respondent had the GLA of its property measured by a land surveyor
who concluded
that it was 1049 square metres, and not the area of
1175 square metres which generated the appellant’s levy claims
against
the first respondent.
[8] In
the result, in 2015 the first respondent launched an application in
the KwaZulu-Natal Local Division, Durban,
for an order directing the
appellant to cause a measurement of the GLA of all the properties in
the office park to be made by a
land surveyor. The appellant opposed
the application and delivered a counter-application seeking payment
of arrear levies from
the first respondent. The case served before
Gorven J on 27 May 2016. The learned judge raised the question as to
whether the 2007
special resolution around which the arguments
revolved had ever been registered. The case was adjourned for the
parties to investigate
the position and it was found that the
resolution in question had not been registered. In the result the
learned Judge held in
his judgment delivered on 28 September, 2016
that the special resolution passed at the 2007 annual general meeting
had lapsed and
was void. Both the application and the counter
application had to be dismissed. Both were premised on the
proposition that the
GLA method had been lawfully introduced,
notwithstanding the dispute about its effect on the first
respondent’s liability
for levies.
[9] Following
and in consequence of the judgment of Gorven J, an extraordinary
general meeting of the members of
the appellant was held in 2017. Its
purpose was to consider and pass three special resolutions. The first
two sought to address
the fact that, unbeknown to the appellant and
its members, all levies had been charged for the previous 10 years
upon an incorrect
basis. For the purpose of this narrative it is
sufficient at this stage to say that this appeal concerns the
efficacy and validity
of those two resolutions. The third resolution
introduced an altogether more refined version of the GLA method of
apportioning
levies. All three special resolutions passed with the
requisite majority on 15 June 2017. The first respondent was the only
member
who voted against the adoption of the resolutions. But there
is no dispute between the parties as to the fact that levies are now
properly charged and raised under the new refined GLA method.
[10] Being
dissatisfied with the first two 2017 special resolutions, the first
respondent made an application in
terms of the Community Schemes
Ombud Service Act, No 9 of 2011 for an order that the levies which
had been raised between 2007
and 2017 should be adjusted to reflect
an apportionment on the basis of land area. The first respondent
argued that the resolutions
passed in 2017 did not have the effect
desired by the majority, of regularising the apportionment of levies
during that period
according to the GLA of each property. The second
respondent dismissed that application. He held that the shareholders
could ratify
what had been wrongly done, and that they did so. The
second respondent’s decision turned on questions of law. The
first
respondent accordingly had a right of appeal to the High Court
on those questions of law in terms of s 57 of Act No 9 of 2011.
[11] The
first respondent exercised that right of appeal and sought orders
from the court
a quo
upholding an appeal against the second
respondent’s adjudication order and setting it aside; and a
declaratory order that
the levies payable by members of the appellant
during the period of implementation of the void 2007 special
resolution was the
regime which subsisted prior to the passing of
that resolution. That relief, accompanied by a costs order, was
granted by the court
a quo
.
[12] I
have refrained from mentioning the precise dates between which the
erroneous levies were raised and paid
by all owners except the first
respondent. These dates appear in the orders sought and in the
resolutions, but the accuracy of
them was not addressed in argument,
and I am not certain that all of them are necessarily correct.
Counsel addressed us upon the
basis that the issue was whether levies
raised on the GLA method, in the mistaken belief that it was
authorised by the 2007 special
resolution, can now be regarded as
having been validly raised. Questions about the beginning and the end
of that period of charging
are not presently material.
THE
CHALLENGED RESOLUTIONS
[13] Resolution
No 1 passed on 15 June 2017 read in its essential part as follows:
‘
The Special
Resolution passed and purporting to alter the articles of Association
at the AGM held on the 12th December 2007 be and
are (
sic
)
ratified.’
A
restatement of the 2007 Special Resolution follows the text above in
the minute of the meeting.
[14] The
second Special Resolution of 15 June 2017 reads as follows.
‘
That the levies as
charged for the period 1 March 2008 to date of this Extra Ordinary
General Meeting be and are hereby approved
and ratified.’
