About SAFLII
Databases
Search
Terms of Use
RSS Feeds
South Africa: Supreme Court of Appeal
SAFLII
>>
Databases
>>
South Africa: Supreme Court of Appeal
>>
1992
>>
[1992] ZASCA 111
|
|
Hulett and Others v Hulett (417/90) [1992] ZASCA 111; 1992 (4) SA 291 (AD); [1992] 2 All SA 308 (A) (2 June 1992)
No .
Case No 417/90
IN THE SUPREME COURT OF SOUTH AFRICA APPELLATE DIVISION
In the matter between:
JOHN ALBERT HULETT
First Appellant
PAULA TOWNSEND
Second
Appellant
ANGELA FOWLDS (born TOWNSEND)
Third Appellant
SALLY
MAINGARD (BORN TOWNSEND)
Fourth Appellant
and
BRETT HULETT
Respondent
CORAM:
HOEXTER, VAN HEERDEN, NESTADT, MILNE JJA et NICHOLAS,
AJA
HEARD:
5 May 1992
DELIVERED:
2 JUNE 1992
JUDGMENT
HOEXTER, JA
2
HOEXTER, JA
In terms of a written agreement of sale
concluded at Durban on 10 March 1988 ("the contract") the four appellants
sold certain shares and loan accounts in Stanger Quarries
(Pty) Ltd ("the
company") to the Brett Hulett Family Trust ("the trust") for R700 000. The
respondent is the trustee of and a beneficiary
under the trust. The appellants
allege that they were induced to enter into the contract by the fraudulent
deception of the respondent.
Electing to abide by the contract the appellants
instituted an action for damages for fraud against the respondent in the Natal
Provincial
Division. The respondent defended the action.
The trial was heard by Thirion J. The trial judge ordered absolution from the
instance with costs. The costs awarded included the
costs of two counsel as well
as those occasioned by an adjournment of the trial on
3
18 April 1989. With leave of the trial judge the appellants appeal to this
court against the whole of the judgment of the court below.
The essential
facts in the case are hardly in dispute. From the sorry tale of events unfolded
by the evidence there emerged the following
three main characters:-
(1) The first appellant: Mr J A Hulett, who was the first plaintiff in the
action. In this judgment reference will be made to him
as "JH".
(2) The respondent: Mr B Hulett. For convenience I shall refer to him as "the
defendant."
(3) Mr D B Townsend ("Townsend"). The second, third and fourth appellants, who
were the second to fourth plaintiffs in the action,
are the daughters of
Townsend.
JH, the defendant and
Townsend are farmers on
4
the Natal North Coast. All three started farming in the
same area at about
the same time. JH and Townsend were
among the witnesses called at the trial.
From their
evidence it is clear that between the three very close
ties had
existed since their schooldays. They took part
in sport together. Their respective families lived on
intimate social terms. The families shared their
vacations, and they also
travelled overseas together.
JH's wife is a godmother to the defendant's
daughter; and
the defendant and his wife are godparents to JH's son.
JH and the defendant are second cousins. Townsend is not
related to them by blood, but in his evidence JH said
that:-
"Townsend's family and our families were very, very
close."
Townsend testified in the same vein. He said
that they
"all socialised together"; and he gave the following
description of his relationship with the defendant:-
5
"The Defendant and I have been .... best friends
for the last forty odd years. We have been on
holiday together, we had houses at the beach
together, alongside each other, the Defendant
proposed a toast at my eldest daughter's
wedding
....."
In what follows, collective reference to JH, Townsend and the defendant will,
for the sake of brevity, be made as "the trio"; and
to the second, third and
fourth appellants as "the daughters."
In the Stanger district of Natal there
is a farm called "Sondela" ("the farm") which is owned by the Sondela Sugar
Company (Pty) Ltd
("the SSC"). The shares in the SSC are held by the trust. At
the beginning of 1984 a company ("Casrob") held a mining lease over
25 ha of the
farm on which there was a disused quarry. Casrob, which was controlled by a Mr
Mike Roberts ("Roberts"), had quarrying
machinery for sale at a price of R500
000. With a view to the further exploitation of the quarry the defendant during
May/June 1984
approached
6
JH and Townsend. The defendant suggested that they
should get together a
consortium of 15 to 20 people to
raise R500 000 in order to finance a company
which would
take over the mining lease and run the quarry. To
this.
suggestion JH responded by saying that he -
"....wasn't interested in going into partnership -with 15 or 20
people."
and he made a proposal, with which Townsend
agreed, that
participants should be limited to 4 or 5 persons. The
upshot
was that on 31 July 1984 the company was registered
with an issued share
capital of 150 shares. It had the
following five directors: JH, Townsend, the
defendant,
Roberts and one Mr Dick Jones ("Jones"). JH was the
first
chairman of the board of directors. Thirty shares
were registered in the name
of each director except
Townsend. The remaining 30 shares were divided
equally
between the daughters; but thereafter Townsend himself
acted for
and on behalf of the daughters in all matters
7
and negotiations affecting the shares thus registered in the names of the
daughters.
The company arranged for a bank overdraft with a limit of R150
000, and as security therefor each director signed a personal guarantee
for R30
000 in favour of the bank. Save for Roberts each director lent the company R100
000, such loans being reflected as loan accounts
in the books of the company. In
lieu of a loan by him to the company Roberts reduced the price of the quarry
machinery, which was
sold by Casrob to the company, from R500 000 to R400 000.
The quarry produced road and concrete stone which was sold commercially.
Casrob
ceded to the company its rights under the mining lease in respect of the
aforesaid 25 ha ("the quarry land") of the farm.
In terms of the lease the
company thereafter paid to the SSC a royalty of 5% on the sale of quarry
products. The SSC granted the
company an option, which had to be
8
exercised by 31 August 1987, to buy the quarry land for R350 000 ("the
option"). Jones was put in charge of the day to day running
of the
company.
By November 1984 the company was short of cash. It had to increase
its overdraft limit to R300 000, and further personal guarantees
were required
by the bank. These were furnished by each of the directors save Jones. At the
same time the company issued 15 additional
shares. Of this further issue 12
shares were divided equally between JH, the trust and Roberts, and 3 shares were
divided equally
between the daughters. Initially the company operated at a loss.
In March 1985 Mr R McLelland ("McLelland") was engaged as quarry
manager,
whereafter its operations began to show profits. In September 1986 McLelland
lent the company R25 000, in return for which
18 shares in the company were
issued to him. At the same time Jones decided to sever his association with
the
9
company. His shares and loan account were bought by the remaining
shareholders for R140 000.
The defendant visited the farm daily. Throughout
he displayed great interest in the quarry; and he involved himself in its day to
day running. In September 1986 the defendant succeeded JH as the chairman of the
company. From time to time a matter informally discussed
by the company's
directors was the possibility of the sale of their shares should a purchaser
"with the right price' approach them.
