Van Zyl v Nuco Chrome Bophuthatswana (Pty) Ltd and Others (43825/2012) [2013] ZAGPJHC 40 (13 March 2013)

NOT REPORTABLE

SOUTH GAUTENG HIGH COURT, JOHANNESBURG

CASE NO: 43825/2012

DATE:13/03/2013

In the matter between:

VAN ZYL, GERRIT MARTHINUS ….................................................................Applicant

and

NUCO CHROME BOPHUTHATSWANA (PTY) LTD …...............................First Respondent

BUTLER, DANIELINA CORNELIA ….............................................................Second Respondent

OLIVER, PHILLIP ARNOLDUS NNO ….........................................................Third Respondent

MKHWANAZI GAPATSIE MATTHEW ….........................................................Fourth Respondent

THE ROYAL BAFOKENG ….............................................................................Fifth Respondent

ROSENBERG, MARTIN......................................................................................Sixth Respondent

J U D G M E N T

MATHOPO J:

[1] The applicant, Gerrit Marthinus Van Zyl (Van Zyl), a 12% shareholder and director of the first respondent, approached this court by way of an urgent application, seeking an order to set aside certain notices to convene a shareholders meeting and a declaratory that the fourth respondent is not a director of first respondent. In the alternative sought an order prohibiting the holding of such a meeting. The applicant further sought an order preventing the respondents from making out that the fourth respondent is a director of first respondent and that the third respondent be placed in contempt of court. The fourth respondent play no role in the proceedings and no reference would be made to him. The fifth respondent elected to abide.

Background

[2] This application was prompted by various notices issued by the second and third respondents (the respondents) calling on the board of directors, directors and shareholders of the first respondent to various meetings of the first respondent to discuss matters incidental to voting as set out in the notices marked “FA1”, “FA2”, “FA3” and “FA4”. As the dates of the notices are crucial I set them out. “FA1” notice was issued on the 1st November 2012, “FA2” issued on the 8 November 2012 calling a meeting of directors on the 13th November 2012, “FA3” notice was issued on the 16th November 2012 calling a meeting of shareholders on the 5th December 2012. “FA4” issued on 19th November 2012 calling meeting of shareholders on the 5th December 2012.

[3] Principally it is the notice issued by the second respondent alone on the 16th November 2012 (“FA3”) calling for a meeting of shareholders on the 5th December 2012 that precipitated this application. Upon receipt of this notice, the applicant called upon the second respondent to withdraw it and threatened an urgent application. The second respondent was undaunted, instead responded by issuing a notice on the 19th November 2012 again calling for a meeting of shareholders on the 5th December 2012 (“FA4”).

[4] The respondents opposed the relief sought by the applicant and filed a conditional counter-application in which it sought the following order:

4.1 an order compelling the first respondent to convene a meeting of

shareholders of the first respondent for the purposes of considering the resolutions referred to in annexure “A” to annexure “F1” of the applicant’s founding affidavit, subject to any terms the court considers appropriate; and

4.2 an order declaring that the third respondents are entitled to exercise votes in respect of their shares in the first respondent.

[5] At the hearing of the urgent application. The sixth respondent, Martin Rosenberg (Rosenberg) filed a statement of position seeking to clarify his position regarding the interdict which was granted in his favour in the then Bophuthatswana High Court. The sixth respondent, second and third respondents entered into an agreement in terms whereof the second and third respondents were permitted to vote their shares for or against the proposed resolutions. In essence, the effect of this resolution is that if approved, the applicant will be removed as a director of the first respondent and in his stead, the fourth respondent will be

appointed. The applicant was excluded from this agreement. The purpose of this agreement was intended to relax the interdict that the sixth respondent had obtained in the then Bophuthatswana High Court under case number 345/08, which interdict prevented the applicant and the second and third respondents from voting their shares. The salient parts of the agreement around which the dispute between the parties centred are as follows:

5.1 This agreement is entered into without prejudice to Rosenberg’s contention that the interim interdict is valid and of full force and effect, and without prejudice to the Executors’ contention that it is no longer of force and effect. This agreement is also entered into without prejudice to any of the parties’ contentions regarding their respective shareholdings in Nuco and as to the manner in which a meeting of shareholders of Nuco should be convened.

