About SAFLII
Databases
Search
Terms of Use
RSS Feeds
South Africa: Supreme Court of Appeal
SAFLII
>>
Databases
>>
South Africa: Supreme Court of Appeal
>>
2017
>>
[2017] ZASCA 67
|
|
Mbethe v United Manganese of Kalahari (Pty) Limited (503/2016) [2017] ZASCA 67; 2017 (6) SA 409 (SCA) (30 May 2017)
Links to summary
THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case
No: 503/2016
In
the matter between:
LAZARUS
MBETHE
APPELLANT
and
UNITED
MANGANESE OF KALAHARI (PTY) LIMITED
RESPONDENT
Neutral
citation
:
Lazarus
Mbethe v United Manganese of Kalahari
(503/2016)
[2017] ZASCA 67
(30
May 2017)
Coram
:
Navsa, Theron and Swain JJA and Gorven and Mbatha AJJA
Heard
:
10 May 2017
Delivered:
30 May
2017
Summary:
Derivative
action:
Section 165(5)
(b)
of the
Companies Act 71 of 2008
: requirement of ‘good faith’:
proof by applicant on a balance of probabilities: test subjective
with objective control:
state of mind of applicant determined by
drawing inferences from objective facts: absence of collateral
purpose not a self-standing
requirement of good faith: relevant to
determine whether issue ‘of material consequence to the
company’: all of requirements
of subsec to be satisfied: court
retains controlling discretion whether to grant relief: alternative
means to obtain the same relief:
relevant to determine whether
action in best interests of company.
ORDER
On
appeal from:
Gauteng
Local Division of the High Court, Johannesburg
(Wentzel
AJ sitting as court of first instance): judgment reported
sub
nom Mbethe v United Manganese of Kalahari (Pty) Ltd
[2016]
ZAGPJHC 8 (11 February
2016); 2016 (5) SA 414
(GJ).
The
appeal is dismissed with costs, such costs to include the costs of
two counsel.
JUDGMENT
Swain JA (Navsa and
Theron JJA and Gorven and Mbatha AJJA concurring):
[1]
The
appellant, Mr Lazarus Mbethe, was the chairperson and a director of
the respondent, United Manganese of Kalahari (Pty) Ltd.
The
respondent is one of the largest producers of manganese ore in the
world and conducts business as an open-cast miner of manganese
ore,
which it crushes and screens at a fixed crushing and screening plant,
before export to purchasers internationally.
[2]
During
2012, the appellant introduced the board of the respondent to
Zastrospace (Pty) Ltd (Zastrospace), a mobile crushing and
screening
contractor. The reason for this was that in order to satisfy the then
relatively high global demand for manganese ore,
the respondent
identified a need for the services of mobile crushing and screening
contractors to process manganese ore, to supplement
the production
capacity of the respondent. The appellant promoted the services of
Zastrospace on the basis that it had been established
to benefit the
local community in the Northern Cape Province, where the respondent
conducts its mining operations. The appellant
contended that by
appointing Zastrospace, the respondent would obtain the services it
needed at a competitive cost and at the same
time provide substantial
financial benefits to the local community. As will be seen, the
consequent contract that the respondent
concluded with Zastrospace
was a lucrative one.
[3]
However, by
the end of the first quarter of 2014 the market for the respondent's
product deteriorated rapidly, and the respondent
had to reduce its
projected production. The need for mobile crushing and screening
services diminished and the respondent's board
resolved on 19
November 2014, to terminate the contract with Zastrospace.
[4]
Aggrieved
at the decision to terminate the contract with Zastrospace, as well
as certain perceived deficiencies in the management
of the
respondent, the appellant, in his capacity as the chairperson and a
director of the respondent, launched an application
before the
Gauteng Local Division (Johannesburg). The appellant sought an order
granting leave to institute and prosecute to finality,
legal
proceedings in the name and on behalf of the respondent, in terms of
s 165(5) of the Companies Act 71 of 2008 (the Act).
The court a quo
(Wentzel AJ) dismissed the application with costs, concluding that
the appellant had failed to discharge the onus
of establishing the
requirements of the Act. The appeal is with the leave of the court a
quo.
