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[2018] ZAGPJHC 632
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Industrial Development Corporation of SA Limited v Oakbay Resources and Energy Limited and Others (46934/2017) [2018] ZAGPJHC 632 (12 November 2018)
IN
THE HIGH COURT OF SOUTH AFRICA
GAUTENG
LOCAL DIVISION, JOHANNESBURG
CASE
NUMBER:46934/2017
In
the matter between:
INDUSTRIAL
DEVELOPMENT CORPORATION OF SA LIMITED
Plaintiff
and
OAKBAY
RESOURCES AND ENERGY LIMITED
First
Defendant
OAKBAY
INVESTMENTS (PTY) LTD
Second
Defendant
ACTION
INVESTMENTS LIMITED
Third
Defendant
SHIVA
URANIUM LIMITED
Fourth
Defendant
Coram:
Lagrange J
Heard
:
22 October 2017
Delivered
:
12 November 2017
Summary:
(Exception – opposed – alleged failure of particulars of
claim to disclose a cause of action – exceptions dismissed)
JUDGMENT
LAGRANGE,
J
Introduction
[1]
This application concerns various exceptions taken by the defendants
against the plaintiff’s particulars of claim issued
by the
plaintiff on 10 November 2017. The nature of the claim and exceptions
are described in what follows.
Background
[2]
On 11 April 2010 the plaintiff, the Industrial Development
Corporation (‘the IDC’), entered into a loan agreement
with the first three defendants in terms of which the IDC agreed to
provide a loan of R250 million to the first defendant, Oakbay
Resources and Energy (Pty) Limited (‘ORE’). The loan was
provided so that ORE, as nominee for Oakbay Investments (Pty)
Limited
(‘OIL’), could acquire the claims on loan account which a
Canadian company, Uranium One, had against Uranium
One Africa Limited
(‘UOAL’). UOAL later changed its name and is now
known as Shiva Uranium Limited (‘Shiva’).
Shiva is the
fourth defendant. The loan agreement was one facet of a larger
transaction in which ORE was to acquire all the
shares of Shiva,
formerly held by Uranium One.
[3]
In terms of clause 9 of the loan agreement the capital amount was
repayable as a single lump sum either on the Scheduled Repayment
Date, being three years after the advance of the loan, or on the
happening of a so called ‘trigger event’, whichever
date
occurred first.
[4]
On 14 April 2010 ORE was advanced R250 million in terms of clause 7.1
of the loan agreement. On the same date, the parties entered
into a
written assignment agreement in terms of which ORE ceded its rights
and assigned its obligations to Shiva under the loan
agreement. ORE,
OIL and Action remained guarantors of the loan.
[5]
By 2013, Shiva and the other guarantors had defaulted on the full
repayment of the loan with interest. Ultimately, the default
led to a
loan restructuring agreement being concluded on 12 June 2014, over a
year later (‘the restructuring agreement’).
This time
Shiva became a party to the agreement as the designated borrower
together with the first three defendants as guarantors.
In the
original loan agreement, ORE was designated as the borrower with UOAL
succeeding it in that capacity after ORE had ceded
and assigned its
rights and obligations to UOAL under a separate cession and
assignment agreement.
[6]
The material terms of the restructuring agreement were:
6.1 Shiva undertook to repay the
principal debt of R250 million advanced to ORE on dates specified in
the loan agreement.
6.2 Shiva undertook to repay accrued
and unpaid interest due by 30 April 2013 as well as interest accrued
thereon by 31 May 2018
(‘the accrued return’). The
accrued return amounted to R202 million.
6.3 If a ‘Trigger Event’
occurred, which included
inter alia
the listing of Shiva, the
IDC was obliged to accept that any outstanding amount of the accrued
return would be repaid by issuing
it with shares in Shiva, valued at
the listing price, less 10 %.
6.4 Under clause 8.15 ORE, OIL, Action
Investments (the third defendant) and Shiva each undertook that on
any ‘Warranty Date’,
no part of their businesses had been
conducted in a manner which was corrupt or involved the payment of
any bribe or improper consideration
or violated any applicable laws.
Effectively, a ‘Warranty Date’ under clause 1.1.64 of the
restructuring agreement
was defined as 1 May 2013, 12 June 2014 and
any date prior to the discharge of all the obligations under the
restructuring agreement.
