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[2009] ZAGPJHC 7
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McCrae v Absa Bank Limited (08/42229) [2009] ZAGPJHC 7 (7 April 2009)
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IN THE SOUTH GAUTENG HIGH
COURT
(
JOHANNESBURG
)
CASE NUMBER: 08/42229
In the matter between: -
McCRAE
,
GORDON ANDREW
Plaintiff/Respondent
and
ABSA BANK
LIMITED
Defendant/Excipient
JUDGMENT
SATCHWELL
J:
INTRODUCTION
Defendant except
to
plaintiff’s particulars of claim. Defendant avers that the
shareholder plaintiff is precluded from instituting action
against
defendant bank for damages arising out of the diminution in the
value of his shareholding when such defendant is alleged
to have
caused harm to the company in which the plaintiff is a shareholder.
This judgment must address the rationale for the
rule against the
mischief of ‘double recovery’ or risk of ‘double
jeopardy’ (also known as the ‘Foss
v Harbottle’
rule) as well as the rationale for such exceptions to this rule as
may be found to exist.
In
December 2005
the defendant bank made an accounting entry which transferred
millions of Rands which had been standing
to the credit of three
bank accounts in the names of two companies in which plaintiff is a
substantial shareholder
1
.
The plaintiff avers that these transfers were done unlawfully,
without authorisation and in breach of specific signing
instructions.
Defendant bank was subsequently ordered by the
Supreme Court of Appeal to repay the monies transferred from one
account and has
since also repaid the monies transferred from
another account.
Plaintiff
avers that
the defendant bank’s conduct was unlawful and intentional
alternatively
negligent. The monies were transferred out of bank accounts
ring-fenced for specific contractual purposes. It is alleged that
the result of defendant’s conduct was to render four
companies
2
,
in which the plaintiff was either the sole or a substantial
shareholder, commercially insolvent. All four companies were placed
under final liquidation during August 2006.
The liquidators of the
four companies have not launched any proceedings against the
defendant bank for recovery of damages sustained by the companies.
Plaintiff
claims that,
by reason of the
defendant’s
conduct and the resultant liquidation of the companies, the value
of his shareholding in the companies has
diminished and that he
has, in that regard, suffered damages amounting to the sum of
R93,214,542,94.
Plaintiff’
s
action does not purport to be a derivative action. He does not
claim to vindicate a right of any company nor does he attempt
to
recover a loss on behalf of any company. I understand his claim to
be a personal action in which he is: claiming the diminution
of his
investment and [he] intends to pocket the proceeds
3
.”
THE EXCEPTION
Defendant’s
exception is
set
out
as
follows
:
“Para 12: Plaintiff pleads a contractual relationship between
companies and defendant and relies upon purported unlawful
conduct by
the defendant within the parameters of such contractual
relationship.”
“Para 13: Plaintiff does not directly or indirectly allege any
contractual relationship with the defendant, but appears to
claim
against the defendant ex delicto. As such, the plaintiff alleges a
duty of care by the defendant against him qua shareholder,
which the
defendant had allegedly breached. No circumstances have been pleaded
to justify the existence of such entity; on the
contrary the
plaintiff’s rights in these circumstances qua shareholder in
the companies are circumscribed and limited.”
“Para 14: The companies are separate legal entities and if
harm was done to such entities by the defendant, then only such
entities could be the plaintiff
in any action for
redress.”
“Para 15: As shareholder the plaintiff has no action against
alleged wrongdoers for damages in respect
in
respect of the resulting alleged diminution in the value of his
shares
4
.”
Notwithstanding
the wording (and perhaps import) of paragraphs 12 and 13 of the
exception, Mr. Robinson for the defendant was
very clear that the
defendant has not excepted on the basis that the allegations in the
summons
per se
are insufficient to sustain a cause of action.
“The exception is solely and exclusively directed against
the attempt
by the plaintiff, in the face of the rule against double
recovery, to claim
qua
shareholder
5
.”
Accordingly,
defendant’s argument is that whatever claims might exist and
which could have arisen by virtue of the defendant’s
conduct
in transferring the funds without the proper authority will lie
only in the hands of those legal entities involved
and not their
shareholders.