[5]
The demands
served upon the respondent in terms of s 165(2) of the Act
[1]
,
which formed the basis for the proposed derivative action were as
follows:
(a)
The first demand alleged
that the shareholders’ agreement of the respondent
was in
conflict with the provisions of the Act and the Third Report on
Corporate Governance in South Africa (King III
[2]
)
in relation to the activities, authority and quorate decision-making
process of the board committees of the respondent. It was
alleged
that these committees, acting in accordance with the shareholders’
agreement, took decisions despite committee members
not being board
members. It was alleged that they acted autonomously and not in
accordance with the delegated authority of the
board. As a result,
they effectively managed the business of the company with the board
abdicating the business and affairs of
the respondent to these
committees. It was alleged that the shareholders’ agreement was
bad in law, rendering void or voidable
all matters decided by these
committees, to the extent that they were in conflict with the Act and
King III. It was demanded that
the necessary steps be taken by the
respondent to have all board committee meetings of the respondent
interdicted and suspended,
pending the amendment of the shareholders’
agreement to comply with the provisions of the Act and King III. A
further demand
was that steps be taken by the respondent to declare
all decisions taken by any board committee of the respondent in
conflict with
the law, null and void and of no force or effect.
(b)
The second demand alleged
that the appellant in his capacity as the chairperson and
a director
of the respondent, suspended the holding of all committee meetings of
the respondent on 21 July 2014, in an attempt
to prevent the
continued abdication of the board's authority to the board
committees. It was alleged that Mr J Kriek, the CEO of
the
respondent, and Mr R Ramaite, a member of certain board committees of
the respondent, wilfully defied this instruction of the
appellant and
proceeded to hold board committee meetings, at which binding
decisions were taken. It was demanded that steps be
taken by the
respondent to interdict and restrain them from convening, holding and
taking any decisions at any committee meetings
of the respondent. In
addition, it was demanded that Mr Kriek be interdicted and restrained
from acting as the CEO of the respondent
with immediate effect,
pending the outcome of disciplinary proceedings for his suspension or
dismissal, on various grounds.
(c)
The third demand was
that steps be taken by the respondent for Mr Ramaite to
be
interdicted and restrained from acting as a member of any committee.
The grounds for the demand were that he was not a director
of the
respondent and disobeyed the instruction of the appellant not to
convene committee meetings. It was also alleged that he
decided to
terminate the Zastrospace contract, knowing that it was unlawful and
to the prejudice of the respondent and its shareholders
to do so.
(d)
The fourth demand alleged
that Mr I Letshalo had been duly appointed to replace Mr
Ramaite as
the deputy CEO of the respondent, who refused to relinquish this
position. It was demanded that steps be taken by the
respondent to
interdict and restrain Mr Ramaite from purporting to act as the
deputy CEO, and for an order declaring that Mr Letshalo
was the duly
appointed deputy CEO of the respondent.
(e)
The fifth demand alleged
that the termination of the contract with Zastrospace was
unlawful
and in breach of the contract in a number of respects. It was
demanded that steps be taken by the respondent to reinstate
the
contract with immediate effect, or to have the purported termination
declared unlawful and of no force or effect.
[6]
Whether the
appellant should be entitled to advance these demands by way of a
derivative action, requires an interpretation of the
provisions of s
165 of the Act. Differing interpretations by the parties of the
provisions of subsec (5)
(b)
,
lie at the heart of the dispute. The section makes provision for a
statutory derivative action to commence or continue legal proceedings
in the name and on behalf of a company, on the part of defined
individuals and representatives or employees of the company. The
section abolishes any right at common law of a person other than a
company, to bring or prosecute legal proceedings on behalf
of
that company and is in substitution for the right at common law to
bring a derivative action. In addition, the provisions of
s 266 of
the Companies Act 61 of 1973 (the 1973 Act), which made limited
provision for a statutory derivative action, were repealed
by the
Act.
[7]
It is not
in dispute that the appellant has locus standi to seek leave to bring
or continue proceedings in the name and on behalf
of the respondent
in terms of s 165(5) of the Act. The portions of the section
which are relevant to a resolution of the present
dispute, provide
that a court may grant leave only if:
‘
(b)
the court is satisfied that –
(i)
the applicant is acting in good faith;
(ii)
the proposed or continuing proceedings involve the trial of a serious
question of material consequence to the company; and
(iii)
it is in the best interests of the company that the applicant be
granted leave to commence the proposed proceedings or continue
the
proceedings, as the case may be.’
[8]
Central to
the dispute between the parties is a divergence of their views on the
nature of the onus which an applicant for relief
in terms of the
section has to discharge, in order to satisfy the court that the
applicant ‘is acting in good faith’.
The appellant
initially submitted in heads of argument, that good faith by an
applicant who has shown the existence of a triable
cause of action
with a reasonable prospect of success, is presumed. However, at the
hearing of the appeal counsel for the appellant
correctly withdrew
this submission. Section 165(7) of the Act provides that ‘[a]
rebuttable presumption that granting leave
is not in the best
interests of the company arises . . .’ where the proposed
proceedings by the company are against a third
party, or by a third
party against the company and certain requirements are satisfied.
Consequently, if the legislature intended
a presumption to operate
within the context of s 165(5) it would have said so. It was
accordingly common cause that the appellant
bore the onus of proving
each of the requirements of s 165(5)
(b)
of the Act, on a balance of probabilities.
