Hoogeveld Boerderybelleggings( Pty) Ltd and Others v TWK Agriculture Holdings (Pty) Ltd (A28/2020 ; 3770/2019) [2021] ZAMPMHC 38 (13 December 2021)

IN THE HIGH COURT OF SOUTH AFRICA

MIDDELBURG LOCAL SEAT, MPUMALANGA DIVISION,

CASE NUMBER: A28/2020

CASE A QUO: 3770/2019

HOOGEVELD BOERDERYBELLEGGINGS (PTY) LTD FIRST APPELLANT

CHRITIAN ARNOLD HIESTERMANN SECOND

APPLICANT

ARNOLD CHRISTIAN HIESTERMANN THIRD

APPELLANT

LEON LOUIS HIETERMANN

FOURTH APPELLANT

CONRAD HEINRICH HIESTERMANN FIFTH

APPELLANT

JOHAN CONRAD HIESTERMANN SIXTH

APPELLANT

ECKARD WERNER HIESTERMANN SEVEN

APPELLANT

GUNTER AUGUST REINSTORF EIGHT

APPELLANT

GUNTER AUGUST REINSTORF N.O

NINTH APPELLANT

YVONNE ELFRIEDE REINSTORF TENTH

APPELLANT

And

TWK AGRICULTURE HOLDINGS (PTY) LTD

RESPONDENT

Coram: Langa J et Vukeya J et Mphahlele DJP

Date heard: 10 September 2021

Date delivered: 13 December 2021

This judgment was handed down electronically by circulation to the parties' representatives by email. The date for hand-down is deemed to be the 13th day of December 2021 at 10h00.

Summary: Civil appeal - Rule 23 Uniform Rules - Exceptions against the particulars of claim - exception that the particulars of claim are vague and embarrassing cannot be taken against part of the pleading - such exception to go to the whole cause of action as pleaded - exception to demonstrate that the particulars of claim is vague and embarrassing

Company Law - Companies Act 71 of 2008 - Whether section 164 appraisal remedy available to shareholders in a company with a single class of shares - Interpretation of section 164 read with section 37(8) - Whether a restrictive approach is to be adopted in the interpretation of section 164.

Held, that a contextual interpretation is to be adopted in interpreting section 164 Held further, that section 164 remedy is available to shareholders in a company with one class of shares;

Held, further that a party is not entitled to raise the vague and embarrassing exception against only certain paragraphs of the

particulars of claim and that such exception is to be directed to the whole cause of action.

ORDER

On appeal from: Mbombela High Court, Acting Judge HC Jansen Van Rensburg sitting as court of first instance.

1. The appeal is upheld with costs, including costs of two counsel.

2. The order a qua is set aside and substituted with the following order: The defendants first, second and third exceptions are dismissed.

JUDGMENT

Langa AJ (Vukeya J and Mphahlele DJP concurring):

Introduction

[1] This appeal lies against the whole judgment and order of the court a qua (Jansen Van Rensburg sitting as court of first instance) upholding the three exceptions taken by the respondent (defendant) to the appellants' (the plaintiffs') particulars of claim. The exceptions were upheld with costs in the court a qua firstly, on the basis that the particulars of claim discloses no cause of action and secondly, that it is vague and embarrassing. The parties will for convenience be referred to as cited in the main case.

Facts

[2] The plaintiffs, who are shareholders of the defendant, instituted an action against the defendant. The plaintiffs aver that as a result of the adoption of certain amendments to the defendant's Memorandum of Incorporation ("the MOI"), the preferences, rights, limitations, interests and other terms of the shares which the plaintiffs hold in the defendant were materially and adversely affected. In their particulars of claim the plaintiffs seek, as their main relief, the payment of an amount of R120.00 per share held by such plaintiff in the defendant. They rely in this regard on section 164 of the Companies Act, 71 of 2008, ("the Act"). In the alternative, the plaintiffs seek a determination of the fair value of the plaintiffs' shares in the defendant as at the moment immediately before the adoption of the said amendments to the defendant's MOI on 5 February 2019, and an order for payment by the defendant to each of the plaintiffs of the fair value of the shares held by such plaintiff, determined accordingly.

[3] The defendant delivered a notice to remove a cause of complaint in

terms of Uniform Rule 23(1) as a consequence of which the plaintiffs amended their particulars of claim. Not satisfied with the amendment, the defendant delivered a further Rule 23 notice to remove a cause of complaint and thereafter excepted to the plaintiff's amended particulars of claim on three grounds. In the first and third grounds of exception the defendant asserts, for different reasons, that the particulars of claim lack averments necessary to sustain a cause of action against the defendant. The second ground asserts that the particulars of claim are vague and embarrassing.

