Greenacre and Others v Falkirk Iron Co Ltd and Others

• Jurisdiction: South Africa
• Citation: 1953 (4) SA 289 (N)

Greenacre and Others v Falkirk Iron Co Ltd and Others
1953 (4) SA 289 (N)

1953 (4) SA p289

Citation	1953 (4) SA 289 (N)
Court	Natal Provincial Division
Judge	Holmes J
Heard	June 14, 1953
Judgment	June 30, 1953

Flynote : Sleutelwoorde

A Company — Shares — Article prohibiting sale of shares to non-members — Not applicable to sale between members — Members include bodies corporate — B Articles further providing that such article not to apply to transfer to trustee of trust for benefit of members — Not necessary to record that such transferees holding as trustees — Directors — Office of declared vacant — Director not holding qualifying shares within stipulated period — Article empowering such disqualified director to be reappointed — Trust — What constitutes.

Headnote : Kopnota

Article 18 of a Company's Articles of Association provided that 'no C 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 a 'fair value''. Other Articles then proceeded to provide for the method of fixing the fair value, and for ascertaining whether any member 'was willing to purchase' at that figure, and that if members did not purchase the shares might be sold to non-members.

D Held, that these Articles read together were intended to restrict the transfer of shares from members to non-members and they had no application to transfers from one member to another.

Another Article, 24 (b), provided 'notwithstanding anything to the contrary contained or implied in these Articles, Article 18 shall not E apply to the transfer of any shareheld by a member to the trustees of any trust created for the benefit of such members and/or any one or more of his relatives'. Where the Court on the examination of certain trust deeds found that they constituted a trust in South African Law,

Held, that the word 'member' in the Article included bodies corporate.

Held, further, that it was not essential to have recorded on the F register of shares that the transferees were holding the shares as trustees.

Held, further, that the Article did not require that the transfer had to be to trustees in their capacity as such: where one of the terms of the trust was that the trustees were to receive transfer and have the shares registered in their personal names and not in their capacities as trustees, then a transfer to them was a transfer to the trustees within the meaning of Article 24 (b).

Article 38 of the Articles of Association of the Company provided that G the 'office of director shall, ipso facto, be vacated . . . (c) if he ceases to hold the required number of shares to qualify him for office, or does not, unless already qualified, acquire the same within one month after election or appointment, and if he so vacates office he shall be incapable of being re-elected or re-appointed until he has obtained his qualification'.

Held, that a casual vacancy on the directorate caused by a director not H holding qualification shares and not obtaining them within one month could be filled by the re-appointment of the very person who had to vacate office.

Case Information

Return day of a rule nisi. The facts appear from the reasons for judgment.

L. R. Caney, Q.C. (with him D. J. Shaw), for the applicants: A member cannot transfer shares unless he has notified the directors of his intention, and unless the directors have given all other shareholders

1953 (4) SA p290

an opportunity of purchasing them. The transfer of the shares in question was ultra vires because this procedure was not followed. The cases of Delavenne v Broadhurst, 1931 (1) Ch. 234; Greenhalz v Mallard, 1943 (2) A.E.R. 234 (C.A.), are distinguishable. The transfer of A shares from the first to the fifth to ninth respondents is invalid because the fifth to ninth respondents are not members of the company, unless respondents can show that the deeds constituted trusts within Article 24 (b). The question whether these deeds constitute a trust at all must be decided by South African Law. The shares are situated in B South Africa, see Borland's Trustee v Steel Bros., 1901 (1) Ch. 279 at p. 288; Jeffery v Pollak and Freemantle, 1938 AD 1 at p. 22; and the trustees have to administer the trusts in South Africa. See Wynn, N.O. and Westminster Bank v Oppenheimer, 1937 T.P.D. 91 at p. 99. The C deeds were executed in South Africa and it is immaterial that the power of attorney was given in Scotland. See Chatenay v Brazilian Submarine Telegraph Co., 1891 (1) Q.B. 79. The essence of a trust is out and out cession depriving the cedent of all title and control. No such trust exists here. See Liquidators, Union Share Agency v Hatton, 1927 D A.D. 240 at p. 250; Jeffery v Pollak and Freemantle, supra; Maasdorp, Vol. 4, p. 185 (5th ed.); cf. Discoverer's Finance Corporation's case, 1910(1) Ch. 312 at p. 316; Halsbury Laws of England, Vol. 5, p. 280 (Hailsham ed.). If the deeds are trusts they are not the sort of trust envisaged by Article 24 (b) which contemplates that natural persons will E be benefited. In any event it should have been recorded on the register that the transferees were holding the shares as trustees. See secs. 24, 25 and 27 of the Companies Act. The appointments of the respondents at the meeting of the 16th October, 1952, as directors and alternate F directors were invalid because the qualification shares have to be held by each director, according to the Articles, in his own name. The directors were not holding shares in their own names but by virtue of the trusts. As to 'holding', see Paul's Trustee v Justice & Sons, Ltd., 1912 (2) Scots L.T. 141 at p. 143; Bainbridge v Smith (1889) 41 Ch.D. G 462 at p. 470. There was no casual vacancy so the appointment of the two directors was invalid. A casual vacancy is one occurring only by death, resignation or bankruptcy. See York Tramways Co v Willows, 1882 (8) Q.B. (C.A.) at p. 685; Munster v. Cammel Co. (1882) 21 Ch.D. 183 at p. 187; Carbonic Gas Co v Ziman, 1938 T.P.D. 102 at p. 105; Mockford & H Ors v Gordon and Another, 1949 (3) SA 1173. Casual vacancies cannot be filled by the re-appointment of the very persons who have vacated office. See Article 37.

