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[2015] ZAKZPHC 54
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Remgro Limited and Another v Unilever South Africa Holdings (Pty) Limited (8835/2015) [2015] ZAKZPHC 54 (23 November 2015)
IN
THE HIGH COURT OF SOUTH AFRICA
KWAZULU-NATAL
DIVISION, PIETERMARITZBURG
CASE
NO: 8835/2015
In
the matter between:
REMGRO
LIMITED
1
ST
APPLICANT
ROBERTSONS
HOLDINGS (PTY) LIMITED
2
ND
APPLICANT
and
UNILEVER SOUTH AFRICA HOLDINGS
(PTY) LIMITED RESPONDENT
J
U D G M E N T
Delivered
on : 23
rd
November, 2015
OLSEN
J
[1]
Two applicants bring this urgent application, Remgro Limited
(“Remgro”) and Robertsons Holdings (Pty) Limited
(“Robertsons”).
The sole respondent, Unilever South
Africa Holdings (Pty) Limited (which I will refer to as “the
respondent”) has raised
the issue that Remgro is misjoined.
There is merit in this objection, but the point need not be decided.
Remgro’s
participation has no measureable impact on the costs
of the proceedings; but nevertheless puts it at risk for an order of
costs
against it in the event of the application being unsuccessful.
[2]
Robertsons owns 25.75% of the shares in the respondent. The
remaining shares in the respondent are owned by two foreign
companies, Unilever Best Foods Robertsons (Holdings) LLC (as to
44.68%) and Unilever Overseas Holdings BV (as to 29.57%).
I
will refer to these two companies as the “Unilever
Shareholders”. Acting jointly, as they do, they are in
effect a majority shareholder.
[3]
Broadly stated, the business of the respondent is the manufacture,
sale, marketing and distribution of Unilever products in
South
Africa, Lesotho, Swaziland, Botswana and Namibia.
[4]
The respondent is the beneficiary of certain corporate services which
are provided on a centralised basis by Unilever PLC, a
United Kingdom
based company. These services are made available also to other
companies in the Unilever stable which operate
elsewhere in the
world. The services comprise such matters as secretarial,
treasury and legal services, strategic research,
and advice from
specialists in the departments of Unilever PLC dealing with
production, technology, financial, legal, tax and accounting
matters. On 11 October 2007 the respondent and Unilever PLC
concluded a written agreement entitled “Know-How, Corporate
Services and Intellectual Property Licence Agreement” (which I
shall refer to as the “CSA”) to govern their relationship
with regard to these services. In terms of clause 4.1 of the
CSA the respondent undertook to pay annual fees to Unilever
PLC for
the provision of its services in terms of the CSA. The agreed
fees were 3% of the repondent’s turnover in one
category of
goods and 5% of turnover for the rest. A proposal has been made
by Unilever PLC and the Unilever shareholders
that the CSA should be
amended by increasing these two rates of remuneration to 8% and 9%
respectively. That proposal is
the genesis of these
proceedings. It will have a significant effect on the profits
earned by the respondent. The personal
complaint of Robertsons
is that it will have a significant effect on the dividends it
receives and on the value of its investment
in the respondent.
(Remgro makes a similar complaint upon the basis that it is the
beneficial holder of all the shares in
Robertsons, and adds its
concern that it is likely to suffer reputational damage as well, if
the CSA is amended as proposed.)
[5]
In April 2013 Robertsons, the Unilever shareholders and the
respondent concluded a shareholders agreement. It records
in
its introduction that there had been earlier such agreements, but
that things like subsequent corporate reorganisations and
the need
for the respondent to adopt a memorandum of incorporation in terms of
the Companies Act, 2008 (which was also done in
April 2013) rendered
it necessary to amend in some respects, and otherwise to restate what
had been agreed before. This was
in effect a new shareholders
agreement. It is not contended that there is any conflict
between the shareholders agreement
and the memorandum of
incorporation insofar as the provisions of these instruments are
relevant to the determination of the present
application.
