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[2008] ZASCA 158
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Trinity Asset Management (Pty) Limited and Others v Investec Bank Limited and Others (574/07) [2008] ZASCA 158; 2009 (4) SA 89 (SCA) ; [2009] 2 All SA 449 (SCA) (27 November 2008)
Links to summary
THE
SUPREME COURT OF APPEAL
REPUBLIC
OF SOUTH AFRICA
JUDGMENT
Case
number
574/07
In
the matter between:
TRINITY
ASSET MANAGEMENT (PTY) LIMITED
FIRST
APPELLANT
TRINITY
ENDOWMENT FUND (PTY) LIMITED SECOND APPELLANT
ELJAY
INVESTMENTS INCORPORATED THIRD APPELLANT
and
INVESTEC
BANK LIMITED
FIRST
RESPONDENT
JCI
LIMITED SECOND RESPONDENT
LEXSHELL
658 INVESTEMENTS (PTY) LTD THIRD RESPONDENT
Neutral
citation:
Trinity
Asset Management (Pty) Ltd v Investec Bank
(574/07)
[2008] ZASCA 158
(27 November 2008).
CORAM
:
FARLAM,
MTHIYANE, JAFTA, MAYA et CACHALIA JJA
HEARD
:
26
AUGUST 2008
DELIVERED
:
27
NOVEMBER 2008
SUMMARY:
Companies
– shareholders – accuracy in circular convening meeting
regarding validity of contract to which company is
party –
locus
standi
of
shareholder to obtain declarator as to accuracy of circular.
___________________________________________________________________
ORDER
___________________________________________________________________
On
appeal from:
Johannesburg
High Court (Blieden J sitting as court of first instance).
1. The appeal succeeds
with costs, including those occasioned by the employment of two
counsel.
2. The
order made by the court
a
quo
is
set aside and replaced by the following:
‘
In
the Trinity application
:
1. It is declared
that the applicants have
locus
standi
to
raise the following issue:
That the ILA lapsed due to
non-fulfilment of suspensive conditions in the ILA and the disposal
agreement.
2. The application
is postponed
sine
die.
3. The first
respondent is ordered to pay the costs of the applicants in regard to
the separated dispute regarding
locus
standi,
which
costs are to include those of two counsel.’
___________________________________________________________________
JUDGMENT
___________________________________________________________________
FARLAM
JA (Mthiyane, Maya et Cachalia JJA
concurring)
[1]
This is an appeal from a judgment of Blieden J, sitting in the
Johannesburg High Court, in which he dismissed with costs the
appellants' application for certain relief. The relief sought
included: (a) an order declaring that a loan agreement concluded
on
the one hand between Investec Bank Ltd, the first respondent, and on
the other JCI Ltd, the second respondent, and Lexshell
658
Investments (Pty) Ltd (whose name was changed to JCI Investment
Finance (Pty) Ltd and which is a wholly owned subsidiary of
the
second respondent), the third respondent, was void for vagueness
and/or impossibility of performance; (b) alternatively to
(a) an
order declaring that conditions precedent to the agreement had not
been met; (c) an order interdicting the first respondent
‘from
in any way implementing or benefiting from’ the loan agreement;
and (d) an order ordering the first respondent
to restore the second
and third respondents into the position that they would have been in
had the loan agreement not been concluded;
alternatively such order
as to the restitution of the parties
inter
se
as
the court may deem fit. In what follows I shall call the first
respondent ‘Investec’ and the second respondent 'JCI’.
[2]
The appellants' application was heard by the court
a
quo
together
with another application brought by Letseng Diamonds Ltd (which I
shall call in what follows ‘Letseng’) in
which that
company also sought certain relief against the same three
respondents, arising from the same loan agreement. The relief
sought
in what may be called the ‘Letseng application’ included
declarations to the effect that the loan agreement
was void or
voidable on various grounds, as well as an interdict restraining the
second respondent from tabling certain resolutions
at a general
meeting of its shareholders which it had called and at which the
shareholders were asked to ratify the loan agreement.
(The wording of
the agreement which was to be ratified was amended from time to time
as reference was made to further agreements
by which it was amended
but the details thereof are not relevant for the purposes of
considering the issues arising for decision
in this matter.)
[3]
Save for one aspect, the loan agreement was implemented on both
sides. Amounts totalling more than R1 billion were lent and
advanced
by Investec to JCI, and subsequently repaid with interest. The aspect
outstanding related to the payment of what was described
in the
agreement as ‘a raising fee’, amounting to R50 million or
30 per cent of the aggregate increase in the value
of the assets
which JCI furnished as security for its indebtedness (whichever was
the greater on the agreed due date of repayment).
Although JCI was in
a parlous state, staring bankruptcy in the face when the original
loan agreement was concluded, it recovered
significantly after it
received the loans made to it by Investec. As a consequence the value
of the assets it furnished as security
increased to such an extent
that at the time of the application before the court
a
quo
it
was calculated that the ‘raising fee’ amounted to a sum
substantially in excess of R400 million.
[4]
Before the two applications were argued before him Blieden J had, at
the first respondent's instance, ordered in terms of Rule
33(4) of
the Uniform Rules, that the question as to whether the appellants and
the applicant in the Letseng application had
locus
standi
to
raise certain issues which arose in the two cases should be argued
and decided separately. He did so because he was of the view
that if
his decision on this point went in favour of the respondents it would
be dispositive of the appellants’ application
and would
determine the majority of the issues between the parties in the
Letseng application. Having heard argument on the
locus
standi
point
he decided it in favour of the respondents and accordingly dismissed
the appellants’ application. He also ordered that
the Letseng
application
be postponed for the remaining issues arising therein, which were not
covered by his judgment on the
locus
standi
point,
to be adjudicated.