A. Suzman, Q.C. (with him W. G. Trollip), for the first to ninth and eleventh respondents: In regard to the construction of Articles 18 and 19, the general rule is that the right to transfer shares is absolute save so far as restricted by the Articles. Palmer's Precedents, 16th ed., p. 502; Weston's case, 1869 L.R. 4 Ch. App. 20; Delavenne v. Broadhurst, 1931 (1) Ch. 234. Articles only

1953 (4) SA p291

restrict transfer of shares to a non-member; therefore transfers to members can be made without restriction subject to the Board's approval. The rule expressio unius est exclusio alterius applies. See Weston's case, supra; Delavenne's case, supra. The latter is indistinguishable from the present case. In regard to the construction of Article 24 (b) A the first question is what is meant by 'trust' appearing therein; the next question is whether the trust deeds fall within that meaning. As to the meaning of 'trust', it is a word of wide signification to cover the case whenever one person is entrusted with the affairs of another. See B Zinn, N.O v Westminster Bank, 1936 AD 89 at pp. 96 - 7; Lucas' Trustee, 1905 T.S. 235 atp. 244; Estate Kemp v McDonald's Trustee, 1914 CPD 1084 at pp. 1091 etseq.; 1915 AD 491 at p. 499; McCullogh v Fernwood Estate Ltd., 1920 AD 204 at p. 209; Halsbury, supra, Vol. 33, para. 140; Underhill on Trusts, 10th ed., p. 2; Hanbury Modern Equity, C pp. 125, 348. The fallacy in applicant's argument is that it overlooks the fact that ownership can be split into bare dominium and beneficial ownership. The effect of the trust deeds is to create a trust in the shares. There is an out and out transfer of bare dominium to the D trustees. Vis-à-vis the company, all the rights of a shareholder are exercisable by the trustee. This is a trust according to South African and English Law according to the above authorities. It is not alleged or maintained that these deeds represent sham or colourable transactions, as to which see Halsbury, supra, Vol. 5, para. 485; Lindlar's case, 1910 E (1) Ch. 312 at p. 316; Buckley, 12th ed., p. 304. The trustee is not a mere agent, he is dominus of the shares. In interpreting Article 24 (b) regard must be had to the literal meaning, and also to the history and surrounding circumstances of the Articles. In regard to the literal meaning 'and/or' means that the trust must be for the benefit of the F member and his relative, or for the benefit of his relative, or for the benefit of the member. 'And/or' must be interpreted not only conjunctively but also disjunctively. Bonitto's case, 1944 (1) A.E.R. 91; Guerney v. Grimmo, 1932 referred to in Burrows' Words and Phrases, G Vol. 1, p. 181; Barnett v Est. Grumper, 1926 CPD 363; Aird v Hockly, 1936 E.D.L. 117 at p. 120; 1937 E.D.L. 34 at p. 42. Therefore the Article must be interpreted to include a trust for the benefit of a member. The meaning of 'member' is nowhere restricted to a natural person. At the times the Articles were registered two members were corporations. Moreover, Articles must be reasonably and H liberally construed. Burns v Siemens, 1919 (1) Ch. 225 at p. 231; Hobson's case, 1929 (1) Ch. 300; Halsbury, supra, Vol. 5, para. 486. Restrictions in Articles must be restrictively interpreted, therefore exceptions to restrictions must be liberally construed. A transfer of shares in order to increase voting powersis permissible. Halsbury, supra, Vol. 5, para. 485; Palmer's Precedents, 16th ed., pp. 502 - 3; Pender v Lushington, 6 Ch.D. 70; Moffat v Farquhar, 1878 (7) Ch.D. 591 at p. 607

1953 (4) SA p292

Stranton Iron & Steel Co., 1873 L.R. 16 Eq. 559...