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[2006] ZASCA 36
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Gardner and Another v Margo (549/04) [2006] ZASCA 36; [2006] 3 All SA 229 (SCA); 2006 (6) SA 33 (SCA) (28 March 2006)
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THE
SUPREME COURT OF APPEAL
OF SOUTH
AFRICA
CASE NO:
549/2004
Reportable
In the matter between
TONY
RICKY
GARDNER
First Appellant
OTR
MINING
LTD
Second Appellant
and
ROGER
HUGH
MARGO
Respondent
Before:
Scott, Zulman and Van Heerden JJA, Maya and
Cachalia AJJA
Heard:
9 March 2006
Delivered:
28 March 2006
Summary:
Interpretation of contract – mandate for the sale
of shares –
guarantee given by company in respect of such sale – whether
contrary to s 38(1) of the Companies
Act 61 of 1973
Neutral
citation: This judgment may be referred to as
Gardner
v Margo
[2006]
SCA 36 (RSA)
JUDGMENT
VAN
HEERDEN JA:
VAN HEERDEN JA:
Introduction
[1]
This appeal concerns the interpretation of
a contract (‘the mandate’) entered into on 26 February
1998 between the first
appellant, Tony Ricky Gardner (‘Gardner’),
and the second appellant, OTR Mining Ltd (‘OTR’), on the
one
hand, and Mr Jan Abraham Joubert (‘Joubert’), on the
other. In terms of the mandate, Joubert instructed Gardner to sell
a
large number of Joubert’s shares in OTR and the company gave a
guarantee to Joubert in respect of such shares. Joubert
subsequently
ceded to the respondent, Roger Hugh Margo (‘Margo’), ‘all
his rights, title and interest in and
to all claims, including the
claim for rectification, which he had against [Gardner] and [OTR]’
in terms of the mandate.
[2]
Margo, as cessionary, sued Gardner and OTR
in the Johannesburg High Court for payment of the unpaid proceeds of
shares in OTR which
Gardner had sold or (in respect of approximately
3,6 million shares) allegedly sold, in terms of the mandate as
Joubert’s
‘sole agent’. Gardner had paid a
substantial portion of the proceeds to OTR. Margo alleged in his
Particulars of Claim
that OTR was, inter alia, jointly and severally
liable with Gardner for payment of that part of the proceeds of the
relevant shares
which it had received from Gardner. He also sought to
hold OTR liable in terms of a guarantee which it had given to Joubert
in
terms of the mandate.
[3]
The appellants’ main defence against
Margo’s claim was that, on a proper interpretation of the
mandate, Joubert had,
at the time of the cession to Margo, no
remaining rights under the mandate against either Gardner or OTR.
This being so, Margo
acquired no rights as cessionary against either
of the two appellants. The court a quo rejected this defence and, in
the main,
upheld Margo’s claims with costs – hence the
present appeal, which comes before us with the leave of that court.
Background
[4]
Joubert and Gardner were the founding
members of OTR, which was established in 1995 as a management and
exploration company to undertake
the management of alluvial and
eluvial mining and the processing of minerals. In late 1996, OTR
purchased all the assets (including
certain mineral claims) of the
Gazankulu Gold Mining Company (in liquidation) (‘Gazgold’).
It thereafter set up base
at a mine called Klein Letaba in Limpopo
(one of the mines purchased from Gazgold) with the purpose of
exploiting alluvial gold
deposits in that area.
[5]
OTR was listed on the Johannesburg Stock
Exchange (‘JSE’) on 22 September 1997. According to the
pre-listing statement,
its initial directors and shareholders were
Gardner, Joubert, Margo, Anthony Gardner (Gardner’s father),
Kenneth Barnard
(‘Barnard’), Theodore Tromp (‘Tromp’)
and Thomas Cook (‘Cook’). Tromp and Cook were
non-executive
directors. Gardner’s position in OTR was that of
managing director and chairman, while Joubert was the mining
director, Margo
the legal director, Gardner senior the engineering
director and Barnard the geological director.
[6]
Joubert and Gardner were the two major
shareholders in OTR, their combined shareholding amounting to some 34
percent of the issued
shares. In terms of a so-called ‘pool
agreement’ entered into between the OTR shareholders (‘the
pool members’)
prior to the listing, no pool member was
entitled to alienate any of the shares specified in the agreement to
any ‘non-pool
member’ for five years from the date of the
listing, except in the manner set out in the agreement and subject to
the pre-emptive
rights of the other pool members.
[7]
According to the pre-listing statement, OTR
had developed ‘a unique approach to mining’, utilising
what was referred
to in the trial as the ‘OTR method of
mining’. Gardner and Joubert both gave extensive, but
conflicting, evidence regarding
the genesis of the OTR method, what
it entailed and the degree to which OTR’s overall mining
initiatives depended on the
success (or otherwise) of this method.
This evidence was analysed in some detail by the High Court in its
judgment. However, on
the view which I take of the issues, it is not
necessary to repeat this exercise.