[9]
However,
the parties disagreed upon the correctness of the court a quo’s
conclusion as to what had to be proved to establish
the requirement
of good faith. The court a quo, relying upon the decision in the
Australian case of
Swansson
v Pratt
[2002]
NSWSC 583
(3 July 2002), as approved in
Mouritzen
v Greystones Enterprises (Pty) Ltd & another
2012
(5) SA 74
(KZD) para 51, held that there were two interrelated
questions in determining good faith:
‘
First,
the applicant must honestly believe that a good cause of action
exists and that it has a reasonable prospect of success.
As a
converse of this, the applicant must also show that the application
is not brought for a collateral purpose.’
In
addition the court a quo held that:
‘
The
legislature has quite clearly placed a substantive onus on an
applicant seeking to bring a derivative action to show that he
is
acting in good faith, which requires his establishing both elements
of the requirement of good faith set out in
Swansson
.
This is a substantive self-standing requirement for relief.’
(
Mbethe
v United Manganese of Kalahari (Pty) Ltd
[2016]
ZAGPJHC 8 (11 February
2016); 2016 (5) SA 414
(GJ)
para 170).
[10]
The dispute
concerned the elevation of the absence of a collateral purpose to the
status of an element or criteria of the good faith
requirement, to be
proved by an applicant as part of the substantive onus relating to
good faith. The appellant argued that this
was incorrect. The
respondent however, supported the interpretation of the court a quo,
on the basis that the proper purpose component
requires the appellant
to establish his good faith by proving that he is motivated by a
desire to protect the legal interest of
the company and not the
ulterior purpose of pursuing his own private interest.
[11]
The
importation from Australian law of the requirement that an applicant
in order to establish good faith must in addition prove
the absence
of a collateral purpose, is unjustified when the provisions of s
237(2) of the Australian Corporations Act 2001 are
compared with the
provisions of s 165(5) of the Act. Section 237(2) provides that a
court must grant the application if it is satisfied,
inter alia that
‘the applicant is acting in good faith’ and ‘it is
in the best interests of the company that
the applicants be granted
leave’ and ‘if the applicant is applying for leave to
bring proceedings – there is
a serious question to be tried.’
Notably absent from the Australian statute is the provision that the
proceedings must involve
the trial of a serious question ‘of
material consequence to the company’ as is required by
s 165(5)
(b)
(ii)
of the Act. The presence or absence of a collateral or ulterior
purpose on the part of an applicant, is clearly comprehended
by the
requirement that the question to be resolved is of material
consequence to the company. It is therefore unnecessary to import
this requirement as a self-standing requirement of the good faith
enquiry, when it more appropriately arises in determining whether
the
question in issue is of material consequence to the company. However,
as will be seen, the determination of the presence or
absence of a
collateral or ulterior purpose on the part of an applicant, may in
itself constitute cogent evidence of an absence
of good faith. The
court a quo accordingly erred in concluding that an applicant in
terms of s 165(5) of the Act bore an onus
of proving the absence
of a collateral purpose, as a self-standing requirement of the good
faith enquiry.
[12]
Counsel for
the appellant, although conceding that the appellant had to prove his
good faith on a balance of probabilities, submitted
that the
threshold to discharge this onus should be a low one. It was
submitted that this was necessary in order ‘to give
teeth’
to s 165 of the Act and that to place a heavy and restrictive onus
upon an applicant, would discourage prospective
litigants to seek
leave to institute the derivative action. To achieve this, an
interpretation of the section was required which
was consonant with
the purpose of the legislation, outlined in s 7 of the Act.
Compliance with the Bill of Rights, as well
as encouraging
transparency and high standards of corporate governance and the
efficient and responsible management of companies,
had to be
considered when interpreting the section.
[13]
In order to
place the nature of the onus to be discharged by an applicant in
terms of s 165(5)
(b)
of the Act in context, it is necessary to briefly examine the
requirements of the common law derivative action abolished by the
Act, as well as the repealed provisions of the statutory derivative
action contained in s 266 of the 1973 Act.
[14]
The common
law derivative action owed its origin to the so-called exceptions,
set out in
Foss
v Harbottle
[1843] EngR 478
;
(1843)
67 ER 189
, to the general principle that the company is the correct
party to bring an action to redress a wrong done to it. One such
exception
arose where a fraud on minority shareholders was
perpetrated and the claim was a wrongful failure on the part of the
company to
institute action, in breach of its duty to a minority
shareholder. A member seeking to advance a common law derivative
action against
the company, bore the onus of proving not only the
existence of the right of the company relied upon, but in addition
the breach
of the duty owed to the member by the company. The
member’s right to proceed with the action was not unqualified
as the court
possessed a discretion whether to grant the remedy, or
not.