[4] On 23 November 2020 the exception was upheld by the court a qua with costs on the basis that it had not been established that the plaintiffs had been materially and adversely affected by the amendments of the MO! of the defendant. However, what is important to note is that the court a qua rejected the defendant's argument in respect of the main issue and also ruled that section 164 should be interpreted to mean that the shareholders remedy provided for in that section is available to shareholders of a company that only had one class of shares. I however will deal with this issue as it was still raised by the defendant again in this appeal despite the finding of the court a qua.

Plaintiff's contention

[5] The plaintiffs' argument is that the legislator did not intend to

limit the application of 164 of the Act, or to take away the protection that is afforded by that remedy from shareholders who hold

shares in a company that has only one class of shares. They argue that the Act does not provide for such a limitation and therefore no basis exists why the section should be interpreted to include such a restriction. The second argument relate to the pleadings. The appellants argue in this respect that an exception that the particulars of claim is vague and embarrassing cannot be taken in respect of part of the pleading.

[6] The third argument is that although the court a quo found otherwise, the amendments brought to the MOI materially and adversely affected the preferences, rights, limitations, interests and other terms, not only of the plaintiff's shares, but of all the defendant's shares. The plaintiffs argue further that the finding a qua rejecting the defendant's argument in respect of the main issue and ruling that section 164 shareholders remedy is available to shareholders of a company that has only one class of shares, ought to have resulted in the main issue being determined in the plaintiffs'

favour. They argue that for these reasons the defendants' first and main ground should have been dismissed. The plaintiffs therefore

contend that the appeal should be granted and the exception dismissed. It is however necessary to first deal with the following

salient features of the particulars of claim relevant to the appeal.

[7] In paragraphs 14-21 of the particulars of claim the plaintiffs' shareholding in the defendant and their relatedness is explained. The impugned amendments of the MO! following the notice of the 07 January 2019 are contained in paragraphs 26-29 and can be summarized as follows:

[7.1] The amendments introduces the concept of indirect interest;

[7.2] It alters the requisites for determining the percentage of shares that a shareholder holds or controls by including the indirect interest of a shareholder;

[7.3] It further expands the scope of the concept of related persons to include trusts and family relatives and also explains how the amended MOI resulted in the plaintiffs becoming related to one another;

[7.4] it gives the board the power to identify the factors ad criteria to be considered by the board in determining whether immediate family should be regarded as related for purposes of the MOI;

[7.5] It also limits the rights of the defendant's shareholders to act in concert; [7.6] It further increased the limits and restrictions on the voting rights and powers vesting in the shares.

[8] The particulars of claim further explain the manner in which the

adoption of the amended MOI caused the preferences, rights, limitations, interests and other terms of the defendant's shares to

be materially and adversely impacted. The plaintiffs further deal with the procedural requirements of section 164 of the Act and assert that the value of each of the plaintiffs' shares in the defendant as at the moment immediately prior to the amendment of the MOI amounted to be R120 per share. The plaintiffs demand the payment of this amount per share, alternatively, a determination of the value of the plaintiff's shares in the defendant as at the moment immediately prior to the adoption of the amended MOI.

The defendant's contention

[9] The defendant's exceptions, on the other hand, are founded on three

grounds. The first and the third grounds of exception are that the particulars of claim lacks averments necessary to sustain a cause of action against the defendant. The second ground asserts that the particulars of claim are vague and embarrassing. The first exception is based on the interpretation of section 164 of the Act and the defendant contends in this respect that the appeal should be dismissed and the exceptions be upheld on the basis that there is no cause of action as section 164 protection does not apply in the circumstances where the company has a single class of shares as is the case with the defendant's shares. The second objection is basically that the particulars of claim are vague and embarrassing. The third ground is founded on the averment that the amendments to the MOI do not affect all holders of shares as envisaged in section164 of the Act on which they rely. It should, however, be noted that the defendant did no appeal the finding of the court a qua that section 164 remedy is also available to the holders of shares of a company with a single class of shares. Because of their inter-relatedness, I will deal with the first and third grounds of exception first. The second ground will be dealt with last.

The issues

[10] Given the finding a quo the crisp issue in this appeal is primarily whether the amendment of the MOI complained of adversely affect the shareholders. Although it is part of the issues argued on appeal, the court a quo has in essence already ruled that section 164 of the Act should not be interpreted in a way that will restrict the shareholder protection remedy provided for therein and that it therefore also applies to shareholders of companies that have one class of shares. I will nevertheless deal with this issue as well as whether or not the particulars of claim are vague and embarrassing.

Appealability

[11] However, before delving into these issues, I want to first briefly deal with the question of the appealability of the judgment and order made a qua. Although the principle is generally that the dismissal of an exception is not regarded as final, it is however trite that the upholding of an exception to a pleading on the ground that it is bad in law is regarded as final and therefore appealable. Liquidators of Myburg Krone &Co Ltd v Standard Bank of South Africa Ltd 1924 AD 226. On the other hand it is also established law that an order upholding an exception on the basis that the particulars of claim is vague and embarrassing would generally not be appealable.