THE FACTUAL BASIS
It
is well established that, for the purpose of determining whether the
plaintiff’s particulars of claim are
excipiable, all the factual allegations relied upon by the
plaintiff are true - unless
manifestly false
6
.
Acc
ordingly,
the following factual matrix is taken to be admitted:
MDM,
MDFM, MPD and Friedshelf were all private companies with a limited
number of shareholders.
Plaintiff held 40% of
the issued share capital in MDM, 29,7% in MDFM, 28% in MPD and
100% in Friedshelf (paragraph 3).
At
the request of the
defendant bank, the
companies had executed cross deeds of suretyship (paragraph 4).
MDFM
open
ed and operated two bank accounts and
MDM one bank account with defendant bank (paragraph 5). These
accounts all had substantial
credit balances as at 10 December 2005
(paragraph 5).
Defendant
bank was aware that MDMFM was engaged in certain mining contracts
and that the three bank accounts were ring fenced project
accounts dedicated to these contracts (paragraph 6.2 – 6.3)
and the monies standing to the credit of these accounts were
absolutely essential for the performance of MDMFM of its
obligations
(paragraph 6.5).
Defendant
was not authorised to pay
out or transfer
monies standing to the credit of these bank accounts without
compliance with certain specific signing instructions
and mandates
(paragraph 6.4).
The
transfer of funds
by defendant bank was
in breach of such compliance.
Defendant
knew that, in the event of transfer of
such monies, MDMFM would be unable to continue performing it’s
obligations, the
contracts would probably be cancelled, MDMFM would
suffer a substantial loss of profit, MDMFM would be rendered
commercially
insolvent and would probably be liquidated
(paragraph 6.7 – 6.10).
Defendant
bank knew that
such transfer of monies
would also render MDM, Friedshelf and MPD commercially insolvent
and that they would probably be liquidated
(paragraph 6.13).
Defendant
bank knew that these circumstances would result in
plaintiff
suffering extensive damages (paragraph 6.11 and 6.14). The
potential for the plaintiff to suffer extensive damages
was
foreseeable alternatively ought to have been foreseen and defendant
ought to have taken steps to guard against it (paragraph
7). In
the circumstances, the defendant owed a duty of care to the
plaintiff not to transfer any monies standing to the credit
of
these bank accounts (paragraph 8).
Defendant
bank transferred
the total sum of R
41,303,361.35 out of these accounts on 10
th
December 2005 (paragraph 9). Such transfers were made without the
necessary authorisation (paragraph 9) and defendant was
aware or
foresaw that they were not authorised (paragraph 10) or a
reasonable person would have known or foreseen such lack
of
authority (paragraph 11) and would not have effected such
transfers.
Defendant
bank
refused to repay or retransfer
during January 2006 (paragraph 12).
The
four
companies were rendered commercially
insolvent and were placed under final liquidation during August
2006 (paragraph 15).
MDFM
sustained certain losses of profits by
reason of the transfer of funds and the cancellation of the
contracts (paragraph 16).
The liquidators of MDFM sold the MDM
name, assets, intellectual property and contracts in progress
(paragraphs 18 –
20). Friedshelf had certain value
immediately prior to the transfer of funds which caused the
liquidation of Frieshelf (paragraph
24 – 25). MPD had
certain value immediately prior to the transfer of funds which
caused the liquidation of MPD (paragraph
28).
The
plaintiff has suffered damages as a
result of the loss of profits by MDMFM (paragraph 17), a loss of
value of his shareholding
in MDMFM, MPD and Friedshelf (paragraphs
22, 26, 28).
The
liquidators of MDM, MDMFM, Friedshelf and MPD have not launched any
proceedings against the defend
ant for the
recovery of damages (paragraph 31).
THE DUTY OF CARE AND UNLAWFULNESS IS A POLICY MATTTER
Plaintiff’s
claim is formulated in delict. He claims that the defendant owed
plaintiff a duty of care not to unlawfully
transfer monies in the
various bank account in the particular circumstances set out in the
particulars of claim
7
.
