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[2019] ZASCA 144
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London and Others v Department of Transport, Roads and Public Works, Northern Cape and Others (1035/2018) [2019] ZASCA 144 (30 October 2019)
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THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Not-Reportable
Case no: 1035/2018
In
the matter between:
FRANCES
OBAKENG
LONDON
FIRST APPELLANT
MOTSAMI
PETRUS
RANTHO
SECOND APPELLANT
MALEBOGO
LOUIS
MOKWENA
THIRD APPELLANT
NTHABISENG
CONSTANCE KEMANE
FOURTH APPELLANT
and
DEPARTMENT
OF TRANSPORT, ROADS
AND
PUBLIC WORKS, NORTHERN CAPE
FIRST RESPONDENT
PREMIER
OF THE NORTHERN CAPE
SECOND RESPONDENT
MEMBER
OF THE EXECUTIVE COUNCIL
OF
THE NORTHERN CAPE FOR
TRANSPORT,
ROADS AND PUBLIC WORKS
THIRD RESPONDENT
Neutral
citation:
London & others v
Department of Transport, Roads and Public Works, Northern Cape &
others
(1035/2018)
[2019] ZASCA 144
(30
October 2019)
Coram:
Petse DP, Cachalia, Tshiqi and
Mokgohloa JJA and Tsoka AJA
Heard:
11 September 2019
Delivered:
30 October 2019
Summary:
Delict – action for damages by
shareholders – necessary averments – alleged breach of
contractual duty owed to
a company resulting in its liquidation –
shareholders suing the other contracting party for damages
representing loss of
dividends – no allegation in particulars
of claim that shareholders’ loss separate and distinct from
that suffered
by the company and caused by breach of a legal duty
independently owed to shareholders – exception that particulars
of claim
not disclosing a cause of action rightly allowed by high
court.
ORDER
On
appeal from
:
Northern
Cape Division of the High Court, Kimberley (Vuma AJ sitting as court
of first instance):
1 The appeal is
dismissed with costs.
2
The period of 20 days allowed by the high court for the amendment of
the plaintiffs’ particulars of claim, if so advised,
will run
from the date of this judgment.
JUDGMENT
Petse
DP (Cachalia, Tshiqi and Mokgohloa JJA and Tsoka AJA concurring):
Introduction
[1]
The four appellants, who are business persons residing in Kimberley,
Northern Cape, instituted a delictual claim for damages
in the order
of R27 million against the three respondents in the Northern Cape
Division of the High Court, Kimberley (the high
court). The first
respondent is the Department of Transport, Roads and Public Works of
the Northern Cape (the Department). The
second respondent is the
Premier of the Northern Cape (the Premier) and the third respondent
is the Member of the Executive Council
for Transport, Roads and
Public Works of the Northern Cape (the MEC). Since their interest in
this litigation is identical, I shall
refer to them collectively as
the Department.
[2]
The litigation between the parties has a long and tortuous history.
This appeal is the fourth legal skirmish in which the parties
have
become embroiled. The first three of those skirmishes happened in the
high court.
[3]
The appellants’ claim (described in more detail below) is said
to arise from a legal duty owed to them by the Department
following
an alleged breach of its contractual obligations to an entity known
as Canton Trading 159 (Pty) Ltd (Canton), in which
the appellants
were shareholders. Canton was subsequently liquidated and the
appellants’ shares rendered worthless.
Factual
background
[4]
It is necessary to recount the facts relating to the history of this
dispute in order to understand the issues in this appeal.
In February
2012, the appellants instituted an action against the Department. The
particulars of claim, amongst others, made the
following averments:
‘
9
On or about 27
th
January 2009 at Kimberley the company and the first defendant entered
into a public-private partnership fleet agreement (the agreement);
a
copy of the agreement is annexed hereto marked A.
.
. .
10.3 Clause 32.1 of
the agreement provided as follows:
Neither
party shall be entitled to assign or otherwise transfer the benefits
or obligations of all or any part of this agreement
without the prior
written consent of the other party, which consent shall not be
unreasonably withheld. Notwithstanding the aforesaid,
the private
party may cede its rights under this agreement to its principal
financing bank (principal financier) as security for
performance by
the private party of its obligations to such principal financier in
respect of loan funding to be made available
by the principal
financier in respect of this agreement, provided that the private
party receives prior written approval of DTRPW/User
Departments and
such written approval shall not be unreasonably withheld by
DTRPW/User Departments.