[12] Before the court heard the submissions in the appeal, the parties were invited to address court regarding the appealability of the judgment and the order of the court a qua. The parties agreed that based on the fact that leave to appeal was already granted by the court a qua they will proceed to argue the appeal on the basis that it is appealable. It is therefore on this basis that this court proceeded with the hearing of the appeal.

Exceptions: Legal principles

[13] The main provision dealing with exceptions is Uniform Rule 23 (1) which is succinctly clarified in Jowell v Bramwell-Jones and Others 1998 (1) SA 836 (W) which is referred to below. The rule provides a defendant with a remedy to except to a plaintiffs particulars of claim where it is vague and embarrassing or lacks averments necessary to sustain an action. It also provides the procedure and time frames to be followed in an exception.

No cause of action

[14] In the case where the defendant's exception is based on the ground that the particulars of claim does not disclose a cause of action, the court has to accept the allegations pleaded by the plaintiff as true. Drummond Cable Concepts v Advancenet (Pty) Ltd 2020 (1) SA 546 (GJ). Unless the defendant persuades the court that the pleading do not disclose a cause of action, the exceptions ought not to be upheld.

Vague and embarrassing

[15] In Jowell v Bramwell-Jones and Others, supra, the court at paragraph [13] analysed the exception based on the ground that the particulars of claim are vague and embarrassing and

stated the following:

• An exception that a cause of action is vague and embarrassing is an entirely different proceeding from one based on Rule 30. It does not allow a Court to treat the matter as if there was non-compliance with Rule 18, which deals with matters to be contained in pleadings An exception that a pleading is vague and embarrassing cannot be directed at a particular paragraph within a cause of action. The exception must go to the whole cause of action, which must be demonstrated to be vague and embarrassing. Thus in Carelsen v Fairbridge, Arderne and Lawton 1980 TPD 306 at 309 the following was said: ' (l)f we have regard to the nature of an exception, namely that it is a procedure which goes to the root of the action, I think we are entitled to say that, when the legislature speaks of an exception, it does not refer to a case which may fairly be met by particulars, and that the two are mutually exclusive. The rule therefore that this Court ought to Jay down is that, where a defendant can obtain the desired information by asking for further particulars, he should do so. He can only employ the exception that the summons is vague and embarrassing when it goes to the root of the action, and when the cause of action is not clearly set forth in the declaration, and he is therefore embarrassed in that way."

[16] The court went further at page 902 D-1 and stated the following in respect of the differences between Rules 18 and 23.

"The framers of the Rules have provided different remedies in Rules 18 and 23. The presumption is that they are not co-extensive, but designed to deal with different situations. Rule 18 is restrictive and sets out the bare minimum required of a factual averment, while Rule 23 goes to a vagueness and embarrassment which strikes at the whole of the cause of action pleaded I agree with counsel that the crucial distinction between Rule 23 and 30 may be summarised as follows:

(a) An exception that the pleading is vague and embarrassing may only be taken when the vagueness and embarrassment strikes at the root of the cause of action as pleaded; whereas

(b) Rule 30 may be invoked to strike out the claim pleaded when individual averments do not contain sufficient particularity; it is not necessary that the failure to plead material facts goes to the root of the cause of action. It is therefore incumbent upon a plaintiff only to plead a complete cause of action which identifies the issues upon which the plaintiff seeks to rely, and on which evidence will be led, in

intelligible and lucid form and which allows the defendant to plead to it. The attacks amounted by the defendants that the particulars of claim are vague and embarrassing cannot found on the mere averment that they are lacking in particularity. This might, depending on the circumstances, allow an application in terms of Rule 30. An a/legation that a pleading is vague and embarrassing is a far more serious one than a complaint about particulars."

Sections 163 and 164 of the Companies Act 71 of 2008

[17] Section 163(1) deals with relief from oppressive or prejudicial conduct or from abuse of separate juristic personality of company. In terms of this provision a shareholder or a director of a company may apply to a court for relief if any act or omission of the company, or a related person, has had a result that is oppressive or unfairly prejudicial to, or that unfairly disregards the interests of

the applicant or the business of the company, or a related person, is being or has been carried on or conducted in a manner that is oppressive or unfairly prejudicial to, or that unfairly disregards the interests of, the applicant or the powers of a director or prescribed officer of the company, or a person related to the company, are being or have been exercised in a manner that is

oppressive or unfairly prejudicial to, or that unfairly disregards the interests of, the applicant. Upon considering an application in terms of subsection (1), the court may make any interim or final order it considers fit as provided for in sub-section 2.

[18] Section 164 of the Act on the other hand constitutes an appraisal remedy for dissenting shareholders. This appraisal remedy originates from America where it was introduced in order to relieve controlling shareholders from the constricting requirements of unanimous assent required to effect major changes to the nature of a business operated by the company in question. The appraisal remedy in section 164 is therefore a novel concept in South African corporate law and is derived partly from a corresponding Canadian Business Corporation Act.