From these discussions JH and Townsend
gained the impression that it was the defendant's wish to retain some sort of
interest in
the quarry.
In or about May 1987 the defendant told JH and Townsend that a quarry company
named Blue Circle Materials (Pty) Ltd ("BCM") was showing
interest in the
acquisition of the quarry. The defendant undertook to report back to
10
them if anything should come of it. During July 1987 the defendant telephoned
JH to say that Roberts wished to sell his shares and
loan account in the company
for R150 000. The members of the trio were minded to buy out Roberts in equal
shares. At the suggestion
of JH, and in order to inform Roberts of the interest
in the company shown by BCM, a meeting between the trio and Roberts was
arranged.
Having been duly apprised at the meeting that BCM's interest had been
aroused, Roberts told the trio that he was content to accept
the figure of R150
000. The minutes of a meeting of the directors held on 7 July 1987 record, inter
alia, the acceptance by the trio
of the offer by Roberts to sell his shares and
loan account for R150 000; and a resolution that the company would exercise the
option
to purchase the quarry land from the SSC. In regard to the latter it was
agreed that the defendant "was to approach Barclays Bank
re finance."
11
Shortly thereafter the defendant had an interview with the manager of the
Stanger Branch of the First National Branch during which
he requested a loan of
R375 000 in order to finance the purchase by the company of the quarry land. The
request was refused.
In October/November 1987 the defendant reported to JH and Townsend that BCM
had evinced further interest in the company; and that
he would meet with the
directors of BCM in this connection. The meeting having taken place, the
defendant reported to JH that BCM
had made an offer of R1 ,5 million for all the
shares in the company and the loan accounts of the trio. The defendant went on
to
tell JH: (1) that this offer was far too low, and that he had declined it;
(2) that the practical implication of this offer for JH
was that his shares and
loan account "would only be worth about R200 000"; and (3) that if JH were
prepared to accept R200 000 for
his shares and
12
loan account, he (the defendant) would buy out JH at such figure. JH refused
this offer by the defendant.
Between 1 to 25 January 1988 JH was overseas.
Prior to his departure he discussed with Townsend the possible sale of his
shares. Townsend
told him that the defendant had offered each of them R270 000.
JH replied that he was not interested in selling at that price, but
that he
would accept R450 000 for his shares and loan account.
Mr B P Chaplin ("Chaplin"), who practises as a chartered accountant at
Umhlali, was also a witness at the trial. Until October 1986
he had been the
company's accountant. He was JH's accountant and he held his power of attorney.
During the absence, of JH overseas
the defendant went to see Chaplin at the
latter's office. The defendant mentioned that he planned to expand operations at
the quarry,
but that he was experiencing difficulty "in
13
motivating his partners to accept the idea." He told Chaplin that he loved
the business of the quarry, and that it was his whole life.
The defendant
explained that he had come to see Chaplin with a view to securing control of the
quarry, and he offered to buy out
JH for R200 000. Chaplin pointed out that JH
was overseas, and undertook to refer the matter to Townsend.
Chaplin had been
succeeded as the company's accountant by Mr C J Galloway ("Galloway"). On 11
January 1988 a meeting took place at
the defendant's home between the defendant,
Townsend, McLelland and Galloway. According to Townsend he was told at the
meeting that
the company should spend R750 000 in the purchase of new equipment
and in repair work. Townsend demurred. He took his stand on an
earlier
resolution of the company's board to the effect that large expenditure should be
made only on the strength of signed contracts;
and he pointed out
14
that JH was still overseas. To this the defendant reacted by saying that if
Townsend and JH were not prepared to spend money on the
quarry they should sell
their shares to him for R200 000. Townsend reminded him that JH and Townsend had
already turned down the
defendant's earlier offer to buy them each out at R270
000.
A further witness at the trial was Mr E A Todd ("Todd"). He described
himself as the managing director of Bay Stone Sales ("Bay Stone"),
a partnership
between two large companies, one of which was Murray and Roberts ("M & R").
Unbeknown to Townsend and JH, Bay Stone
was interested in acquiring the company.
The chairman of Bay Stone instructed Todd to "investigate Stanger Quarries". On
19 January
1988 Todd proceeded to the farm where he met the defendant at the
quarry. Todd was shown round the quarry by the defendant and McLelland,
who gave
him details of the company's business activities and
15
assets. In discussions between the defendant and Todd mention was made of a
possible sale which Todd considered to be "in the offing".
Todd's visit to the
quarry took place in the morning. During the afternoon of the same day Townsend
went to the Umhlali Country Club
in order to play golf with the defendant. There
the defendant introduced him to Todd. Before the introduction Townsend and Todd
were
known to each other only by name. Townsend knew that Todd was "manager of
Bay Stone Quarry". Todd knew that Townsend had a 30% shareholding
in the
company. Todd testified specifically that at their meeting he discussed with
Townsend neither the company's quarry business
nor the possible sale of the
quarry to Bay Stone. When Todd was asked why he had avoided mention of these
matters to Townsend, Todd
displayed a measure of diffidence. His reply was:-
16
"I seem to recall Mr Brett Hulett indicating that it would not be necessary to
discuss it..."
After JH had returned from overseas he and
Townsend
paid a visit to the offices of BCM on 1 February
1988. There they had discussions with two of BCM's
directors, Mr E Leo
("Leo") and Mr W Hooper ("Hooper").
Leo told them that the offer previously made by him to the
defendant had involved R427 000 for 30% of the Company's
shares plus a loan account (i e a total of R1,281 million
for the shares and loan accounts of the trio) ; and that
this offer still stood. Before 1 February the defendant
had told JH that, according to his information, if it
bought out the company BCM would require for its
operations not merely the quarry land but an extra area of
the farm ("the extra land") in addition thereto. During
the visit JH inquired of Leo whether this was in fact so.
Leo replied that BCM regarded the acquisition of the extra
land as desirable, but not absolutely necessary. Leo
17
said that he would be prepared, to offer the defendant R14 000 per hectare
for such additional land.
JH and Townsend promptly reported to the defendant what Leo had told them.
The defendant appeared to be unmoved thereby, and he said
that "there must be
some mistake." This reaction on the part of the defendant caused JH and Townsend
to visit BCM on the next day
to obtain from Leo an informal written note setting
forth the essence of what he had said on 1 February 1988. The note indicated
that half of the R427 000 which Leo was prepared to offer each member of the
trio would be paid in November 1988 and the balance
(which would carry interest
at the prime bank rate) would be paid in February 1989.