[8]
The written contract reads as follows:
‘
I,
the undersigned,
JAN
ABRAHAM JOUBERT
,
Identity
Number [2...]
hereby:
1
instruct
TONY
RICKY GARDNER
(Passport Number
[7...]) to act as my sole agent (for a period of THREE (3) months
from signature hereof) in the sale of
TWELVE
MILLION EIGHT HUNDRED AND FIFTY THREE THOUSAND FIVE HUNDRED AND
EIGHTY (12 853 580)
OTR Mining Ltd
Ordinary shares. These shares are to be sold in tranches of ±
FOUR MILLION (4 000 000) per month
over
a period of
THREE (3)
months
as of date of signature hereof. OTR Mining Ltd guarantees the sum of
FIVE MILLION ONE HUNDRED AND FORTY ONE
THOUSAND FOUR HUNDRED AND THIRTY TWO RAND (R5 141 432)
for
these shares.
1.1
SEVEN HUNDRED AND FIFTY THOUSAND RAND
(R750 000)
is payable on the 3
rd
March 1998;
1.2
SEVEN HUNDRED AND FIFTY THOUSAND RAND
(R750 000)
is payable by the 31
st
March 1998; and
1.3 the remaining
amount will be due and payable within a period of the next two
months.
2
The amount payable to myself, Jan Abraham
Joubert, will be the consideration amount of
R0,40c
(FORTY CENTS)
per share.
3
With the above concluded this will amount
to myself having no Ordinary shares in OTR Mining Ltd except those of
the Management Pool
shares. These shares will be sold at Tony Ricky
Gardner’s discretion.
4
OTR Mining Ltd agrees that my official
retirement date shall be the 31
st
August 1998.
5
OTR Mining Ltd hereby agrees that on
retirement I shall be entitled to keep my present car (Mercedes Benz
C230) as my company retirement
gratuity.
6
As previously agreed with OTR Mining Ltd I
shall be entitled to
50%
(FIFTY PER CENTUM)
(after
cost) of the proposed sale of 261 Granite Blocks, situated on the
Bambini Farm in the district of Giyani.’
[9]
The mandate was signed by Joubert and by
Gardner and, although it is not indicated in the written agreement
that Gardner was signing
both in his personal capacity and on behalf
of OTR, it was common cause that OTR was indeed a party to the
agreement.
[10]
The case advanced by Margo against Gardner
in respect of the mandate, both in the High Court and on appeal, is
that the express
terms of the mandate (on a proper interpretation
thereof), alternatively the terms implied by law, were that Joubert
mandated Gardner
to act as his sole agent to sell 12 853 580 of his
ordinary shares in OTR in three ‘tranches’ of 4 284 526
shares each
on 26 March 1998, 26 April 1998 and 26 May 1998,
respectively, all of the shares to be sold at the then prevailing
market prices.
Margo contended further that Gardner was obliged to
account to Joubert and to pay to him, upon receipt thereof, the full
proceeds
from the sale of Joubert’s shares. In the alternative,
Margo contended that the written mandate did not correctly reflect
the common intention of the parties thereto; that the parties’
common intention was that clause 2 would provide that ‘[t]he
minimum
amount payable to myself, Jan Abraham Joubert, will be the amount of
R0,40c (FORTY CENTS) per share’ (my emphasis), and that
the
mandate should be rectified accordingly.
[11]
In April 2000, prior to the trial in the
Johannesburg High Court, the appellants tendered to account to Margo,
which tender was
made an order of court on 17 April 2000. Gardner
then accounted to Margo in writing on 31 May 2000 and, after a
further court order
against Gardner and OTR in this regard, on 6
April 2001. The parties debated the account through their attorneys.
In his particulars
of claim, Margo stated that, ‘to the extent
of the facts set out under this heading and for purposes of this part
of the
claim’ (ie the first claim against Gardner), he accepted
‘the accounting as a true representation’. From the
account, it is common cause that, during the period 31 March to 31
August 1998, Gardner sold a total of 9 200 000 of Joubert’s
shares in OTR pursuant to the mandate. The total proceeds of such
shares (‘the accounted shares’) was R10 274
277. Of these proceeds, Gardner paid R3 634 275 to Joubert, this
amount being made up as follows: 9 200 000 shares at 40 cents
per
share (R3 680 000) minus R45 725. This last-mentioned amount was
allegedly ‘kept back’ from the payment due to
Joubert as
representing the total amount owing and payable by Joubert to OTR in
respect of cellular telephone charges paid by OTR
to Joubert’s
cellular telephone provider and certain amounts provided by OTR to
Joubert to acquire motorcycles on behalf
of OTR, which Joubert
allegedly failed to do. Of the balance of the proceeds of the
accounted shares (R6 640 002), a total amount
of R6 200 820
was paid by Gardner to OTR, while R439 182 was paid to third parties,
mainly in the form of broker’s
commission.
[12]
Based on the account rendered by Gardner,
Margo claimed, firstly, that Gardner became liable to pay to Joubert,
not later than 1
September 1998, the amount of R6 537 529, being the
full proceeds of the accounted shares (R10 274 277) minus reasonable
broker’s
commission of one percent (R102 743) minus the amount
paid to Joubert (R3 634 275).
[13]
In respect of the balance of 3 653 580
shares (‘the unaccounted shares’), ie
the
number of shares specified in the mandate minus the 9 200
000 accounted shares, the accounting rendered by Gardner
simply
stated the following:
‘
Total
number of shares instructed to sell: 12
853 580
Total
number of shares sold: 9 200 000
Shares
tendered to be returned to Joubert as unsold: 3
653 580 (these shares have been consolidated
in terms of a
shareholders resolution and the present consolidated shares come to
730 716 OTR Mining ordinary shares).’