11 The company could
not fulfil its obligations in terms of the agreement unless it was
able to assign or otherwise transfer the
benefits or obligations of
all or any part of the agreement to a financier or cede its rights
under the agreement to a financier
as security for the performance by
the company of its obligations to such financier in respect of loan
funding to be made available
by the financier in respect of the
agreement.
12 The company was
able to obtain such finance from the financier, provided that the
company entered into an agreement with the
financier referred to as a
Finance Direct Agreement (FDA), which would afford security to the
financier.
13 In terms of
clause 32.1 of the agreement the company was not entitled to enter
into such a FDA without the consent of the first
defendant, which
consent was not to be unreasonably withheld.
14 The first
defendant refused to give such consent to the FDA.
15 It was clear that
the Department had no reasonable basis for withholding such consent.
By letter dated 10
th
May 2010 Attorneys Weavind &
Weavind, acting on behalf of Nissan, sent a letter to the Premier of
the Northern Cape, pointing
out that the Department was obliged in
terms of the agreement to consent to the terms of the FDA so that the
finance could be released.
The aforesaid Attorneys actually
threatened to take legal action against the Department if they did
not comply with their obligations.
I will cause a copy of such letter
to be annexed hereto marked “C”.
.
. .
17 In view of the
agreement and the availability of finance, the company at all
material times operated a viable and profitable
business. However the
refusal of the Department to comply with its obligation to consent to
the FDA prevented the company from
finalising the grant of finance to
it and this eventually caused the winding up of the company. However
at all material times prior
thereto the business of the company was
in operation in a successful and effective manner and substantial
profits were generated.
18 In so refusing
the first defendant acted unreasonably.
.
. .
19.3 The plaintiffs’
shares in the company were rendered worthless.
.
. .
21.3 The company
would have made a profit as follows:
21.3.1
2011 – R257 761.
21.3.2
2012 – R7 917 803.
21.3.3
2013 – R5 046 323.
21.3.4
2014 – R6 921 497.
21.3.5
2015 – R8 944 108.
.
. .
23 The plaintiffs
would have received such profit as a dividend in accordance with
their shareholding in the company.
.
. .
27 In the premises
the first defendant was under a duty of care to the plaintiffs not to
refuse its consent to the FDA unreasonably.
28 In acting as set
out in 14 and 15 above, the first defendant acted wrongfully and
unlawfully and in breach of such duty of care.
29 In the premises
the first defendant is liable to the plaintiffs for the damages
suffered by the plaintiffs, being the dividends
which the plaintiffs
would have received as set out in 20 above.’
I
have quoted liberally from the appellants’ amended particulars
of claim for reasons that will become apparent later.
[5]
The Department raised two special pleas to the particulars of claim.
The first was that the appellants had no
locus
standi in judicio
(legal standing) to
institute the action. The foundation for this special plea was that
the agreement upon which the appellants
relied was between the
Department and Canton – not the appellants – and that
only Canton’s liquidators had legal
standing to sue. The second
was a special plea of non-joinder. The basis therefor was that since
Canton had been liquidated, and
in the absence of an allegation that
the liquidators had refused to institute action against the
Department, the liquidators were
therefore necessary parties who
should have been joined as either co-plaintiffs or co-defendants.
[6]
In order to meet the Department’s special pleas the appellants
amended their particulars of claim by alleging that Canton’s
liquidators had refused ‘after being requested to do so to
institute the action against the [Department]’; and further
that the liquidators would not be instituting any claims against it.
[7]
In June 2014, Williams J heard argument on the special pleas. The
learned Judge delivered her judgment on 6 February 2015, dismissing
both special pleas. She held that the confirmation by the liquidators
that they would not be pursuing any claims against the Department
was
dispositive of the first special plea relating to legal standing. As
to the special plea of non-joinder, she held that the
liquidators had
unequivocally indicated that they would not be pursuing any claims
against the Department. The learned Judge thus
concluded that the
liquidators had waived their right to be joined in the
proceedings.
[1]
Consequently,
she dismissed both special pleas with costs.
[8]
The Department then brought a substantive application under rule
33(4) of the Uniform Rules of Court
[2]
for
the trial court to determine a separated issue, which was whether the
appellants’ particulars of claim disclosed a cause
of action.