5.2 In terms of the second clause of the interim order (which appears at page 62 of the founding affidavit in the Van Zyl application) Rosenberg hereby consents to Mrs Butler, the Executors and/or Van Zyl voting their shares for or against the proposed resolutions 1 and 2 as set forth on pages 43 to 48 of the papers in the Van Zyl application.

5.3 For the avoidance of doubt, Rosenberg states that this consent does not permit van Zyl Mrs Butler and the Executors from voting their shares in Nuco with respect to any matters, except the aforegoing resolutions 1 and 2. By granting limited consent, Rosenberg in no way waives any of his rights to enforce the interim order should any of the parties seek to vote their shares on any other issue.

5.4 Mrs Butler and the Executors agree that they will not dispose of their shares in Nuco without giving Rosenberg 45 (forty-five) court days notice of their intention to do so. This undertaking is given without prejudice to Rosenberg’s contention that the interim interdict in any event prevents Mrs Butler or the Executors from alienating any shares ion Nuco, and without prejudice to the contentions of Mrs Butler and the Executors that the interim interdict is no longer enforceable.”

It is common cause that the parties attached different interpretations to the interdict.

[6] The matter was argued before Wepener J on the 4th December 2012. After hearing argument he reserved judgment for the next date. On the 5th December 2012 without giving reasons, he gave an order interdicting the holding of the shareholders meeting which was due to take place on the 5th December 2012 and postponed the matter to the opposed motion court roll of the 29th January 2013.

Interdict

[7] The sixth respondent who played a cameo role in the proceedings filed what he styled as a statement of position. In this statement, Rosenberg disputed the applicant’s rights to rely on the interdict because it was not granted in his favour but the sixth respondent. This statement and the role played by Rosenberg in this proceedings was to protect the interdict which according to Rosenberg was valid and still enforceable.

[8] Van Zyl’s application is premised upon 2 grounds namely (a) the alleged procedural irregularities in the notices to convene the meeting of shareholders; (b) the contention that the shareholders are precluded from exercising any votes at a meeting by virtue of the interdict which was granted by the then Bophuthatswana Provincial Division of the High Court.

[9] The case of Van Zyl regarding the interdict is that the respondents are not entitled to exercise any vote in respect of their shares in Nuco as a result of the interdict which was granted pending the final determination of an action or application to be issued by one Rosenberg within 30 days of the order.

[10] The applicant’s case is that the interdict is a blanket prohibition on the second and third respondents from exercising any voting rights flowing from their shares. Counsel for the applicant argued that the interdict is alive and capable of being enforced by the applicant who was a party to the interdict proceedings and submitted that there is no legal impediment on him from relying on it. The submission made is that the purported agreement concluded on the 4th December 2012 is of no force or effect in the face of the revived interdict.

[11] The respondent’s case is that as the interdict was granted pending the final determination of an action or application to be issued by Rosenberg within 30 days of the date of the order. Once that action was instituted and dismissed during March 2010, the interim order which was granted was discharged and cannot be revived by the noting of the appeal and the successful petition before the Supreme Court of Appeal. The case advanced by the respondent is that the interim order is conditional upon the confirmation by the same court in the same proceedings and has no independent existence. In support of his argument, counsel relied on MV Snow Delta Serva Ship Ltd v Discount Tonnage Ltd 2000 (4) SA 746 SCA at [511] where Harms JA said the following:

“Where an interim order is not confirmed, irrespective of the wording used, the application is effectively dismissed and there is likewise nothing that can be suspended. An interim order has no independent existence but is conditional upon confirmation by the same court (albeit not the same Judge) in the same proceedings after having heard the other side (Chrome Circuit Audiotronics (Pty) Ltd v Recoton European Holdings Inc. and Another 2000 (2) SA 188 (W) at 190B–C). Any other conclusion gives rise to an unacceptable anomaly: if an applicant applies for an interim order with notice and the application is dismissed, he has no order pending the appeal, on the other hand, the applicant who applies without notice and obtains an ex parte order coupled with a rule nisi and whose application is eventually dismissed, has an order pending the appeal.”