In connection with the company's exercise of the option JH and Townsend had
undertaken to furnish guarantees to the SSC to secure
two-thirds of the purchase
price of R350 000. Such guarantees had to be lodged by 3
18
February 1988, but before that date the defendant had
intimated orally to JH and Townsend that the period for
lodgment would be extended by a fortnight. The
company's attorney was Mr A M Brokensha ("Brokensha"), the
senior partner of a firm of attorneys in Pietermaritzburg.
Brokensha advised JH to secure written confirmation of the
promised extension. Accordingly on 2 February 1988 JH
drafted a short formal letter to this effect, addressed to
Townsend and JH, for signature by the defendant on behalf
of the SSC. The letter was delivered to the defendant's
home on the same day. On the following day (3 February)
the defendant arrived at JH's farm office early in the
morning. According to JH the defendant -
"....appeared to be very upset that we had asked him to sign this letter ....
and said to us that we were great friends and we shouldn't
have to ask him to
put it in writing because his word was his bond ...."
JH told the defendant to calm down and gave him a cup of
19
tea. For the ensuing half-hour they discussed the future of the company. The
defendant said that what Roberts had been paid out represented
a fair price, and
he urged JH to accept the same price (R150 000) for his interest in the company.
The defendant went on to say that
he had always been very interested in the
quarry; that he wanted a controlling share; and that if JH sold his shares to
the defendant
the latter would acquire a controlling interest. JH turned down
the offer so made, and he pointed out that a further meeting with
the directors
of BCM would shortly take place.
Such a meeting was in fact held in Chaplin' s office on Monday 8 February
1988. It was attended by Leo, Hooper, Townsend, JH and Chaplin.
Before the
meeting the defendant had again indicated to JH and Townsend his belief that
should BCM decide to acquire the company
it would insist upon the purchase by it
of the
20
extra land. On this point JH and Townsend sought clarity at the meeting. Once
again Leo's attitude was that while BCN would prefer
to acquire the extra land,
this was not essential. JH and Townsend further inquired of Leo whether he was
prepared to buy a 60% shareholding
(the shares held by JH and the daughters).
Leo answered that he would be interested but that he would prefer 100%. JH and
Townsend
were asked by Leo to inquire of McLelland whether he would be
interested in disposing of his 10% shareholding in the company for
a
consideration of R104 000. Two days later, on 10 February 1988, JH and Townsend
met with McLelland and conveyed to him what Leo
had said. McLelland responded by
stating that he felt that his shares were worth more than R104 000; and that he
was not interested
in selling at that figure.
The defendant was a client of the Stanger branch ("the branch") of the First
National Bank ("the bank").
21
On various occasions the defendant visited the branch in connection with the
company and in quest of loans from the bank. During 1987/1988
the senior manager
at the branch was Mr D L M Ducray ("Ducray"). The defendant's requests for
financial assistance were made to Ducray
and in regard thereto it was part of
Ducray's duties to prepare and sign typewritten reports for consideration by the
bank's General
Manager ("the GM") at the bank's Natal head office in Durban.
Such reports embodied both an account of what the defendant had said
to Ducray
and the latter's recommendations to the GM. Ducray was a witness at the trial.
His testimony related to his interviews
with the defendant as reflected in
various head office advice forms prepared by Ducray to the GM. The relevant
advice forms formed
part of the documentary evidence before the court a quo, and
their correctness was confirmed by Ducray.
On the same day that JH and Townsend explained
22
to McLelland what BCM offered for his shares, the
defendant paid a visit
to the branch in order to discuss
with Ducray various alternative courses of
action which
the defendant was then contemplating. He told Ducray
that BCM had made "a tentative offer" to buy the company
for R1,5 million, and that he was trying to negotiate a
better price. The advice form submitted by Ducray to the
GM on 10 February 1988 reflects, inter alia, the
following:-
"Mr Hulett [i e the defendant] has still not made up his mind as to which
direction he is to proceed i e:-
1)
Sell the property [the
quarry land] to the company for R350 000 as agreed.
2)
Sell the property [the quarry land] and the surrounds [the extra
land] for R775 000 to the company (refused by
Co-director).
3)
Buy out his partners for R500
000 to maximize his taking from any sale.
4)
Sell to Blue Circle at offer price.
5)
Negotiate a better selling price with Blue
Circle.
6)
Establish a Premix Plant on the
site before selling at an increased price.
23
CONCLUSION
Mr Hulett is not a business entrepeneur and is being greedy regarding the value
of the Quarry he owns. He is himself over extended
and would do well to
negotiate an outright sale with Blue Circle."
Two days later the defendant again visited
the
branch. Ducray's advice form to the GM dated 12
February
1988 stated, inter alia:-
"Hulett's Co-Directors have negotiated a deal for the sale of the company at
R1,4 million to Blue Circle. The Shareholders will receive
R220 000 immediately
and R227 000 plus interest at prime rates in a year's time. The deal is
conditional on the transfer of the quarry
and surrounds into the name of the
company. Blue Circle are willing to match the offer of R350 000 for the quarry
and pay R140 000
for the additional 8,5 Ha.
He is
negotiating a deal (behind his Co-
Directors backs) to sell the company and
land to .
Murray & Roberts for R2 Million.
He wishes to better the present offer to his partners and intends to offer
them R250 000 each cash plus a further R250 000 plus interest
in a year's
time.
24
He requires us to grant bridging facilities of R500 000 to complete the first
leg of the transaction but will only repay in a year's
time. He does not wish
Murray & Roberts to make their settlement immediately so that it will not
become obvious to his Co-Directors
that he has been
unethical."
On 18 February 1988 Ducray sent to the
GM a telefax
reflecting the latest developments in the defendant's
negotiations with M & R. The following are relevant
extracts from the telefax:-
"FURTHER TO MEMO 10TH AND 12TH FEBRUARY. MR HULETT STATES MURRAY AND ROBERTS
MADE OFFER OF R2 MILLION WHICH IS TO BE CONFIRMED BY
THEIR
BOARD 3RD MARCH
REQUIRES TO MAKE IMMEDIATE OFFER R350 000 EACH TO CO-DIRECTORS AND R200 000
EACH IN A YEARS TIME. REQUIREMENTS THEREFORE NOW R700
000
BRIDGING FINANCE
ARGUES THAT:
1) CONSIDERS HIMSELF TO BE WORTH R6/R7
MILLION - BALANCE SHEETS SHOW
R3,4
MILLION OUR M/E R1 M.
2) STATES THAT IF MURRAY AND ROBERTS DEAL
FALLS THROUGH HAS
A) BLUE CIRCLE OFFER TO FALL
BACK ON.
B) WORST POSSIBLE POSITION
COULD CONTINUE HIMSELF WITH
QUARRY.
25
COMMENTS
(C) COULD NOT CONTINUE WITH QUARRY
WITHOUT FURTHER FINANCE."