[5]
His judgment has been reported: see
Letseng
Diamonds Ltd v JCI Ltd and Others; Trinity Asset Management (Pty) Ltd
and Others v Investec Bank Ltd and Others
2007
(5) SA 564
(W).
[6] As
far as concerned the appellants (whom the judge collectively
described as ‘Trinity’) the issue to be decided
separately was whether the loan agreement had lapsed due to
non-fulfilment of suspensive conditions in it and another agreement,
which was referred to as ‘the disposal agreement’ and
which followed on and was dependent upon it.
[7] It
was common cause before us that the learned judge had correctly
approached the
locus
standi
point
on the assumption that all allegations of fact relied upon by the
appellants and Letseng are true.
[8] In
para [7.14] of his judgment (at 570C-E) Blieden J characterised the
issue before him as follows:
‘
In short,
the present proceedings are concerned with the right of two
shareholders of JCI, being Letseng and Trinity, to have a
suite of
agreements, including the [loan agreement], to which neither of them
is a party, declared invalid one and a half years
after their
implementation, apart from the payment of the raising fee. The
parties to the agreements, JCI and Investec, have at
all times
regarded all the agreements to be binding on them.’
[9]
The judge then proceeded to consider what he described as ‘the
relevant general legal principles applicable to the position
of
shareholders in companies’ (paras [15] to [22] of the judgment
(at 572D-574D)).
[10]
The conclusion to which he came (at 573D-G (paras [19] and [20])) was
that (save for limited exceptions not here relevant)
‘a
shareholder is a stranger to the company in its dealings with third
parties’ and he or she cannot interfere in the
terms and
conditions contained in an agreement between the company and a third
party. Persons in the position of the appellants
and Letseng, he
said, had no right as shareholders to attack the loan agreement: this
could be done only by JCI, the management
and control of the business
of which vest in the directors whose functions cannot be usurped by
individual shareholders.
[11]
The judge (in para [27] at 575D-G) referred to E
x
parte Ginsberg
1936
TPD 155
in which it was held that it was not open to a litigant to
bring an application for declaratory relief merely to be advised of
his legal position and not where the order sought would not have the
effect of binding some parties.
[12]
The judge also held (in para [38] of his judgment at 578C-D) that the
appellants had only a ‘financial interest’,
and not a
‘legal interest’, in the declaratory relief they claimed:
in this regard he referred with approval to the
distinction between
direct legal interests and indirect financial interests in litigation
upheld in
Henri
Viljoen (Pty) Ltd v Awerbuch Brothers
1953
(2) SA 151
(O) and
United
Watch & Diamond Co (Pty) Ltd v Disa Hotels Ltd
1972
(4) SA 409
(C).
[13]
In para [41] of his judgment (at 579A-B) the judge said that ‘both
JCI and Investec have expressed their wish to be bound
by the
documents concerned, even though various clauses in such documents
and agreements are
prima
facie
incapable
of performance, and the resulting contracts can be said to be
voidable at the instance of any of the contracting parties.’
[14]
He continued (in paras [42] and [43], at 579B-E):
‘
[42] As is
plain from the legal principles relating to declaratory orders to
which reference is made above, a court is not entitled
to give advice
unless such advice is binding on some party. In the present case
whether the agreements are binding or not, is not
the question, it is
whether the applicants, Letseng and Trinity, as individual
shareholders of JCI, are entitled to have them set
aside in the face
of the two affected parties, JCI and Investec, adopting the stance
that such contracts are binding. In my view
they have no
locus
standi
to
do this.
[43] The shareholders, such as Letseng
and Trinity, have full knowledge of all the facts, so much is plain
from the affidavits filed
on their behalf. Whatever order they wish
the Court to make cannot affect the agreement between Investec and
JCI. It is only the
decision of the general meeting that can have
influence on the ratification or otherwise of the agreements
concerned. There is
nothing to stop either of the applicants
informing the shareholders of JCI of their views before the general
meeting and canvassing
the individual shareholders at the meeting to
refuse to ratify the actions of the board in regard to the agreements
concerned.’
[15]
Does the case raise the simple question to which the judge referred
in para [7.14] of his judgment which I have quoted in para
8 above?
[16]
Mr
Cilliers,
who
appeared together with Mr
Rubens,
Mr
Blou
and
Mr
Rowan
for
Investec, contended that it did. He submitted that the question
whether the appellants had the right to have the loan agreement
and
the other agreements which followed it declared invalid had to be
answered by having regard to the memorandum and articles
of JCI,
which constitute the so-called ‘company contract’ between
the company and its members created by s 65(2) of
the Companies Act
61 of 1973, as amended. There is no provision, he said, in the
memorandum and articles which entitles a shareholder
to meddle in the
contracts of the company.
[17]
On the other hand, Mr
Loxton,
who
appeared
with
Mr
Janisch
on
behalf of the appellants, contended that the judge had
mischaracterised the question. The true question was not whether, in
abstract as it were, the appellants had the right to have declared
invalid a contract between the company of which they were members
and
another. It was, as he formulated it, this: whether in circumstances
where the shareholders had been invited to attend a general
meeting
of the company to vote on the question whether a contract concluded
between the company and another should be ratified
and the validity
of the contract sought to be ratified was a material consideration in
that process, an individual shareholder
has the right to seek a
declarator to the effect that the contract is invalid.
[18]
Mr
Loxton
submitted
that when the question is posed in this way it becomes clear that the
appellants have the right to claim the declarator
they seek and the
judge’s decision that they lacked
locus
standi
was
incorrect.