[19] The introduction of this appraisal remedy acknowledges that transactions may have significant and far-reaching consequences for shareholders, the nature of the company, and the rights attaching to shares. It seeks to provide a remedy to dissenting shareholders when the constitutional documents of a company are amended in a manner materially adverse to their rights. As such, dissidents may, when circumstances permit, opt out of the company by withdrawing the fair value of their shares in cash by exercising the appraisal remedy.

[20] As indicated in in the preceding paragraphs, section 164 of the Act is significant in this matter as the first and third grounds

of exception are anchored on its interpretation. I will quote only the relevant parts thereof in full:

"164. Dissenting shareholders appraisal rights. -

(1) ..........

(2) If a company has given notice to shareholders of a meeting to consider adopting a resolution to -

(a) amend its Memorandum of Incorporation by altering the preferences, rights, limitations or other terms of any class of its shares in any manner materially adverse to the rights or interests of holders of that class of shares, as contemplated in section 37(8);...

(b) ..... that notice must include a statement informing shareholders of their rights under this section.

(3) At any time before a resolution referred to in subsection (2) is to be voted on, a dissenting shareholder may give the company a written notice objecting to the resolution.

(4) Within 10 business days after a company has adopted a resolutioncontemplated in this section, the company must send a notice that the resolution has been adopted to each shareholder who -

(a) gave the company a written notice of objection in terms of subsection (3); and

(b) has neither -

(i) withdrawn that notice; or

(ii) voted in support of the resolution.

(5) A shareholder may demand that the company pay the shareholder the fair value for all the shares of the company held by that person if -

(a) the shareholder-

(i) sent the company a notice of objection, subject to subsection

(6) ; and

(ii) in the case of an amendment to the company's Memorandum of Incorporation, holds shares of a class that is materially and adversely affected by the amendment;

(b) the company has adopted the resolution contemplated in subsection (2); and

(c) the shareholder -

(i) voted against that resolution; and

(ii) has complied with all of the procedural requirements of this section.

(6) The requirement of subsection (5)(a)(i) does not apply if the company failed to give notice of the meeting, or failed to include in that notice a statement of the shareholders rights under this section.

(7) A shareholder who satisfies the requirements of subsection (5) may make a demand contemplated in that subsection by delivering a written notice to the company .....

(8) .....

(9) .....

(10) .....

(11) Within five business days of -

(a) the day on which the action approved by the resolution is effective;

(b) the last day for the receipt of demands in terms of subsection (c)

(a); or (c)

(c) the day the company received a demand as contemplated in subsection 7(b), if applicable, the company must send to each shareholder who has sent such a demand a written offer to pay an amount considered by the company's directors to be the fair value of the relevant shares, subject to subsection (16), accompanied by a statement showing how that value was determined.

(12) .....

(13) .....

(14) A shareholder who has made a demand in terms of subsection (5) to (8) may apply to a court to determine a fair value in respect of the shares that were the subject of that demand, and an order requiring the company to pay the shareholder the fair value so determined, if the company has -

(a) failed to make an offer under subsection (11); or

(b) made an offer that the shareholder considers to be inadequate, and that offer has not lapsed "

[21] Sub-section (2) triggers this appraisal right when a company gives notice to shareholders of a meeting to consider adopting a resolution to inter alia amend its . MOI by altering the preferences, rights, limitations or other terms of any class of its shares in any manner materially adverse to the rights or interests of holders of that class of shares, as contemplated in section 37(8). Such a notice shall include a statement informing shareholders of their rights under this section.

[22] In terms of Sub-section (3) a dissenting shareholder may give the company a written notice objecting to the resolution at any time

before a resolution referred to in subsection (2) is to be voted on. Where the company has adopted a resolution contemplated in this section, it shall send such a notice, within ten days of its adoption, to each shareholder who gave the company a written notice of objection in terms of subsection (3) and has neither withdrawn that notice or voted in support of the resolution. (Subsection (4))

[23] Sub-section (5), which the plaintiffs rely on, provides that a shareholder may demand that the company pay the shareholder the fair value for all the shares of the company held by that shareholder in the company. In such a case the dissenting shareholder must have sent the company a notice of objection, subject to subsection (6) and in the case of an amendment to the company's MOI, the person must be a holder of shares of a class that is materially and adversely affected by the amendment. (My underlining).

[24] The company must therefore have adopted the resolution contemplated in sub-section (2), the shareholder has voted against that resolution and the shareholder has also complied with all of the procedural requirements of this section. Therefore, for this appraisal remedy to kick in, there must inter alia first be an amendment to the MOI altering the preferences, rights, limitations or other terms of any class of shares. Secondly, the alteration must be adverse to the rights or interests of the holders of that class of shares.

