Summary of Judgment

1. Introduction

This was an appeal in the Supreme Court of South Africa (Appellate Division) arising from motion proceedings in the Cape Provincial Division. The central question on appeal was whether the respondent remained a member of the appellant co-operative on 1 November 1993, which in turn determined whether he was entitled to certain member benefits introduced with effect from that date.

The parties were Cape Dairy Co-Operative Limited (the appellant), a dairy co-operative incorporated under the Co-operative Act 91 of 1981, and Frank Wallace Ferreira (the respondent), a former dairy farmer and erstwhile member of the co-operative.

In the court a quo (Van Zyl J), the respondent sought declaratory relief to the effect that his membership had not terminated prior to 1 November 1993 and that he was therefore entitled to benefits conferred by special resolutions adopted by the members. The appellant opposed the application on the basis that the respondent’s membership had already been terminated by June 1993, when the board approved his application and this approval was communicated to him. The court a quo upheld the respondent’s case and granted the declarations sought, and the appellant then obtained leave to appeal to the Appellate Division.

The dispute concerned the interpretation and application of the co-operative’s statute, the interaction between statutory provisions regulating resignation and the parties’ conduct, and whether membership could be terminated summarily by agreement between a member and the board of directors (as distinct from termination occurring only in accordance with the procedures described for unilateral resignation).

2. Material Facts

The appellant was a dairy co-operative governed by its statute and the Co-operative Act 91 of 1981. Toward the end of 1992, the respondent decided to terminate his membership because he intended to market dairy products in competition with the appellant. The judgment records that clause 99 of the appellant’s statute prevented him from competing while he remained a member, and this formed the practical impetus for seeking termination.

During November or December 1992, the respondent informed a director of the appellant, Thompson, of his intention to terminate membership and the reason for it. In April 1993, the respondent met Marais, an employee of the appellant, and stated that he wished to resign as a member. Marais provided the respondent with a printed document titled “Application for Termination of Membership in Cape Dairy Co-operative Limited”, which the respondent completed and signed in Marais’s presence.

It was common cause both in the court a quo and on appeal that Marais provided the wrong printed form to the respondent. The form recorded a printed reason for termination (that the applicant had permanently relinquished dairy farming in the area and would no longer use the co-operative’s services) which did not reflect the respondent’s true reason, namely the intention to market his own milk in competition. It was also common cause that the respondent submitted the completed and signed form for the purpose of bringing about termination of his membership.

In June 1993, the respondent received a letter dated 16 June 1993 from the appellant’s head office functionary responsible for member services. The letter stated that the respondent’s application for termination of membership had been received and approved at a directors’ meeting held on 15 June 1993, and it enclosed a cheque for R700 representing his share capital held in the co-operative.

In September 1993, the members of the appellant adopted two special resolutions which became operative on 1 November 1993, conferring certain benefits on members. The respondent did not receive such benefits. He then launched application proceedings seeking declarations that, in terms of clause 33(1) of the appellant’s statute, termination of membership upon resignation would only take effect at the end of the co-operative’s book year (which ended on 28 February 1994) provided notice requirements were satisfied, with the consequence that he remained a member on 1 November 1993 and qualified for the benefits.

The appellant maintained that the respondent’s membership terminated earlier, in June 1993, when the board approved the termination application and communicated that approval to him, and that the statutory resignation mechanism in clause 33 did not govern a termination achieved by agreement.

3. Legal Issues

The appeal required determination of two closely connected legal questions.

The first question was whether the co-operative’s statute and the Co-operative Act 91 of 1981 permitted termination of membership by agreement between a member and the board of directors, with immediate or summary effect, rather than only through the resignation procedure specified in clause 33 (which delayed effectiveness until the end of the book year). This was primarily a matter of law, involving interpretation of the statute and Act and the implication of powers from their scheme.

The second question was whether, on the proved and common-cause facts, the respondent and the board in fact agreed to terminate membership summarily before 1 November 1993. This was a question of the application of legal principles to the facts, requiring an evaluative inference from the parties’ conduct and documentary communications (in particular, the nature of the form used and the significance of the board’s letter approving the “application” and repaying share capital).

A subsidiary contention advanced for the respondent on appeal was that termination could only occur in accordance with the statute unless the consent of all members was obtained. The court addressed this submission as part of its analysis of whether the board had the relevant competence.

4. Court’s Reasoning

The Appellate Division rejected the respondent’s contention that, absent the consent of all members, membership could only be terminated as prescribed in the statute. The court observed that neither the statute nor the Co-operative Act 91 of 1981 expressly authorised termination by agreement between a member and the board, but also that neither instrument expressly precluded it.

The court placed weight on section 81 of the Co-operative Act 91 of 1981, which provides that membership may be terminated and shares may, subject to the statute, be cancelled, including where a member resigns. The court also relied on section 107(1) of the Act, which empowers the board of directors to exercise and perform the powers and duties of the co-operative subject to its statute. Against this legislative background, the court interpreted the appellant’s statute as recognising that membership is acquired through an arrangement that is contractual in character.

In particular, the court analysed clauses 9 and 11 of the statute. Clause 9 empowered the board to approve an application for membership, and clause 11 provided (subject to an irrelevant qualification) that membership is acquired by the allotment or transfer of shares to the applicant. The court reasoned that membership therefore arises by virtue of an agreement between the applicant and the board. Applying ordinary contractual principles, such an agreement could be terminated by mutual consent unless validly restricted. The court considered it implausible that the parties to an agreement creating membership could not, by mutual consent, rescind or terminate it, including after shares had been allotted or transferred pursuant to the agreement.