[6]
The shareholders agreement provided for two matters which are
relevant to the present application. Firstly, each of
Robertsons
and the Unilever shareholders was given the right to
nominate directors for appointment to the Board. Secondly, some
measure
of protection against the majority power of the Unilever
shareholders was afforded to Robertsons. Ignoring matters of
detail,
this protection was achieved by identifying a number of
so-called “fundamental issues”, and providing that the
respondent
would not undertake any action in connection with them
without the matter first having been “discussed” by the
Board,
and without having obtained the prior approval of Robertsons.
The “fundamental issue” at stake in this litigation
is
Item 11 in Part 1 of the list of fundamental issues set out in
Schedule 3 to the shareholders agreement. It reads as follows.
“
Termination
or amendment (including, for the avoidance of doubt, amendment
pursuant to the provisions of clause 4.9 of the Corporate
Services
Agreement) of the Corporate Services Agreement ....”
[7]
The proposal made to amend the CSA to increase the fees payable by
the respondent is accordingly one over which Robertsons has,
initially, a veto power. I say “initially” because
the shareholders agreement contains a deadlock-breaking mechanism.
Clause 7.8 of the shareholders agreement is to the effect that if a
proposal affecting a fundamental issue is made, is discussed
by the
Board, and does not secure the approval of Robertsons, and this
occurs twice within six months, then the Unilever shareholders
are
“
entitled
(but not obliged) within 30 business days after that proposal not
being approved a second time to serve notice (a “Deadlock
Resolution Notice”) on the Robertsons shareholder implementing
(or, as the case may be, commencing the implementation of)
the
proposal on that matter without any further vote (except where some
further affirmative vote is required, in which case the
Robertsons
shareholder hereby irrevocably undertakes to give its approval to
that proposal).”
[8]
According to clause 7.7 the approval that is required from Robertsons
must be reflected in a vote in favour of the proposal
at a
shareholders meeting, or at a Board meeting; or in an expression of
willingness to sign a written resolution supporting the
proposal.
[9]
Before proceeding further I should dispose of an issue relating to
clause 4.9 of the CSA. It reads as follows.
“
The
parties acknowledge that if after the Effective Date, Unilever [PLC]
and/or any other Group of Companies provide services to
the
[respondent] in addition to those set out in Part 1 of Schedule B,
the parties shall, acting in good faith, review that increase
in the
services provided in order to ascertain whether the level of the
annual fees set out in clause 4.1 should be increased as
a result of
the provision of such additional services.”
In
the correspondence between the parties in the run-up to the launch of
this application, and in the applicants’ affidavits,
the
applicants make the argument that the only circumstance in which
there can be an increase in the fees payable by the respondent
to
Unilever PLC is that contemplated by clause 4.9; i.e. the
circumstance that further or new services are now provided.
It
is argued that the current proposal does not qualify as it is made on
the basis that the income generated by the current fee
scale is
insufficient to cover the cost to Unilever PLC of providing the
existing services to the respondent.
[10]
In my view there is no merit in the argument. It amounts to a
contention that upon a proper construction of the agreements
no
consensus between the parties on new fee scales for existing services
would be enforceable. There is no provision of the
CSA or the
shareholders agreement to that effect, nor any which prohibits a
proposal being made for the amendment of the fee scales.
Clause
4.9 of the CSA says nothing about amendments to the tariff which are
not occasioned by the provision of additional services.
The plain
purpose of the special mention of clause 4.9 of the CSA in item 11 of
the schedule to the shareholders agreement is to
clarify the fact
that an amendment to fees generated by the application of clause 4.9
would also constitute a fundamental issue,
in respect of which
Robertsons would enjoy the benefit of protection. Mr Burger SC (who
appeared for Robertsons) accepted in argument
that the shareholders
had not by their agreement brought about that the respondent had lost
its inherent power to agree to any
amendment at all of the CSA.
One simply adds that the shareholders agreement therefore regulates
the manner in which, and
the process through which, the respondent
will agree (or withhold its consent) to any amendment of the CSA
which is proposed, including
new fee scales.
[11]
The proposal for the increase in the fees payable by the respondent
to Unilever PLC was first made in June 2013, and was thereafter
discussed and repeated through 2014 and into 2015. The attitude of
Robertsons was that the proposal held no advantage for the
respondent, that it was in fact severely prejudicial to the
respondent, and that, given those circumstances, no director of the
respondent could vote in favour of a resolution supporting such an
amendment without being in breach of his fiduciary duties.