[14]
In his second claim against Gardner, Margo
contended that the unaccounted shares were in fact sold by Gardner
during the period
26 March 1998 to 26 May 1998 for not less than the
then prevailing market price. In the alternative, Margo asserted
that, on a
proper interpretation of the mandate, Gardner was obliged
to sell the unaccounted shares during this period for not less than
the
prevailing market price and that Gardner breached the terms of
the mandate by thus failing to sell the unaccounted shares, as a
result of which breach Joubert suffered damages in an amount equal to
the total market price, during this period, of the unaccounted
shares. Based on a prevailing market price of R1.20 per share, Margo
asserted that, on either alternative, Gardner was liable to
pay to
him the amount of R4 384 296, being the number of unaccounted shares
multiplied by the prevailing market price.
[15]
As regards the prevailing market price
utilised by Margo for the purposes of his claim against Gardner in
respect of the unaccounted
shares, Dr Braude, a former stockbroker,
testified on behalf on Margo during the trial to the effect that,
during the said period,
the value of OTR’s shares was not less
than R1.20 per share, and also that the reasonable commission for
brokers selling
shares was not more than one percent of the proceeds.
This evidence was not seriously contested.
[16]
Margo’s first claim against OTR was
also premised on his contention that, on a proper interpretation of
the mandate, the full
proceeds of the shares sold by Gardner had to
be paid to Joubert. Thus, OTR was not entitled to that portion of the
proceeds which
Gardner had paid to it (in the total amount of R6 200
820); it had been unjustifiably enriched at the expense of Joubert
(or of
Margo, as cessionary) by such payment, and it was thus jointly
and severally liable with Gardner to pay this amount to Margo.
[17]
The second claim advanced by Margo against
OTR was essentially that, in terms of the mandate, properly
interpreted, OTR guaranteed
that Joubert would receive not less than
R5 141 432 for the 12 853 580 shares to be sold by Gardner on
his behalf. Margo
alleged that, to the extent that judgment in
respect of his other claims was less than this guaranteed amount, or
to the extent
to which he was able to recover less than the
guaranteed amount from Gardner, OTR was liable to Margo for payment
of the difference,
plus interest.
[18]
Gardner and OTR
contended that the contract concluded between them and Joubert was
partly in writing and partly oral. The written
part of the mandate
was embodied in the document signed by Joubert and Gardner on 26
February 1998.
[1]
Clause 1 and clauses 3 to 6
thereof meant exactly what they said. Clause 2 thereof, properly
interpreted, meant that Gardner was
obliged to pay to Joubert –
and Joubert was correspondingly entitled to receive –
only
40 cents per share from the proceeds of the shares sold on his behalf
by Gardner. The terms of the oral part of the mandate were
(so it was
pleaded) that:
‘
[1]
[A]ny amount received by the first defendant [Gardner] in excess of
R0,40 per share, pursuant
to the sale of the shares, would be paid to
the second defendant [OTR] as compensation to the second defendant
for certain losses
it had suffered as a result of Joubert’s
negligent conduct in
–
[1.1] erroneously
determining
–
and thereafter
misrepresenting to the second defendant
–
the
predicted yield of gold per ton of alluvial gold bearing ore; and /or
[1.2] employing the incorrect mining
method(s) for the extraction of the gold from such gold bearing ore.
[2]
Alternatively to paragraph [1], any amount received by the first
defendant in excess of
R0,40 per share pursuant to the sale of the
shares would be paid to the second defendant.
[3]
any other amounts owed by Joubert to the company, arising from any
cause whatsoever, including
monies lent and advanced to him, or
monies lent and disbursed for and on behalf of him would be set off
against, and deducted from,
any amount payable to him in connection
with the sale of the shares.’
(My numbering.)
On this
construction of the mandate, Joubert had received, in respect of the
accounted shares, all that he was entitled to and Margo
thus had no
claim against either Gardner or OTR in this regard.
[19]
Gardner and OTR denied that the unaccounted
shares had in fact been sold and reiterated ‘their previous
tender, viz that the
plaintiff may collect the remainder of the
shares, ie 3 653 580, from Incentive Securities’. They also
denied that a failure
by Gardner to sell the unaccounted shares
constituted a breach of the mandate resulting in a claim for damages
in favour of Joubert.
[20]
Finally, in response to Margo’s claim
against OTR based on the guarantee contained in the mandate, it was
pleaded that the
guarantee constituted a breach of the provisions of
s 38 of the Companies Act 61 of 1973 in that it directly or
indirectly amounted
to the rendering of financial assistance by OTR
for the purpose of or in connection with a purchase made or to be
made of Joubert’s
shares in the company. It was hence invalid
and unenforceable.
Interpretation of the mandate
(a)
The meaning of clause 2
[21]
As correctly submitted
by counsel for the appellants, the terms of the mandate relied upon
by Margo in support of both his claims
against Gardner
[2]
and his first claim against
OTR,
[3]
were not terms set out
expressly in the mandate. So, while Gardner was indeed mandated to
sell 12 853 580 of Joubert’s ordinary
shares in OTR in tranches
of approximately four million shares per month over a period of three
months, the intended sales were
in no way linked to the three sale
dates alleged by Margo.
[4]
There was no express term in
the mandate to the effect that Gardner had to sell the shares at the
prevailing market prices, nor
to the effect that Gardner was obliged
to pay to Joubert, on receipt thereof, the full proceeds from the
sale of Joubert’s
shares.