Accordingly, clause 8.15 committed the
defendants to an ongoing undertaking starting on the effective date
of 1 May 2013 and ending
when all obligations of the parties under
the restructuring agreement were discharged.
6.5 Clause 8 of the loan restructuring
agreement headed ‘Representation and Warranties’
concludes thus:
‘
It is recorded that the Lender
[the IDC] entered into the Finance Documents to which it is a party
on the strength of, and relying
on, such representations and
warranties, each of which shall be deemed to be a separate warranty
and representation, given without
prejudice to any other warranty or
representation, and deemed to be a material representation inducing
the lender to enter into
the Finance Documents to which it is a
party.’
The
term ‘Finance documents’ referred to the restructuring
agreement, the assignment agreement, the security documents
and any
other documents deemed as such by the parties.
[7]
On 2 November 2014, Shiva advised the IDC that it was in the final
stages of listing and the listing price would be R10 per
share.
However, three days later, on 5 November 2014, ORE advised the IDC
that ORE itself intended to list rather than Shiva. ORE
advised that
before the listing it would embark on a restructuring as a result of
which it would issue 18.5 million shares for
cash to a foreign
company, Unlimited Electronics and Computers (S) Pte Ltd (‘Unlimited
Electronics’). Further, ORE
would convert the outstanding
interest of R256 million owing to the IDC at that stage into equity
by issuing 28 526 647 shares
in ORE to IDC at the listing price
of R10 per share less 10 %.
[8]
On 10 November 2014 the IDC consented to this new arrangement. ORE
then listed on 28 November 2014 and the IDC was issued with
the
shares mentioned in what the IDC now describes as ‘the
purported attempt to exchange its right to payment of the accrued
return’.
IDC’s
claim
[9]
The IDC avers that OIL acted in
breach of the restructuring agreement by committing an offence in
terms of s 6 of the Prevention
of Organised Crime Act
[1]
(‘POCA’). It further claims OIL committed fraud which
induced it to enter into the restructuring agreement, which was
also
a breach of the restructuring agreement. It also alleges OIL
committed an offence under s 80(2) of the Financial Markets
[2]
(‘the FMA’).
[3]
Details of these claims are described more fully below. In
consequence of these alleged acts by OIL, the IDC submits it is
entitled
on one or more grounds to rescind and, or alternatively,
cancel the restructuring agreement.
[10]
The IDC further tenders return of the approximately 28,5 million
shares it received in ORE and in consequence of the
cancellation of the restructuring agreement demands payment from the
defendants of the outstanding amount of R37.5 million of the
original
loan principal and R250 million in outstanding interest.
OIL’s
alleged breach of POCA (paragraphs 25 to 31 of the amended
particulars of claim)
[11]
The IDC alleges that after 30 June 2017 it learned that the Free
State Provincial Government had provided R114 million to Estina
Pty
Limited (‘Estina’) to establish a dairy farming operation
to empower the local population and boost agriculture
in the
province. Instead of utilising the funds for that purpose, Estina
transferred R84 million to Gateway Limited (‘Gateway’).
Gateway, in turn, funnelled R31 million of those funds to OIL through
another intermediary Fidelity Enterprises Limited (‘Fidelilty).
Both ‘Fidelity and Gateway are registered in Dubai and
allegedly controlled by a family by the name of Gupta.
[12]
In consequence, the IDC alleges
that Estina defrauded the Free State Provincial Government and
secondly that OIL itself committed
an offense in terms of section
6
[4]
Of the Prevention of Organized Crime Act,
[5]
(‘POCA’) because in receiving the R31 million OIL
acquired, used or possessed property which it ought reasonably
to have known was from funds obtained from Estina’s unlawful
activities.
OIL’s
alleged fraudulent misrepresentation
[13]
Secondly, the IDC claims that when OIL entered into the restructuring
agreement with the IDC it falsely represented to it that
no part of
its business had violated any laws, whereas it knew that this
representation was false and the misrepresentation induced
the IDC to
enter into the agreement, thereby prejudicing it from receiving
amounts due to it in terms of the agreement.
OIL’s
alleged breach of warranties
[14]
Thirdly, the IDC claims that OIL’s alleged commission of
offenses in terms of section 6 of the POCA was also a breach
of the
warranty provided under clause 8.15 of the agreement and of the
undertakings to comply in all respects with all laws in
terms of
clause 9.1.6 of the agreement. Clause 9.1.6 states:
‘
9.1 each Obligor undertakes
that during the period commencing on the Signature Date and ending on
the Discharge Date it shall:
. . .