[15]
Section 266
of the 1973 Act introduced a statutory derivative action which
enabled a member to bring an action to enforce the company's
rights
against wrongdoing directors and officers. An applicant bore the onus
of satisfying a court of the existence of a prima
facie case of
wrongdoing to justify the appointment of a provisional curator ad
litem to investigate whether the alleged wrong
had been committed,
and whether it was desirable to involve the company in such
proceedings. On the return date the court would
either discharge the
provisional order, or confirm the appointment of the curator and
issue further instructions as to the institution
and conduct of the
proceedings.
[16]
It is clear
that an applicant seeking to advance a derivative action whether at
common law or in terms of s 266 of the 1973 Act,
bore an onus. At
common law the contemplated action related to the existence of the
right relied upon and the breach of the duty
owed to the member, by
the company. In the statutory action this related to the existence of
a prima facie cause of action against
the wrongdoer. In either case,
the court exercised an overriding discretion whether or not to grant
leave to institute the derivative
action. The imposition of an onus
on an applicant, together with the exercise of a discretion by the
court, had as its objective
not only the need to protect the rights
of members of the company, but also the need to protect the
administration of the business
of the company, against frivolous or
vexatious claims, or claims which were not in the interests of the
company.
[17]
Although
the statutory derivative action provided for in s 165 of the Act is
wider in scope than the common law action, as well
as that under the
former statutory regime, a need to strike the appropriate balance
between these same interests, remains of paramount
importance in
determining not only the nature and extent of the onus resting upon
an applicant, but also the nature and extent
of the discretion vested
in the court. There is accordingly no basis for the submission by
appellant's counsel that the provisions
of s 165(5)
(b)
of the Act require an applicant to satisfy the requirements of the
section on a lesser standard than proof on a balance of
probabilities.
[18]
For the
same reason there is no basis for the obiter conclusion reached by
the court a quo that the discretion to be exercised by
the court is
limited by the provisions of s 165(5) of the Act. The relevant
portion of the subsec provides that ‘. . . the
court may grant
leave only if – . . .’ the requirements of subsecs
(a)
and
(b)
are satisfied. The court a quo held that:
‘
The
use of the word “may” in this context does not confer
discretion but rather authority to the Court to only grant
relief if
the requirements of the subsection are satisfied. Where they are
satisfied, there is no residual discretion conferred
upon the court
not to grant relief.’
Whilst
it is correct that relief may only be granted if the requirements of
the subsec are satisfied, this does not mean that the
court is
compelled to grant relief, if they are. If this were not so, the
exercise by the court of a discretion would be precluded.
[19]
Although the individual requirements of subsecs 165(5)
(b)
(i),
(ii) and (iii) of the Act are conjunctive, this does not mean that
they are to be considered in isolation. For example, in
considering
whether the ‘proceedings involve the trial of a serious
question of material consequence to the company’,
a finding
that the applicant possesses a collateral or ulterior purpose, will
also be of relevance in deciding whether the applicant
acts in good
faith. Similarly, evidence which suggests that the proceedings are
not ‘in the best interests of the company’,
may establish
an absence of good faith on the part of the applicant.
[20]
I turn to examine the meaning of the requirement that an applicant
must act ‘in good faith’. In
Swansson
supra para 36, the first factor
[3]
in determining whether the good faith requirement was satisfied was
held to be:
‘
.
. . whether the applicant honestly believes that a good cause of
action exists and has a reasonable prospect of success.’
In
addition it was also held that, whether:
‘
.
. . the applicant honestly holds such a belief would not simply be a
matter of bald assertion: the applicant may be disbelieved
if no
reasonable person in the circumstances could hold that belief.’
In
our law it would not be a matter of mere assertion by an applicant
that he possesses the requirement of good faith. Although
the test
for good faith is subjective, relating as it does to the state of
mind of an applicant, it is nevertheless subject to
an objective
control. The state of mind of an applicant has to be determined by
drawing inferences from the objective facts, as
revealed by the
evidence.
[21]
The appellant states that he has acted in good faith in order to
protect the interests of the respondent. The respondent denies
this
and alleges that the appellant lacks an honest purpose in seeking
leave to institute a derivative action in the name and on
behalf of,
the respondent. The dispute is whether the appellant has
misrepresented his state of mind. In
R v Myers
1948 (1) SA 375
(A) at 383 it was held that absence of reasonable grounds for belief
in the truth of what is stated, may provide cogent evidence
that
there is in fact no such belief. In
Hamman v Moolman
1968 (4)
SA 340
(A) at 347A, the following was stated:
‘
The
fact that a belief is held to be not well-founded may, of course,
point to the absence of an honest belief, but this fact must
be
weighed with all the relevant evidence in order to determine the
existence or absence of an honest belief.’