Amongst
the issues to be decided in due course will be whether or not
d
efendant bank owed a duty of care to the
plaintiff, would have foreseen the possibility of harm occurring to
the plaintiff and
ought to have taken steps to guard against its
occurrence. These are ultimately policy questions.
8
It
is well accepted that the court faced with an exception to a claim
should be careful not to make a premature decision as to
whether a
legal duty could be said to exist.
Where exception had been taken
solely on the
ground that the facts alleged by the plaintiff did not give rise to
a legal duty of care by a collecting banker
to the true owner of a
lost or stolen cheque, the Supreme Court of Appeal held in
Indac
Electronics (Pty) Ltd v Volkskas Bank Ltd
[1991] ZASCA 190
;
1992 (1) SA 783
A
that:
“
However, at the stage of deciding an
exception a final evaluation and balancing of the relevant policy
considerations which have
been mentioned above should not be
undertaken.” (801B)
In
Axiam Holdings Ltd v Deloitte & Touche
2006(1) SA 237
SCA where the English
case of
Andrews
and Others v Kounnis Freeman (a firm) [2000] Loyds Rep PN 263
was approved in which Jonathan Parker LJ stated “In my
judgment, however, only rarely will the court be in a position
to
determine the question or otherwise of a duty of care owed by
professional advisors on a strike out application. …..
I am
far from persuaded that once subjected to scrutiny of a full trial
the factual background will remain quite as stark as
the Judge found
it to be” (at 654). Navsa JA concluded in
Axiam
supra
that the attitude of our
courts in relation to deciding matters of this kind on exception is
not dissimilar (paragraph 25)
stating that where counsel could not
refer the Supreme Court of Appeal to judicial pronouncements on an
auditor’s liability
for negligence, “… in my
view this makes it all the more necessary to establish the full
factual matrix before
a final pronouncement is made”
(paragraph 25).
Mr.
Brett, for the plaintiff, referred me to the remarks of Booysen J
in
McLellan supra
at page 464…… where was
pointed out that the foundation of policy as to the existence of a
legal duty of care
is the “criterion of reasonableness”
to which considerations of “moral indignation” and
also “the
legal convictions of the community”
contribute. T
he learned judge took the view
(
464
) that to
make “a fair examination of the policy considerations
involved” one must firstly, proceed “upon
the
assumption that the rule in Foss v Harbottle is not
necessarily an absolute bar to the present action”, secondly,
that the
“defendant’s conduct should be regarded as
unlawful”, thirdly, that “the true relationship
between
a shareholder and the commerce of the company … ought
to be seen against a broader backdrop” ( such as was done
in
the case of
Stellenbosch Farmers Winery (Ltd) v Distillers
Corporation (SA) Ltd and another
1962 (1) SA 458
A
) and
finally noting “recognition of the financial right or
interest in the property or affairs of the company with respect
to
which the plaintiff was harmed” (464 – 467)
.
Of course, the defendant rightly points out that the facts in
McLelland supra
were different to those in the present case.
9
Defendant then submits that those different facts in Mclelland
demonstrate why it was held that there was no basis for the risk
of
double recovery. There was no unlawful conduct vis-à-vis
the company but a delict committed, so the plaintiff
alleged,
against him by the fellow directors and shareholders. I shall
deal, in due course, with the remarks by the learned
judge in
McLelland supra
concerning the ‘risk of double
recovery’ or ‘double jeopardy’. For the present
it suffices to say that
the facts in
McLelland supra
do not
and cannot detract from the policy issues which are raised in this
particular case.