On 29 February 1988 and at Chaplin's office
there
took place a meeting between Leo, Hooper, JH,
Townsend and the defendant.
There Leo and Hooper
produced Heads of Agreement ("the BCM H/A"). Paragraph 7
of the BCM H/A read as follows:-
"BCM offers to each of B Hulett, J A Hulett and D B Townsend the sum of R427
000 for their respective 30% shareholding in Stanger
Quarries (Proprietary)
Limited (SQ) and to R McLelland . R104 000 for his 10% shareholding."
The BCM H/A provided that BCM would pay half of the
consideration upon signature of the requisite transfer
documents and the balance on 28 February 1989; and that
interest on the balance would accrue at prime bank
overdraft rate. A further term was that the company and
the defendant would enter into an agreement permitting the
company to extract stone from the quarry land "extended by
26
a further 10 hectares" in perpetuity for a royalty of 5% sales.
Immediately after the BCM H/A had been presented the defendant asked Leo
whether or not BCM required the extra land measuring 10 ha.
Somewhat to the
surprise of JH and Townsend, Leo replied in the affirmative; and he offered to
buy the extra land, which was planted
to sugar cane, at a price of Rl 4 000 an
hectare. Thereupon the defendant said that he wanted R50 000 per hectare. Leo
intimated
that this was a ridiculous figure, but despite his expostulations the
defendant refused to budge from his demand. The meeting ended
inconclusively,
Leo indicating that a deal might still be done if he could persuade BCM to pay
the defendant a larger royalty. After
Leo and Hooper had departed Townsend asked
the defendant why he had put such a high figure on the extra
27
land. The defendant replied that he had done so "to
block" JH and Townsend
from selling their shares to BCM.
He went on to say that in fact he wished to buy their
shares for himself as he would like to have the controlling
interest in the company for the reason that he enjoyed the
quarry and that he had great plans for its expansion. The
defendant then again offered JH and Townsend each R200 000
for their interests. They once more informed the
defendant that this figure was unacceptable to them.
According to JH the defendant responded to their refusal
with the following statement:-
"... .he said that as he was wanting to run the quarry himself he was unable
to pay us the same amount as Blue Circle because he required
the capital for the
day to day running and expansion of the plant and if he should pay us the full
amount .... he would not be able
to finance the quarry as he had intended."
The defendant then left the meeting.
Some days later Chaplin telephoned JH to tell
28
him that the defendant was prepared to offer JH and
Townsend each R350 000 for their shares (in the case of
Townsend the shares being those registered in the names of
the daughters) and loan accounts in the company. JH and
Townsend discussed the matter and decided to accept the
offer. In the course of his evidence JH explained why he
had decided to accept it:-
"....there were a number of reasons .... The Defendant had repeatedly asked
me and begged me to sell my shares to him. He had been
up to Saxe Farm (JH's
farm) and on other occasions and he made it quite clear to us on 29th after Mr
Leo had left the meeting that
this is what he wanted .... He was now talking a
more realistic price. He'd come up from R150 000 to R200 000 to R350 000. He was
after all .... part of our family. The quarry was situated on his farm and he
had indicated to me at all times how much he liked
the quarry .... He used the
word he loved the quarry .... We did not think at that point in time that there
were any other potential
purchasers and in any event M'Lord had there been a
purchaser to approach us we knew we would have to first offer our shareholding
to the Defendant."
Townsend testified to the same effect. He stated his
29
reasons for selling to the defendant as follows:-
"Well first of all .... he had come up from R200 000 to R350 000 which was a
considerable increase. He had convinced us M'Lord that
he wanted the quarry for
himself, this being pointed out at the meeting .... after Mr Elmor Leo left,
where he told us that he wanted
the quarry for himself and he wanted to run it.
He was after all a friend and Mr John Hulett a relation. We didn't see any other
potential purchasers around and .... if we had a purchaser we would have to
offer it to him first exactly as he would have to offer
his shares to
us."
(The obligation to afford fellow-shareholder
the right of
pre-emption to which both JH and Townsend referred,
derived from a provision in the company's Articles of
Association.)
Before their acceptance of the offer was
communicated to the defendant the latter, on 2 March 1988,
called on Ducray at the branch to show him the BMC H/A.
From Ducray' s advice form of that date the following
appears:-
"Mr Hulett stated that he blocked the deal
30
through his strength of position in ownership of the Quarry Property .... He
still intends to buy out his partners and requested us
to open an account ....
and permit him to overdraw up to R500 000.
RECOMMENDATIONS
We recommend care and that we should not be bullied into agreeing to a further
R500 000 exposure until some form of evidence can
be furnished that one of the
deals will definitely be proceeded with.
We mention that the Land Bank has agreed to assist Mr Hulett with a seasonal
Loan of R410 000. This will alleviate some of his personal
cash flow problems on
the farming venture."
The evidence of
a firm deal required by Ducray
was soon provided. On 3 March 1988 the chairman of Bay
Stone telephoned
Ducray to inform him that in principle Bay
Stone had agreed to purchase the company for R2 million
"details to be worked out." On 4 March 1988 Todd
addressed to the defendant a letter to the same effect.
Todd expressed the hope that his letter would enable the
31
defendant to continue negotiations with the branch.
The fact that JH and Townsend had decided to
accept
the defendant's offer of R350 000 to each was
communicated by JH to the defendant by telephone on 4 March
1988. The defendant's response to this news was described
thus by JH in his evidence:-
"He said 'I am so pleased that you have taken this decision because you know
how much the quarry means to me and now I will get the
control that I have been
wanting.'"
It was agreed that the parties should meet in order to
prepare a formal written contract for signature. Such a
meeting took place in Chaplin's office on 7 March 1988.
It was attended only by Chaplin, the defendant and JH who
also represented Townsend. At the meeting a draft
agreement ("the Chaplin draft") was drawn up by Chaplin.
The defendant explained that either he himself or the trust
would figure as the buyer in the agreement in its final
form, and accordingly in the Chaplin draft the space
32
for the purchaser's name was left blank. In terms of the
Chaplin draft the
purchaser would pay R400 000 of the total
purchase price of R700 000 against
signature of the share
transfer forms, and the balance of R300 000 on 28 February
1989. In his evidence JH described why payment of R300
000 was deferred. The defendant told them:-
"....that he had borrowed R700 000 from the bank. However he could not make
this payment in full because he required capital for the
day to day running of
Stanger Quarries to purchase new equipment and to up-date the old equipment. He
then asked if we would be prepared
to grant him a loan. This we agreed."