9.1.6 comply in all respects with all
laws including, but not limited to environmental laws to which it is
subject and to obtain
and properly renew from time to time and
promptly furnish certified copies to the Lender of all material
authorizations, approvals,
consents, licenses and exemptions, if any,
as may be required under any applicable law including environmental
laws to enable it
to conduct its business and all authorizations,
approvals, consents, licenses and exemptions, if any, as may be
required under
any applicable law to enable it to perform the
obligations under the finance documents or required for the validity
or enforceability
of the finance documents. Each Obligor shall upon
request from the Lender, supply evidence to verify its fulfilment of
that obligation;
. . . .’
ORE’s
alleged participation in share price manipulation (paras 32 to 38 of
the amended particulars of claim)
[15]
Fourthly, the IDC accuses ORE of what is colloquially known as share
price manipulation in that it was aware of monies advanced
by the
Gupta family to Unlimited Electronics which used the funds to buy
18.5 million shares in ORE. Allegedly on the instruction
of a
director of ORE, Ms R Ragovan (‘Ragovan’), Unlimited
Electronics sold 20,000 shares the day before ORE listed
and sold a
further 10,000 shares about a week thereafter at prices in excess of
the listing price of R 10 per share. As such, the
IDC claims that ORE
participated in a practice which was likely to have the effect of
creating a false appearance of the real demand
for, or supply of, its
shares and thereby artificially created a market price for the share.
This constitutes an offense in terms
of s 80(2) of the FMA. By
engaging in such conduct, ORE also breached the undertakings and
warranties mentioned above to
the effect it was not acting in breach
of any laws.
The
exceptions
[16]
The defendants gave notice to the IDC to remove causes of complaint
in terms of Uniform Rules 23(1) and Rule 30(2)(b).
When the IDC
failed to further amend its pleadings in accordance with the notice,
the defendants delivered their notice of exception.
[17]
All the exceptions raised are
exceptions that the particulars of claim fail to disclose all the
factual allegations necessary to
sustain a cause of action. It is a
well-established principle that in order to succeed with an
exception, the excipient must establish
that on every possible
interpretation which the particulars of claim can bear, no cause of
action is disclosed.
[6]
First
exception
[18]
This exception relates to paras 25 to 31 and 32 to 38 of the amended
particulars of claim, namely those portions of the particulars
dealing with the alleged receipt of funds from Estina and the share
price manipulation.
[19]
The defendants claim that the facts pleaded do not sustain a cause of
action which would entitle the IDC to rescind or cancel
the loan
agreement and tender the return of the ORE shares, because the facts
alleged, and relied on by the IDC, do not flow or
arise from the
conclusion and implementation of the restructuring agreement but from
events arising outside the ambit of the agreement.
Clauses 8.15 read
with clause 9.1.6. do not envisage such events being construed as
breaches of those provisions.
[20]
In so far as the defendants contend that the IDC cannot rely on the
Estina funding and share price manipulation narratives
because those
do not relate to obligations of the parties under the restructuring
agreement, that is a disingenuous contention.
The provisions of
clauses 8.15 and 9.1.6 clearly required the defendants to comply with
broader standards of legal probity as part
of their obligations.
Those acts of compliance went beyond simply fulfilling their
obligations to repay the loan in accordance
with the restructuring
agreement. The supposedly extraneous events the defendants refer to
actually describe the factual basis
for alleging breaches of
warranties and undertakings which were deemed to be material in the
final portion of clause 8, mentioned
above.
[21]
Whether or not the IDC is
‘entitled’ to tender return ORE shares or not, is
something of a ‘red herring’.
Ordinarily an exception
might be taken where the party seeking to rescind an agreement
fails
to tender restitution of
the benefits received under the contract. Thus, in
Sackstein
NO v Proudfoot Sa (Pty) Ltd
[7]
the Supreme Court of Appeal reiterated the principle affirmed in
Extel Industrial (Pty) Ltd
and Another v Crown Mills (Pty) Ltd
[8]
. . .
‘
That
a tender of restitution, or the explanation and excuse for its
failure, is a requirement in proceedings for restitution is
indeed
trite’.
In
passing, it should be noted that
Extel
did qualify the universal
application of this general principle.