The
attitude of Robertsons was uncompromising. (There is no need,
and it is not possible on the papers before me, to make
a
determination on the question as to whether there is a sound,
businesslike and rational basis for the acceptance by the respondent
of the proposal to increase the fees.)
[12]
In March 2015 a Mr Todd (a director nominated by the Unilever
shareholders) conveyed to Robertsons that there was a firm intention
to amend the CSA in line with the proposals that had been made, and
that “we are prepared to follow the due process of our
agreement”.
[13]
Notice was then given of a meeting of the directors of the respondent
to be held on 9 June 2015. The notice itself was
not altogether
clear on the question as to what was to be done there, but the matter
of the proposed increase in fees was on the
agenda. As to what
was proposed to be done one can have regard to a notice given on
behalf of the Unilever shareholders to
Robertsons on the subject of
the proposed increase in fees. This was done by letter dated 29
May 2015. It was stated
that the Board meeting had been
convened for 9 June 2015 “to consider and vote on this matter
as a separate and specific
Board resolution.” Robertsons’
vote in support of the proposed resolution was requested. It was made
clear that
this meeting was being called in furtherance of the
objective of the Unilever shareholders, which was to bring about that
the conditions
for the lawful delivery of a Deadlock Resolution
Notice became satisfied. This was to be the first of the two
Board meetings
which had to take place, without securing the approval
of Robertsons, before a right to deliver such a notice would accrue.
[14]
In my view the persons responsible for setting up the meeting of 9
June 2015 paid insufficient attention to the care with which
the
relevant provisions of the shareholders agreement (and the memorandum
of incorporation) had been drafted. In terms of
s75
(5) of the
Companies Act, 2008
, in a situation of conflict a director is not
only to withhold his or her vote, but may not take part in the
consideration of the
matter in question. (This provision is
replicated in the respondent’s memorandum of incorporation).
The draftsperson
of the shareholders agreement presumably realised
that if a proposal arose on a fundamental issue which held
considerable advantages
for the Unilever interests with which the
Unilever directors were aligned, they would not be entitled to take
part in the consideration
of the issue. It was nevertheless
intended that a debate should take place at Board level whenever it
became necessary to
secure the assent of Robertsons to a proposed
course with regard to a fundamental issue; presumably to ensure that
views could
be exchanged and commented upon to the advantage of all
shareholders. It seems to me that it is for this reason that
the
shareholders agreement provides that the matter shall be
“discussed by the Board” and not that it should be
“considered”,
or “considered and voted upon”
by the Board.
[15]
A full account of what happened at the meeting of 9 June 2015 is not
available on the papers in this application. What
is available
suggests that there was no or insignificant “discussion”
about the proposal itself, but rather relatively
unseemly squabbling
about conflicts of interest, which resulted in the Unilever directors
recusing themselves and the Robertsons
directors abstaining. It
is plain from the papers before me that the respondent (directed in
effect in this litigation by
Unilever interests) regarded and
continues to regard the meeting of 9 June 2015 as the first of the
two which have to be held in
order to overcome the veto power given
to Robertsons with respect to the proposed amendment of the CSA.
For its part Robertsons
is concerned that the meeting of 9 June 2015
may indeed be regarded as the first of the two necessary meetings,
and has launched
this application to prevent any second meeting being
held within six months of the first, for fear that it will result in
the Unilever
shareholders breaking the deadlock by issuing the
requisite notice. In the view I have taken of this matter it
proves unnecessary
to decide the question as to whether the meeting
of 9 June 2015 qualified as the first of those necessary to generate
a right on
the part of the Unilever shareholders to break the
deadlock.
[16]
This application was first launched on 7 July 2015. It was said
to be urgent then because the annual meeting of shareholders
of the
respondent was due to take place on 29 July 2015, and Robertsons was
concerned that the Unilever shareholders would seek
to table their
proposal at that meeting. As it turns out an undertaking was
given to Robertsons that no meeting involving
the disputed proposal
to increase fees would be held without an acceptable period of notice
being given, as a result of which it
was unnecessary for the matter
to be heard as urgently as originally anticipated. Subsequently
notice of a meeting to be
held on Tuesday, 24 November 2015 was given
to Robertsons. In the result this matter was set down for urgent
hearing on Friday,
20 November 2015, the original papers now being
accompanied by supplementary founding, answering and replying
affidavits.