[12] The argument advanced by the respondent is that the consent by Rosenberg to the respondents voting their shares for or against the proposed resolutions removed legal impediments on the third respondent from proceeding with the meeting and voting their shares. In response to this argument, the applicant reiterated its stance that as a result of the interdict the respondents were shackled and the agreement dated 4th December 2012 cannot unshackle the legal impediment which existed as at the record date. The essence of this argument is that as at the record date, the respondents did not have the locus standi to call a meeting. Counsel for the applicant submitted that the requisition for the meeting was unlawful and therefore all notices purporting to call such a meeting cannot be held to be valid on account of the interdict and alleged procedural deficiencies which I will deal with later.

[13] Counsel for the sixth respondent supported the applicant’s argument that the interdict was still alive and enforceable. In his persuasive submission, he contended that the main application which was initially dismissed by the court a quo was reversed on appeal by the Supreme Court of Appeal on petition and the matter referred back to the now North-West High Court for trial. He submitted that the pleadings in the matter have been closed and the parties are awaiting a trial date. He vigorously disputed the respondents argument that the interdict has been discharged and like the applicant’s counsel submitted that reliance on the MV Snow Delta case was misplaced.

[14] The judgment of the Supreme Court of Appeal in referring the matter to the high court for trial is very clear. My understanding is that the issues that were before the high court are still alive and capable of been resolved by the trial court. The interpretation accorded to the court order by the respondents is untenable. What Harms JA was dealing with in the MV Snow Delta case is clearly distinguishable from the present case. In my view the appeal reversed the order of the court a quo and revived the interdict. Consequently I am persuaded that the interdict is still alive and enforceable and the agreement concluded on the 4th December 2012 by the sixth respondent, second and third respondents to the exclusion of the applicant cannot substitute a valid and enforceable interdict.

The alleged procedural deficiencies or irregularities in the notices calling a meeting for the 5th December 2012

[15] To properly appreciate the dispute between the parties, it is necessary to set out the notices around which the dispute centred.

(a) “FA1” is a notice issued by the third respondent dated 1st November 2012 calling on the board of the first respondent to call a meeting of the first respondent;

(b) “FA2” is a notice dated 8th November 2012 issued by the second respondent in her capacity as a director of the first respondent calling a meeting of directors of the first respondent on the 13th November 2012. It is at this meeting that Van Zyl attended and objected and raised concerns regarding the meeting and issues to be discussed and in particular drew the attention of the respondent to the interdict. This meeting was deadlocked as Van Zyl and the third respondent could not agree.

(c) “FA3” is a notice issued on the 16th November 2012 by the second respondent calling a meeting of the shareholders of the first respondent for the 5th December 2012 Van Zyl objected to it instead of attempting to remedy the deficiency the respondent issued another notice “FA4”

on the 19 November 2012 calling a meeting of shareholders on the 5th December 2012.

[16] Relying on the provisions of section 61(3) read with section 61(3)(b) of the Companies Act 71 of 2008 (the Act):

(3) Subject to subsections (5) and (6), the board of a company, or any other person specified in the company’s Memorandum of Incorporation

or rules, must call a shareholders meeting if one or more written and signed demands for such a meeting are delivered to the company,

(a)…

(b) in aggregate, demands for substantially the same purpose are made and in signed by the holders, as of the earliest time specified

in any of those demands, of at least 10% of the voting rights entitled to be exercised in relation to the matter proposed to be

considered at the meeting.

[17] The applicant submitted that in the light of the interdict and irrespective of the fact that the third respondent in their capacities as co-executors of Butler’s estate and the holders of 78% of the shares in Nuco (first respondent) as at the record date had no legal right to call a meeting of the shareholders of the Company via its board of directors.

[18] Again relying on section 59(1)(b) of the Act which provides as follows:

“ The board of a company may set a record date for the purpose of determining which shareholders are entitled to –

(b)participate in and vote a shareholders meeting;

Counsel submitted that it is the board of directors that must fix the record date and not the third respondent acting alone. It was then submitted that since the fixing was done by the third respondent alone this was unlawful and should be set aside. In support of his submission counsel relied on the case of Kuhn & Others v Botha & Others an unreported judgment of this division delivered on the 26th April 2012 which was unsuccessfully taken on appeal. He urged upon me to follow the dicta in that case as instructive more particularly

because the court took a dim view on the actions of a director who was purporting to act alone outside the board of directors and

described his actions as unlawful. By parity of reasoning he contended that the actions of the third respondent should be visited

with the same censure.