[9]
[22]
In any event, in this case the tender to return ORE’s shares is
not even made in a claim for restitution under the restructuring
agreement. The real relief sought by the IDC is cancellation of
the restructuring agreement and the consequent revival of
the IDC’s
claims under the original loan agreement. The substantive relief it
seeks is payment of the debts it claims would
be due and owing under
the original loan agreement if the restructuring agreement is
rescinded or cancelled. Consequently, I agree
that the tender to
return ORE’s shares is irrelevant to the question whether it
has sufficiently pleaded its right to cancel
or rescind the
restructuring agreement.
Second
exception
[23]
In relation to the claim that OIL committed fraud in knowingly
misrepresenting that no part of its business had been conducted
in
violation of any law, and that the IDC relied on the
misrepresentation in entering the loan restructuring agreement to its
prejudice, the defendants submit that the allegations are
insufficient to sustain a cause of action premised on
misrepresentation
entitling the plaintiff to cancel the agreement.
[24]
More particularly, the defendants claim that the IDC failed to plead
that OIL had
intended
the IDC to act on the alleged
misrepresentations by concluding the loan agreement, nor had it
pleaded that it would not have entered
the loan restructuring
agreement if it had known of the alleged misrepresentation. The
defendants did not pursue the first leg
of this objection when the
matter was argued. Nevertheless, it is addressed below for the sake
of completeness.
[25]
The IDC complains that it is unclear whether the objection is that
the allegations in para 29 are insufficient to establish
an act of
fraud by OIL or if the defendants are contending that the allegations
are insufficient to sustain a cause of action in
delict based on
misrepresentation.
[26]
Paragraphs 25 to 31 relate to the OIL’s alleged receipt of R31
million which was part of funds received by Estina from
the Free
State Provincial Government. Insofar as the receipt of such funds
constituted an offence under s 6 of POCA, OIL would
have been guilty
of an offence and of acting unlawfully. Secondly, the IDC
pleaded that OIL was guilty of fraud because when
it concluded the
restructure loan agreement it knew it had contravened s 6 of POCA and
consequently misrepresented that no part
of its business had violated
any law which induced the IDC to enter into the loan restructuring
agreement. By so doing, the IDC
acted to its prejudice because by
entering into the loan restructuring agreement it could no longer
exercise its rights under the
original loan agreement and receive
what had already fallen due under the original agreement or enforce
its rights thereunder.
[27]
The IDC argues that it is implicit in the pleading that it would not
have entered the restructure loan agreement without the
representation being made. The disputed paragraph of the pleadings
reads:
‘
The fraudulent
misrepresentation induced the IDC to enter into the Loan
Restructuring Agreement and thereby prejudiced it from receiving
payments of the sums then due, owing and payable in terms of the Loan
Agreement, alternatively from enforcing its rights under
the Loan
Agreement.’
I
find it difficult to understand how that paragraph cannot be
reasonably be interpreted to mean that if it were not for the
misrepresentation
the IDC would not have entered into the
restructuring agreement. One of the primary meanings of the verb
‘induce’ is
to ‘succeed in persuading or leading
(someone) to do something’.
[10]
Accordingly, it is implicit in the allegation that IDC would not have
entered the agreement if the misrepresentation had
not been made.
[28]
In any event, the IDC points out that the exception misconstrues its
cause of action insofar as it relates to an act of fraud
by OIL under
common law. The cause of action is not a delictual claim based on
misrepresentation but a claim based on OIL’s
allegedly
false representation in breach a breach of its undertaking under
clause 8.15 that, amongst other things, no part of its
business was
being conducted in violation of any law. The alleged breach of this
provision is what the IDC claims entitles it to
cancel the contract,
irrespective of whether that breach entailed a misrepresentation
causing it to enter the contract. In passing,
it must be mentioned
that the extract of clause 8 in para 6.5 above also deems such a
misrepresentation not only to be material
but to be a factor inducing
the conclusion of the contract. Nevertheless, for present purposes it
is sufficient that the misrepresentation
was alleged to be breach of
the restructuring agreement which constituted good cause for
cancelling it, quite independently of
the IDC’s reliance on it,
or for that matter OIL’s intention in allegedly making it.