[19]
Mr
Cilliers
sought
to meet this argument by submitting that the circumstances to which
Mr
Loxton
pointed
did
not change the position. The fact, he said, that shareholders are
required to vote at a general meeting convened for the purpose
of
ratifying an agreement cannot change the rights a shareholder has.
[20]
Mr
Williamson,
who
appeared on behalf of the second and third respondents, confirmed
during the hearing of Letseng's appeal against the judgment
in the
court
a
quo,
which
was heard by this court on the day before the present appeal was
argued, that his clients wanted the issue dealt with. During
this
appeal he stated that if the court were to hold that the loan
agreement is invalid then they would not pay the ‘raising
fee’
because to do so would constitute making a gratuitous payment.
[21]
It is appropriate at this stage to point out that the judge’s
statement at 579 A-B (in para [41]) of his judgment, which
I have
quoted in para 13 above, that ‘both JCI and Investec have
expressed their wish to be bound’ by the agreements
even though
they ‘can be said to be voidable at the instance of any of the
contracting parties’ is not strictly correct.
During the course
of the argument before us Mr
Cilliers
said,
in answer to a question from the bench, that the directors of JCI do
not say that they will regard their company as bound
under the loan
agreement even if the points taken by the appellants and Letseng are
correct. He referred in this regard to the
second sub-paragraph of
paragraph 2 of the supplementary circular, which is quoted in para 37
below, and conceded that all this
indicated was that the directors of
JCI regarded the loan agreement as binding even if the meeting of
shareholders refused to ratify
it.
[22]
In my opinion Mr
Loxton
was
correct in submitting that the court
a
quo
mischaracterised
the main question before it. It was not appropriate to approach the
issue raised in the request for a declarator
in the abstract without
reference to the factual situation in which it arises. I say this
because in my view the appellants’
right to seek the declarator
was triggered by the fact that a meeting had been called at which the
members were asked to ratify
the loan agreement. Before the
shareholders could decide whether to attend the meeting to vote for
or against the resolutions,
or to give proxies to others to vote for
or against on their behalf, or to do none of these things and to
leave it to the majority
to decide, they needed to have sufficient
information to be able to come to an intelligent conclusion on the
matter on which they
were asked to vote. This right arises from a
term implied in the company contract: see Blackman
et
al, Commentary on the Companies Act,
vol
1 p7-37, where reference is made to
Bulfin
v Bebarfald’s Limited
(1932)
38 SR (NSW) 423 at 440-441, a case which has been frequently followed
in Australia, where it has been described as ‘the
foundation
for subsequent decision’ (see
Shears
v Chisholm
[1994]
2 VR 535
at 624).
[23]
The
Bulfin
case
concerned a meeting called to consider a modification of the rights
of preference shareholders and in the passage cited Long
Innes CJ in
Eq said:
‘
The contract
contained in the articles of association confers certain rights upon
the different classes of shareholders: Article
49 provides that the
rights and privileges attached to each class may be modified in a
particular manner; and it is a term of the
contract implied by law
that there is a duty resting upon the directors, when advising or
urging any such class to agree to a modification
of such rights and
privileges, as
Vaughan
Williams LJ
said
in
Peel
v London and North Western Railway Company
[[1907]
1 Ch 5
at 14], “to
take
care that a sufficient statement of the facts which will have to be
considered by the shareholders at the coming meeting is
also placed
before the shareholders.” The duty in this respect resting on
the directors is the same, in my opinion, whichever
of the
alternative courses provided by Article 49 is adopted. In the present
proceedings the plaintiff is consequently not seeking
to avoid the
contract into which she, and the class of shareholders upon whose
behalf she sues entered, but to affirm and enforce
it. She is not
repudiating her contract but approbating it; she is not claiming to
be relieved from the contract on the ground
that she was induced to
enter into it by misrepresentation, whether express or involved in a
non-disclosure of a material fact;
but is seeking equitable relief on
the ground that the defendant directors have committed a breach of a
term implied in the contract
contained in the articles of
association.’
[24]
In my view this principle is not limited to decisions to modify the
rights of particular shareholders but applies generally
to
resolutions to be tabled at meetings of a company.
[25]
Down the years the requirements as to what information must be put
before the members have been developed and extended as the
circumstances in which meetings are held and decisions taken have
changed.
[26]
It is convenient to begin by referring to a case, with interesting
Southern African connections, decided in 1893,
the
Matabeleland Company Limited v The British South Africa Company
(1893)
10 TLR 77
(Ch and CA), the facts of which resemble in some ways those
of the present case. It concerned an application brought for an
injunction
to restrain Cecil John Rhodes and his co-directors of the
British South Africa Company from representing to the shareholders
that
a certain agreement allegedly concluded between the company and
the Central Search Limited (the shareholders of which were
practically
identical with Rhodes and the other promoters of the
British South Africa Company), which provided that half of the
British South
Africa Company’s profits derived from the Rudd
and Rhodes concessions were to be handed over to Central Search
Limited, existed
or was valid. The question as to whether there was
an agreement or whether it was valid was the subject of a pending
action between
the applicant and the company and its directors. The
directors had called a meeting of the company to consider a
resolution that
the agreement be ratified. Stirling J dismissed the
motion. He is reported to have said:
‘
It was true
there was a dispute as to the existence and validity of the
agreement. It was true also that it was asserted on the
face of the
notice convening the meeting that the agreement did exist and was
valid. The complaint was that the directors had not
stated that there
was any dispute. There was, however, no suggestion that it was
proposed to deprive the plaintiffs, or any other
shareholders, of the
opportunity of informing the shareholders of the existence of such
dispute, and it seemed to his Lordship
that that was all the
plaintiffs were entitled to. The directors took one view and the
plaintiffs took another, and it was for
the shareholders to consider
the question, assuming that all the facts would be properly brought
before the meeting. Assuming,
therefore, that nothing would occur at
the meeting which would give rise to the jurisdiction of the Court to
interfere, then the
whole question would be before the shareholders,
and they would be able to say whether there was an agreement, and, if
so, whether
it should be acted upon. The Court ought not to assume
that the directors would act otherwise than fairly.’