[25] In this matter it is common cause that an amendment of the MOI altering the preferences, rights, limitations or other terms was adopted. One of the issues to be determined is whether the remedy is available to shareholders in a company with one class of shares and whether the adopted amendment to the MOI materially and adversely affect the rights or interests of the holders of the shares

concerned. There appears to be consensus that 'interests' in this context is wider that the concept of rights. [see Utopia Vakansie-Oorde Bpk v Du Plessis1974 (4) SA 148 (A) at 163; Graney Property Ltd v Mana/a and Others 2015(3) SA 313 (SCA) at [25].

[26] Section 36 (1) on the other hand provides that a company's MOI must set out the classes of shares, and the number of shares of each class that the company is authorised to issue. It must also set out with respect to each class of shares a distinguishing designation for that class and the preferences, rights, limitations and other terms associated with that class, subject to paragraph (d). This section clearly envisages that a company may have more than one class of shares.

[27] Section 37, and in particular sub-section (8) thereof, is important in this case as it deal with the appraisal remedy in the case of the amendment of the MOI. In terms of section 37(1), all of the shares of any particular class authorised by a company have preferences, rights, limitations and other terms that are identical to those of other shares of the same class, except to the extent that the company's MOI provides otherwise. Sub-section 37 (2) deals with voting rights and provides that each issued share of a company, regardless of its class, has associated with it one general voting right, except to the extent provided otherwise by-

(a) this Act; or

(b) the preferences, rights, limitations and other terms determined by or in terms of the company's Memorandum of Incorporation in accordance with section 36.

[28] Sub-section (3) further provides that despite anything to the contrary in a company's Memorandum of lncorporation-

(a) every share issued by that company has associated with it an irrevocable right of the shareholder to vote on any proposal to amend the preferences, rights, limitations and other terms associated with that share; and

(b) if that company has established only one class of shares-

(i) those shares have a right to be voted on every matter that may be decided by shareholders of the company; and

(ii) the holders of that class of shares are entitled to receive the net assets of the company upon its liquidation.

(4) If a company's Memorandum of Incorporation has established more than one class of shares the Memorandum of Incorporation, in setting out the preferences, rights, limitations and other terms of those classes of shares, must provide that-

(a) for each particular matter that may be submitted for a decision to shareholders of the company, at least one class of the company's shares has voting rights that may be exercised on that matter; and

(b) the holders of at least one class of the company's shares, irrespective of whether it is the same as any class contemplated in paragraph (a), are entitled to receive the net assets of the company upon its liquidation.

(5). ...

(6). .. .

(7). .. .

(8) If the Memorandum of Incorporation of a company has been amended to materially and adversely alter the preferences, rights, limitations or other terms of a class of shares, any holder of those shares is entitled to seek relief in terms of section 164 if that shareholder;

(a) notified the company in advance of the intention to oppose the resolution to amend the Memorandum of Incorporation: and

(b) was present at the meeting, and voted against that resolution. (My underlining).

It is with these legislative provisions in mind that I proceed to deal with the exceptions raised by the defendant.

The Exceptions

First ground of exception

[29] The first ground of exception that a cause of action cannot arise in terms of section 164 read with section 37(8) of the Act unless the company has more than one class of shares calls for the interpretation of the above legislative provisions. This exception is

evidently premised on the argument that section 164 can only find application where a company has more than one class of shares. The defendant asserts that given the usage of phrases such as 'any class of its shares' or 'of that of shares', and 'of a class of shares' in sections 164 and 37(8), a restrictive approach should be read into section 164 to the effect that it is only applicable where a company has more than one class of shares.

[30] The plaintiffs on the other hand contend that the legislator did no! intend to limit the application of 164 of the Act, or to deny

the protection that is afforded by that remedy from shareholders who hold shares in a company that has only one class of shares. They contend that as the Act does not contain such a limitation there exists therefore no basis for the section to be interpreted in a manner that will include such a restriction.

[31] It is clear from these arguments that the relevant legislative provisions have to be interpreted in order to giving meaning thereto. In Natal Joint Municipal Pension Fund v Endumeni Municipality 2012 (4) SA 593 (SCA) the court stated the following which is relevant in respect of the interpretation of statutes, contracts etc.:

'The present state of the law can be expressed as follows. Interpretation is the process of attributing meaning to the words used in a document, be it legislation, some other statutory instrument, or contract, having regard to the context provided by reading the particular provision or provisions in the light of the document as a whole and the circumstances attendant upon its coming into existence. Whatever the nature of the document, consideration must be given to the language used in the light of the ordinary rules of grammar and syntax; the context in which the provision appears; the apparent purpose to which it is directed and the material known to those responsible for its production. Where more than one meaning is possible each possibility must be weighed in the light of all these factors. The process is objective not subjective. A sensible meaning is to be preferred to one that leads to insensible or unbusinesslike results or undermines the apparent purpose of the document. Judges must be alert to, and guard against, the temptation to substitute what they regard as reasonable, sensible or businesslike for the words actually used. To do so in regard to a statute or statutory instrument is to cross the divide between interpretation and legislation. In a contractual context it is to make a contract for the parties other than the one they in fact made. The 'inevitable point of departure is the language of the provision

itself' read in context and having regard to the purpose'. Bastian Financial Services (Pty) Ltd v General Hendrik Schoeman Primary School 2008 (5) SA 1 (SCA) paras 16 -19. That there is little or no difference between contracts, statutes and other documents emerges from KPMG Chartered Accountants (SA) v Securefin Ltd & another 2009 (4) SA 399 (SCA) para 39.