After further negotiation for the "purpose of shaping
Chaplin's draft it was agreed also that as security for the
unpaid balance of R300 000 the defendant would give a bank
guarantee. The drift of the defendant's remarks during
these negotiations and his silence in the face of a pointed
admonition by JH are significant. During his testimony JH
recounted the discussions thus:-
33
"I asked him what security he would give us for
the outstanding amount of
R300 000. The
Defendant's reply was that because we were
friends and we
knew him wouldn't we consider an
unsecured loan. I said that I required
something
more business-like than that and in any event Mr
Townsend had
asked for suitable guarantees. I
then said to the Defendant it was a very
simple
matter. I was quite happy if he was prepared to
pledge the shares
to us for a period of a year
and when he finally made his payment on
28
February 1989 we would hand the shares to him....
He said he couldn't
do this .... He said he
wanted us to understand that if he ran
into
financial difficulties with the quarry....he
might have to sell off
some of the shares to
generate cash....I said to him M'Lord that I
fully
understood his situation. However if he
.... was dealing with somebody to
sell off the
shares at this point in time that we should know
about that
he should disclose it .... because if
this did happen and Mr Townsend and I
found out
about it we would be very angry....It was a very
casual
statement M'Lord and the Defendant turned
to me and said that he would prefer
to give us a
bank guarantee for the amount outstanding. This
I accepted."
— -
The purpose of the Chaplin draft was to enable Mr
J M Koch ("Koch"), an attorney in Durban who acted for the
trust, to draw
up the contract in final form. A day or two
34
later Koch informed Townsend that the defendant had made arrangements with
the bank which enabled him to pay the full purchase price
in cash; and it was
agreed between the parties that the contract would provide for such cash
payment.
The contract was signed in Koch's office on 10 March 1988. Present were Koch,
Galloway, the defendant, JH and Townsend. In terms of
the contract the purchaser
was the trust. The sellers were JH, Townsend and the daughters. In what follows
reference to the individual
daughters will be made respectively as "Paula",
"Angela" and "Sally". The contract provided that the total purchase
consideration
of R700 000 was appropriated as follows:-
(1)
JH's loan account R103
283,00
(2)
Townsend's loan account ...103
283,00
(3)
JH's 56 shares R246
717,00
35
(4) Paula's 19 shares 83 707,56
(5) Angela's 18 shares 79 301,88
(6) Sally's 19 shares 83 707,56
In clause 10.2 of
the contract the following was stated:-
"It is recorded and agreed that the purchaser is
concluding this agreement
with a view to
obtaining control of the company and
its
operation...."
Upon signature of the
contract, and after JH and Townsend
had received their cheques, each in turn shook the
defendant by the hand and congratulated him upon his
acquisition of the quarry. To these gestures of goodwill
the defendant responded by saying "Thanks a lot chaps. I'm
sure if I go broke you two will come to my assistance."
Thereafter, and with great expedition, the assets
which JH, Townsend and the daughters had sold for R700 000
in March were successively sold, first in April (by "the
API agreement") to Attest Finance (Pty) Ltd ("API"), and
then in May (by "the Bay Stone agreement") to Bay Stone.
36
In each case the purchase consideration was R2 million.
Both the AFI
agreement and the Bay Stone agreement were drafted by Mr J Rabinowitz
("Rabinowitz"), a partner in a firm of attorneys
in Johannesburg. Rabinowitz was
also a witness at the trial. In drafting the two agreements Rabinowitz acted as
the attorney of Bay
Stone. It was necessary for him to confer with Koch in order
to ensure that the agreements satisfied the requirements of Koch's clients.
Rabinowitz told the court a quo that his mandate, and likewise that of Koch, was
to minimise tax liability on the part of the parties
to the agreements. It is
unnecessary to detail the elaborate scheme and structure of these two agreements
which involved, inter
alia, a dividend-stripping exercise.
In the AFI agreement, which was signed on 19 April 1988, the purchaser was
AFI and the sellers were collectively the trust, McLelland
and the SSC. As
one
37
indivisible transaction:-
(1)
the trust sold 112 shares
(being the shares bought by the trust on 10 March 1988) for R493
430;
(2)
the trust sold the 56 shares
(originally acquired by it) for R997 332;
(3)
McLelland sold his 18
shares for R200 000;
(4)
the trust and the SSC
sold all claims which the trust, the SSC and McLelland had against the company
for R309 234.
The AFI agreement contained a
restraint clause limiting for specified periods the quarrying activities of the
defendant and McLelland
within a 50 km radius of the Stanger Town Hall. In terms
of the AFI agreement the SSC undertook to
38
enter into a further lease with the company (or Bay Stone) in terms of which
the leased area was increased by 14,7475 ha. The rental
for the lease was fixed
at R100 per annum and the period of the lease was increased to 50 years from the
16 years then remaining
under the original lease. The lease was to contain a
clause precluding the erection of any structure within 100 meters of the
perimeter
of the leased land.
The Bay Stone agreement was concluded in May 1988 between AFI and Bay Stone.
Pursuant to its terms:-
(1) the company was put into voluntary liquidation;
(2) the company awarded the quarry business to AFI as
a liquidation
dividend;
(3) AFI sold to Bay Stone the quarry business;
(4) the lease, as amended, was ceded to Bay Stone.
In due course news of the defendant's aforementioned transactions subsequent
to 10 March 1988
39
reached the appellants. In July 1988 they instituted their action.
During
the cross-examination of JH and Townsend defendant's counsel on a number of
occasions sought to take issue with parts of their
testimony by putting to them
what the defendant himself as well as other witnesses to be called on his behalf
would say in evidence.
So, for example, it was suggested to JH that McLelland
would testify that prior to 10 March 1988 he informed JH that Bay Stone
directors
had visited the quarry and that they had expressed interest in its
purchase. This suggestion was firmly repudiated by JH. Suffice
it to say that at
the close of the appellants' case in the court below neither the defendant nor
any witness on his behalf ventured
into the witness-box.
In the course of his judgment the trial judge commented critically on an
important aspect of Todd's
40
evidence. He remarked:-
"......I am satisfied that Todd was less than frank
in his evidence and that defendant had in fact asked him not to mention to
Townsend the interest which Baystone Sales was showing
in buying the shares in
Stanger quarries."
There is nothing in the judgment
of Thirion J which
suggests that he was unfavourably impressed with the manner
in which JH and Townsend testified before him. I would
add that a careful reading of the record points to the
conclusion that both were candid and careful witnesses.
The appellants rested their claim for damages on
(1) positive fraudulent misrepresentation, and (2)
fraudulent non-disclosure. In regard to (1), as will
presently emerge, the trial court declined to accept the
evidence of JH and Townsend as to the precise belief
entertained by them on 10 March 1988 when they entered into
the contract. Mr Olsen, who argued the appeal on behalf of
the defendant, properly conceded that this adverse finding
41
by Thirion J was based purely on an assessment of the
probabilities; and
that in regard thereto this court was
therefore in no less favourable a position than the trial
court to make its own finding.