[15] The
meaning of and intent behind the second resolution seems perfectly
obvious. The same cannot be said for
the first resolution. It was
approached in the court
a quo
and before us as either
(a) a
device to regularise and resurrect the 2007 resolution by ratifying
it; or
(b) an
attempt at retrospective amendment of the articles of association (by
then part of the appellant’s
memorandum of incorporation).
The
first resolution certainly had no future operation when it was
passed, given that the third resolution, amending the memorandum
of
incorporation, deleted the whole of the article which had dealt with
the subject of apportionment of levies, and replaced it
with an
entirely new one.
THE
JUDGMENT OF THE COURT
A QUO
[16] In
analysing the position and stating the reasons for reaching her
decision, the learned Judge
a quo
concentrated on the first
resolution which sought to ratify the 2007 resolution. She spoke of
it in her judgment as having been
“ruled void” and having
been “declared void” by Gorven J in the matter he decided
in 2016 (see paragraph
8 above). The learned Judge reasoned along the
lines that the case turned on what exactly the effect was of the
judgment of Gorven
J. She held that the issue was whether the
appellant could ratify a resolution “which was declared void by
the court”.
[17] The
learned Judge considered the meaning of the word “void”
and appeared to accept the definition
that it was something “having
no legal force or binding effect; unable, in law, to support the
purpose for which it was intended”
(see the judgment of the
court
a quo
, para 27). She continued as follows.
‘
Arising from the
definition of the word void, and upon a consideration of the judgment
by Gorven J, it is accepted that the resolution
of 2007 no longer
existed after the court ruled it to be void. If this is the case,
then such resolution could subsequently not
be ratified by the
members of [the appellant]. Once this decision is arrived at in
respect of the first resolution it follows that
the second resolution
could also not be ratified since it is based on the legal validity of
the first resolution. While the parties
agreed the special resolution
of 2007 was invalid, they seem to have overlooked the wording of the
judgment by Gorven J. Not only
did it declare the resolution invalid,
it went further to declare it void.’
[18] On
that basis the learned Judge held that the second resolution could
not be sustained and both had to be
set aside. The result was the
upholding of the appeal against the second respondent’s
adjudication order, and a declaration
that
‘
[t]he levies
payable by members of the [appellant] from 1 March 2008 to 23
November 2017 fall to be calculated in accordance with
the method of
calculation of the levies which subsisted prior to 1 March 2008.’
ON
APPEAL
[19] Both
the contested resolutions purport to ratify something. That is where
the similarity between them begins
and ends. The second resolution
seeks to ratify conduct. Although the first resolution is not as
easily construed, it appears to
evidence an intention to ratify and
thereby bring into conformity with law a resolution passed 10 years
earlier, with a view to
bringing about that during that 10 year
interval the articles of association of the applicant should be
regarded in law as having
been amended by the 2007 resolution,
despite the fact that the articles of association were not amended
through or in consequence
of the resolution of 2007.
[20] The
appellant argues that the first resolution achieved its intended
purpose of bringing about that, when
considering the period between
2007 and 2017, the articles of association must be taken to have been
amended by the 2007 resolution,
that being a consequence of
ratification of that resolution. On that basis the conduct of the
directors of the company in those
years with regard to the raising of
levies could not be challenged. There was no need for Resolution No
2. However that does not
mean, as was held in the court
a quo
,
that the validity of the second resolution rested on the validity of
the first. If the first resolution was invalid, then an alternative
question needs to be answered in order to determine the fate of the
second resolution. Could the members of the company by special
resolution ratify and put beyond challenge the conduct of the
directorate of the company in raising levies on a basis not
sanctioned
by the articles of association?
[21] On
that analysis one must resolve the argument over the first resolution
before considering the second one.