[32] It is clear from case law that the contextual approach to the interpretation of legislation should be adopted therefore the language of the provision must be read in context and with due regard to its purpose. According to Cassim and Others, Contemporary Company Law 2ed p 796, the protection of section 164 may not be applicable to companies with one class of shares and that "in all likelihood, a 'class' of shareholders will exist only where there is at least one other class of shareholders in existence". However for the plain reading thereof, sections 36(1) and 37(4) envisage that a company can have one class of shares. Cassim however concedes that the Canadian statute, by contrast, explicitly overrules case law by stating that the right to dissent may be invoked even if a corporation has only one class of shares. The authors' views seem to be based on the fact that there is no such explicit provision in the Companies Act of 2008. I however make a determination that the defendant has one class of shares. Having made this finding it must be then established whether the section 164 remedy applies in the case of a company with a single class of shares.

[33] From the words used in section 164 and 37 (8), there is no indication that the legislator intended to limit the application of 164 or pointedly, to take away the protection that is afforded by the section from shareholders who hold shares in a company that has only one class of shares. Reference in section 164 to "any class of its shares in any manner materially adverse to the rights or interests of holders of that class of shares" does not exclude a company with a single class of shares. On the contrary, the words "rights or interests of holders of/hat class of shares" cannot, in my interpretation, support the argument that it includes a company with a single class of shares.

[34] I therefore hold the view that section 164 read with section 37(8) support the contention that the appraisal remedy is also available to dissident shareholders in the case of company with only one class of shares. In my mind there would be no rational and justifiable ground for denying such shareholders of this protection.

This is particularly so if the purpose of the chapter and the section are taken into account. The chapter under which the section resides is titled the Dissenting shareholders appraisal rights whereas that of section 163 is Relief from oppressive or prejudicial conduct or from abuse of separate juristic personality of company. Section 164 is an internal mechanism airned clearly at granting dissidents an option, under certain circumstances, to opt out of the company by withdrawing the fair value of their shares in cash by exercising the appraisal remedy.

[35] On the other hand the purpose of section 163 is to seek judicial intervention against oppressive or prejudicial conduct or from abuse of separate juristic personality of a company. The contention by the defendant that the plaintiffs can still utilize the remedy provided for in section 163 does not necessarily disqualify shareholders in a company with one class of shares from the section 164 remedy. Section 163 is clearly aimed at dealing with relief from oppressive or prejudicial conduct or from abuse of separate juristic personality of a company while section 164 pointedly deals with dissenting shareholders appraisal rights. The two section therefore have different objectives.

[36] However, section 37(8) is even more specific. It states that if the MOI of a company has been amended to materially and adversely alter the preferences, rights, limitations or other terms of a class of shares, any holder of those shares is entitled to seek relief in terms of section 164 provided that the shareholder notified the company in advance of the intention to oppose the resolution to amend the MOI and was present at the meeting, and voted against that resolution. (My underlining). The construction and interpretation of this section does not, in my understanding, exclude a company with a single class of shares from the application of section 164, especially when the other provisions of the Act such as sections 5 and 7 dealt with below are considered.

[37] Section 5 (1) is instructive as it states that the Act must be interpreted and applied in a manner that gives effect to the purposes

set out in section 7. Section 7 on the other hand sets out the purposes of the Act in great detail and these are-:

(a) to promote compliance with the Bill of Rights as provided for in the Constitution, in the application of company law;

(b) to promote the development of the South African economy by­

(i) to encouraging entrepreneurship and enterprise efficiency;

(ii) to creating flexibility and simplicity in the formation and maintenance of companies; and

(iii) to encouraging transparency and high standards of corporate governance as appropriate, given the significant role of enterprises

within the social and economic life of the nation;

(c) to promote innovation and investment in the South African markets;

(d) to reaffirm the concept of the company as a means of achieving economic and social benefits;

(e) to continue to provide for the creation and use of companies, in a manner that enhances the economic welfare of South Africa as a partner within the global economy;

(f) to promote the development of companies within all sectors of the economy, and encourage active participation in economic organisation, management and productivity;

(g) to create optimum conditions for the aggregation of capital for productive purposes, and for the investment of that capital in enterprises and the spreading of economic risk;

(h) to provide for the formation, operation and accountability of non-profit companies in a manner designed to promote, support and enhance the capacity of such companies to perform their functions;

(i) to balance the rights and obligations of shareholders and directors within companies;

(j) to encourage the efficient and responsible management of companies;

(k) to provide for the efficient rescue and recovery of financially distressed companies, in a manner that balances the rights and interests of all relevant stakeholders; and

(l) to provide a predictable and effective environment for the efficient regulation of companies."

