Estate Milne v Donohoe Investments (Pty) Ltd and Others

• Jurisdiction: South Africa
• Judge: Steyn CJ, Ogilvie Thompson JA, Botha JA, Williamson JA and Potgieter JA
• Judgment Date: 10 March 1967
• Citation: 1967 (2) SA 359 (A)
• Hearing Date: 23 February 1967
• Court: Appellate Division

Ogilvie Thompson, J.A.:

The late John Ivan Milne was at all material times the registered holder of seven shares in Donohoe Investments (Pty.) Ltd., a private company to which I hereafter refer as first D respondent. The authorised and issued capital of first respondent is R200 divided into 100 ordinary shares of R2 each. On 5th March, 1964, Milne purchased, for the sum of R3,200, from James Martin Donohoe eight of the nine shares in first respondent of which Donohoe then was, and still is, the registered holder. After registration into his name of the transfer of the eight shares thus purchased by him had been refused, E Milne applied, on notice of motion dated 2nd September, 1964, to the Cape Provincial Division for an order directing first respondent to cause them to be registered into his name. These proceedings were resisted by first respondent and by certain of its shareholders and, on 17th November, 1964, Milne died. Thereafter Milne's executors were, by order of the Cape Provincial Division, substituted on the record and the F opposing shareholders were formally joined as additional respondents. The Court below ultimately dismissed the application with costs, and against that decision an appeal has, with the consent of all parties, now been made direct to this Court. The opposing shareholders make common cause with first respondent. At the hearing of the appeal, only first respondent was represented, and it is unnecessary to make any G further specific reference to the remaining respondents.

In the papers before the Court the contention is advanced on behalf of the respondents that appellant's claim is in any event bad in law by reason of the alleged prior rights of purchasers from Donohoe of some of H the latter's aforementioned nine shares pursuant to contracts concluded previous to Milne's purchase and, further, by reason of a judicial attachment of those nine shares made, at the instance of one of the prior purchasers, during February 1965. Save for that contention, the main dispute between the parties, however, relates to, and depends upon, the correct construction of the relevant provisions of the articles of association of first respondent.

Art. 3 (c) of first respondent's articles provides that

'the transfer of shares in the company shall be restricted in the manner hereinafter provided'.

Ogilvie Thompson JA

Clause 6 of the articles provides:

'Transfer of shares.

6.(a)

Any shareholder desirous of selling his shares or portion of them shall not be entitled to do so unless he has first offered such shares for sale to the remaining shareholders upon the following terms and conditions:

(i)

A He shall give fourteen days' notice in writing to the remaining shareholder or shareholders in the company of his intention to dispose of his shares or any portion of them.

(ii)

Should there be only one remaining shareholder then he shall be entitled within the period of fourteen days referred to in subpara. (i) above to purchase the said shares but should there be more than one B remaining shareholder then such remaining shareholders shall be entitled to purchase the said shares in proportion to their existing shareholding in the company.

(iii)

The price of the said shares so offered shall be the valuation thereof fixed by the auditor for the time being of the company. Should the selling shareholder and/or the purchasing shareholder refuse to accept the said auditor's valuation, then the matter shall be referred to arbitration under the Arbitration Act (Cape) of 1898 and the decision C of the arbitrator shall be final and binding upon the parties.

(iv)

In the event of the matter being referred to arbitration as above provided. the period of fourteen days referred to in sub-para. (ii) shall be deemed to commence from the date of the decision of the said arbitration.

(v)

Should any one or more shareholders refuse to purchase, any D remaining shareholder or shareholders may purchase the full number of shares so offered for sale, provided that if in such event there be more than one shareholder willing to purchase, such purchaser shall be entitled to purchase such shares in the same proportions as their shareholdings bear one to the other.

(vi)

The shareholder or shareholders to whom the shares have been offered must purchase the full number of shares offered and cannot purchase a portion only of the said shares. An offer to purchase a portion only thereof will have the same effect as a refusal to purchase.

(vii)

E Any shares purchased shall be paid for in cash forthwith and failure to pay cash shall at the option of the seller be deemed a refusal to purchase.

(b)

Should the remaining shareholder or shareholders not signify their intention to purchase the shares referred to in para. 6 (a) above and within the period therein stated then it shall be deemed a refusal to F purchase and in that event the shareholder who has so offered the shares for sale may sell the said shares to any third party or parties irrespective of whether the directors do or do not approve of such third party or parties.

(c)

Subject to the provisions of clauses 6 (a) and 6 (b) above and subject to the further proviso that the directors cannot refuse to register a transfer of shares in favour of a person who is already a shareholder in the company, no transfer of shares shall be made to any G person who shall not be approved of by the directors.'

Clause 7 of the articles incorporates, subject to a minor amendment, the provisions of reg. 23 of Table A of the Companies Act. As so amended, the relevant portion of that regulation reads:

'The directors may decline to register any transfer of shares to a person of whom they do not approve, and may also decline to register any H transfer of shares on which the company has a lien.'

The refusal to accede to appellant's claim for registration is based upon the failure by Donohoe to observe the provisions of art. 6 (a) and (b). The original prayer for an order directing first respondent to cause the eight shares in issue forthwith to be registered in Milne's name has - in the circumstances, quite...