[19] The applicant further submitted that on the date when the notices were given the third respondent, even though she had 78% of the issued share capital of the first respondent she had no voting rights as a result of the interdict and fell foul of the provisions of section 61(3)(b) which provides that only shareholders holding 10% of the issued share capital of the company who can vote on the proposed resolutions have the right to call on the directors of the company to convene a meeting (my emphasis). In essence, the argument by the applicant is that the above notices fell foul of the provisions of section 61(9) and 62(1) of the Act because the respondent acted alone when he issued such notices and was also precluded by the interdict.

[20] The respondents in support of their argument that the notices were not deficient, relied on section 61(3) and submitted that the third respondent as the registered owner of 78% shares in the first respondent meets the required threshold of 10% of the voting rights entitled to be exercised in relation to the matter proposed to be considered at the meeting. The respondents further submitted that since the applicant has failed to demonstrate that the demand is frivolous, calls for a meeting for no other purpose than to consider a matter that has already been demanded by the shareholders or vexatious in terms of section 61(5) of the Act, reliance on the interdict as a basis for prohibiting the respondents from calling a meeting is misplaced.

[21] The submission made on behalf of the respondents is that Van Zyl attended that meeting of the 13th November 2012 with the sole purpose of procuring a deadlock to frustrate the proper functioning of the company. Counsel submitted

that as one of the proposed resolutions was to discuss his removal as a director, he was conflicted and should not have participated in the meeting. His conduct according to the respondents falls squarely within the provisions of section 76(2) which provides that:

“ (2) A director of a company must-

a) not use the position of director, or any information obtained while acting in the capacity of a director-

(i) to gain an advantage for the director, or for another person other than the company or a wholly-owned subsidiary of the company;

or

(ii) to knowingly cause harm to the company or a subsidiary of the company; and

(b) communicate to the board at the earliest practicable opportunity any information that comes to the director’s attention, unless the director-

(i) reasonably believes that the information is-

(aa) immaterial to the company; or

(bb) generally available to the public, or known to the other directors; or

(ii) is bound not to disclose that information by a legal or ethical obligation of confidentiality.

[22] I do not agree that the submission was correctly made. Van Zyl attended the meeting of the 13 November 2012 to protect his rights as a shareholders because of the alleged irregularities. He could not be expected to adopt a supine attitude in the face of apparent irregularities. I consequently do not agree that he was conflicted.

[23] As regards “FA3” notice, the respondents argued that it is wrong to suggest that sending the notice, the third respondent would be creating chaos, because all the shareholders of the company received the notice to convene the meeting timeously and none complained about the notice save Van Zyl, who according to the respondents was again pursuing his own agenda by frustrating the company. It was suggested that if Van Zyl had any difficulty with the manner in which the meeting was called, he had an alternative remedy of taking action against the company instead of preventing a meeting. Again another implausible suggestion was that if Van Zyl has a problem regarding the meeting, he is at liberty to attend the meeting and attempt to persuade the shareholders that their vote would be in breach of the interdict. I do not agree. I reiterate that, as there has not been a lawful calling of the meeting, no proper meeting can be held. It is inconceivable to expect Van Zyl to attend an unlawful meeting.

[24] In my view in terms of section 59(1) (b) only those persons who have a legal right to vote on a proposed resolution as at the record date may do so and it is the board of directors which is charged with fixing the record date. The applicant case is that notwithstanding the fact that the third respondent was the registered owner of 78% shares, she did not have voting rights as a result of the interdict, I agree. In my view the interdict precludes the applicant as well as the third respondent from voting their shares.

[25] This latter section again provides that if the board does not fix the record date, then the second date will be the latest date on which the company is required to give shareholders notice of the meeting. It was submitted that the defect in “FA1” notice, is the failure to comply with the provisions of section 62 (1) which provides that the latest date is 10 business date before the meeting. An examination of “FA1” notice reveals that it purported to fix the record date as 5 business days before the meeting i.e. 27 November 2012. And again if it is stretched to 10 days the record date could be 20th November 2012. Thus from a reading of the said notice it is glaringly irregular and deficient.

