Greenacre and Others v Falkirk Iron Co Ltd and Others

• Jurisdiction: South Africa
• Judge: Holmes J
• Judgment Date: 30 June 1953
• Citation: 1953 (4) SA 289 (N)
• Hearing Date: 14 June 1953
• Court: Natal Provincial Division

G Holmes, J.:

This is the return day of a rule nisi. Three main issues are raised.

The first two applicants are directors of, and the remaining applicants are holders of shares in, The Durban Falkirk Iron Co. Ltd. I shall refer to it as 'the Durban company'. It is cited as the thirteenth respondent. It is not to be confused with the The Falkirk Iron Co. Ltd., which is H the first respondent, and which I shall call 'the overseas company'. It holds shares in the Durban company.

The second, third and fourth respondents were also shareholders in the Durban company, and they sought to transfer certain shares to the overseas company. The transfers were approved by a majority decision (the first two applicants dissenting) at a meeting of the directors of the Durban company on 16th October, 1952, and the transfers were afterwards registered. The applicants now attack

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these transfers upon the ground that the procedure laid down in the Durban company's Articles of Association was not observed. That is the first issue in the case. It is independent of the other issues, and it turns on the construction of the relevant Articles, which are as follows:

A '18 .No share shall, save as provided by clauses 23 and 24 hereof, be transferred to a person who is not a member, so long as any member is willing to purchase the same at the 'fair value'.

19. In order to ascertain whether any member is willing to purchase a share, the person, whether a member of the Company or not, proposing to transfer the same (hereinafter called the retiring B member) shall give notice in writing (hereinafter called the transfer notice) to the directors that he desires to transfer the same.

The transfer notice shall specify the sum he fixes as the fair value provided that the same shall not exceed the amount mentioned in clause 21 hereof, and shall constitute the directors his agent for the sale of the share to any member of the Company at the fair value. The transfer C notice may include several shares, and in such case shall operate as if it were a separate notice in respect of each. The transfer notice shall not be revocable, except with the sanction of the directors.

20. Upon receipt of any notice from a retiring member given to them in terms of Article 19, the directors shall forthwith notify each shareholder in writing of the number of shares which the D retiring member proposes to transfer and shall call upon each shareholder within sixty days of the date of such notice to notify them whether he or she wishes to purchase any of such retiring member's shares, and, if so, how many. Within ten days after receipt by them of notification from any shareholder of the number of shares which he or she is prepared to purchase, the directors shall inform the retiring member thereof, who E shall be bound, upon payment to him of the fair value of the shares, to transfer the same as the directors may require. If such shares can be divided amongst the applicants therefor in terms of their applications, then the directors shall so divide them, but if not, the directors shall divide such shares among the applicants pro rata to the number for which they have applied, and if that be not possible then the directors shall cause all applicants to draw lots for the said shares in such manner as they (the directors) may determine.

F 21. The fair value of a share shall be the sum which is certified by the Company's auditors in writing as in their opinion the fair value thereof. The 'fair value' shall be supplied by the Company to a shareholder when reasonably required by him for the purpose of a transfer notice.

22. If in any case the retiring member, after having become bound as aforesaid, make default in transferring the shares, the G directors may receive the purchase money, and shall thereupon cause the name of the purchasing member to be entered in the register as the holder of the shares, and shall hold the purchase money in trust for the retiring member, and shall be entitled to issue certificates for such shares to the purchasing member.

The receipt of the directors for the purchase money shall be a good discharge to the purchasing member, and after his name has been entered in the register in purported exercise of the aforesaid power, the H validity of the proceedings shall not be questioned by any person.

23. If none, or a portion only, of the retiring member's shares are purchased in terms of Article 20 he shall at any time within twenty days after he receives notice accordingly from the directors (which notice they shall be bound to give as soon as possible) be entitled to sell and transfer the shares of which he desires to dispose, or those not purchased as aforesaid, to any person and at any price not less than that fixed as the 'fair value'.'

Mr. Caney, for the applicants, pointed out that the Durban company

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was originally a family concern, and he contended that Articles 19 and 20 should be read independently of Article 18, and that therefore a member cannot transfer shares to another member unless he has notified the directors of his intention, and unless the directors have given all A other shareholders an opportunity of buying them. As this procedure was not followed, Mr. Caney argued that the decision of 16th October, 1952, was ultra vires.

Mr. Suzman, who appeared for most of the respondents, pointed out that Article 18 provides that shares may not be sold to non-members as long as B 'any member is willing to purchase' them at the fair value; that Articles 19 to 22 provide for the method of fixing the fair value, and for ascertaining whether 'any member is willing to purchase' at that figure; and that Article 23 provides that if members do not wish to buy the shares, they may be sold to non-members. He contended that Articles C 18 to 23 must be read together, and that their intention and scope was to restrict transfers of shares from members to non-members, and that they had no application to transfers from one member to another.

In my view, on a plain reading of Articles 18 to 23, Mr. Suzman's D contention is clearly right. Article 19 contains no express prohibition or restriction against transfer. It seems to me clear that it, and Articles 20 to 23, merely provide the machinery for carrying out the restriction in Article 18, which deals with transfers to non-members.

E Accordingly the attack by the applicants on the transfers to the second, third and fourth respondents fails.

The second issue in the case arises in this way. At the meeting of directors of the Durban company on 16th October, 1952, five deeds of trust were produced, whereby the overseas company sought to transfer F fiveparcels of one hundred shares each to the fifth to ninth...