Bellairs v Hodnett and Another

• Jurisdiction: South Africa
• Judge: Jansen JA, Trollip JA, Corbett JA, De Villiers JA and Miller JA
• Judgment Date: 02 December 1977
• Citation: 1978 (1) SA 1109 (A)
• Court: Appellate Division

Full Bench:

The Judgment of the Court.

In this appeal against the decision of the Witwatersrand Local Division (per BOTHA, J.) in regard to an action and a consolidated cross-action, we made certain orders on 2 September 1977 and stated that we would file our reasons for making them, as well as give our orders for costs, later. Here follow the reasons and the decisions as to costs. The full orders are set out at the end of this judgment.

The appellant (defendant a quo), hereinafter referred to as "Bellairs",

Full Bench

an experienced property developer, on 5 July 1966 purchased from one Kok and his wife the two issued shares of R1 each (held by Kok and his wife) A in a company, Vergesig Ontwikkelingsmaatskappy (Edms.) Bpk - later to be named Northcliff Townships (Pty.) Ltd., and hereinafter referred to as "the Company". (It is, as will hereafter appear, the second respondent in this appeal and was the second plaintiff in the Court below.) The purchase price for the shares, including Kok's loan account of R11 400, was R33 500. The first object of the Company, according to its memorandum, was the following:

B "A. Om 'n koopkontrak gedateer 9de dag van November 1965 tussen Agnes Human Hamman en verskeie ander persone, as verkopers en Hendrik Willem Kok in sy hoedanigheid as trustee vir hierdie maatskappy, as koper, te aanvaar en te bekragtig..."

The contract related to a portion of the farm Waterval No. 211, in the district of Roodepoort, some 69 morgen in extent, and also to a stand in C the adjoining township of Greymont. When Bellairs acquired the Company, it had already adopted and ratified the said contract, a deposit or R11 000 had also been paid, leaving a balance of R127 000 of the purchase price, payable as follows: R10 000 18 months after signing the deed of sale and R117 000 against transfer - a guarantee for the latter to be provided on D or before 1 May 1968. (The Company later developed the portion of Waterval as a township, which was proclaimed as Northcliff Extension No. 15. This land will be referred to as N.15.)

A few days after taking over the Company, Bellairs fortuitously met the first respondent (first plaintiff in the Court a quo), hereinafter E referred to as "Hodnett", on N.15. The latter told Bellairs that he was viewing the ground with the possibility in mind of buying it for township development; Bellairs then informed him that he had already bought it. However, Bellairs shortly afterwards telephoned Hodnett and said that he might well be interested in forming a syndicate to develop the property, although it was not necessary from his point of view to do so. Certain F discussions followed, involving a firm of attorneys, Nupen & Goodman, as a possible member of the syndicate. The judgment of the Court a quo sketches the further developments:

"After some delay, Nupen and Goodman intimated that they were not interested in participating in the venture. Bellairs was prepared, however, after a discussion between him and Hodnett, to let the latter come into the Company as a one-third shareholder, and this was an opportunity that Hodnett was only too glad to accept.

G To give effect to this arrangement, a memorandum of agreement between Bellairs and Hodnett was prepared by Hodnett's attorney, Broomberg, a member of the firm of Nupen & Goodman. This agreement was signed by Bellairs and Hodnett on 1 September 1966. In terms thereof, Bellairs sold to Hodnett 33 shares in the Company, out of a total of 99 issued shares, of a nominal value of R1 each. In addition, Bellairs undertook to cede to Hodnett one-third of the total of the former's loan account against the H Company, the indebtedness of the Company in that respect being warranted not to exceed the sum of R11 440. The total purchase consideration payable by Hodnett for the shares and the share in the loan account was R17 500. Clause 7 of the agreement conferred upon Hodnett the right to compel Bellairs to re-purchase the shares and the interest in the loan account sold to Hodnett, at any time during a period of three months of commencing on 31 (sic) September 1968, at the same price as that paid by Hodnett therefor, Clause 9 of the agreement provided as follows:

'All further capital required by the Company from time to time in order to develop its properties, or to pay the balance of the purchase price of the said land, or for any other purposes, shall be provided by loans obtained, as far as possible, from sources outside the Company, and otherwise by means of loans which the parties hereto

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agree to make to the Company in proportion to the shares held by them. Notwithstanding the aforegoing, however, the purchaser's obligation to loan the necessary funds to the Company shall cease when the total of the purchaser's proportionate loans to the Company exceeds by R27 500 the amount of the loan account ceded to the purchaser at the effective date in terms hereof.'