ON
APPEAL : RESOLUTION 1 OF 2017
[22] Counsel
for the appellant has argued that the learned Judge in the court
a
quo
erred in coming to the conclusion that Gorven J had declared
the resolution of 2007 void. As I understand the argument, because
Gorven J made no such declaratory order, the “voidness”
in the resolution of 2007 followed from the failure to register
it
within the six month period allowed by the Companies Act, 1973. For
that reason, argued counsel, it could be revived and operate
through
the ratification effected by Resolution No 1 in 2017. In support of
this last mentioned proposition counsel cited a passage
at page 802
of the report of the judgment in
Neugarten and Others vs Standard
Bank of South Africa Limited
1989 (1) SA 797
(A).
Neugarten
concerned a dispute over a guarantee provided by a company in
breach of s 226(1) of the Companies Act, 1973. Section 226(2) would
have permitted the guarantee if,
inter alia
, it was furnished
with the consent of all the members of the company. All the members
save one agreed. The passage relied upon
comes from the judgment of
Nicholas AJA and reads as follows.
‘
It is not the rule
that in all cases where the consent of some person is a prerequisite
(whether at common law or by virtue of a
statutory provision) to the
validity of the transaction, it must be prior consent. A statute may
indeed so provide. So, in
Incorporated Law Society of Natal v Van
Aardt
1930 NPD 69
, a by-law provided for a consent “previously
had and obtained”. It was held that these words clearly meant
that the
consent must be obtained beforehand (see at 76).
Generally
speaking, however, consent may be given
ex post facto
by subsequent ratification.’
(My emphasis.)
Nicholas
AJA went on to hold that a distinction had to be drawn between a
transaction absolutely prohibited and illegal
per se
(such as
was considered in
Cape Dairy and General Livestock Auctioneers vs
Sim
1924 AD 167)
, and a case where the transactions are
prohibited and illegal only in the absence of some stipulated
consent. He continued as follows
at 803:
‘
If the requisite
consent is given to the transaction
in initio,
it is a valid
transaction. If the transaction is subsequently ratified by the
non-consenting members, the ratification relates
back to the original
transaction and the position is the same as if consent had originally
been given.’
Counsel
for the appellant argues that the 2007 resolution was not inherently
invalid; it required registration to achieve validity,
and that
requirement should be regarded as no different to the requirement of
consent which was at the centre of the issue considered
in
Neugarten
.
Accordingly, argued counsel, registration of a ratifying resolution
solved the problem of the initial invalidity of the 2007 resolution.
[23] However
the judgment penned by Nicholas AJA in
Neugarten
was a
minority judgment. The majority judgment of Kumleben JA took a
contrary view. The learned Judge held that an agreement made
contrary
to the provisions of s 226 of the Companies Act, 1973 was a nullity
and that an analysis of the provision does not suggest
that “any
qualified form of voidness was intended”. He endorsed the
proposition, with reference to
Schierhout v Minister of Justice
1926 AD 99
at 109, that
‘
since the
guarantee at the time it was signed was a nullity, it follows that it
“is not only of no effect, but must be regarded
as never having
been done”.’
The
majority judgment applied the
‘
well-settled law
that there can be no ratification of an agreement which a statutory
prohibition has rendered
ab initio
void in the sense that it
is to be regarded as never having been concluded …’ .
[24] In
the present case the intention of the legislature was conveyed in
express language. Section 202 of the
Companies Act, 1973 provided as
follows.
‘
Any special
resolution of which a copy is not lodged with the Registrar and
registered by him within six months from the date of
the passing of
that resolution shall, unless the court otherwise directs, lapse and
be void.’
[25] Here
the special resolution of 2007 was not lodged with the registrar at
all. As Gorven J correctly pointed
out in his judgment:
‘
No court order
relating to the resolution has been made. As such, the special
resolution passed at the 2007 AGM has lapsed and is
void. Article
14.7 remains unamended.’