In his judgment the trial judge summarised his
main findings of fact in the following words:-
"On all the evidence and in the absence of any gainsaying evidence from the
defendant I find that the plaintiffs have proved that
when defendant signed the
agreement on 10.3.1988.... :
(i) he knew that Bay Stone Sales had offered in principle to purchase the
shares in Stanger Quarries for R2 000 000;
(ii) he knew that the plaintiffs and Townsend were ignorant of the Bay Stone
offer and interest;
(iii) he knew or believed that the Bay Stone offer for plaintiffs' shares was
substantially more favourable than the price the Trust
was offering the
plaintiffs for their shares and which they were agreeing to accept by signing
the agreement;
(iv) he knew that plaintiffs and Townsend would not have entered into the
agreement with the Trust if they had known or if they had
been aware of
42
Bay Stone's offer and interest but that they would have tried to negotiate a
sale of their shares direct to Baystone Sales; (v) he
knew that the plaintiffs
and Townsend expected of him that he would disclose to them any offer which
might influence their decision
to sell their shares to
him."
Following upon this passage in the judgment
just quoted the
learned judge proceeded to record a further finding of
fact. For ease of reference I shall number it "(vi)". It
was couched in
the following words:-
(vi) "I find furthermore that defendant deliberately withheld from first
plaintiff and Townsend all knowledge of Bay Stone Sales'
interest and offer
because he was afraid that if informed of it plaintiffs would not accept his
offer but would endeavour to sell
their shares direct to Bay Stone Sales."
At the end of the trial absolution was ordered.
The main conclusions at which the trial judge arrived in
his judgment may be summarised thus:
(1) that the appellants had failed to prove that any
43
possible fraudulent misrepresentation made by the defendant materially
influenced JH or Townsend in making their decision to sell
the shares to the
trust;
(2) that the appellants had failed to establish a duty on the part of the
defendant to disclose to the appellants the Bay Stone interest
and offer;
(3) that in any case there was insufficient evidence to provide a basis for
calculating damages. Before examining more closely the
reasons
underlying the order of absolution it is
useful to put into perspective what is a central feature in this case: the
nature of the
relationship between the members of the trio. This relationship
would loom large in any consideration of the issue of fraudulent
non-disclosure,
but it is also germane to the issue of positive misrepresentation.
44
In the course of his judgment the learned
judge
remarked as follows:-
Their longstanding friendship and association and previous dealings could have
raised with plaintiffs the expectation that defendant
would candidly disclose to
them any offers which he received for the shares but this expectation was not
one to which any obligation
in law attached. There was no trust or confidence
involved in their relationship such as would, have legal consequences. Defendant
did not receive knowledge of the Bay Stone offer and interest as agent for the
plaintiff in a capacity where he acted on behalf of
the plaintiffs. The offer
was not made to the plaintiffs but to defendant."
In
my respectful opinion the remarks quoted above represent
too narrow a view of the facts and an incorrect statement
of the legal principles governing them. For the reasons
which follow it appears to me that the relationship
subsisting between the members of the trio was in fact
based upon trust and confidence, and that this situation
entailed distinct legal consequences.
The strong personal ties at a social level which
45
bound together JH, the defendant and Townsend have already been described.
After July 1984 their fates and fortunes were further linked
in a joint business
venture. In order to exploit the quarry they created a small domestic company in
which they were co-directors,
with equal loan accounts, and in which they
personally or in a representative capacity had equal shareholdings. It is true
that in
some small domestic companies the association between the shareholders
and directors may be purely commercial. However, in the case
under consideration
this was manifestly not the situation. For an instructive discussion of the
topic, albeit in a different context,
see the remarks of Nestadt J in Erasmus v
Pentamed Investments (Pty) Ltd 1982(1) SA 178 (W) at 181-3. The evidence adduced
on behalf
of the appellants shows, so I consider, that the pre-existing personal
bonds of mutual trust and confidence between the members of
the trio was
imported
46
into and sustained within the company. Apposite here is
the reminder by
Lord Wilberforce in Ebrahimi v Westbourne
Galleries Ltd
[1973] AC 360
(HL) at
379 B-C that a limited
company is not merely a legal entity, and:-
"....that there is room in company law for recognition of the fact that behind
it, or amongst it, there are individuals, with rights,
expectations and
obligations inter se which are not necessarily submerged in the company
structure."
In the instant case the
picture which emerges
from the evidence reveals that, within the external
structure of the company, the relationship between the
shareholders which existed internally was one which may be
loosely described as a "quasi-partnership". A more
precise legal tag need not be appended. The crucial fact
of the matter is that the members of the trio themselves
regarded the relationship as akin to partnership; that
they described themselves as being partners; and that they
appreciated that good faith is required from a partner in
47
his dealings with his co-partners. In Wegner v Surgeson
1910 TS 571
Wessels J
said (at 579) that the relationship between partners is very much the same as
that between brothers. In the present case
nobody appreciated better than the
defendant himself that during the continuance of a partnership one partner may
not overreach his
fellow-partners.
It will be recalled that in mid-1984, when the defendant mooted the idea of a
consortium, JH expressed the wish to confine the number
of participants in the
venture which he described as "a partnership". Following upon a discussion
between Townsend and the company's
attorney, Brokensha, the latter on 24
February 1988 wrote a letter to the defendant. In this letter Brokensha, inter
alia, affirmed:-
"...that he [Townsend] felt that it was up to all
the shareholders to be absolutely open and honest with each other and to keep
each other fully posted as bo any negotiations for the
sale of
48
their interests, or of the total interests of the quarrying company, which might
be taking place."
When on 12 February the defendant
tried to raise a loan at
the branch he explained to Ducray that he needed the
money
in order that he might make an increased offer "to his
partners". The question of legal terminology apart, it is
obvious that the defendant knew perfectly well that in the
matter of the sale of shares in the company his conduct
should be in accordance with the good faith and mutual
trust on which the relationship between him and JH and
Townsend was founded. It was the defendant's recognition
of this truth which prompted him to describe to Ducray his
surreptitious dealings with a third party as "unethical".
Veritas, a quocunque dicitur, a Deo est.
The way has now been cleared for a closer look at
the main reasons on which the order of absolution granted
by the court below was based. It is common cause that at
the time when the defendant was busy clinching the deal
49
with the third party for the sale of all the shares in the
company for R2
million, the defendant was fraudulently
misrepresenting to the appellants
that if they sold their
shares to him it was his intention to retain them in order
to exercise control over the company and to continue to run
the quarry business. It is also common cause that the
defendant so misrepresented his state of mind in order to
induce the appellants to sell their shares to him so that
he might sell all the shares to the third party. At the
outset it is necessary to make an assessment, having due
regard to all the attendant circumstances, of the essential
import of the defendant's misrepresentation.