Once the claim is a personal one arising from a duty of care
alleged to exist directly by the defendant bank to the plaintiff
shareholder, a court would be loath to ignore the comments made
by Hefer JA in
Minister of Law and Order v Kadir 1995(1) SA 303:
“….. conclusions as to the existence of a legal duty in
cases for which there is no precedent entail policy decisions
and
value judgments which 'shape and, at times, refashion the common law
[and] must reflect the wishes, often unspoken, and the
perceptions,
often dimly discerned, of the people' (
per
M M Corbett in a
lecture reported
sub nom
'Aspects of the Role of Policy in the
Evolution of the Common Law' in
(1987)
SALJ
104
at 67). What
is in effect required is that, not merely the interests of the
parties
inter se
, but also the conflicting interests of the
community, be carefully weighed and that a balance be struck in
accordance with what
the Court conceives to be society's notions of
what justice demands. (
Corbett
(
op cit
at 68); J C van
der Walt 'Duty of care: Tendense in die Suid-Afrikaanse en Engelse
regspraak' 1993 (56)
THRHR
at 563-4.) Decisions like these can
seldom be taken on a mere handful of allegations in a pleading which
only reflects the facts
on which one of the contending parties
relies. In the passage cited earlier
Fleming
rightly stressed
the interplay of many factors which have to be considered. It is
impossible to arrive at a conclusion except upon
a consideration of
all
the circumstances of the case and of every other relevant
factor. This would seem to indicate that the present matter should
rather
go to trial and not be disposed of on exception. On the other
hand, it must be assumed - since the plaintiff will be debarred from
presenting a stronger case to the trial Court than the one pleaded -
that the facts alleged in support of the alleged legal duty
represent
the high-water mark of the factual basis on which the Court will be
required to decide the question. Therefore, if those
facts do not
prima facie
support the legal duty contended for, there is no
reason why the exception should not succeed.” (at page
318F-J).
The
defendant argues that it does not help the plaintiff to endeavour
to construe a duty of care by the defendant to him in
circumstances
where the law does not recognise his claim. Defendant maintains that
the claims, such as they might be, must be
instituted by the four
corporations/companies by reason of what is known as the rule in
‘Foss v Harbottle’.
THE RULE AGAINST ‘DOUBLE JEOPARDY’ / ‘DOUBLE
RECOVERY’
It
is a general principle of law that “A cannot, as a general
rule, bring an action against B to recover damages or secure
other
relief on behalf of C for an injury done by B to C”. C is the
proper plaintiff “because C is the party injured,
and
therefore the person in whom the cause of action is vested”
10
11
When applied to corporations , this principle is usually referred
to as the rule in Foss v Harbottle
12
.
The
rationale behind the rule is variously expressed. In LAWSA is
stated “… any harm the shareholder may suffer
is merely
indirect harm….In other words B owes a duty to C not to cause
him harm, but owes no duties to those who thereby
suffer indirect
harm”
13
.
That, of course, is not the case of the plaintiff who has pleaded
that the defendant does owe the plaintiff a duty of care
and which
averment has yet to be determined.
Most
frequently the rationale behind the rule is expressed in its
descriptive nomenclature – the rule against the mischief
of
‘double recovery’ or risk of ‘double jeopardy’.
If both a shareholder, as well as the company, were
entitled to
compel a third party to make good damage done to the company then
the two rights would run parallel to each other
and both be directed
against the same third party – “resulting in two
different persons having a cause of action
against the same person
for the same remedy”
14
.
The result would be the third party suffering double jeopardy ie
being at risk of having to pay out twice on the same claim
and the
shareholder anticipating double recovery ie the possibility of
recovering twice (once directly and personally and
once through his
or her shareholding in the company).
The so-called rule against double jeopardy has been restated and
approved time and again. Amongst the various formulations
are
:“It is a fundamental principle of our law that a company is a
legal person, with its own corporate identity, separate
and
distinct from the directors or shareholders, and with its own
property rights and interests to which it alone is entitled.
If it
is defrauded by a wrongdoer, the company itself is the one person to
sue for the damage. Such is the rule in Foss v Harbottle”
15
.
The
courts have confirmed that the mischief which the rule is
intended to prevent is that of duplication of jeopardy and
recovery. There is the oft quoted and approved passage from
Prudential supra
, “
The plaintiff
obviously cannot recover personally some £100 000 damages
in
addition
to the £100 000 damages
recoverable by the company
.”
(
366j-367c) [my underlining]
.