In support of this application the deponent to the founding affidavit
– who was the attorney for the Department
– averred that:
‘
9.1
The Plaintiffs’ claim is a derivative action.
9.2 The claim
against the Defendants should have been pursued by the company Canton
Trading 159 (Pty) Ltd and not by the four shareholders.
9.3 The
shareholders’ claim is not against other shareholders [which]
makes it impossible for the Plaintiffs to enable the
company to claim
from a third party, but is rather a claim directly by shareholders
against a third party.
9.4 The contractual
relationship was one between the company and the Defendants and not
between the shareholders and the Defendants.
9.5 Insofar as the
claim constitutes a delictual claim, the injury was against the
company and not against the shareholders.
10 From the
Plaintiffs’ Particulars of Claim it is apparent that there is a
second ground for Plaintiffs not making out a
cause of action and for
the following reasons:
10.1 The Plaintiffs
rely in the Particulars of Claim on a contract between the company
Canton Trading 159 (Pty) Ltd and the Defendants
in paragraph 9 of the
Particulars of Claim. In paragraph 27 the Plaintiffs stated that the
First Defendant was under a duty of
care to the Plaintiffs not to
refuse its consent to the Finance Direct Agreement unreasonably.
10.2
It is impermissible and it does not disclose a cause of action where
the parties are in a direct contractual relationship for
a party to
rely on an action based on delict and a breach of duty of care and to
base its claim on the
actio legis
aquiliae
instead of relying on their
contractual remedies.’
[9]
The appellants opposed the Department’s application on several
grounds. The thrust of their opposition was that the particulars
of
claim did disclose a cause of action and that in any event the
Department ought to have raised that point by way of an exception.
The appellants further asserted that the separated issue now raised
by the Department had been decided by Williams J and was therefore
res judicata
(matter already adjudicated).
[10]
The rule 33(4) application came before Matlapeng AJ, who lamented the
fact that the Department invoked rule 33(4) when the
proper course
was to except to the particulars of claim under rule 23(1).
Nevertheless, he found that the objects of rules 33(4)
and 23(1)
sometimes overlap. Thus, notwithstanding his reservations with the
course adopted by the Department, the learned Judge
granted the
application and directed that the separated question – whether
the appellants’ particulars of claim, as
amended, disclosed a
cause of action – be determined first.
[11]
Vuma AJ later heard argument on this question and gave judgment on 22
June 2018. She answered the separated question in favour
of the
Department and granted the appellants leave to amend their
particulars of claim within 20 days from the date of her order.
With
the leave of the high court, the appellants now appeal to this court
against that part of the order.
[12]
Before us counsel agreed that what the Department raised by utilising
rule 33(4) was, in truth, an exception to the appellants’
amended particulars of claim. The implication of this is that it is
incumbent upon the Department to demonstrate that the pleading
in
question is excipiable on every interpretation that can reasonably be
ascribed to it.
[3]
Consequently,
the appellants are confined to the allegations made in the
particulars of claim, apart from any further facts that
the parties
agree may be taken into account. In this case there are no additional
agreed facts. This then explains the extensive
reference (in para 4
above) to the appellants’ amended particulars of claim.
[13]
What this court is called upon to determine, therefore, is first, the
exception and, secondly, whether the high court was precluded
from
considering the exception because the issues raised were
res
judicata
, having been determined by
Williams J on 6 February 2015. It is convenient to deal with the
res
judicata
issue first.
[14]
The pleas of
res
judicata
or issue estoppel may be raised by a defendant in a later suit
against a plaintiff who is demanding the same thing in respect of:
(a) the same cause of action; (b) for the same relief; and (c)
between the same parties.
[4]
Issue
estoppel, was described as follows in
Boshoff
v Union Government
.
[5]
‘“
Where
the decision set up as a
res judicata
necessarily involves a judicial determination of some question of law
or issue of fact, in the sense that the decision could not
have been
legitimately or rationally pronounced by the tribunal without at the
same time, and in the same breath, so to speak,
determining that
question or issue in a particular way, such determination, though not
declared on the face of the recorded decision,
is deemed to
constitute an integral part of it as effectively as if it had been
made so in express terms . . . .”’
[15]
The Constitutional Court has most recently affirmed the requirements
for
res
judicata
.
It held that
res
judicata
is a legal doctrinal shield that precludes continued litigation after
a final court order ‘on the same case, on the same
issues and
between the same parties’.