[22]
The enquiry is whether the evidence reveals reasonable (and therefore
objective) grounds for the appellant's statement that
he acts in good
faith. If it is found that none, or insufficient, reasonable grounds
are present to support his statement, this
may establish an absence
of good faith on his part. In addition, if the evidence establishes
the presence of a collateral or ulterior
purpose on the part of the
appellant, the pursuit of which does not involve the trial of a
serious question of material consequence
to the company, or which is
not in the best interests of the company, this may also constitute
cogent evidence of the absence of
good faith on the part of the
appellant.
[23]
Because the issue of whether the appellant discharged the onus of
proving on a balance of probabilities that he acted in good
faith was
not referred for the hearing of oral evidence, any factual disputes
must be resolved in accordance with the dicta in
Plascon-Evans
Paints Ltd v Van Riebeeck Paints (Pty) Ltd
[1984] ZASCA 51
;
1984 (3) SA 623
(A) at
635C. Any dispute of fact has to be resolved based on the facts
relied upon by the respondent, together with any facts relied
upon by
the appellant which are admitted by the respondent. As held in
Fakie
NO v CCII Systems (Pty) Ltd
[2006] ZASCA 52
;
2006 (4) SA 326
SCA para 56 the
version of the respondent can be rejected:
‘
.
. . only if it is "fictitious" or so far-fetched and
clearly untenable that it can confidently be said, on the papers
alone, that it is demonstrably and clearly unworthy of credence.’
[24]
The termination of the Zastrospace contract, being an integral part
of the statutory demand, is central to a determination
of whether the
appellant has discharged the onus of proving on a balance of
probabilities that he acts in good faith. The court
a quo concluded
that an analysis of the demands against the factual matrix
demonstrated that:
‘
.
. . although dressed up in the noble cause of promoting good
corporate governance and the upliftment of the Kuruman community,
it
is essentially all about the retention of the Zastrospace contract.
It was only after the purported termination of this contract
by way
of committee that such committees have become the subject of
complaint by the applicant in the interests of good corporate
governance.’
[25]
Before us, counsel for the appellant conceded that the fifth demand
that the respondent take steps to reinstate the Zastrospace
contract
had been rendered moot by the passage of time, even at the stage when
the matter was heard by the court a quo. The conduct
of the appellant
in advancing this demand however remains of significance in deciding
whether the application is brought in good
faith.
[26]
The importance to the appellant of the termination of the Zastrospace
contract as a ground for launching the application, is
evident from
his replying affidavit in which he states:
‘
The
Zastrospace issue forms an integral part of the statutory demand. . .
.’
It
is therefore necessary to examine the evidence to determine whether
reasonable grounds exist to support the appellant’s
statement
that he has acted in good faith.
[27]
The appellant maintained in his founding affidavit that:
(a)
A reinstatement of the Zastrospace contract was necessary to protect
the
mining right of the respondent. This was because Zastrospace
represented 27 local communities and its appointment was in
compliance
with the terms and conditions of the respondent’s
mining right, which permitted the continued exploration of the
mineral
resource.
(b)
Notices served by the
Department of Mineral Resources on the respondent, were of
relevance
to the respondent in retaining its mining right. The department
notified the respondent on 12 November 2014 that it required
an audit
and compliance inspection in respect of the mining right to take
place on 2 December 2014. The inspection had as its stated
purpose
procurement and mine community development requirements. This was
preceded by a compliance notice dated 28 October 2014
to obtain,
inter alia, details of contracts relating to selling arrangements in
relation to minerals, as well as details of outsourced
mining
activities.
(c)
A reinstatement of
the contract was also necessary to ensure employment for
members of
the local community. He also brought the application in his capacity
as a duly authorised representative of the Kuruman
Community Trust
(the Trust). According to the appellant, the Trust was formed by him
with the specific purpose of representing
the [BEE] requirement,
which enabled the respondent to obtain its prospecting right and
later its mining right.
[28]
In response to these allegations the respondent stated that:
(a)
As pointed out above, the
need for the mobile crushing and screening service offered
by
Zastrospace was dictated by a high global demand for manganese ore,
with associated high prices. In order to take advantage
of the
favourable market conditions, it was necessary to increase the
respondent's production in excess of the capacity of its
fixed
crushing and screening plant. It was always clear that this service
would only be required on an interim basis, for as long
as the high
global demand for manganese ore continued.
(b)
Although the rates charged
by Zastrospace were broadly in line with similar charges
by other
contractors, the principal motivating factor for the conclusion of
the Zastrospace contract, was the appellant’s
assurance and
insistence that this would provide substantial financial benefits to
the local community.