[27]
The next day the Court of Appeal (Lindley and A L Smith LJJ) heard
and dismissed an appeal from this judgment. Lindley LJ said
that in
substance ‘it was an application to the Court not to restrain
the defendants from carrying out an agreement alleged
to be beyond
their powers, but to restrain the directors from convening a meeting
to discuss certain matters on the ground that
the notice convening
the meeting contained misrepresentations which would mislead the
shareholders. Assuming that to be true, the
answer to the application
would be, “Go and tell the shareholders they are being
deceived; go and expose the misrepresentations.”’
He
added: ‘[S]uppose that, though that agreement was not binding
in point of law upon the company, the company thought it
would be a
breach of faith not to act upon it, was it a lie to tell the
shareholders that, though that agreement was not binding
in law, it
was binding in honour, and was it wrong to ask them to act as in
honour bound? To hold that would be outrageous.’
[28]
The next case to which I wish to refer is a judgment of Kekewich J,
delivered in 1899 and still quoted in current textbooks
(see eg,
Gower and Davies,
Principles
of Modern Company Law,
8
ed, p 454 and Blackman
et
al, op cit.,
7-37),
viz
Tiessen
v Henderson
[1889]
1 Ch 861
(Ch D). This was also a case with Southern African
connections. It was an application for an interim injunction to
restrain the
defendants from carrying into effect certain resolutions
passed at an extraordinary general meeting of a company, Violet
Consolidated
Gold Mining Co Ltd, which was formed to work certain
gold-mining claims near Krugersdorp. The resolution related inter
alia to
the reconstruction of the company. Although the directors of
the company were personally interested in the adoption of the scheme
and were to be renumerated by means of a call on shares this fact was
not disclosed in the notice convening the meeting. Kekewich
J held
that this fact should have been disclosed in the notice and granted
the injunction to prevent the resolutions being carried
into effect
without there being another meeting. He commenced his judgment as
follows (at 866-7):
‘
The
application of the doctrine of
Foss
v Harbottle
[(1843)
[1843] EngR 478
;
2 Hare 461]
to joint stock companies involves as a necessary
corollary the proposition that the vote of the majority at a general
meeting,
as it binds both dissentient and absent shareholders, must
be a vote given with the utmost fairness – that not only must
the matter be fairly put before the meeting, but the meeting itself
must be conducted in the fairest possible manner. . . . . There
is no
question of conduct here, either on the part of Mr Henderson [the
first defendant] or anybody else. The question is merely
whether each
shareholder as and when he received the notice of the meeting, in
which I include the circular of the same date, had
fair warning of
what was to be submitted to the meeting. A shareholder may properly
and prudently leave matters in which he takes
no personal interest to
the decision of the majority. But in that case he is content to be
bound by the vote of the majority; because
he knows the matter about
which the majority are to vote at the meeting. If he does not know
that, he has not a fair chance of
determining in his own interest
whether he ought to attend the meeting, make further inquiries, or
leave others to determine the
matter for him.’
[29]
Later in his judgment he said (at 870-871):
The man I am
protecting is not the dissentient, but the absent shareholder –
the man who is absent because, having received
and with more or less
care looked at this circular, he comes to the conclusion that on the
whole he will not oppose the scheme,
but leave it to the majority. I
cannot tell whether he would have left it to the majority of the
meeting to decide if he had known
the real facts. He did not know the
real facts; and, therefore, I think the resolution is not binding
upon him.’
[30] I
notice that in the Law Journal report ((1899)
68 LJ Ch 353
at 356)
there appears a sentence before the sentence beginning ‘There
is no question’ in the above extract which reads
as follows:
‘If you are to apply that rule in its entirety – that the
vote of the majority controls the minority, and
of course also the
absent shareholder – it is a matter of absolute necessity that
there should be the most perfect straightforwardness
and openness
throughout.’ I do not know why Kekewich J deleted this sentence
from his judgment when he revised it for the
official reports but I
am satisfied that it makes a point as valid today as it was in 1899.
[31]
The assumption on which the judgments in the
Matabeleland
case
were based, that the dissentient shareholders can put the matter
right, as it were, by ‘informing the shareholders of
the
existence of the dispute’ (as it was put by Stirling J) or that
they could ‘go and expose the misrepresentations’
(as it
was put by Lindley LJ) became more and more unrealistic as time went
by and the circumstances in which company meetings
were held changed.
In 1933 Maugham J dealt with the position as follows in
In
re Dorman Long and Co Ltd; In re South Durham Steel and Iron Co Ltd
1934
Ch 635
(Ch D) at 657:
‘
It may be
observed that when the Joint Stock Companies Arrangement Act, 1870,
was passed, in the majority of cases all the persons
concerned with
an arrangement could go to the meeting, listen to what was said and
vote for or against the arrangement according
to the views which they
were persuaded to take. In these days, in many of the cases that come
before me, only a fraction of the
persons who are concerned can get
into the room where the meeting is proposed to be held, and in the
great majority of cases the
proxies given to the directors before the
meeting begins have in effect settled the question of the voting once
for all. It is
perhaps not unfair to say that in nearly every big
case not more than five per cent of the interests involved are
present in person
at the meeting. It is for that reason that the
Court takes the view that it is essential to see that the explanatory
circulars
sent out by the board of the company are perfectly fair
and, as far as possible, give all the information reasonably
necessary
to enable the recipients to determine how to vote.’