[22]
The High Court was of the view that, as the
mandate did not provide a price at which Joubert’s shares were
to be sold but
guaranteed to Joubert an amount of 40 cents per share,
it must be interpreted, ‘on a plain reading thereof’, to
mean
that Gardner could sell the shares at any price not less than 40
cents per share. The High Court thus rejected Margo’s
contention
that, in terms of the mandate, the shares had to be sold
at the then prevailing market prices.
[23]
The written part of the
mandate is silent about the fate of the proceeds of Joubert’s
shares over and above 40 cents per share.
In this regard, the court a
quo found that, because Joubert was the owner of the shares, the
mandate must ‘
by
necessary implication
’
be interpreted to mean that any proceeds beyond 40 cents per share
belonged to Joubert, unless it could be shown that he
had agreed to
the balance of the proceeds being paid to someone else (in this case,
OTR). Thus, the court held, in the absence
of the oral part of the
mandate relied upon by Gardner and OTR,
[5]
Gardner was in law obliged to
pay to Joubert all the money which he received for Joubert’s
shares; he had no right to pay
more than R6 million of such money to
OTR. Having analysed the evidence in respect of the OTR method of
mining, the court concluded
that it could not find that Joubert was,
as alleged by Gardner and OTR
–
‘
the
reason for OTR’s financial disaster and was personally liable
therefor. Such a finding is the basis why the alleged oral
agreement
would have been concluded, and in the absence of such a finding, the
alleged oral agreement
falls flat.’
In the
circumstances, the court held that Gardner, as Joubert’s agent,
and OTR, to which the balance of the proceeds of the
accounted shares
were paid, were liable to Margo in respect thereof.
[24]
To my mind, the
approach of the High Court in this regard was incorrect. The mere
fact that Joubert was the owner of the shares
does not justify the
conclusion that,
if
the oral part of
the mandate contended for by the appellants was
not
established, a term must necessarily be implied into the mandate to
the effect that Joubert was entitled to the full proceeds of
the
shares sold by Gardner. The ‘implied term’ relied on by
Margo (and accepted by the court below) was a term implied
by law
[6]
and such a term is, as a
general rule, not implied if it is in conflict with the express terms
of the contract in question.
[7]
The first step in the
interpretation of the mandate should therefore be to determine the
meaning of the clause which deals specifically
with ‘the amount
payable to’ Joubert in respect of each share, viz clause 2.
[25]
The technique of
interpretation of written contractual documents consistently adopted
by the South African courts was summarised
by Joubert JA in
Coopers
& Lybrand v Bryant
[8]
as follows:
[9]
‘
According
to the “golden rule” of interpretation the language in
the document is to be given its grammatical and ordinary
meaning,
unless this would result in some absurdity, or some repugnancy or
inconsistency with the rest of the instrument. . . .
The
mode of construction should never be to interpret the particular word
or phrase in isolation (
in vacuo
) by itself. . . .
The
correct approach to the application of the “golden rule”
of interpretation after having ascertained the literal
meaning of the
word or phrase in question is, broadly speaking, to have regard:
(1)
to the context in which the word or phrase
is used with its interrelation to the contract as a whole, including
the nature and purpose
of the contract….;
(2)
to the background circumstances which
explain the genesis and purpose of the contract, ie to matters
probably present to the minds
of the parties when they contracted….;
(3)
to apply extrinsic evidence regarding the
surrounding circumstances when the language of the
document is on the face of it ambiguous, by considering previous
negotiations
and correspondence between the parties, subsequent
conduct of the parties showing the sense in which they acted on the
document,
save direct evidence of their own intentions.’
[26]
To reiterate, clause 2 of the mandate
states that ‘[t]he amount payable to myself, Jan Abraham
Joubert, will be the consideration
amount of R0,40c (FORTY CENTS) per
share’. The ‘ordinary’ or ‘literal’
meaning of this clause is
that Joubert will be paid an amount of 40
cents per share – the clause, and indeed the rest of the
written document, does
not provide expressly for the destination of
the balance of the proceeds of any shares sold, in terms of the
mandate, at a price
greater
than
40 cents per share. Having regard to the mandate as a whole, however,
it is important to note that the amount of the guarantee
given to
Joubert by OTR in clause 1 thereof is equal to the total number of
shares covered by the mandate (12 853 580), multiplied
by an amount
of 40 cents per share.
[27]
As regards the nature and purpose of the
mandate, it is also clear from the terms of the written contract that
Joubert was, with
the agreement of Gardner and OTR, severing his ties
with the latter. As was submitted by counsel for the appellants, the
contract
cannot be regarded as being simply a straightforward mandate
to sell shares given by Joubert to Gardner. This is illustrated by
the fact that the first payment of R750 000 to Joubert had to be made
by 3 March 1998 (less than a week after the conclusion of
the
contract) and that this payment (as well as the second payment in the
same amount, to be made by 31 March 1998) was not linked
to, or
dependent upon, the sale of any specific ‘tranche’ of
shares by the dates specified. On the contrary, the mandate
envisaged
that the first ‘tranche’ of ±4 000 000 shares
would be sold during a period of approximately one month
from the
date of signature thereof, without obliging Gardner to sell these
shares on any single day during that month. The same
applies to the
sale of the other two ‘tranches’ of shares.