In regard to the proper meaning to be assigned
thereto the trial judge said in his judgment:-
"In so far as the misrepresentation that defendant intended to retain the
shares and control of Stanger Quarries, could be said to
amount by implication
to a representation that defendant did not know of any prospective purchaser
interested in purchasing the shares,
50
the difficulty in plaintiffs' way is that neither the first plaintiff nor
Townsend said that he understood it that way. In any event
I do not think that
such an implication would be justified.
It seems to
me, with respect, that the above remarks tend
to overlook the true inquiry
involved. The defendant knew
that it was vital to the success of his
stratagems that the"
appellants should be kept in ignorance of the fact that
at
that very time the defendant was engaged in furtive dealing
with the
shares in a third party. His misrepresentation
was aimed at achieving this
very result. The pertinent
question is, therefore, whether or not by
his
misrepresentation the defendant in fact conveyed a message
to the appellants that he was then not engaged in any such
furtive dealing. Now it was a necessary postulate of such
furtive dealing that there existed a prospective purchaser
interested in buying the shares, and that the defendant
knew of him. To this must be added that an intention to
51
keep shares for oneself is diametrically opposed to an intention to sell
them. By his misrepresentation the defendant sought to convey
to the appellants
that he was not then engaged in furtive dealing concerning the shares with a
third party. What he said to them
carried that essential implication; and the
evidence of both JH and Townsend makes plain that it was precisely thus that
they understood
the misrepresentation.
Once it is established that the appellants understood the misrepresentation
as the defendant intended that they should, the remaining
question on this part
of the case is: Did such misrepresentation (together with the further
misrepresentation in which the defendant
had professed a powerful sentimental
attachment to the quarry business) contribute to induce the appellants to sell
their shares
to the trust? In their evidence both JH and Townsend- testified
that they did. The trial court
52
concluded otherwise. The finding of the learned judge and his reasons
therefor appear sufficiently from the paragraphs (numbered by
me for easy
reference) of the judgment quoted hereunder:-
(1) "I am ....unable to accept first plaintiff's and Townsend's evidence that
when they entered into the agreement of sale with the
Trust, they did so in the
belief that if defendant had been aware of any offer from any third party to
purchase the shares of Stanger
Quarries or of any interest shown by a third
party in purchasing the shares, he would have disclosed such interest or offer
to them
before concluding the sale with them.
(2) The defendant's conduct in relation to the Blue Circle offer must have made
it quite plain to them that in the matter of the
sale of the shares of Stanger
Quarries defendant was selfishly and cynically pursuing his own interests and
those of the Trust; that
he was contriving by the use of all sorts of stratagems
to depress the value of the plaintiffs' shares in order that in parting with
its
shares the Trust would either directly or indirectly obtain a correspondingly
higher consideration for its shares."
(3) "When they concluded the agreement of sale with the Trust the plaintiffs
knew that they were dealing with defendant at arm's
length. Defendant's silence
in the face of first
53
plaintiff's remark that if he was dealing with someone else who was interested
in buying the shares he should disclose it, could
only have heightened first
plaintiff's and Townsend's suspicions that defendant was indeed dealing with
someone else behind their
backs. Indeed it would seem that the remark itself
reflects first plaintiff's distrust of the defendant."
(4) "In my judgment plaintiffs have failed to prove that defendant's pretence
that he wanted control of Stanger Quarries because
of his fondness for the
quarry business and that he intended to
continue running the business played any part in their decision to sell their
shares to the Trust. By the time that they came to
sign the agreement
of sale sentiment had ceased to weigh as a consideration with
them."
The conclusion stated in
paragraph (1) appears to
be somewhat at variance with a finding earlier in the
judgment of the
trial court (in the paragraph numbered (v)
already quoted by me) to the
effect that the defendant knew
that the appellants expected of the defendant
that he would
disclose to them any offer which might influence
their
decision to sell their shares to him. However that may
be, I differ, with respect, from the learned judge's
54
conclusion in (1) which in my opinion runs counter to the evidence and the
probabilities.
That during the abortive negotiations the defendant had
demonstrated selfishness (see paragraph (2)) is perfectly true. But the fact
that he was then obviously actuated by self-interest hardly served as evidence
to his fellow-shareholders that he would stoop to
deceit. It is likely, so I
consider, that the defendant's intransigence over the BCM offer served merely as
confirmation to the appellants
of the defendant's oft-expressed determination to
acquire control of the quarry business for himself.
The trial court's finding (in paragraph (3)) that at the time when the
contract was concluded the appellants knew that they were dealing
with the
defendant "at arm's length" is, in my respectful opinion, untenable. It is
based, I think, upon a faulty appraisal, both
factually and
55
in law, of the true relationship between the members of the trio within the
company. It may be that the silence which greeted JH's
admonition to the
defendant in Chaplin's office on 7 March 1988 should have alerted JH to the
possibility that the defendant was
dealing with someone behind the backs of the
appellants; and in this respect perhaps JH displayed credulity. But in the
witness-box
both JH and Townsend stated that throughout their relations with the
defendant they reposed complete faith in him; and I see no valid
reason for
doubting this evidence. I further disagree with the finding (in paragraph (4))
that by the time that the contract came
to be signed "sentiment had ceased to
weigh as a consideration" with JH and Townsend. This conclusion fails to take
into account,
for example, their evidence, in this connection entirely
unchallenged in cross-examination, of the congratulations extended by them
to
the defendant; and of the jocularity
56
simulated by the defendant in response thereto. In my view sentiment,
genuinely entertained by JH and Townsend, runs through the case
in an unbroken
thread. To achieve his own ends the defendant traded upon and abused the bonds
of sentiment and friendship. As an
illustration I cite the fact that on 7 March
the defendant advanced their friendship as a ground for making a loan of R300
000 by
them to him interest-free.
In the present case a material representation was made which was calculated
to induce the appellants to enter into the contract. There
is evidence, which
appears to be entirely credible, that the appellants were so induced. It seems
to me that in these circumstances
there arises a fair inference that this is in
fact what happened. Mr Gordon who, with Mr Hewitt, appeared for the appellants,
called
our attention to one of the judgments delivered by the High Court of
Australia in Gould and Another v Vaggelas
57
and Others,
[1985] LRC (Comm) 497.
The following remarks
in the judgment
of Wilson J (at 517 d-f) appear to me to
indicate the proper approach to the situation here
under
consideration:-
"Where a plaintiff shows that a defendant has made false statements to him
intending thereby to induce him to enter into a contract
and those statements
are of such a nature as would be likely to provide such inducement and the
plaintiff did in fact enter into
that contract and thereby suffered damage and
nothing more appears, common sense would demand the conclusion that the false
representations
played at least some part in inducing the plaintiff to enter
into the contract. However, it is open to the defendant to obstruct
the drawing
of that natural inference of fact by showing that there were other relevant
circumstances. Examples commonly given of
such circumstances are that the
plaintiff not only actually knew the true facts but knew them to be the truth or
that the plaintiff
either by his words or conduct disavowed any reliance on the
fraudulent representations."