[32]
In
Garvie
v Axmith
[1962]
OR 65
; 31 DLR (2d) 65, a decision of the Ontario High Court of
Justice, Spence J considered the test to be applied in determining
the
adequacy of a notice sent to shareholders inviting them to attend
a general meeting held to approve an agreement. The test which
he
approved was as follows: ‘the notice to shareholders must
contain such particulars as will permit them to exercise an
intelligent judgment upon the proposition’. He pointed out that
the shareholders in the case before him ‘might well
be [at] any
place on the American continent, or overseas’ and said that
they ‘should be able to sit down with the material
and come to
an intelligent conclusion’. The test formulated in
Garvie
v Axmith, supra,
was
approved by the Ontario Court of Appeal in
Goldex
Mines Ltd v Revill
[1974]
54 DLR (3d) 672 at 679.
[33]
Earlier on the page the following was said:
‘
In
Charlebois
et al v Bienvenu et al,
[1967]
2 O.R. 635
at p 644, 64 D.L.R. (2d) 683 at p 692, Fraser J held that
the holding of an annual meeting and election of directors after the
sending out of a misleading information circular by the directors was
a breach of the directors’ fiduciary duty to the company.
We
hold that such an act is also a breach of duty to the other
shareholders. If the directors of a company choose, or are compelled
by statute, to send information to shareholders, those shareholders
have a right to expect that the information sent to them is
fairly
presented, reasonably accurate, and not misleading.’
[34]
The matter has also been considered in Australia in a number of cases
of which it is only necessary to refer to one,
Fraser
v NRMA Holdings Ltd
(1995)
127 ALR 543
(Fed C of A – Full Court). This case concerned the
adequacy of the prospectus issued by the NRMA on its proposed
demutualisation.
At 554 the court (Black CJ, Von Doussa and Cooper
JJ) stated, after referring to a number of cases in England, Ireland
and Canada,
including some which I have cited above:
‘
A duty to
make disclosure of relevant information arises as part of the
fiduciary duties of the directors to the company and its
members in
relation to proposals to be considered in general meeting and under s
1022 of the [Corporations] Law in respect of the
contents of a
prospectus. The fiduciary duty is a duty to provide such material
information as will fully and fairly inform members
of what is to be
considered at the meeting and for which their proxy may be sought.
The information is to be such as will enable
members to judge for
themselves whether to attend the meeting and vote for or against the
proposal or whether to leave the matter
to be determined by the
majority attending and voting at the meeting . . . . A proper
discharge of the duty may require that the
directors take reasonable
steps to ascertain relevant information for communication to members
if that information is not known
to the board. Directors must not
consciously refrain from seeking relevant information or turn a blind
eye to relevant material
in order to avoid placing before members
information which may contradict or qualify any particular position
taken or advocated
by the directors or a majority of them.’
[35]
The principles enunciated in the cases I have cited are in my view in
accordance with our law. Indeed in the argument before
us counsel on
both sides referred freely to English and Australian cases and never
suggested that our law differed from the law
in those jurisdictions.
[36]
It is clear that a shareholder’s right to information regarding
a proposition to be voted on at a general meeting has
developed and
been extended down the years, particularly since the practice of
giving proxies has become so widespread. As I have
said a
shareholder’s right to receive the necessary information arises
from an implied term in the company contract. Regard
being had to the
fact that an individual shareholder will be bound by the votes of the
majority it must follow that the shareholder’s
rights extend
not only to his or her being furnished with the necessary information
but that all his or her fellow-shareholders
also receive such
information. It also follows that a shareholder has the right flowing
from the company contract to insist that
he or she and his or her
fellow-shareholders do not receive information which is inaccurate
and to enforce such right by applying
for an interdict to prevent a
meeting from proceeding.
[37]
In the circumstances of this case, it will be recalled, the
assertions made by the appellants, whose
locus
standi
is
being challenged, have to be accepted as correct. Thus we must
assume, for the purposes of considering whether the appellants
have
locus
standi,
that
their assertion that the loan agreement is invalid is correct. If
that is so they must be able to apply to interdict the holding
of the
meeting before which materially incorrect information regarding the
legal status of the agreement has been put by the directors.
The
supplementary circular sent to the shareholders of JCI dated 15
November 2006, refers to the original circular sent to the
shareholders on 14 September 2006 and calls it ‘the Letseng
circular’. Paragraphs 2 and 6 of the supplementary circular
read as follows:
‘
2.
‘SHAREHOLDER RATIFICATION
JCI shareholders are referred to
paragraph 1 of the Letseng circular, which recorded the following:
“
In terms of
the JSE Listings Requirements, the sale by JCI and certain of its
subsidiaries of the assets to JCIIF on loan account
and the cession
and pledge of such assets, and related loan accounts to Investec as
security for the facility and the subscription
by JCI for Western
Areas shares in terms of the Western Areas rights offer and the
underwriting by JCI of a portion of the Western
Areas rights offer up
to a maximum of R250 million have been categorised as Category 1
transactions. In terms of a ruling by JSE,
such transactions require
ratification at a general meeting of JCI shareholders.”
Should shareholders not ratify the
Category 1 transactions, and Investec executes its security in terms
of the loan agreement the
company may be in breach of JSE Listings
Requirements. However, JCI and Investec are nevertheless entitled to
and will regard the
Investec loan agreement, which has been
implemented as valid, binding and enforceable.’
‘
6.
