Donaldson Investments (Pty) Ltd and Others v Anglo-Transvaal Collieries Ltd: SA Mutual Life Assurance Society and Another Intervening

• Jurisdiction: South Africa
• Judge: Preiss J
• Judgment Date: 02 April 1979
• Citation: 1979 (3) SA 713 (W)
• Court: Witwatersrand Local Division

Preiss J:

This application is concerned with the rights enjoyed by preference shareholders in Anglo - Transvaal Collieries Ltd (hereinafter described as "the company"). Prior to July 1978, these rights were set forth in clause 5 of the company's memorandum of association, the relevant portion of which reads:

"The preference shares shall confer upon the holders thereof the following rights, viz:

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(a)

to receive a fixed cumulative preferential dividend of six per centum per annum on the amounts paid up thereon from ti e to time as and when declared in terms of the company's articlms of association (but not otherwise to participate in the profits of the company);

(b)

A in any winding-up of the company to rank in priority to the holders of the ordinary shares, both in regard to any arrears of dividend up to the date of winding-up and in regard to return of capital.

Save as herein specially provided to the contrary, all shares of the company shall rank pari passu in every manner."

B As to the phrase, "pari passu", it seems to me that it should be given the meaning ascribed to it in the Oxford Dictionary where, referring to the phrase in the legal sense, the following appears: "On an equality, equally and without preference."

The company was incorporated in 1956. Until 1970 it carried on, through subsidiaries, the business of holding shares in mining companies. On 9 C April 1973 the company entered into an agreement with Witbank Collieries Ltd (hereinafter described as "Witbank"). In terms of that agreement it sold to Witbank the entire share capital of all its subsidiaries for a consideration of the issue to the company of 1 257 656 shares in Witbank, D credited as fully-paid. The company sold some of the Witbank shares and, since then, it has held 17,5 per cent of the issued share capital of Witbank.

During 1975 Witbank announced its intention of raising R9 000 000 on loan from its members. For this purpose it issued a circular offering a loan issue in the form of 13,5 per cent unsecured convertible notes. The E company's directors decided that the company itself could not finance the acquisition of the notes, but that it would be in the interest of its shareholders for the company to renounce its rights to the notes in their favour. A circular announcing its intention of renouncing its rights in favour of both ordinary and preference shareholders was sent to all shareholders on 9 September 1975. A number of holders of ordinary shares F objected to the decision to renounce the notes in favour of preference shareholders. Two of them, one of whom was the South African Mutual Life Assurance Society (hereinafter described as "the SA Mutual"), sent a complaint through a stockbroker to the Johannesburg Stock Exchange. The gist of the complaint was that the rights of preference shareholders to G participate in the issue did not emerge clearly from the articles of association and other records of the company.

As a result of the complaint, which was received by the Johannesburg Stock Exchange towards the end of September 1975, the latter indicated to the company that the uncertainty attaching to the rights of preference shareholders should be eliminated by a Court order. Accordingly, the H company by way of application sought two declaraturs. The matter was resisted by the SA Mutual, and the decision of the Full Bench of the Transvaal Provincial Division (sitting on appeal from the decision of a single Judge), is reported under the following name: Anglo-Transvaal Collieries Ltd v South African Mutual Life Assurance Society 1977 (3) SA 631 (T). The decision of the Appellate Division in this matter, is reported under the name: South African Mutual Life Assurance Society v Anglo-Transvaal Collieries Ltd 1977 (3) SA 642 (A).

I shall have occasion to refer to both of these judgments from time to time herein. For the sake of brevity I shall refer to either or both of these

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judgments as constituting "the previous litigation".

A In the previous litigation two declaraturs were sought. The first, which stems directly from the complaint made to the Johannesburg Stock Exchange, was that all shares of the company ranked pari passu and, more particularly, that preference shareholders were entitled to take up the unsecured convertible notes in Witbank. A second declaratur was sought at the same time, in terms of which a declaration was required that preference shareholders would participate in the surplus assets of the company on winding-up.