[38] Section 5 (2) is also significant as it guides the courts in the interpretation of the Act and provides that to the extent appropriate, a court interpreting or applying this Act, may consider foreign•company law. This is important in this matter given that this appraisal remedy originates from the American Model Business Corporation Act, 1984 and was imported into South African law largely from the Canada Business Corporation Act (RS, 1985, Cc-44). I could not find any South African case law authority dealing with the interpretation and application of section 164. I am therefore of the view that it is necessary to consider foreign law, and in particular the Canada Business Corporation Act, in the interpretation of section

164 of the Act. The fact that the Canadian legislation specifically makes this remedy applicable to companies with a single class of shares is therefore significant as it does not lend support to the restrictive interpretation of section 164 proposed by the defendant.

[39] Given the dearth of case law precedent, I hold the view that a reasonable interpretation should be one consistent with the Canadian

legislation. Sections 164 read with section 37(8) must therefore be interpreted in the context of the purpose underlying the sections

which is basically to provide a remedy to dissenting minority shareholders when the constitutional documents of a company are amended in a manner materially adverse to their rights. I find that the interpretation of section 164 that is contended for by the

defendant would certainly undermine the purposes of the Act in respect of companies with a single class of shareholders. There is no justifiable reason to deny the dissenting shareholders in a company with a single class of shares the section 164 remedy, whilst affording the same shareholders the remedy where the company has more than one class of shares. The remedy should therefore be available even to shareholders in a company with a single class of shares such as in casu.

[40] Although Cassim argues 'that in all likelihood' a class of shares will only exists where there is at least one other class of shareholders in existence, the defendant accepts that a single class of shares does constitute a class but argues that the section 164 should be applicable only where a company has more than one class of shares. The court a qua in my view correctly concluded that from the interpretation of section 164 (2) (a)"...it is clear that the ordinary shares of the defendant would thus qualify as that 'class of shares' which would constitute only 'one class of shares' ..." Based on this conclusion a qua, the first ground of exception that the section does not apply unless a company has more than one class of shares should have been

rejected by the court.

[41] Consequently, taking into account foreign law as well as the origin and the purpose of the appraisal or buy-out remedy, I find that section 164 protection should also cover dissident shareholders in a company with one class of shares who are not accepting the

majority resolution and wish to opt out. In adopting the contextual approach and giving the words their ordinary meaning, the Act does not make room for such narrow and restrictive interpretation of section 164 as proposed by the defendant. There is therefore no basis and justification for a restrictive interpretation of the relevant provisions of the Act. The defendant's first ground of exception should therefore be dismissed and the appeal be upheld. I now turn to the third ground of exception that there is no cause of action as the amendments do not affect all holders of the shares in that class as envisaged in section164 of the Act.

Third ground of exception

[42] The following argument is raised in the third ground of exception with reference to paragraph 31 of the plaintiff's particulars of claim:

"21. The Deemed Relatedness does not have a material and adverse effect on the preferences, rights, limitations, interests and other terms of the Shares. At worst, the Deemed Relatedness may have a material and adverse effect on the preferences, rights, limitations and interests of the persons who happened to own the Shares. Further and in any event, ex facie the amended particulars of claim the Deemed Relatedness does not have any effect on the Shares that are not held by the plaintiffs."

[43] The plaintiff's argument is that the defendant's understanding of the particulars of claim is incorrect. They contend that paragraph

31 of the particulars of claim deals with and explains the adverse effect of the amended MOI on the plaintiffs' shareholding, whereas

paragraph 32 deals with and explains the effect of the amended MOI on the ordinary issued shares of the defendant as required by section 164(5) of the Companies Act.

[45] It is evident from paragraph 32 of the particulars of claim that the plaintiffs' contention is that 'as a result of the adoption of Proposed Amended Resolutions', the preferences, rights, limitations, interests and other terms of the Shares were materially and adversely affected and lists the ways in which the shares were adversely affected. It is further clear from paragraph 15 of the particulars of claim that by 'shares' the plaintiffs were referring to the ordinary issued shares of the defendant, all of which form part of the defendant's single class of shares. Based on these paragraphs it is evident that in the particulars of claim the plaintiffs assert that it is the amendments to the MO!, and not the Deemed Relatedness which gave rise to the consequence recorded in paragraphs 32.1 - 32.8.