[26] On
the authorities already mentioned, and with
Neugarten’s case
confirmed and followed in
Hanekom v Builders Market Klerksdorp
(Pty) Limited and Others
2007 (3) SA 95
(SCA)
at para 4, and
Gihwala and Others v
Grancy Property Limited and Others
2017
(2) SA 337
(SCA) at para 115, the resolution of 2007 cannot be
revived, or have life breathed into it by ratification, as was sought
to be
done through Special Resolution No 1 passed by the appellant in
2017. (I should mention the fact that, like the appellant, the
Supreme Court of Appeal in
Lynn N.O. and
Another v Coreejes and Another
2011 (6)
SA 507
(SCA) at para 13 mistakenly attributed the outcome of the
appeal in
Neugarten
to the reasoning adopted in the minority judgment. However the
context in which that was done seems to me to have no bearing on
the
enquiry in the present case, and to the extent that it matters, the
endorsement of the majority judgment in
Neugarten
by
Gihwala’s
case post-dates the judgment in
Lynn’s
case.)
[27] I
am in respectful disagreement with the view taken in the court
a
quo
that it was the fact that Gorven J
“declared” the 2007 resolution void which meant that it
could not be revived or
given life through ratification. I am also in
respectful disagreement with the submission made by counsel for the
appellant that
it is significant that Gorven J made no declaratory
order to the effect that the 2007 resolution was void. Gorven J found
that
the resolution was void because the Companies Act was to that
effect. He did not make a declaratory order because he was not asked
to do so; but that did not render his finding any less significant to
the litigants before him than would have been the case if
he had made
a declaratory order. Courts do not create “voidness” by
declaring the coming into being of that condition.
Courts declare
something void because it is void. What the courts are required to do
in such cases is determine whether the conditions
laid down by the
law for such a finding exist. A finding that, for instance, a
contract is void will only result in a declaration
to that effect
when that is the relief which a litigant seeks. Where, as happened in
the case before Gorven J, other forms of relief
dependent on a
transaction not being void are denied, because the court finds the
transaction to be void, that finding, which is
not expressed in
declaratory form, has the same significance as a declaratory order
would have had if it had been sought.
[28] Counsel
for the first respondent has also considered the issue of the first
resolution of 2017 in a way which
implies a wider interpretation of
the resolution, as one which, despite the use of the word “ratified”,
does not seek
to lend legal force to what was done in 2007. Rather,
approaching the interpretation of the resolution generously, it might
be
read as a resolution passed and registered in 2017 then and there
to amend the articles of association (by then the memorandum of
incorporation) in exactly the same manner as had been contemplated in
2007, but subject to the rider that the amendment would operate
retrospectively with effect from 2007. It is difficult to tease that
meaning out of the wording employed in resolution No 1 of
2017. But,
on the other hand, this interpretation of the resolution certainly
reflects what the supporters of the resolution sought
to achieve,
namely that the articles of association should be regarded as having
been amended in 2007 despite the fact that no
such amendment was made
in 2007.
[29] Read
this way resolution No 1 has two components. One is an act of
amendment. The second is a provision, not
express but implied, that
despite the fact that the amendment was only effected in 2017, it
operates retroactively from 2007.
[30] Counsel
for the first respondent points out correctly, in my view, that if
this is what was intended, and
if this is the proper way to construe
resolution No 1, then the decision that the amendment should operate
retrospectively is in
conflict with the provisions of the
Companies
Act, 2008
.
Section 16
of that Act deals with amending the memorandum
of incorporation. It may be done by special resolution. In terms of s
16(7) of the
Act the company must file a notice of amendment within
the prescribed time after amending its memorandum of incorporation.
Section
16(9)(b) of the Act then provides as follows. (Sub-section
(a) does not apply in this case.)
‘
(9) An
amendment to a company’s Memorandum of Incorporation takes
effect –
(a)
…
(b)
In any other case, on the later of –
(i)
the
date on, and time at, which the notice of amendment is filed; or
(ii)
the
date, if any, set out in the notice of amendment.’
[31] The
following are the significant features of this provision.
(a)
The
provision does not determine when the special resolution takes
effect. Its subject is the amendment itself. When does it take
effect?
(b)
A
valid date for the amendment to take effect, contemplated by ss
(9)(b)(ii) would have to be after the date of filing of the notice
of
amendment. That is because it is the
later
of the date of filing and the stipulated date which determines when
the amendment takes effect.