There is the approach in
McLelland supra
“
in
practice the real reason why the rule must exist is linked more
fundamentally to the separate existence of the company, with
the
result that, if the shareholder is allowed to sue, any wrongdoer
will be subject to 'double jeopardy “ (467 G
).
A repetition of this view is found in
Golf Estates (Pty) Ltd v Malherbe and Others 1997(1) SA
873 ( C
) “…..
… to allow
the shareholder a right to claim his loss, where that loss is in
truth part of the loss for which the company
has a right of action,
could result in 'double recovery' which is clearly unacceptable and
contrary to all basic principles of
justice.”
(at
879I). And pithily expressed in
Letsing 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)
is the phrase
“ the fact that there could be a duplication of actions”
(para 61).
The
rationale for the rule is clear: the risk of placing a third party
in jeopardy of double litigation and double payment must
be avoided;
the mischief of allowing a shareholder to recover twice –
personally and through the company must be prevented.
It would be
contrary to the interests of justice for such to be initiated and
inequitable for it to take place.
There
is also the associated concern expressed in
Letsing supra
as
to the need to avoid “an endless multiplicity of actions
brought by shareholders” (para 62) which “would
result
in anarchy in the affairs of the company” (para 61).
WHAT
RISK?
Plaintiff
‘s particulars of claim
16
state that the liquidators of the four companies have not launched
any proceedings against the defendant for recovery of damages
suffered by the companies by virtue of the defendant’s
conduct and accordingly, the plaintiff avers that the liability
of
the defendant bank is not subject to the risk of double recovery.
In
excepting to this claim, the defendant has not adverted to any risk
to which the defendant is or may be subject. Instead,
the
defendant has approached the exception on the basis that the
plaintiff is non-suited because no claim vests or can vest
in the
plaintiff.
I
will discuss the issue of the vesting of the claim (if any) in due
course. However, it is necessary to consider the question
of what
risk there is of double recovery or double jeopardy – firstly,
this is the proclaimed rationale for the rule and
secondly, the
defendant reverts to this rule at certain points in its argument.
In
assessment of the risk of double recovery/double jeopardy, a number
of factors have been taken into account by the courts.
The
following is not attempted as an exhaustive list of those factors
but are some of those which have been identified and which
seem to
be of relevance in the present case:
The
corporate identity: Is the company privately incorporated? See
McLelland supra.
Is it a public company listed on a stock
exchange? See
Letsing supra.
The
number and identity of shareholders: Is there a limited number of
shareholders whose identities are known? Is the number
of
potential plaintiffs determinable and foreseeable? See
McLelland
supra
. Are there thousands of shareholders? See
Letsing
supra
. Can the plaintiff be singled out from what might
otherwise be a mass of ‘unforseeable plaintiff’s?
McLelland supra.
The
status of the company: Is the company still operating or has it
been wound up? See
Letsing supra; Kalinko v Nisbet and Others
2002(5) SA 766W
; the unreported judgment of
Routhauge &
Others v South African Reserve Bank and others
[2005] JOL 13294
T.
Status
of claims: Has the company’s claim prescribed? See
Routhauge supra.
Has the company or the liquidator thereof
instituted proceedings against the allegedly wrongdoing third
party? See
Kalinko supra, Routhauge supra.
Other
remedies: Is there any other remedy available to a wronged
shareholder? See
Routhauge supra, Letsing supra.
The
continuum of assessment of risk encompasses a variety of scenarios.
On the one hand there might be a private company where
“all
shareholders are identifiable and limited in number”
enabling “a more personal relationship between
them”
17
where the company is in liquidation. On the other hand there might
be a public company with “thousands of shareholders
owning
millions of shares” where allowing individual shareholders
to proceed with claims would result in “an
endless
multiplicity of actions” resulting in “anarchy in the
affairs of the company”
18
because the company is still operating.
Liquidation
of a company may affect assessment of the risk of double recovery.