[17]
With that somewhat lengthy statement of the background against which
the application was launched, I turn to the question of
the relief
which is sought by Robertsons.
[18]
Robertsons seeks an interdict. There is no need to record the
precise formulation of the interdict set out in the notice
of
motion. It is sufficient to state that, if granted, the
interdict would prevent the respondent from holding any directors
or
shareholders meeting for the discussion or consideration of the
proposal to amend the CSA by increasing fees. Further orders
were
sought in the notice of motion as follows.
”
3.
Directing that the aforesaid interdict shall remain in place pending
the following:
3.1
the service of a demand by the second applicant on the respondent in
terms of s165 (2) of
the Companies Act 71 of 2008 (“the Act”)
to commence legal proceedings or to take related steps to protect the
legal
interests of the respondent in regard to the following:
(a)
the breach of the fiduciary duties by the directors appointed to the
board of the
respondent by the Unilever shareholders by
inter alia
their failure to take steps to prevent an increase in the annual fees
payable by the respondent to Unilever PLC in terms of the
corporate
services agreement, [annexed to the founding affidavit];
(b)
the meaning of the corporate services agreement and the circumstances
under which
the agreement may be amended to increase the fees payable
by the respondent to Unilever PLC;
3.2
the completion of the process under s165 of the Act;
3.3
the final determination of an action or application to be instituted
by [Robertsons] against
the respondent and the Unilever shareholders
for declaratory and related relief in regard to the terms of the
shareholders agreement,
[annexed to] the founding affidavit;
4.
Directing [Robertsons] to serve such demand and to institute such
action or application
by no later than sixty (60) days from the date
of this order”.
[19]
A decision as to whether this application can be granted must
commence with a consideration of the cause of action. Whether
my views on that determine the outcome of the case depends on whether
my views on a point of non-joinder raised by the respondent
are
correct; because if they are, no decision on the validity of the
cause of action can determine the outcome of the application
without
hearing the parties who are not before the court. Finally I
must deal with the implications of
s165
of the
Companies Act for
this
application.
THE
CAUSE OF ACTION
[20]
The case sought to be made in the founding papers went along the
following lines.
(a)
The meeting of directors which took place on 9 June 2015 was a
charade.
(b)
This was of no consequence to the Unilever directors, because holding
the meeting was merely a stratagem devised by the Unilever
shareholders to take the first step in a process which would result
in the Unilever shareholders breaking the deadlock between
shareholders.
(c)
Because the proposed increase in fees holds no advantage, and only
disadvantage, for the respondent, the Unilever directors
were bound
by their fiduciary duty to do everything necessary to avoid the
outcome that the amendment to the CSA eventuates.
(d)
In discharge of that duty the Unilever directors were and remain
bound to ensure that the proposed amendment is not even tabled
before
a board meeting for discussion, as the ultimate outcome (after that
has happened twice in six months) will be that the Unilever
shareholders will break the deadlock, resulting in the increase in
fees. The directors must discharge that duty for the benefit
of
the respondent.
(e)
Furthermore, if the directors fail in their duty, Robertsons will
then unlawfully have been put in a position where it must
either live
with the reduced profits the respondent will earn, or sell its shares
in the respondent to the Unilever shareholders
at an exit price
determined in terms of the shareholders agreement, being one which
Robertsons claims to be less than the true
value of those shares.
[21]
The interdict was sought originally to protect Robertsons and, it is
claimed, the respondent, against what Robertsons contended
to be the
unlawful implementation of the provisions of the shareholders
agreement dealing with deadlock. Those provisions
are also
contained in the respondent’s memorandum of incorporation.