(c)
The
purpose of s 16(9) is to determine when the amendment “takes
effect”. If the resolution in this case is regarded
as
containing a stipulation that the amendment would operate
retrospectively to 2007, then the resolution purports to bring about
that the amendment (not the resolution) takes effect from 2007. That
is plainly in conflict with s 16 (9).
[32] The
conclusion must be that Special Resolution No 1 passed in 2017 did
not validly bring about changes to
the governing instrument of the
company during the period 2007 to 2017, as the appellant contends it
did. If the resolution arguably
has any other meaning it was
impermissibly vague. On any basis it must be regarded as invalid and
of no force and effect.
ON
APPEAL: RESOLUTION 2 OF 2017
[33] The
second resolution of 2017 must be dealt with on the basis that the
scheme for the apportionment of levies
employed between 2007 and 2017
was not sanctioned by the articles of association of the appellant.
The resolution approved the
levies that had been charged in that
period and “ratified” them, meaning that the authority of
the directors and the
company to charge those levies was conferred
after the event.
[34] Counsel
for the appellant argued at the outset that the second resolution was
an agreement. With reference
to the judgment in
Gohlke and
Schneider v Westies Minerale (Edms) Bpk and Another
1970 (2) SA
685
(A) at 692, he argued that the members of a company may by
agreement depart from the provisions of the articles of association.
This argument raises two questions:
(a) can
the parties by agreement depart from the provisions of the articles
of association (now the
memorandum of incorporation)? If so
(b) can
special resolution No 2 be regarded as an agreement?
[35]
Gohlke
and Schneider
concerned a company incorporated under the then
South West Africa Companies Ordinance, 19 of 1928. Its articles of
association
laid down a process for the appointment of directors. All
the shareholders agreed to the appointment of a director otherwise
than
in accordance with the provisions of the articles. The passage
in the judgment relied upon by counsel for the appellant reads as
follows.
‘
As to the
articles, it will be immediately apparent that the section does not
render them absolutely binding on the company and
its members as
though they were statutory enactments, which the court
a quo
seems to have assumed. The company and its members are bound only to
the same extent
as if
the articles had been signed by each
member, that is, as if they had contracted in terms of the articles.
The articles, therefore,
merely have the same force as a contract
between the company and each and every member as such to observe
their provisions [authorities
omitted]. Now that contract is not made
immutable or indefeasible by the Ordinance in any respect relevant
here. Consequently,
I can see no reason why, as with any other
contract, it cannot be departed from by a
bona fide
agreement
concluded between the company and all its members to do something
intra vires
of the company’s memorandum but in a manner
contrary to the articles, and why that agreement should not bind
them, at least
for so long as they remain the only members.’
[36] According
to the appellant’s argument special resolution 2 must be
regarded as an agreement between
members of the appellant. However
s
15(7)
of the
Companies Act, 2008
is to the following effect.
‘
(7) The
shareholders of a company may enter into any agreement with one
another concerning any matter relating
to the company, but any such
agreement must be consistent with this Act and the company’s
memorandum of incorporation, and
any provision of such an agreement
that is inconsistent with this Act or the company’s memorandum
of incorporation is void
to the extent of the inconsistency.’
Having
regard to that provision, if the special resolution is regarded as a
contract between the members of the company which seeks
to avoid the
provisions of the memorandum of incorporation of the appellant, to
that extent it appears to be void and unenforceable.
However one
should note that
Gohlke and Schneider
endorsed the
enforceability of a
bona fide
agreement concluded not only by
all its members, but between the company and all its members. For
present purposes we may leave
open the question as to whether a
contract
bona fide
concluded between the company and its
members in conflict with the memorandum of incorporation is hit by
the provisions of
s 15(7)
of the
Companies Act, 2008
. The argument of
the applicant falls on its second leg, with the result that there is
no need to consider that question, nor to
attempt a reconciliation of
s 15(7)
and s 20(1) of the Act, to which I will turn shortly. (As to
this latter issue, the starting point of the exercise of reconciling
the provisions may be that whereas s 15(7) has to do with agreements
in conflict with the memorandum of incorporation, the subject
of s
20(1) of the Act is action on the part of the company concerned.)