[6]
The
Constitutional Court went on to explain that issue estoppel is an
extension of
res
judicata
to cases where the same issue has arisen between the same parties.
The inquiry into the ‘same issue’ entails determining
whether an issue of fact or law was an essential element of the
previous judgment.
[7]
[16]
In
Smith
v Porritt & others
[8]
Scott
JA explained issue estoppel thus:
‘
Following
the decision in
Boshoff v Union
Government
1932 TPD 345
the ambit of
the
exceptio rei judicata
has over the years been extended by the relaxation in appropriate
cases of the common-law requirements that the relief claimed
and the
cause of action be the same (
eadam res
and
eadam
petendi causa
) in both the case in
question and the earlier judgment. Where the circumstances justify
the relaxation of these requirements those
that remain are that the
parties must be the same (
idem actor
)
and that the same issue (
eadem quaestio
)
must arise. Broadly stated, the latter involves an inquiry whether an
issue of fact or law was an essential element of the judgment
on
which reliance is placed. Where the plea of
res
judicata
is raised in the absence of a
commonality of cause of action and relief claimed it has become
commonplace to adopt the terminology
of English law and to speak of
issue estoppel. But, as was stressed by Botha JA in
Kommissaris
van Binnelandse Inkomste v Absa Bank Bpk
1995
(1) SA 653
(A) at 669D, 670J-671B, this is not to be construed as
implying an abandonment of the principles of the common law in favour
of
those of English law; the defence remains one of
res
judicata
. The recognition of the
defence in such cases will however require careful scrutiny. Each
case will depend on its own facts and
any extension of the defence
will be on a case-by-case basis. (
Kommisaris
van Binnelandse Inkomste v Absa Bank
(
supra
)
at 670E-F.) Relevant considerations will include questions of equity
and fairness not only to the parties themselves but also
to others.
As pointed out by De Villiers CJ as long ago as 1893 in
Bertram
v Wood
(1893) 10 SC 177
at 180, “unless
carefully circumscribed, [the defence of
res
judicata
] is capable of producing great
hardship and even positive injustice to individuals”.’
[17]
Reverting to the facts of this case the question must then be: is it
correct that the issue raised in the Department’s
rule 33(4)
application is in essence the same as that raised in the Department’s
special pleas. It is as well to recall that
in relation to the rule
33(4) application the crux of the complaint was whether the
particulars of claim disclosed a cause of action.
As to the special
pleas, the first contested the appellants’
locus
standi
and the other raised the issue
of non-joinder, the latter being a dilatory plea.
[18]
I proceed to consider the first of these special pleas.
Locus
standi
has been held to be both a procedural matter and a matter of
substance. In essence, it is about the sufficiency and directness
of
interest in the litigation to determine whether the party that
initiates legal proceedings can be accepted as a litigating party.
[9]
The
sufficiency of the interest is always dependent upon the particular
facts of each case and no fast and hard rules may be laid
to answer
that question. The general rule is that it is for the party
initiating proceedings to allege and prove
locus
standi
.
[10]
Put
differently, a party that institutes proceedings must have a direct
and substantial interest in the relief claimed.
[11]
And
as it was explained in
Jacobs
,
‘a direct and substantial interest’ means a legal
interest in the subject matter of the suit.
[19]
As to the plea of non-joinder, it suffices to state that the law is
by now well-settled. And as Corbett J put it in
United
Watch & Diamond Co
[12]
‘
[t]he
right of a defendant to demand joinder of another party and the duty
of the Court to order such joinder or to ensure that
there is waiver
of the right to be joined are limited to cases . . . where the other
party has a direct and substantial interest
in the issues involved
and the order which the court might make’.
[20]
With that prelude I turn to consider the contentions of the parties
in relation to
res judicata
or its extended form, namely issue estoppel. In this regard the
appellants’ counsel submitted that the judgment of Williams
J
made a definitive finding that the appellants’ particulars of
claim disclosed a cause of action. And that the claim pursued
by the
appellants was not a derivative action but a delictual one arising
from a breach of a legal duty owed to the appellants.
[21]
In response, counsel for the Department contended that Williams J was
called upon to adjudicate two issues only, namely (a)
the appellants’
legal capacity to institute the action concerned, and (b) whether
Canton’s liquidators should have
been joined as necessary
parties, nothing more. Counsel for the Department is quite right. A
reading of the learned Judge’s
judgment makes plain that she
determined only two issues. First, she found that the appellants’
claim was not a derivative
action and that in the light of the
liquidators’ unequivocal indications that they would not be
pursuing any claims against
the Department, the appellants clearly
had legal standing to pursue their claim.