The directors are bound at least by the memorandum
of incorporation,
as are the shareholders. The implications of the applicants’
argument as to the duties of the directors
is that the privilege
accorded to Robertsons as a minority shareholder in connection with
all “fundamental issues”
is absolute whenever the
directors are of the view that a proposal concerning such an issue is
contrary to the interests of the
respondent; because, holding that
view, the directors must not allow such a proposal to be discussed by
the board. In the
absence of such a discussion, the refusal of
Robertsons to approve a proposal will never generate a right on the
part of the Unilever
shareholders to break the deadlock. That right
vested in the directors to block a proposal must flow from a proper
construction
of the memorandum of incorporation. The
Interpretation of the provisions must be undertaken in accordance
with the usual
rules, as set out in
Natal
Joint Municipal Pension Fund v Endumeni Municipality
2012 (4) SA 593
(SCA), para [18].
“
Interpretation
is the process of attributing meaning to the words used in a
document, be it legislation, some other statutory instrument,
or
contract, having regard to the context provided by reading the
particular provision or provisions in the light of the document
as a
whole and the circumstances attendant upon its coming into existence.
Whatever the nature of the document, consideration
must be given
to the language used in the light of the ordinary rules of grammar
and syntax; the context in which the provision
appears; the apparent
purpose to which it is directed and the material known to those
responsible for its production. Where more
than one meaning is
possible each possibility must be weighed in the light of all these
factors. The process is objective, not
subjective. A sensible meaning
is to be preferred to one that leads to insensible or unbusinesslike
results or undermines
the apparent purpose of the document. Judges
must be alert to, and guard against, the temptation to substitute
what they regard
as reasonable, sensible or businesslike for the
words actually used. To do so in regard to a statute or statutory
instrument is
to cross the divide between interpretation and
legislation; in a contractual context it is to make a contract for
the parties other
than the one they in fact made. The 'inevitable
point of departure is the language of the provision itself' read in
context and
having regard to the purpose of the provision and the
background to the preparation and production of the document.”
[22]
Following this process, the following becomes apparent.
(a)
The veto right which is set out in Article 28.7 of the memorandum of
incorporation is expressly stated to be conferred “subject
to
the provisions of article 28.9”. That article permits the
Unilever shareholders to break the deadlock in the circumstances
already discussed. The language conveys that the veto privilege
is only given subject to that important qualification.
(b)
No language is employed which conveys that the directors have any
decision to make for so long as the veto power of Robertsons
subsists.
(c)
The language of the provision conveys clearly, and in the interests
of Robertsons, that for so long as Robertsons withholds
its consent
to action on a fundamental issue, the only role of the board is that
of a forum for discussion.
(d)
On the construction given to the provision by Robertsons, the
directors have an unexpressed power to support Robertsons in a
dispute between shareholders over a fundamental issue, and override
the majority status of the Unilever shareholders, whenever
the board
considers a proposal supported by the Unilever shareholders not to be
in the interests of the respondent. No language
used in the
provision conveys that or supports that contention. No language
supports the contention that the board may refuse
to discuss the
disputed proposal.
(e)
Subject only to the constraints of law, the default position within
companies is that the majority prevails. It is indisputable
that the concession made by the Unilever shareholders regarding this
principle was subject to its right to break deadlocks in certain
circumstances. The clear purpose of a deadlock breaking
mechanism in this case is the restoration of the default position.
Nowhere is it said that the default position can only be restored if
the board agrees, which is in effect what Robertsons is saying.
(f)
Considering the provisions as a whole, and given that the board is
bound by the provisions of the memorandum of incorporation,
it must
be implied that the board is duty bound to discuss any proposal
concerning a fundamental issue. The board’s
views on the
quality of the proposal determine nothing until and unless it is
called upon eventually to decide the issue, whether
that occurs
because the deadlock has been broken or because Robertsons
voluntarily relents and approves the proposal.
[23]
In my view Robertsons has not established a case for the relief it
seeks. Whatever may be said about the meeting of 9
June, the
notice of the meeting due to take place tomorrow is in precise
compliance with the requirement of the shareholders agreement
that
the proposal to amend the scale of fees should be “discussed by
the Board”. The notice to directors does
not place a
proposed resolution on the agenda and does not convey that a
resolution will be “considered” in the sense
that that
word is used in
s75
of the
Companies Act. The
directors are
bound to discuss the matter as required by the memorandum of
incorporation (and the shareholders agreement) by which
they are
bound. They have no right to obstruct the agreed process for
overcoming what the Unilever shareholders may regard
as the
inappropriate use by Robertsons of its veto power with regard to any
fundamental issue. Any dispute as to the lawfulness
of anything
which follows (after tomorrow’s meeting, or perhaps after a
further meeting of directors to discuss the fee issue)
is a matter
for adjudication once it occurs.