[28]
An examination of the
circumstances prevailing at the time that the mandate was concluded
(‘matters probably present to the
minds of the parties when
they contracted’
[10]
)
also casts considerable light on the meaning thereof. OTR was at that
time experiencing severe financial difficulties. From the
date of
listing of the company (22 September 1997) to 28 February 1998, OTR
recorded an operating loss of over R4,4 million with
a revenue of
only R599 000, as opposed to the net income of R4,131 million for the
year ending February 1998 forecast in the pre-listing
statement. This
had meant a loss of six cents per share for that period, as opposed
to the projected net income of 5.2 cents per
share appearing in the
pre-listing statement. OTR’s provisional mining authorisation,
issued on 25 April 1997, was withdrawn
some time in November 1998 and
had not yet been re-issued. Despite the lack of authorisation, it
appears from the evidence that
OTR had continued with mining
activities at Klein Letaba during January and February 1998; indeed,
following an on-site inspection
carried out by the Department of
Minerals and Energy on 9 February 1998, such mining activities were
expressly reflected as ‘illegal
mining’ in a follow-up
document (dated 23 February 1998) emanating from the Department.
OTR’s permanent mining authority
was only issued at the
beginning of May 1998, ie after the mandate had already been
concluded.
[29]
Despite his professed ignorance in this
regard, Joubert as OTR’s mining director, physically stationed
at Klein Letaba where
the inspections took place, was in all
probability fully aware of the lack of mining authorisation and of
the impact thereof on
the legitimacy of OTR’s mining
operations. It is also unlikely in the extreme that Joubert,
co-founder, director and major
shareholder of OTR, was unaware of the
parlous state of OTR’s finances. A confidential ‘OTR
Mining Security Year End
Report’ dated 3 January 1998 noted
that ‘[m]ost of the white employees are sceptical as to how
long OTR will still
be operational and it seems to me that each one
is looking for greener pastures’, and further that ‘[i]t
seems to me
that at this moment in time everybody associated with OTR
locally, is of the opinion that OTR is not going to last long and
that
they want to get everything they can out of OTR while they still
can.’ As submitted by counsel for the appellants, if the
employees
of OTR had this negative perception of OTR’s future viability
in January 1998, it is highly unlikely that Joubert was not
also
aware of the very serious operational and financial problems facing
OTR at that stage. To put it mildly, this was not a very
appropriate
time, from OTR’s perspective, for its mining director to decide
to sell his shares and retire from the company.
[30]
In his testimony, Joubert denied having any
knowledge of the price quoted for the shares concerned on the JSE
around the time the
mandate was entered into. The evidence as a
whole, however, shows clearly that this was not true. Moreover, in my
view, Joubert
was, on the balance of probabilities, fully aware at
that time that the dire state of OTR’s operations and its
consequent
financial problems were not yet reflected in the share
price as quoted on the JSE.
[31]
It is common cause that it was Joubert who
approached Gardner in February 1998 with the idea of retiring,
leaving OTR and selling
his shares. It is clear from the evidence
that Joubert, who was 71 years old at the time the mandate was
concluded, wanted his
shares to be sold so as to enable him to retire
and to provide financially for his post-retirement future and that of
his family.
He knew that he was bound by the provisions of the pool
agreement and that this might constitute an obstacle to his selling
his
OTR shares himself. Gardner’s evidence that Joubert needed
some of the income from the shares urgently, as he was in the process
of purchasing a farming business, is borne out by the fact that,
apparently at Joubert’s insistence, the mandate provided
for a
first payment of R750 000 to be made to him within 5 days of the
mandate being concluded, despite the fact that the first
‘tranche’
of shares was only to be sold within a month of the date of signature
of the mandate.
[32]
To my mind, all these
circumstances make it probable that Joubert wanted to ‘bail
out’ of OTR as quickly as possible,
before the true state of
the company’s operations and finances filtered through to the
market causing the share price to
plummet. This being so, it is also
probable that, as testified by Gardner, Joubert was indeed willing to
accept a fixed price per
share that was less than the prevailing
market price at that time, and that the price of 40 cents per share
stipulated in clause
2 was ‘negotiated’ between the two
of them on the basis of the amount of money required by Joubert for
his retirement
(approximately R5 million according to Gardner),
divided by the number of shares which Gardner was to sell on his
behalf. This
in turn is borne out by the amount of the guarantee
given to Joubert by OTR in respect of the shares covered by the
mandate.
[11]
[33]
Insofar as the
‘language’ of clause 2 may be said to be, ‘on the
face of it ambiguous’, then a consideration
of ‘the
subsequent conduct of the parties showing the sense in which they
acted on the document’
[12]
also supports the conclusion that, properly interpreted, the mandate
meant that Joubert was entitled to payment of only 40 cents
per share
of the proceeds of the shares to be sold by Gardner on his behalf.
Following each of the six transactions whereby Gardner
sold Joubert’s
OTR shares during the period March to August 1998, as reflected in
the abovementioned accounting,
[13]
a statement was addressed by Gardner to Joubert showing the number of
shares sold in the transaction in question, the total number
of
shares sold up to the date of the statement and the number of shares
left to be sold. Each statement clearly indicated that
the amount
being paid to Joubert in respect of the sale of shares concerned had
been calculated at the rate of 40 cents per share.