Here the defendant
elected to adduce no rebutting evidence
and in my view there is nothing before us which tends to
displace the natural deduction that the appellants in fact
58
relied upon the fraudulent misrepresentation, as JH and Townsend said that
they had done.
For these reasons it follows, in my judgment, that the trial
court erred in deciding that the appellants had failed to prove that
they were
induced by the defendant's fraudulent misrepresentation to sell their shares to
the trust. On this basis (subject to sufficient
proof of the damages claimed)
the appellants are entitled to succeed in this appeal. As a further string to
their bow the appellants
relied upon fraudulent non-disclosure by the defendant.
Having regard to the nature of the relationship between the members of the
trio
it would be difficult, so I consider, to resist the conclusion that there rested
a duty of disclosure upon the defendant. Upon
this part of the case, however, it
is unnecessary to make any finding, and I forbear from doing so.
59
It remains to deal with the matter of damages. The appellants are entitled to
recover all losses which they have sustained as a direct
consequence of having
been induced by fraud to enter into the contract in terms of which they sold
their shares to the trust. What
must be restored to them is the amount by which
their patrimonies have been diminished. The measure of damages is the difference
between the price they received from the trust and the true market value of
their shares on 10 March 1988. The market value is the
price commanded by the
shares in a fair market - the price determined as between a seller willing but
not compelled to sell and a
buyer willing but not compelled to buy.
In the instant case the market value of all the shares in the company is
conveniently mirrored in the AFI agreement which was concluded
only six weeks
after the appellants had sold their shares to the trust. Mr Olsen
60
properly conceded that during this intervening period nothing had happened to
alter the value of the shares. In
connection with the measure of damages
Thirion J remarked:-
"The way I see it it would be taking too narrow a view simply to compare the
purchase price which the Trust paid for plaintiffs'
shares with the price which
the Trust obtained for those shares in the sale to Attest and to ignore the
other provisions of the sale
between the Trust and Attest. It was a term of the
sale to Attest that an additional 14,7475 ha of land adjacent to the quarry
would
be let by Sondela Sugar to Bay Stone Sales. Admittedly a separate rental
was payable in respect of the lease of this land but it
cannot be said that
without having obtained this lease Attest would have paid the same price for the
shares or would have purchased
the shares at
all."
The fact of the matter, however, is that AFI
did, in a
separate contract for an independent consideration, obtain
the necessary
lease; and that ex facie the AFI agreement
it was the shares that AFI bought
for R2 million. No reasons were advanced to us in argument why these
61
agreements should not be accepted at face value.
What does create a
difficulty in the computation of appellants' damages, however, is the following.
One is dealing here with shares
in a private company. As a matter of commercial
reality it must be recognised that in general a prospective buyer would be less
disposed
to purchase a portion only of its shares than he would be to buy its
entire shareholding. A parcel of shares in a private company
will, as a rule,
command a lesser price per share than the price per share yielded by a sale of
the entire shareholding. From this
it follows that in the
instant case the arithmetical calculation represented by
112/186 x R2 million (i e the appellants' shareholding over the
total issued shares) may be accepted as the market value of the appellants'
shares only if it is safe to postulate that, had the defendant
made full
disclosure to JH and Townsend of the existence and interest of the third
party,
62
all the shareholders would thereafter have sold all their |
shares to AFI
for R2 million. As to this the learned
trial judge expressed doubts. He
said:-
"The probabilities are that defendant would have employed the same tactics as
those which he had employed to wreck the Blue Circle
offer in order to obtain a
higher price for the shares of the Trust than the price which plaintiffs would
have obtained for their
shares or that he would have stipulated an exorbitant
price for the additional land.
I respectfully
disagree with this view of the matter.
Having due regard to the evidence I
consider that a strong
balance of probabilities points to the conclusion that
all
the shareholders would have sold the entire shareholding to
AFI on the
same terms and conditions; and at the same
price. It must be remembered that
when in
October/November 1987 BCM displayed renewed interest in the
company the defendant was not unwilling to sell. His
attitude was simply
that the BCM offer was too low. By
February 1988, it is true, he was no
longer interested in
63
selling to BCM; but his change of attitude was dictated by the fact that at
that stage he knew that Bay Stone was waiting in the wings.
In weighing the
probabilities the defendant's overall financial position and his state of mind
in regard to the options open to him
at the time are significant. On 10 February
1988 Ducray's assessment of the defendant's financial position was that he was
"over
extended". On 18 February 1988 the defendant told Ducray that if the M
& R deal fell through he could fall back on the BCM offer,
and that "at
worst" he could himself continue with the quarry. On the same day Ducray
reported to the GM that the defendant was unable
to continue with the quarry
without further finance. As appears from Ducray's report to the GM on 2 March
1988, the defendant had
cash flow problems in his farming venture. It is
possible, of course, that for some or other reason not apparent from the record
before us, the defendant might
64
have been disinclined to join with all his fellow-shareholders in selling the
entire shareholding to AFI. But the defendant preferred
not to testify, and it
is not for this court to indulge in speculation on the point.
For the
aforegoing reasons it seems to me not only that there was sufficient evidence
before the trial court to provide a sufficient
basis for calculating the damages
suffered by the appellants as a result of the defendant's fraudulent
misrepresentation, but further
that the method of computation set forth in the
particulars of claim represents a realistic and just measure of the appellants'
loss
and the defendant's corresponding gains.
The record of the proceedings in the court below was filed late with the
registrar of this court. The delay involved is, we consider,
largely the fault
of the respondent's Durban attorney. The application for
65
condonation was not opposed, and counsel were agreed that
the costs
thereof should be costs in the appeal. The
application for condonation is
well-founded.
The late filing of the record is condoned.
The
appeal succeeds with costs, such costs to include the
costs of two counsel,
and the costs of the application
for condonation. The judgment of the court a quo is
altered to read:-
"judgment is granted against the defendant with costs, including the costs of
two counsel, as well as those costs occasioned by an
adjournment of the trial on
18 April 1989, in the following
amounts:
(1)
for the first plaintiff in the sum of R250
205,00;
(2)
for the second plaintiff in the
sum of R84 890,98;
(3)
for the third plaintiff
in the sum of R80 423,03;
(4)
for the fourth
plaintiff in the sum of R84 890,98."
G G HOEXTER,
JA
VAN HEERDEN, JA ) NESTADT, JA )
MILNE, JA ) Concur
NICHOLAS, JA )