(c)
No formal or
long-term agreement was concluded with Zastrospace because of
the
unpredictability of future market conditions and because it had no
experience or track record in the business.
(d)
A financial rate per ton
of manganese rock was agreed. Purchase orders were thereafter
issued
by the respondent for Zastrospace to process certain specified
quantities of rock, which was the common practice in the
industry.
The quantities requested depended entirely on the respondent’s
own commercial requirements.
(e)
During the period from May
2013 to May 2014 the respondent paid R32.5 million
to
Zastrospace. During this period, and in order to confirm the
empowerment and local benefits claims advanced by the appellant,
the
respondents made enquiries concerning the affairs of Zastrospace. It
transpired that a company Cytopix (Pty) Ltd received 30
per cent of
all payments made to Zastrospace as a ‘management fee’.
Mr P Roelofse, who was the CEO and controlled the
financial affairs
of Zastrospace, was also the sole director of Cytopix. Mr Lourens
representing the respondent, requested details
of the management
services allegedly provided to Zastrospace by Cytopix as well as
access to the Cytopix bank statements. This
request was refused.
During the period from August 2013 to June 2014, payments from
Zastrospace to Cytopix totalled R5.6 million.
It was estimated that
by the time the contract was terminated, these payments should have
exceeded R7 million.
(f)
According to Mr
Lourens the payment by Zastrospace of 30 per cent of its total
turnover to Cytopix as a ‘management fee’ would mean that
it would spend less than 70 per cent of its total turnover
on
operational expenses, which was highly unusual for this type of
business. In his view it was highly unlikely that it would make
any
profit, or acquire any retained earnings with which to benefit the
local community. When regard was had to proper provision
being made
for statutory payments such as PAYE and VAT it would probably have
operated at a loss, after payment of the ‘management
fee’.
(g)
At the height of its
operations Zastrospace employed approximately 12 to 13 persons
based
upon its payroll records. This number varied depending upon the level
of services provided from time to time. The payroll
records reflected
the employees as coming from the Kuruman communities. According to
the respondent, employment of 12 to 13 individuals
on an ad hoc basis
provided minimal, if any benefit to the local community. The
respondent submits that the continued employment
of Zastrospace would
only be to the benefit of Cytopix and not the local community.
(h)
As regards the
relationship between the appellant and Mr Roelofse, the respondent
stated that the appellant had very close links to a range of
companies bearing the ‘ukupha’ name. These included
Ukupha
Properties, Ukupha Technologies and Ukupha Holdings. Mr
Roelofse and his assistant Ms Erasmus, frequently made use of an
email
address linked to a domain name ‘ukupha’ or
‘ukuphagroup’. The Ukupha group was a private investment
vehicle
of the appellant, of which he was the main beneficiary and
exercised management control. On those occasions when business
opportunities
with ‘Ukupha’ were discussed, the appellant
always spoke on its behalf.
(i)
As pointed out above, the Zastrospace contract was cancelled because
the respondent’s need for mobile crushing and screening
services disappeared because the demand for manganese ore
deteriorated
rapidly. When the appellant learned that the management
of the respondent believed that the relationship with Zastrospace
should
be terminated and referred to the Social Investment Committee
for an independent decision, he threatened management and instructed
KPMG, the respondent's company secretary, to cease all committee
meetings. The appellant however, did not attend the meeting of
this
committee to argue for the retention of the Zastrospace contract, nor
did he discuss this issue with the board of the respondent.
(j)
Although the
appellant stated that he was a duly authorised representative
of the
Trust, it had failed to produce up-to-date financial statements.
These would have indicated its spending or funding, in
pursuance of
its [BEE] objectives, to show how it had benefited the local
community.
(k)
The notices from the
Department of Mineral Resources simply referred to routine
regulatory
inspections. The respondent co-operated with the department in these
inspections and no issue of importance or relevance,
remained
outstanding. The very good relationship between the respondent and
its statutory regulator continued as before.
[29]
In response to these allegations the appellant in reply stated that:
(a)
Zastrospace was employed
on the basis of a 12 month trial period whereafter a term
contract
was envisaged by the parties as it would provide employment to the
local community. For this reason its services
should have been
retained, or appropriate measures taken to retain some, or all of its
services. It was accordingly misleading
to categorise the Zastrospace
contract with the other mobile crushing and screening contractors.
(b)
He denied that he had any
financial interest in Zastrospace and stated that he did
not receive
any economic benefit from it.
(c)
Cytopix was a
company owned by Mr Roelofse which managed Zastrospace and employed
12 individuals. The 30 per cent management fee was required to pay
for the management expenses of Cytopix. Zastrospace commenced
crushing manganese ore in June 2013 and continued to do so until its
services were terminated in September 2014. During this
time
its turnover was approximately R1.7 million per month, excluding
VAT. Unskilled labourers of the Kuruman community were
employed by it
and there was nothing sinister or untoward in its financial affairs.