[26] The submission or argument by the respondents that all the shareholders of the company received the notices timeously and none complained about the notice to convene except Van Zyl cannot assist the respondents in the light of the serious defects or irregularities in the notices found in “FA1” “FA3” and “FA4”. By way of illustration “FA4” is a notice which emanates from the third respondent alone and not the board of directors. Another defect in the notice relates to the fact that instead of the board fixing the venue as required in terms of section 61(9), the respondent purported to do so in “FA4”. This in my view cannot be held to be lawful. Even if one were to attempt to invoke the provision of section 62(6) which allows a material defect in the form or notice in the manner of giving notice of a shareholders meeting. A series of gross and material defects in the notices cannot cure or validate the actions of the third respondent.

[27] I accept that the right to participate in a meeting and the right to vote are rights inherent in the ownership of shares and that it is not competent for the board of directors or one director to frustrate that right by not holding a shareholders meeting. The applicant’s conduct in my view does not amount to obstruction. Asserting one’s right in terms of the memorandum of incorporation or rules cannot amount to obstruction. In terms of section 61(3), the statutory obligation is placed on the board of a company or any other person specified in the company’s memorandum of incorporation to convene a shareholders meeting. The third respondent like the applicant are precluded from doing so as a result of the interdict. I therefore do not consider

the applicant’s challenge as frustrating the board of directors or shareholders.

[28] In my view, unless a shareholders meeting was properly convened, in the absence of waiver or ratification by all the shareholders, the notices are a nullity. This is especially so because of the general rule is that an irregularity in regard to the convening of or proceedings at a general meeting will render invalid resolutions passed at that meeting. Van Zyl challenge or objection was simply to prohibit any irregularities.

[29] To demonstrate that he was not motivated by ulterior motives, on the 13th May 2012, he attended a meeting called by the third respondent pursuant to “FA2” and successfully raised jurisdictional

issues regarding the calling of a meeting and that meeting deadlocked. In my view if there is a defect in the giving of a notice of a shareholders meeting, the meeting may proceed only if every person who is entitled to exercise voting rights in respect of

any item on the meeting agenda is present at the meeting and votes to approve the ratification of the defective notice.

[30] In the instant matter, Van Zyl raised the issue relating to the defects in the notice immediately upon receipt of same. I do not agree with the suggestion that he should have attended the meeting and attempt to persuade the shareholders not to vote. In my view that would be akin to surrending rights in the hope or expectation that his powers of persuasion would sway the meeting in his direction. I do not think that such an approach is sustainable. The meeting called by the third respondent was unlawful and Van Zyl was perfectly within his rights to challenge the notices.

[31] There can be no doubt that the purported notices did not comply with the Act,

hence once the respondents realised the predicament relating to the notices entered into an agreement with the sixth respondent to the total exclusion of the applicant in an attempt to bolster its case by the agreement. Another difficulty confronting the respondents is that save being late this agreement was concluded after all the affidavits had been served and filed. Quiet clearly any attempt to cure the defects in the notices was too short and late. I was not amazed when counsel for Rosenberg aligned himself with the applicant regarding the validity of the interdict. I consider that submission to have been properly made.

Conditional Counter-Application

[32] This application is premised on the basis that Van Zyl and the respondents are at loggerheads and have not been able to resolve their differences. The case of the respondents is thus founded on the provisions of section 61(12) of the Act which provides as follows:

“If a company fails to convene a meeting for any reason other than as contemplated in sub-section (11)-

At a time required in accordance with its memorandum of incorporation;

When required by shareholders in terms of sub-section (3); or

Within the time required by sub-section (7),

a shareholder may apply to a court for an order requiring the company to convene a meeting on a date, and subject to any terms, that the court considers appropriate in the circumstances.”

[33] It is trite that the power of the court to call a meeting is provided for in section 61(12). The general policy is that courts should be loathe or reluctant to interfere with the internal domestic affairs of the company especially in instances where the company ought to be able to regulate its own affairs by appropriate resolutions of a majority of shareholders. It is also trite that the power given to a court to call a meeting is generally only exercised by the court in exceptional circumstances. In Yende v Orlando Coal Distributors (Pty) Ltd 1961(3) SA 314 (W), the court refused to order the holding of a meeting when despite, disputes between shareholders, there was nothing preventing the shareholders from requisitioning a general meeting in accordance with the provisions of the Act.