Where the company has been liquidated, this may
affect whether or
not there is the potential for the risk of double recovery. On the
one hand, in
Kalinko supra
, the learned judge took the
view that the mischief of double recovery need not be decided at the
exception stage because “At
this stage I am not aware whether
or not the liquidator has elected to pursue any claim which the
company may have against the
defendants arising out of their alleged
wrongful conduct. At the trial it may transpire that the
liquidator, upon the instructions
of the general body of creditors,
has been precluded from pursuing any litigation on behalf of the
company. In that event the
potential mischief of “double
recovery” alluded to in the authorities cited above will not
occur. In such event
it would be open to the plaintiff to pursue
his remedy. On the other hand it is equally open to the defendants
to plead in defence
to plaintiff’s claims, that the liquidator
has decided to pursue its remedies against the defendants in which
case plaintiff
may very well be non-suited in regard to his
derivative action” (at 778) and “there are a number of
imponderables
and permutations which at the exception stage cannot
be properly assessed or contemplated” (779). On the other
hand, the
learned judge in
Routhauge supra
did not agree with
the approach in
Kalinko supra
that the entitlement of the
shareholder to sue is a matter of evidence. The learned judge
stated the shareholders should be
required to state why they and not
the company or the liquidators are entitled to institute the action.
“It must also
be taken into account that even where a
company is liquidated the possibility of a claim by the liquidators
still exists. It
does not , in my view, follow that because a
company is in liquidation, a shareholder will have the right to
institute an action
for an indirect loss caused to him as a result
of the loss or diminution of the value of his shares” (at
15). Accordingly,
the mere allegation that the company had been
liquidated was not enough. However, once there was “a
complete loss
of shareholder value” as opposed to a company
which “continues to exist, crippled but battling on” it
would
seem that the shareholder could be allowed to proceed with
the claim for diminution in the value of his shareholding (page 15).
In
the present case, the shareholder is a major or the sole shareholder
in four private companies each with a limited number of
shareholders. The companies have been finally wound up. None of
the liquidators have instituted proceedings for damages.
It
is difficult to envisage, on these facts, when, where or how the
mischief of double jeopardy or doubly recovery may reveal
itself –
certainly not at this exception stage.
VESTING
OF CLAIM
The
defendant has focused on the vesting of the claim in the companies
(and then the liquidators) as a bar to this shareholder
acquiring
or exercising any right to sue the defendant. I understand the
defendant’s argument to be that the issue
before the court
is not that of the mischief of double recovery or the risk of double
jeopardy but rather that the companies
would be the injured parties
and any cause of action vests in the liquidators and cannot vest in
the shareholders.
In
this regard the defendant/excipient has used the word “
immutable” to describe the rule in Foss v Harbottle
. With
such an ‘unchanging’ or ‘inflexible’ rule
no claim will or can vest in the shareholder.
The
defendant submits that
McLelland supra
and
Kalinko supra
19
were both wrongly decided because the question before those courts
was not that of double jeopardy. In
McLellan supra
the
risk was non existent because there was no delict against the
company and the company had no claim. In
Kalinko supra
the correct approach would have been to look at the time of the
vesting of the claim – in the company (then the liquidators)
not the shareholder. Once the claim lies in the hands of the
company, it is the company’s claim alone.
I
shall deal with the view that the rule against double
recovery/double jeopardy is not an immutable one.
At
this point, I note that the defendant has also submitted that the
plaintiff is not the only shareholder and so there is the
potential
for the opening of floodgates in a plethora of claims against the
defendant. It is this potentiality for double
recovery which non
suits the plaintiff. I have already dealt with this argument.
EXEMPTIONS
20
FROM THE RULE – IS IT IMMUTABLE?
The
rule against double jeopardy/double recovery has never been an
absolute rule. When
Foss v Harbottle
supra was originally
pronounced the derivative action was recognized to allow relief
for oppressed minority shareholders.
21
The
issue is whether other concessions are permitted or justified in
certain circumstances. Plaintiff argues that the rule
is not
immutable whilst defendant argues that it is.
The
reasoning behind the concession which was recognized in
Foss v
Harbottle supra
(and subsequently) is of assistance. I
recognize that much (though not all) of what is said pertains to
the so-called ‘derivative
action’ but the principles
underlying this exemption are worth identifying.