The respondent had no right to investigate
the affairs of Cytopix and
Mr Roelofse was under no obligation to assist in any enquiry.
(d)
Ms Erasmus, the personal
assistant to Mr Roelofse, made use of the Ukupha Group email
address
for an intermittent period prior to Zastrospace acquiring its own
email address. He had known Mr Roelofse for many years
and there was
nothing untoward in their relationship.
(e)
It was not denied that the
respondent's requirement for mobile crushing and screening
services
declined to virtually nothing.
[30]
Bearing in mind the dictum in
Plascon-Evans
, the following
conclusions may be drawn from the evidence:
(a)
The respondent was legally
entitled to terminate the contract with Zastrospace when
it did.
Indeed, it would have been financially irresponsible to continue with
the contract, regard being had to the decline in
demand for manganese
ore at that time.
(b)
Regard being had to the
undisputed reasons why the services of a mobile crushing
and
screening contractor were initially required, there can be no basis
for the appellant's contention that after a 12 month trial
period, it
was envisaged that a term contract would be concluded with
Zastrospace. This is particularly so when the unpredictability
of the
future demand for manganese ore is considered.
(c)
Regard being had to
the fact that Zastrospace employed only 12 individuals
from the local
community, as well as the absence of any evidence to indicate how the
local community benefited from the Zastrospace
contract, it is clear
that very little if any benefit accrued to them as a result of the
contract. It appears that the main beneficiary
of the Zastrospace
contract was Mr Roelofse in his capacity as the CEO of Zastrospace,
as well as the sole director of Cytopix,
which was richly rewarded
for the ‘management services’ provided to Zastrospace.
(d)
Although there was no
obligation on Mr Roelofse to furnish any information on the
functions
Cytopix performed to justify payment of 30 per cent of the total
turnover of Zastrospace to it, as well as the manner
in which the
local community benefited from the contract, it should have been a
simple matter for him to do so. That no affidavit
was forthcoming
from him, or indeed from members of the community, speaks volumes.
(e)
There is no basis for the
appellant's contention that the notices from the Department
of
Mineral Resources had any relevance to the cancellation of the
contract with Zastrospace, nor that they had serious implications
for
the retention by the respondent of its mining right.
[31]
Accordingly, the objective facts revealed by the evidence do not
disclose any reasonable grounds to support the statement by
the
appellant, that he acted in good faith in seeking to have the
contract with Zastrospace reinstated. The absence of reasonable
grounds for belief in the truth of this statement, provides cogent
evidence that he did not hold such a belief. The absence of
any
evidence to justify the reinstatement of this contract, particularly
for the reasons and on the grounds advanced by the appellant,
points
inexorably to the presence of a collateral ulterior purpose on
the part of the appellant, in order to explain his
conduct. It is
unnecessary to speculate as to what this purpose was, it being
sufficient to conclude that as a result, the appellant
failed to
discharge the onus of proving on a balance of probabilities that the
proposed proceedings involved the trial of a serious
question of
material consequence to the respondent. In addition, he failed to
discharge the onus of showing that he held the honest
belief that the
respondent possessed a good cause of action with reasonable prospects
of success, to have the Zastrospace contract
reinstated.
[32]
As regards the remaining demands, it was only after the appellant
became aware that the Zastrospace contract was likely to
be
terminated by a committee of the respondent, that the conduct of the
committees of the respondent became the subject of complaint
by the
appellant, ostensibly in the interests of good corporate governance.
The absence of good faith on the part of the appellant
permeates all
of these demands, which have as their origin his unjustified
dissatisfaction with the termination of the Zastrospace
contract.
[33]
In addition s 165(5)
(b)
(iii) of the Act requires that it be ‘.
. . in the best interests of the company that the applicant be
granted leave to commence
the proposed proceedings . . .’. If
there are alternative means to obtain the same relief which do not
involve the company
being compelled to litigate against its wishes,
this would be an important consideration in determining whether to
grant leave
to an applicant (
Swansson
supra para 60). The
provisions of ss 20(4) and 163 of the Act provide an alternative
avenue for the relief sought in demands 1
to 4.
[34]
Section 20(4) of the Act provides that:
‘
One
or more shareholders, directors or prescribed officers of a company,
or a trade union representing employees of the company,
may apply to
the High Court for an appropriate order to restrain the company from
doing anything inconsistent with this Act.’