A The effect of the concluding portion of this clause was to limit Hodnett's liability to contribute loan capital to the Company to a maximum extent of roughly R31 000.

On 16 September 1966 Bellairs and Hodnett signed a further agreement, also prepared by Broomberg, and headed 'Shareholders' agreement'. It contained the following main provisions:

'4.

Contract to be uberrimae fidei.

B The parties hereto shall exhibit the utmost good faith in all their dealings with one another and with the Company.

5.

Voting rights as shareholders.

(a)

The parties shall each utilise their voting powers to procure the appointment and continuation in office as directors of the other of them, so long as they continue to hold the shareholding presently held by them.

(b)

Notwithstanding anything to the contrary contained in the articles of association of the Company, in the event of C Bellairs personally holding less than two thirds of the total issued share capital of the Company, then all decisions relating to the affairs of the Company shall be by unanimous consent of all shareholders.

6.

Repayment of loan accounts.

Neither party shall be entitled to claim repayment of any monies D owing to them by the Company unless the other party agrees thereto in writing and unless otherwise specifically agreed upon all repayment of loan accounts shall be made by the Company to the parties in proportion to the amounts of the parties' loan accounts.

7.

Directors emoluments.

No emoluments, salaries. fees or other payments shall be paid or made by the Company directly or indirectly to the parties hereto otherwise E than by their mutual consent.

8.

Rights of pre-emption.

The disposal and passing of shares in the Company shall be governed by the form of agreement contained in the standard documents hereunto annexed and initialled by the parties for the sake of identification.'

The 'standard documents' referred to in the last-quoted clause, and F annexed to the shareholders' agreement, provided for a right of pre-emption of each of the shareholders, in respect of the other's shares in the Company. I shall quote the relevant provisions at a later stage in this judgment. For present purposes it is enough to say that it was in effect provided that a shareholder who was desirous of selling his shares in the Company was obliged first to offer his shares to the other shareholder, and was only free to sell and transfer his shares to a third party after the other shareholder had failed to accept the offer to sell to him within a stated period.

G The shareholders' agreement was signed not only by Bellairs and Hodnett in their personal capacities, but also by Bellairs in his capacity as director of the Company, for and on behalf of the Company, underneath a note at the foot of the agreement, reading as follows:

'We, the undersigned, Vergesig Ontwikkelingsmaatskappy (Edms.) Bpk., agree to be bound by the terms and conditions of the above agreement in H so far as we may be affected thereby.'

Thus it was that the association between Hodnett and Bellairs came into being. Hodnett had had no previous experience of township development at all, and Bellairs was well aware of this. Bellairs, on the other hand, had had such previous experience. It was quite natural, therefore, that Bellairs took over the day to day running of the affairs of the Company, and that he immediately became the de facto managing director of the Company."

Hodnett became a co-director in July 1966.

On 21 September 1966 the Company acquired an additional 40 morgen of land directly adjacent to N.15. It was later proclaimed as a township

Full Bench

under the name of Northcliff Extension No. 19, and it will be referred to herein as N.19. Kok had brought the opportunity of buying N.19 to A Bellairs. Bellairs thought that it would be convenient to develop it in conjunction with N.14, discussed the matter with Hodnett and they agreed that the Company should purchase it.

The further events may be gathered from the judgment a quo :

"During the latter half of 1966 another opportunity of acquiring land in the Northcliff area was presented to Bellairs. This property was immediately adjacent to N.19, and it was about 18 morgen in extent. Bellairs decided not to bring this property into the Company. Instead, he bought it as trustee for a company to be formed. The deed of sale B between Bellairs and one Manual Lourenco was signed on 1 December 1966. The purchase price was R70 000, of which R10 000 was payable on signature and the balance of R60 000 on 1 January 1969. During the beginning of 1967 Bellairs formed a company, Lourenco Park (Pty.) Ltd., of which he was the sole beneficial shareholder, and which took over his contract with Lourenco. The property later became known as Northcliff Extension No. 20. C I shall refer to it as N.20. the exact time when Hodnett first learnt of this transaction...