[37] Turning
to the second question posed above, counsel for the first respondent
argued, initially in any event,
that special resolution No 2 could
not qualify as an agreement between the members of the appellant
because at least one of the
members, the first respondent, did not
agree to the content of the resolution. In my view that is a complete
answer to the argument
initially advanced by counsel for the
appellant. As the extract from the judgment in
Gohlke and
Schneider
quoted above reveals, what the court was talking about
there was an agreement concluded between the company and “
all
its members” to deviate from the articles.
[38] After
initial heads of argument had been delivered for the purpose of this
appeal, the parties were requested
to prepare to deal in argument
with the question of the significance of
s 20(2)
of the
Companies
Act, 2008
in determining the fate of the second resolution taken in
2017. That section had not been drawn to the attention of the learned
Judge
a quo
.
[39] The
structure of
s 20
of the
Companies Act, 2008
needs to be considered
in order to see where
s 20(2)
fits in. I will attempt a precis in
order to avoid quoting the entire section in this judgment. I will
attempt to avoid distracting
details which are not relevant to the
exercise.
(a) Perhaps
one needs start with
s 15(6).
That provides that a memorandum of
incorporation is binding between the company and each shareholder,
and between and among the
shareholders.
(b)
Section
20(1)
deals with the case of a memorandum of incorporation which
“limits, restricts or qualifies the purposes, powers or
activities”
of a company. It is to the effect that no action of
the company is void
only
because it was prohibited by such
limitations, or because, in consequence of the existence of those
limitations, the directors
had no authority to authorise what the
company did. The section goes on to provide that outsiders may not
rely on any such limitation,
restriction or qualification to say that
what the company has done was void. However in proceedings between
the company and its
shareholders, directors or prescribed officers,
or between those persons themselves, it may be asserted that such
conduct is void.
(c)
Section
20(2)
must be quoted in full.
‘
If a company’s
Memorandum of Incorporation limits, restricts or qualifies the
purposes, powers or activities of that company,
or limits the
authority of the directors to perform an act on behalf of the
company, the shareholders, by special resolution, may
ratify any
action by the company or the directors that is inconsistent with any
such limit, restriction or qualification, subject
to sub-section
(3).’
Sub-section (3) is to the
effect that action or conduct in contravention of the
Companies Act
itself
cannot be ratified under
ss 2.
That is not an issue in this
case.
(d)
Section
20(5)
allows shareholders, directors or prescribed officers of a
company to apply to the High Court for an order restraining the
company
or the directors from doing anything inconsistent with any of
the limitations, restrictions or qualifications referred to in
s
20(2).
It therefore speaks to future conduct. That reinforces what
appears plain on a reading of
s 20(2)
(which has to do with
“ratification”), that
s 20(2)
deals with past
“misconduct”.
(e)
Section
20(6)
provides that a shareholder of a company has a claim for
damages against any person who “intentionally, fraudulently or
due
to gross negligence” causes the company to do things
inconsistent with any of the limitations, restrictions and
qualifications
referred to earlier. But the claim does not exist if
the “misconduct” has been ratified by the shareholders in
terms
of
s 20(2).
[40] It
was undisputed before us, and correctly so, that the provisions of
the appellant’s original articles
of association limited and
restricted the power of the appellant to the regime based on land
area when raising levies against its
members. As a consequence of
that the directors had no authority to authorise the appellant to do
otherwise. There was accordingly
“misconduct” of the type
contemplated by
s 20(2)
of the
Companies Act, 2008
between 2007 and
2017 which, according to the plain wording of that section, the
members could ratify as they did by special resolution.
The context
within which
s 20(2)
lies furnishes no reason to doubt that the plain
meaning of the words employed in the provision coincides with the
proper construction
of the provision.