Joubert ultimately
admitted having received the first two of these statements (dated 31
March 1998 and 13 May 1998, respectively,
and covering the sale of,
in total, 5 470 000 shares), but denied receipt of the remaining
four. It is also clear from a letter
dated 15 July 1998, addressed by
Joubert’s attorney to Gardner, that he had had sight of (at
least) the second statement.
On the probabilities, both Joubert and
his attorney were fully aware of the prevailing market price of OTR
shares at the relevant
time. However, neither Joubert nor his
attorney made any mention of Joubert’s ‘entitlement’
to the balance of
the proceeds of the shares sold; on the contrary,
the said letter from Joubert’s attorney to Gardner simply
stated that the
mandate given to Gardner ‘has now come to an
end’ and demanded ‘that the share certificates in respect
of the
total shares remaining unsold…be made available to
[Joubert] for his collection’. A letter dated 13 August 1998
subsequently
addressed by the appellants’ attorney to Joubert’s
attorney, stating that ‘the mandate of the 26
th
February 1998 was verbally extended by your client’ also did
not provoke any demand from either Joubert or his attorney for
the
balance of the proceeds of the shares sold. It was only in about
October 1998, when summons was first issued by Margo against
Gardner
and OTR, that it was contended – for the first time –
that Joubert was entitled, in terms of the mandate, to
more than 40
cents per share.
[34]
In the light of the above, I am of the view
that the meaning of clause 2 of the mandate, properly interpreted, is
that Joubert was
entitled to
only
40 cents per share from the proceeds of the shares to be sold on his
behalf by Gardner as his ‘sole agent’. This conclusion
puts paid to the implied term relied upon by Margo and (incorrectly)
accepted by the High Court. However, as I interpret clause
2, this
amount of 40 cents per share was to be
net
of any broker’s commission or other expenses incurred by
Gardner in selling the shares. Counsel for the appellants wisely
conceded that this must be so.
[35]
Turning to Margo’s
alternative claim for rectification of clause 2,
[14]
there was, quite simply, no evidence before the High Court to support
such a claim. Margo did not discharge the onus resting on
him in this
regard.
(b)
The oral terms pleaded by the appellants
[36]
As regards the
destination of the proceeds of Joubert’s shares over and above
40 cents per share, the express provisions of
the mandate are, as
already pointed out, silent. The appellants contended that this
‘hiatus’ was overcome by oral terms
agreed between the
parties, whereby any amount received by Gardner in excess of 40 cents
per share pursuant to the sale of the
shares would be paid to
OTR.
[15]
As submitted by counsel for the appellants, Margo bore the onus of
disproving those terms contended for by the appellants, which
he
alleged were not terms of the mandate entered into by the
parties.
[16]
In my view, from the evidence as a whole – including the
evidence to the effect that, to Joubert’s knowledge, the
approximately R6,2 million paid over to OTR by Gardner from the
proceeds of the shares sold by him on Joubert’s behalf was
necessary to refinance the ailing company – Margo did not
discharge this onus. On the contrary, it was, in my opinion,
established
on a balance of probabilities that, as part of the
mandate concluded on 26 February 1998, the parties agreed that OTR
would be
entitled to payment of the proceeds of the shares in excess
of 40 cents per share. This conclusion suffices to defeat Margo’s
first claim against OTR. It is not necessary to determine whether or
not this payment was (as alleged by the appellants) intended
to be
compensation to OTR for losses suffered by it as a result of alleged
negligent conduct by Joubert. It follows that Margo’s
claim
against Gardner for payment of the balance of the proceeds of the
accounted shares, as well as his claim against OTR for
payment of the
amount paid to it in respect of the accounted shares, were without
merit and should have failed.
[37]
Similarly, an analysis
of the evidence indicates that, as contended by the appellants, the
parties did in all probability orally
agree that amounts owing by
Joubert to OTR at the time of conclusion of the mandate would be
deducted from any amount payable to
him in connection with the sale
of the shares;
[17]
certainly, Margo did not succeed in proving that this was
not
so. Gardner testified in some detail about the amounts allegedly
owing and payable by Joubert to OTR, certain of which made up
the R45
725 deducted – in terms of the accounting accepted by Margo as
‘a true representation’
[18]
– from that part of the proceeds of the accounted shares owing
to Joubert in terms of the mandate (R3 680 000 in total).
[19]
His evidence on this aspect was not seriously challenged. Thus,
in
respect of the
accounted shares
,
Joubert had, prior to the cession to Margo, been paid everything to
which he was entitled in terms of the mandate; he had no further
claim against either Gardner or OTR and hence no rights which he
could cede. The appellants’ defences against Margo’s
claims concerning the accounted shares were good and their appeal
against the orders made by High Court in this regard must succeed.
The
unaccounted shares
[38]
As indicated above,
[20]
Margo’s second claim against Gardner was primarily based on the
allegation that the unaccounted shares (3 653 580 shares
in total)
had in fact been sold by Gardner and that Gardner was obliged to pay
Margo the proceeds. In view of my conclusion that
Joubert was
entitled to payment of only 40 cents per share (and
not
to payment of the full proceeds), Margo’s claim against Gardner
in respect of the unaccounted shares would, if successful,
only
entitle the former to payment of R1 461 432 (ie the number of
unaccounted shares multiplied by 40 cents per share).