DIRECTORS’ RESPONSIBILITY STATEMENT
The directors, whose names are given
on page 11 of this document collectively and individually accept full
responsibility for the
accuracy of the information given relating to
the JCI group and certify that to the best of their knowledge and
belief there are
no facts that have been omitted which would make any
statement false or misleading, and that all reasonable enquiries to
ascertain
such facts have been made.’
[38]
In my view whether the loan agreement is valid or invalid is clearly
a material factor which the shareholders are entitled
to know before
voting. On the assumption to which I have referred, the paragraphs I
have quoted from the supplementary circular
are incorrect and the
appellants would, as I have said, be entitled to an interdict
stopping the meeting until the incorrect information
is removed from
the circular and replaced by information that is correct. It is
accordingly clear that the validity or otherwise
of the loan
agreement would be a triable issue in an application brought by the
appellants for an interdict.
[39]
Does the fact that the court below, in terms of rule 33(4) of the
Uniform Rules, separated the appellants' claim for declaratory
relief
from the other relief claimed, including the interdict, make a
difference?
[40]
In
Nguza
v Minister of Defence
1996
(3) SA 483
(Tk SC) Pickering J, after a full discussion of the cases
on the point, held (correctly in my view) following the judgment of
Shearer
AJ in
Safari
Reservations (Pty) Ltd v Zululand Safaris (Pty) Ltd
1966
(4) SA 165
(D), that a court is entitled to make a declaratory order
even where other remedies are available but not sought, although the
availability of other remedies could be taken into account when the
court was exercising its discretion in deciding whether or not
to
make the declaration. That such a procedure can have its advantages
appears from such a case as
Standard
Bank of South Africa Ltd v Trust Bank of Africa Ltd
1968
(1) SA 102
(T), a dispute between two banks as to whether a pledge of
certain deposit vouchers to the defendant bank became inoperative
with
the result that the plaintiff bank was entitled to present them
for payment. Hill J said (at 106 B-C) that it was clear from the
correspondence that they wished to avoid legal proceedings and the
possibility of a judgment for payment of money being granted
against
the defendant and stated:
‘
(t)he
present proceedings provide an expeditious method of setting the
dispute between the parties as otherwise three months’
notice
would be required in respect of each of the eight vouchers before an
action for payment could be instituted.’
[42]
That the appellants have brought their application for declaratory
relief with a view
inter
alia
to
preventing the holding of the meeting called to ratify the loan
agreement appears from prayer 3.2 of their notice of motion where
they ask that JCI be interdicted and restrained, pending the final
determination of their application, ‘from continuing to
convene
the shareholders’ meeting postponed to 30 November 2006 or from
tabling any resolution notifying or endorsing’
the loan
agreement.
[43]
For the reasons I have given I am satisfied that the court
a
quo
wrongly
held that the appellants have no
locus
standi
to
bring their application and that it had to be dismissed.
[44] I
also do not think that the court
a
quo
was
correct in saying (at 584F-H (para [65])) that the appellants ‘are
attempting to usurp the functions of the general meeting
and [trying
to] anticipate the result of such a meeting.’ They are entitled
to stop the meeting from taking the decision
on materially inaccurate
information. The fact that the issues raised by their complaint about
the circular concern the validity
of the agreement cannot prevent
them from approaching the court as they have done. That question
arose because of inaccurate statements
in the circular which I have
quoted and which they are entitled to seek to controvert.
[45]
Whether they would be entitled to approach the court for a decision
as to the validity of the agreement (which decision would
bind all
parties joined) in the absence of the statements which I have quoted
from the circular, or for an order compelling JCI
or its directors to
seek such relief, pursuant to their duty to put relevant information
before the meeting (cf the dictum from
Fraser
v NRMA, supra,
quoted
in para 34 above) does not strictly arise for decision in this case
and I express no opinion upon it.
[46]
The following order is made:
1. The appeal succeeds
with costs, including those occasioned by the employment of two
counsel.
2. The
order made by the court
a
quo
is
set aside and replaced by the following:
‘
In
the Trinity application
:
1. It is declared
that the applicants have
locus
standi
to
raise the following issue:
That the ILA lapsed due to
non-fulfilment of suspensive conditions in the ILA and the disposal
agreement.
2. The application
is postponed
sine
die.
3. The first
respondent is ordered to pay the costs of the applicants in regard to
the separated dispute regarding
locus
standi,
which
costs are to include those of two counsel.’
IG FARLAM
JUDGE
OF APPEAL
JAFTA
JA dissenting
[47] I have read the
judgment of my colleague Farlam JA. Regrettably I am unable to agree
with the order he proposes and the reasons
given therefor. In my view
the appeal must be dismissed.
[48] The relief sought by
the appellants, set out fully in Farlam JA’s judgment,
could not vindicate their rights in
relation to the shareholders
meeting to which they were invited. They sought to set aside the
agreements forming the subject matter
of the meeting. They also
sought an order interdicting JCI from performing in terms of the
agreements, instead of asking for an
order which would oblige JCI’s
directors to furnish them with full and accurate information.
[49] The court a quo was
called upon to decide whether the appellants could challenge the
validity of the concerned agreements on
the basis that the loan
agreement between JCI and Investec had lapsed due to non-fulfilment
of suspensive conditions. In this case
the enquiry was narrower than
in Letseng’s application, even though in that case, too, the
locus
standi
enquiry
was limited to the claim for a declaratory relief.
[50] The sort of
locus
standi
we
are concerned with here does not relate to the appellants’
capacity to institute proceedings but to their competence to
claim
particular relief. In other words the question is whether the
appellants have a direct and substantial interest in the agreements
which they seek to be declared invalid. The direct and substantial
interest does not include mere financial interest which is taken
to
be indirect interest.