The court reinforced this conclusion by reference to the practical implications of the respondent’s argument. On the respondent’s approach, even if the board accepted an explicit request for immediate termination, the member would remain bound for an extended period (in this case, some seven months) and would be prevented from freely marketing in competition despite a mutual intention to end membership. The court treated the power to bring about summary termination upon a member’s request as being conferred on the board by necessary implication from clauses 9 and 11 read with sections 81 and 107(1) of the Act, and noted that a similar conclusion had been reached in an unreported Cape Provincial Division decision.

Turning to whether an agreement for summary termination had actually been concluded, the court disagreed with the court a quo’s inference that the use of a standard form and the board’s approval suggested that both parties intended merely to operate within the statute’s express resignation provisions. The Appellate Division focused instead on the respondent’s stated purpose and the nature of the request he made. In the respondent’s replying affidavit, he said that when Marais provided the form, Marais knew the respondent wished to resign because he intended to market his own milk. The court treated this as indicating a purpose to achieve termination in the near future. The respondent also did not deny the appellant’s allegation that the termination he applied for was intended to have immediate effect.

The court regarded it as significant that the respondent signed an application for termination rather than delivering a unilateral notice of resignation. In the court’s view, this indicated that the respondent was seeking the appellant’s consent to achieve a prompt termination, even if he was unaware of the precise statutory provisions governing unilateral resignation. The respondent’s ignorance or confusion about the relevant clause did not, on this reasoning, negate the inference that he was requesting the quickest effective termination and inviting the board to take whatever steps were necessary to bring that about.

The court then treated the appellant’s letter of 16 June 1993 as unequivocal evidence of acceptance. It stated that the respondent’s application for termination had been approved at a board meeting. The court reasoned that such approval would have been unnecessary if the matter were merely a unilateral resignation under clause 33. Moreover, enclosing repayment of the respondent’s paid-up share capital was regarded as consistent only with a termination by consent; under clause 33(2), on the respondent’s own approach, repayment could only have followed once resignation became operative at or after the end of the book year (after 28 February 1994). The court rejected the appellant’s attempt to suggest clause 33(2) permitted earlier repayment, characterising that contention as lacking substance.

The Appellate Division further rejected the court a quo’s expectation of an express waiver of statutory rights if termination by consent was intended. It held that clause 33 described the consequences of a unilateral resignation and did not govern a termination achieved by agreement, so the absence of an express waiver did not undermine the conclusion that the parties proceeded by consent.

Finally, the court addressed a letter dated 3 May 1993 from the appellant’s Port Elizabeth financial manager acknowledging receipt of the application and indicating it had been forwarded to head office. This letter had been relied upon by the respondent as consistent with clause 33(1), which requires acknowledgement of receipt of a notice of resignation. The court regarded that letter as a neutral acknowledgement of receipt, written before the board considered the application, and therefore not probative of the legal effect of the later approval.

On the totality of these considerations, the court concluded that the respondent and the board, by unequivocal conduct, agreed to terminate his membership, with the result that he ceased to be a member before 1 November 1993.

5. Outcome and Relief

The appeal was allowed. The Appellate Division substituted the order of the court a quo with an order dismissing the respondent’s application.

The respondent’s motion for declaratory relief (that he remained a member on 1 November 1993 and was entitled to the benefits conferred by the special resolutions effective from that date) was therefore refused.

Costs were awarded against the respondent. The appeal costs included the costs of two counsel, and the substituted order likewise dismissed the application with costs.

Cases Cited

Cape Dairy Co-Operative Limited v Ferreira (312/95) [1996] ZASCA 134; 1997 (2) SA 180 (SCA); [1997] 1 All SA 63 (A).

Savage v Cape Dairy Co-operative Limited, Cape Provincial Division, case no 4389/94 (unreported) (Berman J).

Legislation Cited

Co-operative Act 91 of 1981, section 81.

Co-operative Act 91 of 1981, section 107(1).

Rules of Court Cited

No rules of court were cited in the judgment.

Held

The court held that termination of membership of a co-operative was not confined to the unilateral resignation mechanism set out in clause 33 of the appellant’s statute, and that, on a proper reading of the statute together with the Co-operative Act 91 of 1981, the board had the implied power to agree with a member to effect a summary termination of membership.

It further held that, on the facts, the respondent applied for termination intended to take immediate effect and the board accepted that request, as evidenced by the board’s approval of the application and the repayment of share capital communicated to the respondent in June 1993. Consequently, the respondent was not a member on 1 November 1993 and was not entitled to the benefits that accrued only to members from that date.

LEGAL PRINCIPLES

A co-operative’s statute and the Co-operative Act 91 of 1981 may, even without an express clause, permit termination of membership by agreement between a member and the board of directors where such a power arises by necessary implication from the statutory scheme and the board’s general powers, and where membership itself is acquired through an arrangement of a contractual character (approval of membership and allotment/transfer of shares).

A statutory or contractual provision prescribing the consequences and timing of a unilateral resignation does not necessarily govern, restrict, or prevent termination achieved by mutual consent; the absence of an express waiver of rights framed for unilateral resignation does not, without more, negate a consensual termination.

Where the parties’ conduct and communications objectively indicate a request for immediate termination and an acceptance of that request (including by formal “approval” and concomitant repayment of share capital), a court may infer an agreement to terminate membership by unequivocal conduct, even if the incorrect administrative form was used due to confusion or mistake.