In
Foss v Harbottle supra
the court conceded that the rule
might have been too broadly stated and that “there are
cases in which a suit might
properly be so framed”. Such a
case was found where a society of private persons would:
“be deprived of their civil rights”, [where’ “
no adequate remedy remained except that of a suit by
individual
corporators in their private characters” [and where the]
“claims of justice would be found superior to
any difficulties
arising out of technical rules…” (202/203).
In
Burland v Earle
[1902] AC 83
it was held that it was a “
mere matter of procedure to give a remedy for a wrong which would
otherwise escape redress”
(at 93 ). See also
TWK
Agriculture Ltd v NCT Forestry Co-Operative Ltd and Others
2006 (6)
SA 20
N
at paragraph 16.
In
McLelland supra
, the learned judge acknowledged
“
the more pressing demand of justice and of
the law is that wrong should be redressed and that structural or
technical impediments
should not lightly be permitted to stand in
the way of the redress of a wrong”(465)
and
that in certain
contexts too narrow a view of the definition of shareholder’s
rights was not justified
“
a reliance on this “technical’
status of a shareholder ought not to be allowed as a matter of
policy” (at 487)
and held that
“
where
, as in the
present case, that risk is non-existent and a shareholder is left
with a diminished patrimony, the continued application
of the rule
would amount to an unwarranted and technical obstruction to the
course of justice.” (467)
In
Letsing supra,
the learned judge recognized that there could
be very exceptional circumstances where “there was no remedy
available to
a plaintiff” where such relief might be granted
(paragraph 61).
In
short, the rationale for the exceptions to the rule against double
recovery/double jeopardy arise from acknowledgment that
considerations of equity and the interest of justice require
recognition of a shareholder’s rights and protection of
same
and that technical niceties should not obstruct such
recognition and protection.
This
point was not expressed in this fashion by counsel for the plaintiff
but is, I believe, implicit in his reliance upon the
dicta
and the
rationes
in both
McLennan
and
Kalinko supra
and dealt with by counsel for defendant in his critique of both
these judgments.
One
aspect of the derivative action available to minority shareholders
is the lack of control of the minority over the affairs
of the
company. The wrongdoing majority and/or directors control the
legal entity, has not acted and does not intend to act
in the future
22
.
It seems to me that the shareholder/s in the four companies
concerned in the present case are in much the same position
vis a
vis
the liquidators.
Mr.
Robinson for the defendant urged that this court should rely for
guidance upon the unreported judgment of Griesel J in
Jacobus
Potgieter v ABSA Bank Bpk Case no 2325/02 CPD handed down 10
June 2008
. The learned judge found no delictual action
availed the plaintiff in the circumstances of that case and went on
to find
that the plaintiff, although not formally a shareholder,
was for all practical purposes in the position of shareholder and
that the rule in Foss v Harbottle was of application.
With
respect, the learned judge did not refer to or apparently have the
benefit of considering the reasoning in either
McLelland or
Kalinko or Routhouge supra.
Restatement of the formulation as
set out in
Prudential supra
does not assist in dealing with
the issues now before me.
ANOTHER REMEDY
The
statutory derivative action provided for in section 226 of the
Companies Act is not available to the plaintiff. The companies
no longer exist and so no general meeting can be called. In any
event, he alleges a duty of care to himself irrespective
of that to
the companies
Defendant’s
counsel submitted that plaintiff should exercise his rights within
the insolvent estates but those rights and
their availability to the
plaintiff have not been elucidated.
CONCLUSION
The rule against double recovery/ double jeopardy
is not
unqualified. The rule should be
applied in line with the interests of justice.
The
plaintiff has
alleged that defendant owed him a duty of care which has been
breached. There has been loss to four private companies
and to
their shareholders. Plaintiff is one of a limited number of
shareholders or (in the case of one company) the only shareholder.
The companies were all placed under final
liquidation. The liquidators have not instituted proceedings
against the defendant
for recovery of damages. No risk of double
jeopardy to the defendant bank nor opportunity for double recovery
to the plaintiff
has been shown as possible or probable. Even the
potentiality of such hazard/advantage is unlikely since the
liquidators’
claims have not been exercised.