1
[51] In the context of
the present case the question whether the appellants had
locus
standi
must
be considered with reference to the relief they sought and the right
on which they based their claim.
2
The right on which the
appellants rely is the right to full and accurate information. They
contended that they needed such information
so that they could
exercise their vote either against or in favour of ratification, at
the general meeting. There can be no doubt
that the appellants were
entitled to demand full and accurate information from JCI’s
directors. If the directors had breached
the duty to furnish such
information, as it was alleged in the present case, the appellants
would have legal standing to claim
compliance. The relief they could
have been entitled to would, however, be an order instructing JCI
directors to supply them with
full and accurate information, which
would include a statement to the effect that the agreements were
invalid for reasons raised
by the appellants. Perhaps they could have
been entitled also to an order interdicting the meeting until there
had been compliance
with the duty to make full and accurate
disclosure. This much is clear from the cases referred to in Farlam
JA’s judgment.
[52] The appellants’
counsel argued that the court below mischaracterised the issue
relating to
locus
standi
.
He submitted that the correct issue was whether shareholders, who had
been invited to a general meeting to ratify an agreement,
the
validity of which is material to ratification, have the right to
claim an order declaring such agreement invalid. Although
I am not
convinced that the court below mischaracterised the issue, I am
willing to assume in the appellants’ favour that
it did. The
test for determining competence to claim relief is whether the
claimant possesses the right which gives rise to the
relief sought
and that such right has been infringed or there was a threat to
infringe it.
3
The relief to which the
aggrieved party is entitled depends on the infringed right and is
consequential to such infringement. Such
relief must fall within the
scope of the right. In
Graaff-Reinet
Municipality v Van Ryneveld’s Pass Irrigation Board
4
Watermeyer CJ said:
‘
[T]he
ordinary Courts of Law, before the enactment in 1935 of the General
Law Amendment Act, had refused to make declaratory orders
in claims
or disputes brought before them which had not yet ripened to a stage
which may for convenience be called the stage of
actionable maturity,
that is the stage at which an infringement of the legal rights of one
of the parties, which gives the other
a right to claim consequential
relief has taken place.’
[53] The only right the
appellants have established in these proceedings is the right to full
and accurate disclosure. The question
that arises is whether such
right entitled them to the relief sought. In my view it does not give
them legal standing to challenge
the validity of the agreements on
the basis that suspensive conditions were not complied with. As
observed by the court below it
is only the contracting parties who
can raise that challenge.
5
[54] In reaching the
conclusion that the appellants have failed to point to a right
justifying the invalidity order, I have assumed
in their favour
though with some reservations, that in determining the
locus
standi
issue
the allegations made by the appellants, as to invalidity of the
concerned agreements, must be taken as correct. It appears
doubtful
to me that the approach followed in deciding exceptions can be
adopted in applications such as the present where evidence
has been
placed before the court. It will be recalled that in the case of an
exception, no evidence would have been led.
6
In the present matter not
only were the pleadings closed, the parties had placed evidence
before the court. I can think of no reason
warranting the disregard
of such evidence and for the court to decide the matter on an
assumption.
[55] Moreover, even in
the case of exceptions, the assumption is not made in every matter.
Where the factual averments made in the
particulars are improbable or
false, the court deciding the exception cannot assume that they are
correct.
7
[56] Relying on s 34 of
the Constitution, counsel for the appellant argued that the common
law principles on
locus
standi
are
at variance with the values underlying s 34. He submitted that such
principles need to be reviewed. The distinction between
a ‘direct
and substantial interest’ which qualifies a party to have legal
standing and a ‘mere financial interest’
which does not,
he submitted, may be inconsistent with s 34. A party which has a
financial interest, so he concluded, must be allowed
to have access
to courts where considerations of justice and equity demand that its
dispute be entertained.
[57] Section 34 of the
Constitution provides:
‘
Everyone
has the right to have any dispute that can be resolved by the
application of law decided in a fair public hearing before
a court
or, where appropriate, another independent and impartial tribunal or
forum.’
[58] The main purpose of
s 34 is to confer on litigants the right of access to courts and
other independent and impartial tribunals.
The section places an
obligation on the State to establish such fora. But it does not
purport to define the category of litigants
who qualify to take
disputes to courts, nor does it describe the nature of relief a party
can competently seek. It will be recalled
that the issue of
locus
standi
in
this matter arose in the context of the appellants’ competence
to claim the relief they sought. Their right of access to
courts was
not affected in any way. Indeed, they were able to approach the court
below for relief. I conclude, therefore, that
their s 34 rights were
not infringed by the court a quo’s ruling. Accordingly reliance
on s 34 was misplaced.
[59] Under the
Constitution the question of
locus
standi
is
dealt with in s 38. It provides:
‘
Anyone
listed in this section has the right to approach a competent court,
alleging that a right in the Bill of Rights has been
infringed or
threatened, and the court may grant appropriate relief, including a
declaration of rights. The persons who may approach
the court are –
(a)
anyone acting in their own interest;
(b)
anyone acting on behalf of another person who cannot act in their own
name;
(c)
anyone acting as a member of, or in the interest of, a group or class
of persons;
(d)
anyone acting in the public interest; and
(e)
an association acting in the interest of its members.’
[60] It is clear that s
38 does not apply in the present case. The appellants did not allege
that, by failing to furnish them with
full and accurate information,
JCI’s directors infringed or threatened to infringe a right in
the Bill of Rights. But it
is important to note that for the
applicant’s competence, the section requires as a bare minimum,
that it be alleged that
a right in the Bill of Rights has been
infringed. It is the infringement or a threat to infringe a right
that entitles the applicant
to relief. It speaks of the infringement
of a right and not interest. On this score the common law is
consistent with the Constitution.