[46] I want to deal with the defendant's contention that whilst the amended MOI may have the effect of imposing disabilities on certain

shareholders of the defendant, they do not however alter the preferences, rights, limitations or other terms of the shares and

that, therefore, they did not trigger the provisions of section 164 of the Act.

[47] It is common cause that for section 164 to be triggered, there must be inter alia an amendment of a MOI which alters the preferences, rights, limitations or other terms of any class of its shares in any manner materially adverse to the rights or interests of holders of that class of shares as envisaged in Section 164(2) (a). The preferences, rights and interests referred to in section 164 and 37(8) are those held and enjoyed by the owners of the shares. Furthermore, there seems to be no issue that the concept of 'interests' in the context of the Act has a wider meaning than rights and includes the full enjoyment of rights as shareholder and their protection. Utopia Vakansie-oorde Bpk v Du P/essis1974 (3) SA 148 (A). The limitations would be those imposed on the holders or owners as a result of their shareholding. and 32 of the particulars of claim that the plaintiffs' reference to shares meant the ordinary shares of the defendant, all of which form part of the defendant's single class of shares. It is on the basis of these findings that I would dismiss the first ground of exception. I now revert to the second ground of exception which asserts that the particulars of claim is vague and embarrassing.

Second ground of exception

[51] This exception targets paragraphs 32 and 33 of the particulars of claim. The defendant asserts in this regard that the particulars of claim is vague and embarrassing. In respect of paragraph 32 of the particulars of claim the defendant's contention is that it is not clear how the adoption of the amended MO! is alleged to have resulted in the consequences tabulated in paragraph 32.1 - 32.8. The second ground is that it is unclear how the preferences, rights, limitations, interests and other terms of the shares not held by the plaintiffs are alleged to have been materially and adversely affected by the adoption of the amended MOL

[52] Regarding the first assertion, it is clear that paragraph 32 of the particulars of claim, read in the context of paragraphs 25-27, which deal with the original and amended MO!, lucidly asserts in what way the amended MO! gave rise to the consequences recorded therein. In my view the argument that the particulars of claim is vague and embarrassing as it does not explain how the adoption of the MO! resulted in these adverse consequences is not supported by the facts and is therefore not sustainable. The particulars of claim clearly deal with this aspect in full detail and this argument therefore also stands to be rejected.

[53] Concerning the second element, the particulars of claim refers to ordinary shares of the defendant as alluded to in paragraph [47] above. In my understanding the reference to 'shares' in paragraph 32 of the particulars of claim is to all the ordinary shares issued by the defendant. Given this fact there was therefore no need for a distinction to be made between the shares held by the plaintiffs and other shares as they all constitute one class of ordinary shares issued by the defendant. This contention by the defendant therefore also stands to fail.

[54] That said, can it be said that the second ground of exception go to the root of the action or justify a conclusion that the cause of action is not clearly set forth in the particulars of claim. This question in my rnind should be considered in the context of the legal principles as stated in Jowell, supra. In line with this case, an exception that a pleading is vague and embarrassing cannot be directed at a particular paragraph within a cause of action. The exception must go to the whole cause of action, which must be demonstrated to be vague and embarrassing. The court further quoted with approval the following passage in Care/sen v Fairbridge, Arderne and Lawton 1980 TPD 306 at 309.

'... (I)f we have regard to the nature of an exception, namely that it is a procedure which goes to the root of the action, I think we are entitled to say that, when the legislature speaks of an exception, it does not refer to a case which may fairly be met by particulars, and that the two are mutually exclusive. The rule therefore that this Court ought to Jay down is that, where a defendant can obtain the desired information by asking for further particulars, he should do so. He can only employ the exception that the summons is vague and embarrassing when it goes to the root of the action, and when the cause of action is not clearly set forth in the declaration, and he is therefore embarrassed in that way'.

[55] Although the plaintiffs relied on these established legal principles in objecting to this exception, the argument appears not to have been considered at all by the court a quo despite the fact that the exception was upheld. Based on the facts, the objection should therefore have been upheld as there is no merit to the argument which is also at odds with the principles laid down in Jowell. In the result I find that this exception too should be dismissed and the appeal upheld.

[56] In the result I propose the following order.

1. The appeal is upheld with costs, including the costs attendant to the employment of two counsel where applicable.

2. The order of the court a qua is set aside and substituted with the following:

i. The defendant's first, second and third exceptions are dismissed.

ii. The defendant is ordered to pay the plaintiff's costs, including costs of two counsel.

Langa MBG

Judge of the High Court

Middelburg (Local Seat)

I agree,

Vukeya DL

I agree, and it is so ordered.

Mphahlele SS,

Deputy Judge President

For the Appellants: Adv.

BH Swarts SC, with Adv. JL Myburg

Instructed by: VDT

Attorneys Inc. Brooklyn, Pretoria

For the Defendant: Adv.

A Cockrell SC

Instructed by: Cliffe

Dekker Hofmeyer, Sandown, Sandlan