B In the course of the argument on behalf of the applicants, an attempt was made to place a somewhat sinister interpretation upon the attempt by the company to secure a ruling upon the second declaratur. It was suggested that this was merely done to protect the interest of directors who had C acted somewhat irregularly. I have had an opportunity of considering all the papers in the present application, and I was referred further to the affidavit of the company's deponent, namely Mr Meyer, in the previous litigation. In his affidavit Mr Meyer asked for a ruling from the Court in regard to the taking-up of the unsecured convertible notes because the Johannesburg Stock Exchange would not approve the company's proposed offer until a declaratory order was obtained.

D At the same time Mr Meyer stated that there was no certainty in the eyes of the public as to the value of the company's ordinary or preference shares because their respective values were dependent, inter alia, upon the rights of preference shareholders to participate in the surplus E assets of the company in the event of winding-up. There is sufficient information before me on the papers to conclude that Mr Meyer's desire to obtain the second declaratur was perfectly bona fide, and that it arose from the uncertainty surrounding the value of the shares. There had already been controversial claims by shareholders in the company, and a Court ruling was accordingly sought.

F The latter portion of clause 5 of the Company's memorandum provided the machinery whereby rights and privileges attaching to each class of share might be modified by agreement. It provided that such agreement might be drawn between the company and any person purporting to contract on behalf G of a class of share-holders, provided that such agreement, inter alia, was ratified in writing by at least three-fourths of the nominal amount of the issued shares of that class.

The judgment of the Full Bench of the Transvaal in the previous litigation was handed down in July 1976. COLMAN J, who delivered the judgment of the Court, granted the first declaratur, namely that preference shareholders H were entitled to share in the renounced convertible notes. With regard to the second declaratur, however, namely that preference shareholders were entitled to participate in the surplus assets of the company on winding-up, the Court came to the conclusion that the eventuality of winding-up was so remote as to make any determination of rights a mere abstract or hypothetical exercise, and it declined to grant the relief.

The matter went on appeal, and the judgment of the Appellate Division in the previous litigation was handed down on 30 May 1977. Prior, however, to the handing down of the judgment of the Appellate Division,

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the directors of the company and certain shareholders commenced negotiations in order to arrive at a variation agreement in terms of the A latter portion of clause 5 of the memorandum, which agreement would then be submitted to shareholders for ratification in writing, as clause 5 required. The independent person, called in to contract on behalf of the shareholders, was the Standard Merchant Bank Ltd. These negotiations terminated in what was described as a "modification agreement". That B agreement was in due course submitted to all shareholders and was ratified by the necessary majority of shareholders, both ordinary and preference.

I was called upon to deal with the question whether ratification had in fact been effected by more than 75 per cent of the preference shareholders. That issue was argued before me during October 1978, as a C preliminary matter, based upon an alternative cause of action which was the subject of an amendment shortly before that date.

My judgment is reported in 1979 (1) SA 959 (W). I came to the conclusion that the necessary majority of preference shareholders had in fact ratified the modification agreement and that it was accordingly binding upon all shareholders.

D The effect of the modification agreement, in so far as preference shareholders are concerned, was to deprive them of any right to participate in the surplus assets of the company upon a liquidation and to deprive them of voting rights at general meetings, while conferring upon them the right to receive out of profits an additional dividend equivalent E to 5 per cent of the total amount of any dividend distributed to the holders of ordinary shares, and a 5 per cent participation in any capitalisation shares arising out of any distributable reserves of the company as at 30 June 1978. Furthermore, preference shareholders were also given the right to participate to the extent of 5 per cent in any rights offer made by the company to the holders of ordinary shares at any time, F and any rights or benefits renounced by the company in favour of the holders from time to time of any shares arising out of the capitalisation of any of the distributable shares of the company, as at 30 June 1978.

The application before me commenced with the issue of a rule nisi on 26 September 1978, at the instance of the applicants, who are a group of G aggrieved preference shareholders. That rule nisi was issued by consent and without the filing of any answering affidavits. Briefly, the rule nisi called upon interested persons to show cause why an order should...