[34] The respondents argument in support of their application is founded upon what it considers to be unlawful conduct on the part of Van Zyl in frustrating the proper functioning of the company by procuring a deadlock, thus on the respondents version paralysing the company. In support of his argument, counsel for the respondents relied on the case of Rothenberg and another v Rothschild and Another 1964 (4) SA 133 (WLD). The submission that Van Zyl is recalcitrant and frustrating the proper functioning of the company or the board, cannot assist the respondents and condone the deficient notices. Van Zyl was fully entitled to raise objections to the notices and the fact that he attended a meeting on the 13th November 2012 which ended in a deadlock cannot be blamed on him. He was legally entitled to attend that meeting and object to the business sought to be transacted. I am not convinced that the respondents can invoke the provisions of section 61(12) in the

circumstances of this case. First as at the record date, they did not have the power to call a meeting as a result of the interdict.

Second, the notices issued by the third respondent alone, are irregular. Third the settlement agreement with the sixth respondent

cannot assist because it was concluded on the 4th December 2012 and was too late and did not afford shareholders sufficient notice.

[35] It seems to me that the reasons advanced by the respondent for invoking the provisions of section 61(12) are without merit. I have not been directed to any provisions of the Act which justifies the conduct of the respondents. I have not been furnished with exceptional circumstances justifying this court to interfere in the company’s internal operations See: Louw & Others v Richtersreld Agricultural Holdings Company (Pty) Ltd & Others (2010) JOL 26358(NCK).

Contempt of Court

[36] The issue relating to contempt of court was rightly not pursued by the applicant. It being clear that it has no merit. Accordingly I will make no reference to it in this judgment.

[37] I am accordingly satisfied that the applicant has succeeded in establishing the requisites for a final interdict. He is accordingly entitled to the order sought.

[38] I therefore make an order in the following terms:

The notice dated 1 November 2012, FA1 issued by the third respondent in their capacities as a shareholder of the first respondent, purporting to call on the board of directors of the first respondent to call a meeting of the shareholders of the first respondent to deal with matters set forth in the said notice is hereby declared unlawful, and is set aside.

Pursuant to paragraph 1 above the notice dated 8th November 2012 FA2 issued by the second respondent in her capacity as a director of the first respondent, calling a meeting of the directors of the first respondent on 13th November 2012 to discuss and vote on the notice referred to in paragraph above is hereby declared unlawful, and is set aside.

The notice dated 16th November 2012 FA3 issued by the second respondent in her capacity as a director of the first respondent, purporting to call a meeting of the shareholders of the first respondent on 5th December 2012 or on any other date, for the purpose of considering and voting on the matters set out in the said notice is hereby

declared unlawful, and is set aside.

The notice dated 19 November 2012 FA4 issued by the third respondent in their capacities as a shareholder of the first respondent, purporting to call a meeting of the shareholders of the first respondent on 5 December 2012 or on any other date, for the purpose of considering and voting on the matters set out in the said notice is hereby declared unlawful, and is set aside.

It is hereby declared that the fourth respondent is not a director of the first respondent.

The second, third and fourth respondents are hereby interdicted and restrained from holding a shareholders’ meeting for the purpose of dealing with any of the matters set forth in any of the notices referred to in one or more or all of paragraphs 1 to 4 above.

That the second and third respondents pay the applicants costs on the scale as between attorney and own client to the exclusion of the first respondent, such costs to include those reserved on 3 December 2012 and 4 December 2012.

The second and third respondent are ordered to pay the applicants costs on a party and party scale such costs to include the reserved costs of the 3rd December 2012 and 4th December 2012.

The conditional counter application is dismissed with costs.

____________________________

MATHOPO J

Appearances:

For the Applicant : Att Eiser

Instructed by : Eiser Kantor Attorneys

For the Second to Third Respondents : Adv Brett Sc

with : Adv Mahon

Instructed by : Gary Rachbuch Attorneys

For the Sixth Respondent : Adv PN Levenberg Sc

Instructed by : Jay Mothibi Inc.

Date of hearing : 30 January 2013

Date of judgment : 13 March 2013