[22]
Secondly, as to the non-joinder point, she reasoned that the
liquidators had waived their right to be joined as parties to
the
action. This was because of their stance that they would not be
pursuing any claims against the Department. It is thus fallacious
to
argue, as the appellants’ counsel do, that because Williams J
found that: (a) the appellants had
locus
standi
; (b) were not pursuing a
derivative claim; and (c) the liquidators were not necessary parties,
this meant that their particulars
of claim disclosed a cause of
action. The learned Judge’s judgment said nothing about the
appellants’ cause of action.
This is hardly surprising because
that issue had no bearing whatsoever on what was before her. I
therefore cannot agree with the
contentions advanced on the
appellants’ behalf on that score. Consequently, it follows that
the appellants’ reliance
on
res
judicata
and issue estoppel is
misconceived.
[23]
I now come to the crux of this appeal, which is whether the
appellants’ amended particulars of claim disclose a cause
of
action. Arising from this is an aspect that merits emphasis. It is
this. The litigation between the protagonists was precipitated
by the
Department’s refusal to consent to the cession of Canton’s
rights under the agreement to its financiers. The
appellants say that
this refusal led to the liquidation of Canton. They assert further
that that refusal was unreasonable and that
Canton’s
liquidation rendered their shares in Canton worthless, thus making
the Department liable to them in delict for the
loss of dividends
they would have received from Canton but for its liquidation.
[24]
There is no dispute between the parties that there was no privity of
contract between the appellants, as shareholders of Canton,
and the
Department. Consequently they sought to frame their claim in delict
for the loss they suffered. As is apparent from their
particulars of
claim, the appellants founded their claims upon an alleged breach of
a ‘duty of care’ (properly, a legal
duty) owed to them as
shareholders of Canton by the Department not to unreasonably withhold
its consent for the cession of Canton’s
rights under the
agreement to its financier, which would give rise to a foreseeable
loss to them.
[25]
It is trite that an incorporated company is a legal persona which is
distinct from its members.
[13]
As
Corbett CJ put it, albeit in a different context, in
The
Shipping Corporation of India Ltd v Evdomon Corporation &
another
:
[14]
‘
It
seems to me that, generally, it is of cardinal importance to keep
distinct the property rights of a company and those of its
shareholders, even where the latter is a single entity, and that the
only permissible deviation from this rule known to our law
occurs in
those (in practice) rare cases where the circumstances justify the
“piercing” or “lifting” the
corporate veil.’
[26]
It bears mentioning that the appellants’ case is not founded on
the ‘permissible deviation’ as identified
by Corbett CJ
in
Evdomon Corporation
above.
[27]
The appellants’ claim is for pure economic loss.
[15]
Although
the
Lex
Aquilia
was previously limited to cases of bodily injury or physical damage
to corporeal things, its scope was later extended to certain
instances of pure economic loss.
[16]
In
such cases the courts will examine the alleged legal duty and the
unlawful conduct relied upon in order to determine whether
a remedy
should be extended to a particular pure economic loss situation on a
case by case basis.
[17]
One
of the critical factors to bear in mind in this regard, would be
whether recognition of the remedy would result in ‘indeterminate
liability’.
[18]
[28]
It is equally important not to lose from sight of what Ponnan JA said
in
Itzikowitz
v Absa Bank Ltd
:
[19]
‘
It
is well-established that in contrast to cases of physical harm,
conduct causing pure economic loss is not prima facie wrongful.
As it
was recently put by the Constitutional Court in
Country
Cloud Trading CC v MEC, Department of Infrastructure Development,
Gauteng
[2014] ZACC 28
;
2015 (1) SA 1
(CC) para 23:
“
So
our law is generally reluctant to recognise pure economic loss
claims, especially where it would constitute an extension of the
law
of delict. Wrongfulness must be positively established. It has thus
far been established in limited categories of cases, like
intentional
interferences in contractual relations or negligent misstatements,
where the plaintiff can show a right or legally
recognised interest
that the defendant infringed.”’