Accordingly, I conclude that the
exception
should be dismissed with costs.
Counsel
were in
agreement that this was a matter justifying the services of two
counsel.
I therefore make the following order:
The exception to
plaintiff’s
particulars of claim is dismissed.
The defendant shall pay the costs including those attendant upon
the employment of two counsel
____________________
K. Satchwell
Date of hearing: 1
st
April 2009
Date of Judgment: 7
th
April 2009
Counsel for Plaintiff: JJ Brett SC
E Kromhout
Attorneys for Plaintiff: Gary Janks Attorneys
Counsel for Defendant: P Robinson SC
Attorneys for Defendant: De Vries Incorporated
1
Metallurgical Design &
Management (Pty) Ltd (“MDM”) and MDM Ferroman (Pty)
Limited (“MDMFM”).
2
MDM, MDMFM
and also Metallurgical Projects Development (Pty) Limited (“MPD”)
and Friedshelf 374 (Pty) Limited (“Friedshelf”)
3
The unreported judgment of the TPD -
Routhauge
& Others v South African Reserve and Others
[2005] JOL 13294
T
at para13.
4
Paragraphs 12
to 15 of the Exception.
5
Paragraph
2 of Excipients supplementary heads of argument.
6
See
Trinity Asset Management (Pty) Ltd and
Others v Investec Bank Limited unreported judgment of the SCA
(54/07)
[2008] ZASCA 158
(27 November 2008) ; Anirudh v Sasmdei and
Others
1975 (2) SA 706
N ;Voget and Others v Kleynhans
2003 (2) SA
148
C ; Twk Agriculture Ltd v NCT Forestry Co-Operative Ltd and
Others 2006(6) SA 20 N at 23B.
7
The defendant has not taken exception to the particulars on the
grounds that it lacks averments to sustain a cause of action.
For
purposes of this exception the court must therefore accept that the
allegations as to the duty of care, the unlawful conduct
and the
diminution of shareholding are not in dispute.
8
As identified in
McLelland v Hulett and
Others
1992 (1) SA 456
D at 464
9
That claim arose out of defendant’s failure, in
their capacities as directors of a company of which plaintiff was
both a
director and shareholder, to carry out an undertaking to
acquire certain land on behalf of the company, thereby causing the
value
of the plaintiff’s interest in the company to be
diminished. Plaintiff claimed for damages alleging wrongful actions
or
inactions which had not been made on a consideration of the
interests of the company or shareholders as a general body, had been
made negligently and without regard for the plaintiff’s rights
and prospective loss.
10
Prudential Assurance Co Ltd v Newman Industries Ltd (No 2)
1982 CH
204
210; 1982 All ER 354 (CA) 357
11
LAWSA Vol IV: Companies, para 192
12
(
[1843] EngR 478
;
1843)
2 Hare 461:
(1843) 67 ER 189)
13
Vol IV, para 192
14
LAWSA Vol IV para 192
15
Per Lord Denning MR in
Wallersteiner v Moir
(No 2); Moir v Wallersteiner and Others (No 2)
[1975] 1 All ER 849
(CA) at 857d
16
D
ated December 2008.
17
McLelland
supra
18
Letsing supra para 61
19
Defendant’s counsel has
rightly pointed out the distinction between a personal and
derivative claim. In the present case
(unlike
McLelland
supra
) the claim is a
personal one (as was the claim in
Routhauge
supra
and possibly in
Kalinko supra)
.
The plaintiff has specifically pleaded a duty of care by the
defendant bank to the plaintiff shareholder. Although there is
a
dearth of factual allegations set out to support such claim (
In
Routhauge supra
,
the learned judge held that , at the very least, the plaintiff’s
should have alleged such duty of care (page 17)
).
This is an issue to be decided on trial and not on exception.
20
I have not used the obvious terminology “exception”
since that might be confusing in the context of exception
proceedings.
21
W
hich is now given statutory recognition in
section 266 of the Company’s Act.
22
See
Fedsure Life
Assurance Co Ltd v Worldwide African Investment Holdings (Pty) Ltd
and Others 2003(3) SA 268 W.