NON-JOINDER
[24]
In its answering papers the respondent took the point that the relief
sought by Robertsons is incompetent because it materially
affects the
interests and rights of the Unilever shareholders, and they have not
been joined in these proceedings. Whether
for that reason or
for some other undisclosed one, in its first replying affidavit
Robertsons stated that it would not seek the
interdict pending the
institution and final determination of a claim for declaratory relief
made on its own behalf, but reserved
its right to initiate such
proceedings if the respondent did not do so following the process
under
s165
of the
Companies Act. Consistent
with this, in the
heads of argument delivered on behalf of Robertsons it was indicated
that the interdict would be sought pending
only the matters referred
to in paragraphs 3.1 and 3.2 of the notice of motion (reproduced
above). (Counsel for Robertsons
accepted in argument that some
reformulation of the relief would be necessary as the service of a
demand by Robertsons in terms
of
s165
(2) of the
Companies Act, which
is the cornerstone of the condition in paragraph 3.1 of the prayer,
had already taken place by the time the first replying affidavit
was
delivered.)
[25]
Counsel for Robertsons rightly conceded in argument that Robertsons
could not in this application seek an interdict for the
protection of
any rights which it holds under the shareholders agreement because it
had failed to join the Unilever shareholders
in this application.
(As will be seen, in my view this concession as to the merits of the
respondent’s point of non-joinder
does not go far enough).
It is argued that the right which Robertsons does have, and which can
be protected without the joinder
of the Unilever shareholders, is the
right to the integrity of the process initiated by Robertsons in
terms of the
s165
(2) of the
Companies Act.
[26
]
Reproducing all the provisions of
s165
of the
Companies Act will
not
contribute to clarity in this judgment. I prefer where possible
to furnish a précis of the provisions of the section
which
govern or will govern the process upon which Robertsons has embarked
by serving a notice on the respondent in terms of s165
(2) of the
Act. However the context within which those provisions apply
cannot be appreciated without considering s165 (1)
which should be
quoted in full.
“
(1)
Any right at common law of a person other than a company to bring or
prosecute any legal proceedings
on behalf of that company is
abolished, and the rights in this section are in substitution for any
such abolished right.”
The
section does away with the common law derivative action.
[27]
Section 165 (2) is to the effect that a shareholder of a company may
serve a demand upon that company to commence legal proceedings
to
protect the legal interests of the company. Section 165 (3)
allows the company to apply to court within 15 business days
to set
aside the demand on the basis that it is frivolous, vexatious or
without merit. This has not been done in this case.
[28]
Section 165 (4) (a) requires a company which has not secured an order
setting aside the demand to appoint an independent and
impartial
person or committee to investigate the demand and report to the Board
on a number of issues, the primary one being the
question as to
whether it is in the best interests of the company to pursue the
action which is the subject of the notice in terms
of s165 (2).
A senior advocate has in fact being appointed to perform that
function in this instance. The performance
of the function
cannot be delayed because, in terms of s165 (4) (b), unless it
obtains an extension of time from the court, the
company must within
60 days of service of the demand either initiate the proposed action,
or serve a notice on the shareholder
who made the demand, refusing to
do so. If the latter happens then the shareholder who made the
demand may in terms of s165
(5) apply to court for leave to institute
proceedings in the name and on behalf of the company. In terms
of s165 (5) (b)
the court cannot grant such an order unless it is
satisfied,
inter
alia
,
that
(i)
the
applicant is acting in good faith;
(ii)
the
proposed 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 such leave be granted.
[29]
In that statutory context the demand served by Robertsons on the
respondent requires it to institute legal proceedings for
the
following orders.
“
1.