[41] Confronted
with all of this counsel for the first respondent changed tack, and
now adopted the argument that
in fact the second resolution of 2017
was in fact an agreement, and that it amounted to one contemplated by
s 15(7)
of the
Companies Act, 2008
, with the result that it was void.
There is no merit in that argument. The resolution was not an
“agreement” as that
term is employed in
s 15(7).
A
special resolution can only be called an “agreement” by
using that term in a very loose sense; that is to say in
the sense
that having subscribed to, or being taken to have subscribed to, the
memorandum of incorporation of a company, the shareholders
agree that
resolutions passed in general meetings with the requisite majority
will be regarded as binding.
[42] Furthermore,
the provisions of
sections 15(6)
and (7) of the
Companies Act, 2008
,
must not be read in isolation, but must be considered in context, and
especially in the light of the provisions of s 20 of the
Act. Section
20 has the effect, as between the company and its shareholders,
directors and prescribed officers, and as between
those shareholders,
directors and prescribed officers themselves, that past “misconduct”
can be regularised through
ratification, but future or anticipated
“misconduct” may be restrained by a court order.
[43] The
second resolution passed in 2017 accordingly achieved its intended
purpose of regularising the apportionment
of levies between the
members of the appellant which had been implemented during the
previous 10 years or so.
CONCLUSION
[43] The
relief sought by the first respondent from the second respondent was
(as the second respondent recorded
it in his adjudication order) the
‘
adjustment of the
levies which were introduced from 1 March 2008 from the gross
lettable area basis to the plot area basis which
was the basis which
prevailed before the resolution was passed on 12 December 2007’.
That
relief was denied. Indeed, in furnishing his reasons for denying the
relief, the second respondent referred to
s 20
of the
Companies Act,
2008
and found that where the directors act outside the scope of
their authority “the shareholders can ratify (approve
respectively
(sic)) any action by way of a special resolution”.
That mirrors the conclusion reached in this judgment. The appeal
against
the second respondent’s decision ought not to have been
upheld.
[44] For
the same reasons the declaratory order sought by the first respondent
in the court
a quo
, which was in all material respects the
same as the order which the second respondent refused to make, ought
not to have been granted
by the court
a quo
.
The
following order is accordingly made.
1.
The
appeal against the judgment of the court
a quo
delivered on 7 July 2020 is upheld with costs which shall be paid by
the first respondent.
2.
The
order made in the court
a quo
is set aside and
substituted with the following order.
‘
The applicant’s
appeal against the adjudication order of the first respondent, and
the applicant’s application for a
declaratory order, are
dismissed with costs.’
OLSEN
J
I
agree
STEYN
J
I
agree
PLOOS
VAN AMSTEL J
Date
of Hearing: Wednesday,
13 October 2021
Date
of Judgment: Friday,
12 November 2021
For
Appellant: Mr
AJ Troskie SC
Instructed
by: Francois
Medalie & Company
Appellant’s
Attorneys
c/o
STOWELL & COMPANY
295
Pietermaritz Street
Pietermaritzburg…KZN
(Ref.:
GJ Campbell/FRA4/0013/S-B)
(Tel:
033 – 845 0500)
(Email:
stephanieb@stowell.co.za
)
For 1
st
Respondent: Mr
GR Thatcher SC
Instructed
by: Sanan
& Watts Inc
First
Respondent’s Attorneys
2301
Durban Bay House
333
Smith Street
Durban
(Ref:
R Watts/052218)
(Tel:
031 – 305 3747)
Email:
selvam@sananwatts.co.za
comm@sananwatts.co.za
c/o
AUSTEN SMITH
191
Pietermaritz Street
Pietermaritzburg…KZN
(Ref:
CC Smythe/Cathy/Q2/S0302/21)
(Tel:
033 – 392 0500)
Email:
callum@austensmith.co.za
cathy@austensmith.co.za
Second
Respondent: Muzikayise
Moses Ntanzi N.O.
Second
Respondent
Community
Schemes Ombud Service
7
th
Floor, Aqua Sky Towers
275
Anton Lembede Street
Durban
(Tel:
087 – 805 0235)