[61] The above finding
makes it unnecessary, in the circumstances of the present case, to
embark on a review of the common law principles.
The expanded
approach to legal standing is more suited to constitutional
litigation because there the relief granted may affect
people who
were not parties to particular litigation. On the other hand relief
granted in a private litigation such as the present,
affects only the
parties before the court. In the celebrated decision of
Ferreira
v Levin NO and Others; Vryenhoek and Others v Powell No and Others
8
O’Regan J said:
‘
This
expanded approach to standing is quite appropriate for constitutional
litigation. Existing common – law rules of standing
have often
developed in the context of private litigation. As a general rule,
private litigation is concerned with the determination
of a dispute
between two individuals, in which relief will be specific and, often,
retrospective, in that it applies to a set of
past events. Such
litigation will generally not directly affect people who are not
parties to the litigation. In such cases, the
plaintiff is both the
victim of the harm and the beneficiary of the relief. In litigation
of public character, however, that nexus
is rarely so intimate. The
relief sought is generally forward-looking and general in its
application, so that it may directly affect
a wide range of people….
In recognition of this, s 7(4) [of the Interim Constitution] casts a
wider net for standing than
has traditionally been cast by the common
law.’
[62] The competence to
grant a declaratory relief in the circumstances of this case remains
for consideration. Relying on
Nguza
v Minister of Defence
9
Farlam JA held that it
was open to the court below to grant a declarator, although other
remedies were available to the appellants.
While this may be so, the
anterior question is whether the requirements for the granting of a
declarator have been met. Apart from
failing to show that they had a
direct and substantial interest in the concerned agreements, the
appellants have not established
that the declaratory order sought was
going to be binding. Instead, during argument we were informed that
it will still be open
to JCI’s shareholders to consider and
ratify the agreements in question, regardless of the order declaring
them invalid.
It was submitted that the appellants were merely
entitled to know the status of these agreements before the meeting
could be held.
63] Although the granting
of a declaratory order is discretionary it can be granted only upon a
judicial exercise of the discretion.
There can be no proper exercise
of such discretion if essential elements of a declarator are not
fulfilled. In
Cordiant
Trading CC v Daimler Chrysler Financial Services (Pty) Ltd
10
this court said:
‘
Although
the existence of a dispute between the parties is not a prerequisite
for the exercise of the power conferred upon the High
Court by the
subsection [s 19(1)(a)(iii) of the Supreme Court Act 59 of 1959], at
least there must be interested parties on whom
the declaratory order
would be binding…
[T]he
two stage approach under the subsection consists of the following.
During the first leg of the enquiry the Court must be satisfied
that
the applicant has an interest in an “existing, future or
contingent right or obligation”. At this stage the focus
is
only upon establishing that the necessary conditions precedent for
the exercise of the
Court’s discretion exist. If the Court
is satisfied that the existence of such conditions has been proved,
it has to exercise
this discretion by deciding either to refuse or
grant the order sought. The consideration of whether or not to grant
the order
constitutes, the second leg of the enquiry.’
11
[64] In this matter the
court below was not satisfied, during the first leg of the enquiry,
that conditions for the exercise of
its discretion were established.
Having referred to
Cordiant
Trading
and
other decisions of this court,
12
it declined to grant the
declarator. In my view the approach by the court below cannot be
faulted. It follows that the appeal must
be dismissed.
[65] For these reasons I
would dismiss the appeal with costs, including the costs of two
counsel.
________________
C
N JAFTA
JUDGE
OF APPEAL
APPEARANCES:
FOR APPELLANTS: C D A
Loxton SC
M W Janisch
Instructed by
Korbers Inc, Cape Town
Webbers Attorneys,
Bloemfontein
FOR
FIRST RESPONDENT: S A Cilliers SC
A
P
Rubens SC
J Blou
A Rowan
Instructed by
Werksmans, Sandton
Matsepe Inc, Bloemfontein
FOR SECOND & THIRD A
L Williamson
RESPONDENTS
Instructed by
Mervyn Taback Inc,
Rosebank
McIntyre & Van Der
Post, Bloemfontein
1
Henri
Viljoen (Pty) Ltd v Awerbuch Brothers
1953
(2) SA 151
(O) at 169 and
United Watch
& Diamond Co (Pty) Ltd and Others v Disa Hotel Ltd and Another
1972 (4) SA 409
(C) and
Aquatus
(Pty) Ltd v Sacks and Others
1989 (1)
SA 56
(A) at 62.
2
Wood
and Others v Ondangwa Tribal Authority and Another
1975
(2) SA 294
(A) at 312F.
3
Compare
Director of Education, Transvaal v McCagie and Others
1918 AD
616
at 621.
4
1950
(2) SA 420
(A) at 424.
5
Letseng
Diamonds Ltd v JCI Ltd and Others, Trinity Asset Management (Pty)
Ltd and Others v Investec Bank Ltd and Others
2007
(5) SA 564
(W) at para 19 and the authorities there cited.
6
Anrudh
v Samdei and Others
1975 (2) SA 706
(N) at 708 A-B and
Barclays National
Bank Ltd v Thompson
1989 (1) SA 547
(A) at 553.
7
Voget
and Others v Kleynhans
2003 (2) SA 148
(C) at para 9 and
Van Zyl NO v Bolton
1994 (4) SA 648
(C) at 651E-F.
8
1996
(1) SA 984
(CC) at para 229.
9
1996
(3) SA 483
(Tk SC).
10
2005
(6) SA 205
(SCA).
11
Ibid
at paras 16 and 18.
12
Durban
City Council v Association of Building Societies
1942
AD at 32 and
Ex parte Nell
1963 (1) SA 754
(A).