Declaring that anything done by the Unilever shareholders in seeking
to achieve an
increase in the fees payable to Unilever PLC as
proposed is contrary to the provisions of the shareholders agreement.
2.
Declaring in particular that the [respondent’s) Board meeting
of 9 June
2015 did not take place in accordance with the provisions
of the shareholders agreement and does not constitute a meeting as
envisaged
by, and for the purposes of, clause 7.6 of the shareholders
agreement, with the result that that meeting cannot serve as the
basis
on which a second proposal concerning the same “fundamental
issue” can be made as contemplated by clause 7.8 of the
shareholders agreement.
3.
Interdicting the Unilever shareholders from making a second proposal
as contemplated
by clause 7.8 of the shareholders agreement.”
[30]
It will be seen immediately that all of the relief that Robertsons
has called upon the respondent to enforce involves the denial
of
rights claimed by the Unilever shareholders in terms of the
shareholders agreement. The issue in the proposed litigation
is
not the quantum of the fees payable by the respondent to Unilever
PLC, an issue which would obviously be one for the respondent
if it
was, for instance, being charged more than it had agreed to pay.
The issue is the process which is being and will be
followed in order
to achieve a change in the fee structure, the validity and lawfulness
of which process is asserted by the Unilever
shareholders and denied
by Robertsons. Given that, I can see no basis upon which a
court presented with an application by
Robertsons in terms of
s165
(5) of the
Companies Act would
consider the issues as to whether
Robertsons is acting in good faith, and as to whether it is in the
best interests of the company
that relief in the form demanded by
Robertsons be pursued on behalf of the company, without the Unilever
shareholders being joined
in that application. The rights in
issue in the proposed litigation would be those of the shareholders.
The respondent’s
locus
standi
in the proposed proceedings would be nominal only, in the sense that
as a party to the shareholders agreement, it is entitled to
demand
that the rights of the shareholders given in the shareholders
agreement (and repeated in the memorandum of incorporation
to which
the company is bound in terms of
s15
(6) of the
Companies Act) are
lawfully exercised.
[31]
In this application the applicant seeks an order having precisely the
same effect (in the interim) as would the successful
prosecution by
or on behalf of the respondent of the action which Robertsons has
demanded of the respondent that it should institute
against the
Unilever shareholders. The respondent’s complaint of
non-joinder of the Unilever shareholders is justified
not only
because those shareholders have “a direct and substantial
interest” in this application (
Amalgamated Engineering Union
v Minister of Labour
1949 (3) SA 637
(A) at 659), but because it
is the rights of the Unilever shareholders that are in fact the
subject of this application.
Whether the application is
regarded as one for the protection of a right held by Robertsons, or
one for the protection of the respondent,
it remains indisputable
that the proposed interdict nullifies the rights the Unilever
shareholders assert. For that reason, and
given the circumstances
that
(a)
Robertsons
has taken no steps to join its co-shareholders despite being long
forewarned of the point of non-joinder; and
(b)
the
meeting (or at least the first meeting) sought to be interdicted is
to take place tomorrow, leaving no time to join the Unilever
shareholders
I
would dismiss this application on the basis of non-joinder alone.
SECTION
165
OF THE
COMPANIES ACT
[32]
Putting aside the question of non-joinder, as mentioned earlier,
counsel for Robertsons has argued that the right Robertsons
is
entitled to protect through the interdict it seeks is its right to
pursue the process it has initiated in terms of
s165
of the
Companies
Act. But
there is of course nothing done by the respondent to
obstruct the exercise of the right Robertsons has to pursue the
process it
has initiated under
s165
of the
Companies Act.
Robertsons
seeks no interdict with regard to the process which it has
initiated. The present application therefore has nothing to do
with the applicant’s rights under
s165
of the
Companies Act.
[33
]
Given the concession made by Robertsons in argument, that it cannot
assert any other of its own rights in its own name because
they
emanate from the shareholders agreement, and would require the
joinder of its co-shareholders, and given the nature and import
of
the interdict which Robertsons seeks in this application, it becomes
apparent that at best for Robertsons it might contend that
it seeks
the interdict for the protection of the right of the respondent to
require that, for its own benefit, its shareholders
and directors
should be compelled to exercise their rights and duties lawfully.