[29]
In essence, the Department’s response to the appellants’
pleaded cause of action is the following: First, if any
wrong was
committed at all, that wrong was not to the appellants, whose
shareholding in Canton remained unaffected by the alleged
breach of
legal duty, but against Canton. Secondly, the Department owed a
contractual duty in terms of the agreement not to the
appellants but
to Canton. Thirdly, in the appellants’ amended particulars of
claim there is no allegation that the loss allegedly
suffered by them
was separate and distinct from that suffered by Canton, and arose
from a breach of a legal duty independently
owed to them as
shareholders.
[30]
I propose dealing first with the law relating to the relationship
between an incorporated company and its shareholders. In
Johnson
v Gore Wood & Co (a firm)
,
[20]
after
considering the authorities on the recoverability of damages by
shareholders, the relationship between a company
vis-á-
vis
its shareholders in respect of wrongs committed against the company
was succinctly captured by Lord Bingham in the following
terms:
‘
(1)
Where a company suffers loss caused by a breach of duty owed to it,
only the company may sue in respect of that loss. No action
lies at
the suit of a shareholder suing in that capacity and no other to make
good a diminution in the value of the shareholder’s
shareholding where that merely reflects the loss suffered by the
company. A claim will not lie by a shareholder to make good a
loss
which would be made good if the company’s assets were
replenished through action against the party responsible for the
loss, even if the company, acting through its constitutional organs,
has declined or failed to make good that loss. So much is
clear from
Prudential Assurance Co Ltd v Newman
Industries Ltd (No 2)
[1982] 1 All ER
354
esp at 266-267,
[1982] Ch 204
esp at 222-223 . . . . (2) Where a
company suffers loss but has no cause of action to sue to recover
that loss, the shareholder
in the company may sue in respect of it
(if the shareholder has a cause of action to do so), even though the
loss is a diminution
in the value of the shareholding. . . . (3)
Where a company suffers loss caused by a breach of duty to it, and a
shareholder suffers
a loss separate and distinct from that suffered
by the company caused by breach of a duty independently owed to the
shareholder,
each may sue to recover the loss caused to it by breach
of the duty owed to it but neither may recover loss caused to the
other
by breach of the duty owed to that other.’
[31]
In this court, Wallis JA, with reference to the English decision in
Foss
v Harbottle
,
[21]
and
in relation to the principles underlying company law, said:
[22]
‘
It
is a curious feature of this case that we are asked to apply a rule,
or more accurately a combination of rules, of ancient origin
that has
been abolished in the country of its birth. The rule has two
components. The first recognises that a company is a separate
legal
entity from its shareholders and, accordingly, in the ordinary
course, any loss caused to the company must be recovered by
the
company, and not by its shareholders on the basis of the diminution
in the value of their shares or the loss of dividends they
had
anticipated. The second recognises the need for exceptions to this
principle in order to avoid oppression and permits a shareholder
to
recover loss caused to the company by way of what is termed a
derivative action. In certain circumstances it also permits recovery
of the shareholder‘s own loss.
A
helpful summary of the rule and its different elements is to be found
in the following passage from the leading case of
Prudential
Assurance Co Ltd v Newman Industries Ltd and Others (No 2)
(
Prudential Assurance
):
“
The
classic definition of the rule in
Foss v
Harbottle
is stated in the judgment of
Jenkins LJ in
Edwards v Halliwell
[1950] 2 All ER 1064
at 1066 – 7 as follows. (1) The proper
plaintiff in an action in respect of a wrong alleged to be done to a
corporation is,
prima facie, the corporation. (2) Where the alleged
wrong is a transaction which might be made binding on the corporation
and on
all its members by a simple majority of the members, no
individual member of the corporation is allowed to maintain an action
in
respect of that matter because, if the majority confirms the
transaction, cadit quaestio; or, if the majority challenges the
transaction,
there is no valid reason why the company should not sue.
(3) There is no room for the operation of the rule if the alleged
wrong
is
ultra vires
the corporation, because the majority of members cannot confirm the
transaction. (4) There is also no room for the operation of
the rule
if the transaction complained of could be validly done or sanctioned
only by a special resolution or the like, because
a simple majority
cannot confirm a transaction which requires the concurrence of a
greater majority. (5) There is an exception
to the rule where what
has been done amounts to fraud and the wrongdoers are themselves in
control of the company. In this case
the rule is relaxed in favour of
the aggrieved minority, who are allowed to bring a minority
shareholders' action on behalf of
themselves and all others. The
reason for this is that, if they were denied that right, their
grievance could never reach the court
because the wrongdoers
themselves, being in control, would not allow the company to sue.”