[29]
I agree with the IDC that even if it did not plead all the essential
elements of common law fraud, by omitting to plead intent
to defraud
on the part of ORE, the common law offence is only one of three
alleged violations of law on which it relies to cancel
the
restructuring agreement. The other two are the alleged violations of
POCA and the FMA. Consequently, even if the common law
offence of
fraud is not fully pleaded, the other violations are sufficient to
establish alleged breaches of the restructuring agreement
entitling
the IDC to cancel or rescind it.
Third
exception
[30]
The defendants argued that on a proper construction of clause 8.15 of
the agreement the clause only relates to
historic
conduct and
the offense in question must relate to an applicable law ‘concerning’
corruption and bribery. Further,
the allegations of a breach of s
80(2) read with s 80(1) of the FMA do not implicate ORE, but rather
implicate ‘entities
in which the Gupta family have a direct or
indirect interest’. The entity in question in this instance is
Unlimited Electronics.
[31]
In relation to the first objection, the IDC retorts that the Warranty
Date is defined in clause 1.1.64 to include to the signature
date,
the effective date and any date prior to the discharge date in terms
of clause 1.1.64. Since the alleged breach of the FMA
occurred on 27
November 2014 and the discharge date had not arisen by the time the
agreement was cancelled in November 2017, the
argument that the
offence fell outside clause 8.15 holds no water.
[32]
Further, the IDC argues that clause 8.15 must be read disjunctively
as setting out three alternative scenarios each of which
would amount
to a breach. The clause reads :
No
part of the business has been conducted in any manner which is
corrupt or has involved the payment of any bribe or improper
consideration or violates any applicable laws.
[33]
Clearly a disjunctive reading of the phrases preceded by the word
‘or’ is a reasonable interpretation of clause
8.15 even
if it is not the only possible interpretation. As such the threshold
for defeating the exception is met on this point.
[34]
In relation to the claim that the offence in question does not relate
to ORE’s conduct, it is clear that the allegation
concerns the
alleged conduct of an ORE director, Ragovan, acting on ORE’s
behalf as a party to the alleged scheme to manipulate
ORE’s
share price. The allegations are sufficient to embrace ORE, as
represented by Ragovan, knowingly participating in or
using the
prohibited practice described in s 80(1).
Conclusion
and costs
[35]
For the reasons stated above, I am satisfied that none of the
defendant’s exceptions can succeed.
[36]
On the issue of costs, in view of the relative factual complexity of
the matter and the nature of the exceptions raised, the
use of two
counsel by the plaintiff was justified.
Order
[1]
The exceptions are dismissed.
[2]
The defendants are jointly and severally liable for the plaintiff’s
costs of the exception, including the costs of two
counsel, the one
paying the others to be absolved.
_______________________
Lagrange
J
Judge
of the Labour Court of South Africa
APPEARANCES
Plaintiff:
G
Budlender SC, assisted by K Pillay and S Miller, instructed by
Edward Nathan Sonnenbergs Inc.
RESPONDENT:
C
Bester instructed by Vasco De Oliveira Inc.
[1]
Act 121 of 1994.
[2]
Act Act19 of 2012.
[3]
The relevant provisions of the FMA read:
‘
80 Prohibited trading
practices
(1) No person-
(a)
may, either for such
person's own account or on behalf of another person, knowingly
directly or indirectly use or participate
in any practice which has
created or is likely to have the effect of creating-
(i) a false or deceptive appearance
of the demand for, supply of, or trading activity in connection
with; or
(ii) an artificial price for,
that security;
(b)
who ought reasonably to
have known that he or she is participating in a practice referred to
in subparagraph
(a)
, may participate in such practice.
(2) A person who contravenes
subsection (1)
(a)
, commits an offence
[4]
S 6 of POCA, reads:
6 Acquisition, possession or
use of proceeds of unlawful activities
Any person who-
(a)
acquires;
(b)
uses; or
(c) has possession
of,
property and who knows or ought
reasonably to have known that it is or forms part of the proceeds of
unlawful activities of another
person, shall be guilty of an
offence.’
[5]
Act 121 of 1998.
[6]
Lewis v Oneanate (Pty) Ltd and Another
[1992] ZASCA 174
;
1992 (4) SA 811
(A) at 817F
[7]
2006 (6) SA 358
(SCA) at 362, para [11].
[8]
1999 (2) SA 719 (SCA)
[9]
At 732B – 733H
[10]
Concise OED, 10
th
Edition.