That, it seems to me, is the best slant that
can be put on this
application, which means that it is itself a “derivative
action”. The difficulties which might
have been
occasioned in urgent matters by the abolition of common law rights to
prosecute legal proceedings on behalf of a company
were not
overlooked in the
Companies Act. Section
165 (6) of the Act
reads as follows.
“
(6)
In exceptional circumstances, a person contemplated in sub-section
(2) may apply to a court for
leave to bring proceedings in the name
and on behalf of the company without making a demand as contemplated
in that sub-section,
or without affording the company time to respond
to the demand in accordance with sub-section (4), and the court may
grant leave
only if the court is satisfied that –
(a)
the
delay required for the procedures contemplated in sub-sections (3) to
(5) to be completed may result in –
(i)
irreparable
harm to the company; or
(ii)
substantial
prejudice to the interests of the applicant or
another
person;
(b)
there
is a reasonable probability that the company may not act to prevent
that harm or prejudice, or act to protect the company’s
interest that the applicant seeks to protect; and
(c)
that
the requirements of sub-section (5) (b) are satisfied.”
The
requirements of sub-section (5) (b) are that the court must be
satisfied that the applicant acts in good faith, that what is
proposed involves the trial of a serious question of material
consequence the company, and that the grant of the application is
in
the best interests of the company.
[34]
In my view, questions of non-joinder aside, this application cannot
be saved by regarding it as one made for the protection
of the
interests of the respondent. If that was its intention, then
there was time enough to frame the application in accordance
with
s165
(6) of the
Companies Act, even
if that application would have
had to be brought on an urgent basis. This application does not
raise the question as to whether
there may be circumstances where the
need for judicial intervention is so urgent that, without satisfying
the requirements of
s165
(6) of the
Companies Act, relief
may be
granted at the instance of an applicant who lacks
locus
standi
to be heard otherwise than for and on behalf of a company that is
incapacitated.
CONCLUSION
[35]
If, as appears likely, Robertsons does not agree to the proposed
amendment to the CSA after tomorrow’s meeting, the Unilever
shareholders may choose to issue a Deadlock Resolution Notice.
If for whatever reason Robertsons takes the view that the
right to
issue such a notice has not accrued, or finds reason to object to the
process which may subsequently be followed by the
respondent to reach
consensus with Unilever PLC on increased fees, Robertsons may then
take such action as it may be advised to
take, whether for the
protection of its own rights or those of the respondent, in proper
form. In my view the remedy of stopping
a lawful meeting (or
meetings) for fear that unlawful conduct will follow is not
available.
[36]
For all these reasons this application must fail.
I
make the following order.
1.
The application is dismissed.
2.
The costs of the application, including the costs of two counsel,
shall be paid by the applicants, their liability being joint
and
several.
___________________
OLSEN
J
Date
of Hearing:
FRIDAY, 20 NOVEMBER 2015
Date
of Judgment: :
MONDAY, 23 NOVEMBER 2015
For
the Applicants :
MR SF BURGER SC with MR
AJ DICKSON SC and MR D WEST
Instructed
by:
CLIFFE DEKKER HOFMEYR INC.
APPLICANTS’
ATTORNEYS
1 PROTEA PLACE
SANDTON
(TEL : 011 –
562 1071)
(REF.: P J
Conradie/JLatsky/20132277)
c/o BOTHA
& OLIVIER INC
239 PETER KERCHHOFF
STREET
PIETERMARITZBURG
KWAZULU-NATAL
(TEL.: 033 –
342 7190)
(REF.: S
Hariparsad)
For
the Respondent :
MR LN HARRIS SC with MR JA BABAMIA
Instructed
by:
EDWARD NATHAN SONNENBERGS
RESPONDENT’S
ATTORNEYS
140 WEST STREET
SANDTON
(TEL.: 011 –
269 7600
(REF.: D Lambert/H
Meiring/0397272
c/o VENNS
ATTORNEYS
281 PIETERMARITZ
STREET
PIETERMARITZBURG
KWAZULU-NATAL
(TEL.: 033 –
355 3100)
(REF.: Mr
Robert Stuart-Hill)