The
parameters of the rule are apparent from this passage. It precludes
shareholders from suing in their own right where the claim
is one in
respect of a wrong done to the company causing it to suffer loss.
That is so even where the result is to diminish the
value of the
shareholder‘s shares or deprive them of a dividend and the
company has declined or failed to take steps to recover
the loss. On
the other hand, where there is no wrong to the company, but only one
to the shareholder, there is no reason to bar
the shareholder from
suing. That is so even if the measure of the shareholder‘s loss
is the diminution in value of their
shareholding. Those two
propositions appear clearly from the speeches of Lord Bingham of
Cornhill and Lord Millett in [
Johnson v
Gore Wood & Co (a firm)]
.
There
is a third case described by Lord Bingham in
Gore
Wood
in the following terms:
“
Where
a company suffers loss caused by a breach of duty to it, and a
shareholder suffers loss separate and distinct from that suffered
by
the company caused by a breach of a duty independently owed to the
shareholder, each may sue to recover the loss caused to it
by breach
of the duty owed to it but neither may recover loss caused to the
other by breach of the duty owed to that other.”’
Discussion
[32]
In the present case counsel for the appellants submitted that the
claim sought to be advanced by the appellants, fell squarely
in the
third category described in
Gore
Wood
[23]
above.
In support of this proposition, counsel strongly relied on a New
Zealand decision in
Christensen
v Scott
.
[24]
There
the court was considering an exception taken to the plaintiffs’
claim on the grounds that the claim did not fall within
one of the
exceptions recognised in
Foss
.
[25]
The
exception was dismissed. The court held that where there is a
separate, distinct and independent duty owed to a shareholder
by
professional advisors who were advising both the company and the
shareholders and a breach of that duty occurs, resulting in
a loss to
shareholders, such loss may be recovered by the shareholders. The
fact that the same loss may also have been suffered
by the company,
the court reasoned, did not mean that it was not at the same time
personal loss suffered by the shareholders.
[33]
The
Christensen
case does not assist the appellants. On the contrary it is against
them because there the professional advisors were advising both
the
company and shareholders simultaneously, and therefore owed a legal
duty to both separately.
[34]
Counsel for the appellants also contended that, on the allegations
pleaded in the appellants’ amended particulars of
claim, it was
clear that the Department owed a legal duty to the appellants
independently of the legal duty owed to Canton. The
basis for this
submission was that, in negotiating the agreement between the
Department and Canton, the latter was represented
by the appellants
who were, to the Department’s knowledge, Canton’s
shareholders. This argument cannot be sustained
for at least two
reasons. First, a company is an artificial person and must perforce
act through natural persons. Secondly, as
already indicated above,
our law has always drawn a distinction between a company, as a
juristic person, and those who control
and direct its affairs. The
truth of the matter is that the appellants’ contention entirely
overlooks this distinction in
order to construct a basis to sue the
Department for having refused to grant the consent contemplated in
clause 32.1 of the agreement.
[35]
Before us, counsel for the appellants was pertinently asked to
identify specific paragraphs in the amended particulars of claim
containing explicit averments to the effect that the appellants were
owed a separate and distinct legal duty by the Department,
ie
independently of the contractual obligation it owed to Canton.
Counsel could make reference only to paragraph 27 (quoted in
para 4
above) of the particulars of claim. However, paragraph 27 contains no
allegations of any kind but merely conclusions of
law.
[36]
Thus, absent any pertinent allegations in the appellants’
particulars of claim that their loss was separate and distinct
from
that suffered by Canton, and arising from a legal duty independently
owed to them, the pleadings simply do not disclose a
cause of action.
This must be so because, in the ordinary course, shareholders are
precluded from suing to recover loss caused
to a company of which
they are members arising from a breach of a duty owed to the company.
[37]
It therefore follows that the exception taken to the appellants’
particulars of claim was rightly upheld by the high
court. In the
result the following order is made:
1 The appeal is
dismissed with costs.
2 The period of 20
days allowed by the high court for the amendment of the plaintiffs’
particulars of claim, if so advised,
will run from the date of this
judgment.