[39]
Gardner’s denial that the unaccounted
shares had been sold must be viewed in the light of the
abovementioned letter dated
13 August 1998 addressed by the
appellants’ attorney, Mr Tromp (also a director of OTR), to
Joubert’s attorney, in
which the following statement was made:
‘
Our
further instructions are that all the shares have been disposed of
and that the proceeds will be paid to your client in due
course.’
As submitted
by Margo’s counsel, this letter constituted at least strong
prima facie evidence that all the shares covered
by the mandate had
indeed been sold. During cross-examination, Gardner confirmed that he
had given the instructions which gave
rise to this letter. His later
attempt, during re-examination, to backtrack by saying that, at the
time of the letter, Joubert’s
remaining shares were about to be
sold by him, but that the sale fell through, was far from convincing.
[40]
Furthermore, apparently in response to a
request from OTR’s auditors (in December 1998) for a directors’
resolution
confirming the details of ‘the agreement for the
selling of the shares of Mr J A Joubert, by Mr T R Gardner, dated 26
February
1998’, a round-robin resolution was signed by each of
the directors of OTR in April or June 1999. This resolution, which
was passed long after the abovementioned letter dated 13 August 1998
from the appellants’ attorney (and long after the sale
of the
remainder of Joubert’s shares had, on Gardner’s evidence,
supposedly fallen through), stated, inter alia, the
following:
‘…
it
was agreed with Mr J A Joubert that Mr T R Gardner would dispose of
Mr J A Joubert’s shares in OTR at the best possible
price and
that Mr JA Joubert would retain 40c for every share sold and the
balance of the selling price of the shares would be
paid to the
Company. The amount to be paid to the Company will be shown as income
or a reduction in expenses.
In
addition to the shares numbering 9 200 000 that were sold by Mr T R
Gardner and which resulted in income of R3 600 000, further
shares
were sold the proceeds of which were received by the company and the
amount due to Mr Joubert paid by the company…..
This
transaction is hereby ratified by the Board.’
(My emphasis.)
[41]
It should also be noted
that, according to Dr Braude’s evidence, more than 38
million OTR shares were sold by unidentified
sellers during the
period of the mandate. During this period, Gardner sold OTR shares of
his own to the value of at least R1 million
and, in addition, he sold
five million OTR shares from the ‘senior staff incentive
scheme’ that he had in his possession
and then replaced them
with an unknown number of shares which were ‘bought back’.
Gardner himself described this latter
share transaction as ‘very
very messy’. As Joubert’s ‘sole agent’ for
the sale of his shares in terms
of the mandate, Gardner was obliged
to keep the property of his principal separate from similar property
and to account to his
principal in this regard.
[21]
Gardner certainly did not fulfil this obligation: neither Gardner
himself, nor Mr Ronald Lowenthal of Incentive Securities, who
testified on behalf of the appellants and in whose ‘custody’
Joubert’s unaccounted shares were allegedly being
held at the
time the appellants ‘tendered’ to return them to Joubert
and at the time of the trial, were able to identify
which – if
any – of the OTR shares held by Incentive Securities were
Joubert’s shares.
[42]
It follows from the
above that, in my view, the High Court was correct in its finding
that Gardner had in fact sold the unaccounted
shares and that it was
unnecessary to consider Margo’s alternative contention based on
damages for breach of mandate by Gardner.
As nothing was paid to
Joubert in respect of the unaccounted shares, he did have a remaining
claim against Gardner under the mandate
for payment of R1 461
432.
[22]
This claim was ceded to Margo. Margo’s second claim against
Gardner was, therefore, a good one, but only for the amount of
R1 461
432, not for the amount of R4 384 296 (based on the prevailing market
price of the shares) awarded by the High Court.
The
guarantee given by OTR – s 38 of the Companies Act
[43]
While conceding that OTR had, in terms of
the mandate, guaranteed that Joubert would receive the sum of R5 141
432 for the 12
853 580 shares to be sold by Gardner on his
behalf, the appellants pleaded that this guarantee constituted a
breach of the provisions
of s 38 of the Companies Act.
[44]
The relevant part of s 38(1) of the
Companies Act reads as follows:
‘
No
company shall give, whether directly or indirectly, and whether by
means of a loan, guarantee, the provision of security or otherwise,
any financial assistance for the purpose of or in connection with a
purchase or subscription made or to be made by any person of
or for
any shares of the company….’.
[45]
In
Lewis
v Oneanate (Pty) Ltd,
[23]
Nicholas AJA stated
[24]
that –
‘
The
object of a provision such as s 38(1) is the protection of the
creditors of a company, who have a right to look to its paid-up
capital as the fund out of which their debts are to be discharged. .
. .The purpose of the Legislature was to avoid that fund being
employed or depleted or exposed to possible risk in consequence of
transactions concluded for the purpose of or in connection with
the
purchase of its shares.’
[46]
Although the prohibition against the giving
of financial assistance is couched in very wide and general terms –
‘
There
has …been a tendency, in the light of the extremely wide terms
of the prohibition considered in conjunction with the
circumstance
that contravention of the section constitutes a criminal offence, to
give close attention to the underlying purpose
of the prohibition and
the real mischief at which it was aimed…and, with that in
mind, to adopt what JC Beuthin has described
in [(1973) 90
SALJ
at 213] as “a
much narrower approach to the section”.’