The
first demand alleges that the shareholders’ agreement of the
respondent is in conflict with the provisions of the Act
in relation
to the activities, authority and quorate decision making process of
the board committees. The demand is made that the
respondent take all
necessary steps to have the holding of all board committee meetings
interdicted and suspended, pending the
removal of the inconsistencies
between the terms of reference of the board committees in the
shareholders’ agreement and
the Act. The respondent denies
these allegations and states that there is no inconsistency between s
72(2) of the Act and the shareholders’
agreement, in particular
schedule 13, being the approval framework. However, the appellant as
a director would be entitled to apply
to the high court for an order
in terms of s 20(4), to restrain the company from doing anything
inconsistent with the Act. In other
words, the respondent could be
interdicted from allowing board committee meetings to be held in
terms of the shareholders agreement,
contrary to the provisions of
the Act.
[35]
Section 163(1) of the Act provides that:
‘
(1)
A shareholder or a director of a company may apply to a court for
relief if –
(a)
any
act or omission of the company, or a related person, has had a result
that is oppressive or unfairly prejudicial to, or that
unfairly
disregards the interests of, the applicant;
(b)
the
business of the company, or a related person, is being or has been
carried on or conducted in a manner that is oppressive or
unfairly
prejudicial to, or that unfairly disregards the interests of, the
applicant; or
(c)
the
powers of a director or prescribed officer of the company, or a
person related to the company, are being or have been exercised
in a
manner that is oppressive or unfairly prejudicial to, or that
unfairly disregards the interests of, the applicant.’
In
terms of s 163(2) of the Act, the court is entitled to make any
interim or final order it considers fit, including an order
restraining the conduct in question.
[36]
The relief sought in terms of the second demand is an interdict to
prevent Mr Kriek and Mr Ramaite from convening and holding
board
committee meetings of the respondent, on the grounds that the
appellant as a director and chairman of the respondent, suspended
the
holding of all such meetings. The respondent disputes that the
appellant possesses an absolute executive authority to unilaterally
suspend meetings and determine whether any actions of the respondent
and/or its executives are authorised. When regard is had to
the fact
that the appellant is only one of four directors of the respondent,
it is apparent that the relief sought by the appellant
is
comprehended by either subsec (1)
(b)
or
(c)
of s 163 of
the Act.
[37]
The third demand is that the necessary legal steps be taken to
interdict and restrain Mr Ramaite from acting as a member of
all the
committees on which he serves, as he is allegedly not a director of
the company. It is alleged that in doing so he acted
contrary to the
express instructions of the appellant, colluded to reconvene meetings
of the committees in breach of his duty of
good faith and fiduciary
duties to the respondent and in breach of clause 12.4 of the
shareholders agreement. Again, the relief
sought by the appellant is
comprehended by either subsec (1)
(b)
or
(c)
of s 163 of
the Act.
[38]
The fourth demand is that the requisite legal steps be taken to
interdict Mr Ramaite from purporting to act as the deputy CEO
of the
respondent and that Mr Letshalo be declared to be the duly appointed
deputy CEO of the respondent. The appellant alleges
that Mr Ramaite
refused to relinquish his position as deputy CEO and purported to act
as such on behalf of the respondent, which
conduct was unlawful,
unauthorised and to the prejudice of the respondent. The respondent
stated that neither of these individuals
have ever expressed any
concern or problem with the appointment of two separate deputy CEO’s.
Again, the relief sought by
the appellant is comprehended by either
subsec (1)
(b)
or
(c)
of s 163 of the Act.
[39]
The appellant therefore failed to prove on a balance of probabilities
in terms of s 165(5)
(b)
(iii) of the Act that it was in the
best interests of the respondent that he be granted leave to commence
the proposed proceedings
on behalf of the respondent.
[40]
The following order is made:
The
appeal is dismissed with costs, such costs to include the costs of
two counsel.
K G B Swain
Judge of Appeal
Appearances:
For
the Appellant:
J G Nel
Instructed by:
Natalie Lubbe &
Associates Inc, Northriding
EG Cooper Majiedt Inc,
Bloemfontein
For the Respondent:
A E Bham SC (with J A Babamia)
Instructed by:
Mervyn Taback Inc,
Parktown
Webbers, Bloemfontein
[1]
‘
(2) A
person may serve a demand upon a company to commence or continue
legal proceedings, or take related steps, to protect the
legal
interests of the company if the person-
(a)
is a
shareholder or a person entitled to be registered as a shareholder,
of the company or of a related company;
(b)
is a
director or prescribed officer of the company or of a related
company;
(c)
is a
registered trade union that represents employees of the company, or
another representative of employees of the company; or
(d)
has
been granted leave of the court to do so, which may be granted only
if the court is satisfied that it is necessary or expedient
to do so
to protect a legal right of that other person.’
[2]
King Code on
Governance for South Africa 2009.
[3]
As pointed out
above, the second factor was whether the applicant was seeking to
bring the derivative action for a collateral
purpose.