_________________
X M Petse
Deputy President
APPEARANCES
For
Appellants:
N Segal
Instructed
by:
Adrian
B Horwitz & Associates., Kimberley
McIntyre
van der Post, Bloemfontein
For
Respondents: J
G Rautenbach SC
Instructed
by:
Mjila
and Partners, Kimberley
Claude
Reid Inc., Bloemfontein
[1]
See
in this regard:
Amalgamated
Engineering Union v Minister of Labour
1949
(3) SA 637
(A).
[2]
Uniform Rule 33(4) reads:
‘
If,
in any pending action, it appears to the court
mero motu
that
there is a question of law or fact which may conveniently be decided
either before any evidence is led or separately from
any other
question, the court may make an order directing the disposal of such
question in such manner as it may deem fit and
may order that all
further proceedings be stayed until such question has been disposed
of, and the court shall on the application
of any party make such
order unless it appears that the questions cannot conveniently be
decided separately.’
[3]
See
in this regard:
Theunissen
en Andere v Transvaalse Lewendehawe Koöp Bpk
1988 (2) SA 493
(A) at 500E-F.
[4]
National
Sorghum Breweries Ltd (t/a Vivo African Breweries) v International
Liquor Distributors (Pty) Ltd
[2000]
ZASCA 70
;
2001 (2) SA 232
(SCA) para 2 and the authorities cited
therein (per Olivier JA).
[5]
Boshoff
v Union Government
1932
TPD 345
at 350-351.
[6]
Mkhize
NO v Premier of the Province of KwaZulu-Natal & others
[2018] ZACC 50
;
2019 (3) BCLR 360
(CC) paras 36-37;
S
v Molaudzi
[2015]
ZACC 20
;
2015 (2) SACR 341
(CC) para 19.
[7]
Mkhize
NO
,
fn 6, para 37.
[8]
Smith
v Porritt & others
[2007] ZASCA 19
; 2008(6) SA 303 (SCA) para 10.
[9]
See:
Wessels
en andere v Sinodale Kerkkantoor Kommissie van die Nederduitse
Gereformeerde Kerk, OVS
1978 (3) SA 716
(A) at 725H;
Cabinet
of the Transitional Government for the Territory of South West
Africa v Eins
1988 (3) SA 369
(A) at 388B-E.
[10]
See:
Jacobs
en ‘n ander v Waks en ‘n andere
[1991] ZASCA 152
;
1992 (1) SA 521
(A) at 534D.
[11]
United
Watch & Diamond Co (Pty) Ltd & others v Disa Hotels Ltd &
another
1972 (4) SA 409
(C) at 417E.
[12]
Above
at 415E-H.
[13]
Dadoo
Ltd & others v Krugersdorp Municipal Council
1920 AD 530
at 550.
[14]
The
Shipping Corporation of India Ltd v Evdomon Corporation &
another
[1993] ZASCA 167
;
1994 (1) SA 550
(A) at 566 C-D.
[15]
As to what the concept of ‘pure economic loss’ entails,
see
Telematrix
(Pty) Ltd t/a Matrix Vehicle Tracking v Advertising Standards
Authority SA
2006 (1) SA 461
(SCA) para 1; J Neethling, J M Potgieter & J C
Knobel Visser
Law
of Delict
6 ed (2010) at 290.
[16]
See, for example, Van der Walt ‘Delict’ in Joubert
Law
of South Africa
vol 8 paras 13 and 14.
[17]
For
which see
Herschel
v Mrupe
1954
(3) SA 464
(A) at 478 C-G; 490 G-H;
Administrateur,
Natal v Trust Bank van Afrika Bpk
1997 (3) SA at 833 in fine.
[18]
See,
for example,
Union
Government v Ocean Accident & Guarantee Corporation Ltd
1956 (1) SA 577
(A) at 584 G-H and 587 A.
[19]
Itzikowitz
v Absa Bank Ltd
[2016] ZASCA 43
;
2016 (4) SA 432
(SCA) para 8.
[20]
Johnson
v Gore Wood & Co (a firm)
[2000] UKHL 65
;
[2001]
1 All ER 481
(HL) at 503.
[21]
Foss
v Harbottle
(1843)
2 Hare 461.
[22]
Gihwala
& others v Grancy Property Ltd & others
[2016] ZASCA 35
;
2017 (2) SA 337
(SCA) paras 107-110.
[23]
Gore
Wood
,
fn 14 above, at 502.
[24]
Christensen
v Scott
[1996] 1 NZLR 273
at 277.
[25]
Foss
v Harbottle
,
fn 21 above.