[25]
[47]
In
Lipschitz
NO v UDC Bank Ltd,
[26]
this court appears to have accepted the distinction drawn by
Schreiner JA in
Gradwell
(Pty) Ltd v Rostra Printers Ltd
[27]
between the ‘ultimate goal’ of the transaction in
question and its ‘direct object, and to accept that it is only
the direct object of the transaction that is relevant. If the direct
object is not the provision of financial assistance by the
company
for the purpose of or in connection with a purchase of its shares,
then it is irrelevant that the ultimate goal of the
transaction was
to enable a person to purchase such shares.
[28]
Moreover, financial assistance within the meaning of s 38(1) is given
only when the direct object of the transaction is to assist
another
financially – the s 38 prohibition is not contravened when the
direct object of the transaction is merely to give
another that to
which he or she is already entitled.
[29]
[48]
As was submitted by Margo’s counsel,
the guarantee given by OTR to Joubert was not intended to provide
financial assistance
to anyone in respect of the purchase of OTR
shares. The direct object of the guarantee was to provide Joubert
with some security
for that to which he was entitled in terms of the
mandate, ie part of the proceeds of the shares to be sold on his
behalf by Gardner.
In my view, the guarantee does not fall foul of s
38(1) of the Companies Act and counsel for the appellants (once
again, wisely)
did not press this point at all.
[49]
Margo’s second claim against OTR
should therefore succeed, but not to the extent that OTR is held
liable jointly and severally
with Gardner for payment of the balance
of R1 461 432 owing to Margo in respect of the unaccounted shares. As
OTR is, in terms
of the mandate, a guarantor and not a co-principal
debtor, OTR will only be liable to pay Margo in the event of (and to
the extent
of) Gardner not doing so.
Costs
[50]
In view of what I have said above, the
appellants have been substantially successful on appeal and are thus
entitled to the costs
of appeal. As regards the costs in the High
Court, Joubert remains substantially successful in his action in that
court and the
costs order made by that court should stand.
Order
[51]
The following order is made:
(a)
The appeal succeeds with costs.
(b)
Paragraphs 1 and 2 of the order of the High Court are set aside and
replaced with the following:
‘
In the circumstances, an
order is granted in favour of the plaintiff as follows:
1.
Against the first defendant, for
payment of the amount of R 1 461 432 plus interest thereon
at the rate of 15.5 percent
per annum from 1 September 1998 to date
of payment.
2.
Against the second defendant, for
payment of the amount of R1 461 432 plus interest thereon at the
rate of 15.5 percent per
annum from 1 September 1998 to date of
payment, the second defendant to be liable to make such payment only
in the event that,
and to the extent that, the first defendant fails
to do so.’
B
J VAN HEERDEN
JUDGE OF APPEAL
CONCUR:
Scott
JA
Zulman
JA
Maya
JA
Cachalia
JA
[1]
See para 8 above.
[2]
See paras 10 to 12 above (the first claim) and paras 13 to 15 above
(the second claim).
[3]
See para 16 above.
[4]
Para 10 above.
[5]
See para 18 above.
[6]
As opposed to a tacit term, viz ‘an unexpressed provision of
the contract which derives from the common intention of the
parties,
as inferred by the Court from the express terms of the contract and
the surrounding circumstances’: see
Alfred McAlpine &
Son (Pty) Ltd v Transvaal Provincial Administration
1974 (3) SA
506
(A) at 531H- 532C.
[7]
Alfred McAlpine & Son (Pty) Ltd v Transvaal Provincial
Administration
at 531E-F.
[8]
1995 (3) SA 761 (A).
[9]
At 767E-768E.
[10]
See
Coopers & Lybrand v Bryant
(supra) at 768B-C.
[11]
See para 26 above.
[12]
See
Coopers & Lybrand
(supra) at 768D-E.
[13]
See para 11 above.
[14]
See para 10 above.
[15]
See para 19 above.
[16]
See
Kriegler v Minitzer
1949 (4) SA 821
(A) at 827-828 and
Topaz Kitchens (Pty) Ltd v Naboom Spa (Edms) Bpk
1976 (3) SA
470
(A) at 478A-B. Cf DF Zeffertt, AP Paizes & A St Q Skeen
The
South African Law of Evidence
(formerly Hoffmann and Zeffertt)
(2003) at pp 68 and 156.
[17]
See para 19 above.
[18]
See para 11 above.
[19]
See para 11 above.
[20]
See para 14.
[21]
See AJ Kerr
The Law of Agency
3ed (1991) at p 187 and the
authorities there cited.
[22]
See para 37 above.
[23]
[1992] ZASCA 174
;
1992 (4) SA 811
(A).
[24]
At 818A-C.
[25]
Lipschitz NO v UDC Bank Ltd
1979 (1) SA 789
(A) at 797H-798A
(per Miller JA).
[26]
Supra at 799E-F.
[27]
1959 (4) SA 419
(A) at 425E-426E.
[28]
See
Fidelity Bank
Ltd v Three Women (Pty) Ltd
[1996] 4
All SA 368
(W) at 378j-381f and
further in this regard, MS
Blackman “Companies’ 4
Lawsa
(reissue) Part 1
para 127 at p 194, MS Blackman, RD Jooste & GK Everingham
Commentary on the Companies Act
(2002, with loose-leaf
updates) Volume 1 at 4-63–4-64 and the other authorities cited
by these authors.
[29]
See 4
Lawsa
(reissue) Part 1 para 127 at p 192.