Johannesburg Stock Exchange and Another v Witwatersrand Nigel Ltd and Another

• Jurisdiction: South Africa
• Judge: Corbett JA, Van Heerden JA, Smalberger JA, Nicholas AJA and Kumleben AJA
• Judgment Date: 22 March 1988
• Hearing Date: 15 February 1988
• Court: Appellate Division

Corbett JA:

The first appellant in this matter is the Johannesburg Stock Exchange (the 'JSE'), a stock exchange duly incorporated and licensed in terms of s 11 of the Stock Exchanges Control Act 1 of 1985 ('the Act'). G The second appellant is the executive president of the JSE, a Mr R A Norton, who is cited in his official capacity. The first respondent is Witwatersrand Nigel Ltd ('Wit Nigel'), a gold-mining company on the Witwatersrand with its registered office in Bryanston. The second respondent is a Mr B M Brothers, a shareholder in Wit Nigel.

H The shares in Wit Nigel are listed on the JSE. On 28 June 1987 and purporting to act in terms of s 17(3) of the Act, second appellant suspended the listing of Wit Nigel's shares. This eventually led to Wit Nigel and second respondent, on 27 July 1987, filing an urgent application in the Witwatersrand Local Division in which they cited appellants as respondents and claimed an order reviewing and setting I aside the suspension of Wit Nigel's shares and other relief, which I shall detail later. The matter came before Preiss J, who made an order reviewing and setting aside the share suspension and also granted certain of the other relief claimed. Appellants (respondents below) were ordered to pay the costs of the application jointly and severally. With leave of the Court a quo appellants appeal against the whole of the J judgment and order of Preiss J.

Corbett JA

A The facts and circumstances giving rise to the suspension of the Wit Nigel shares, as they appear from the affidavits filed in the application proceedings, may be summarised as follows. The executive chairman of Wit Nigel is a Mr P J George. He and others assumed control of the management of Wit Nigel in December 1983. The company operated a B small gold mine. George's intention at the time was to revitalise the company and expand its gold production. To this end he wished to extend the company's capital base by increasing its authorised and issued share capital and by issuing shares in exchange for assets, both in order to diversify the company's interests and in order to acquire assets against C which the company could borrow. In pursuance of these general intentions and in January 1984, the board of directors of Wit Nigel announced to shareholders a plan to increase the authorised share capital of the company from R2 200 000 divided into 8 800 000 shares of 25c each to R4000 000 divided into 16 000 000 shares of 25c each by the creation of 7 200 000 new shares of 25c each, such new shares to rank pari passu D with the existing shares. And at a general meeting of the company held in March 1984 a special resolution was passed increasing the authorised share capital in this way. At the same meeting an ordinary resolution was passed placing the unissued share capital of the company under the control of the directors until the next ensuing annual general meeting. This latter resolution was repeated from year to year at subsequent E annual general meetings.

The first transaction in terms of which this increased share capital was utilised consisted of the acquisition by Wit Nigel of 1 771 275 ordinary shares in a company known as The Afrikander Lease Ltd ('Aflease') in return for which Wit Nigel issued 3 542 550 of its shares F to shareholders in Aflease. This transaction had previously been authorised by a general meeting of shareholders of Wit Nigel passed on 22 August 1984.

During May 1985 and as a result of the expansion programme embarked upon during 1984 Wit Nigel found itself very short of cash assets with which to meet the claims of a large number of its creditors, including G its bankers, who were pressing for the repayment of what was owed to them. In order to avoid liquidation Wit Nigel decided to sell its Aflease shares. This it did during June 1985 for a total consideration of R6,5 million. The purchasers were overseas investors. One block of 500 000 shares was sold to an English unit trust fund called 'Save and Prosper'.

H Subsequently the financial position of Wit Nigel improved and the opportunity arose to re-acquire the shares sold to Save and Prosper when the latter decided to dispose of its entire portfolio of South African investments. This was done towards the end of 1986. In terms of the transaction negotiated Wit Nigel acquired the 500 000 Aflease shares in I consideration of the issue of one million shares in itself.

Thereafter application was made to the JSE for the grant of a listing for the one million newly issued shares. In reply to this application a letter (dated 13 January 1987) was received by Wit Nigel from Mr D T Gair, the assistant general manager (listings) of the JSE, in which he J stated that he had been directed to enquire from Wit Nigel

Corbett JA

A 'whether there is any direct or indirect arrangement or understanding relating to a buy-back of the Afrikander Lease Ltd shares in question which would indicate that this was not a genuine commercial transaction but one of accommodation'.

The letter further indicated that the listing of the shares would be deferred pending receipt of a reply to this enquiry. On 15 January 1987 George replied to this letter. He interpreted the enquiry as suggesting B that at the time of Wit Nigel's original 'forced sale' of its Aflease shares for cash the parties arrived at a direct or indirect arrangement or understanding in terms of which Wit Nigel agreed to buy back the Aflease shares at some time in the future and at an agreed price; and went on to give the assurance (at some length and with reference to C considerable circumstantial detail) that no such arrangement or understanding had ever been reached. This letter was placed by Gair before the listings subcommittee of the JSE, which resolved to grant the listing as from 21 January 1987. In a letter (dated 20 January 1987) notifying Wit Nigel of this decision Gair stated further:

D 'I have been directed by my committee to advise that, in its view, there appeared to be a pattern building up regarding the exchange of Wit Nigel shares for Afrikander Lease shares and accordingly your company is now placed under notice that no listing will be granted to shares issued by Wit Nigel in similar transactions unless the committee is satisfied in advance that it is a commercial transaction and not one of accommodation.'

E During early April 1987 an opportunity arose for Wit Nigel to acquire shares in a mining company known as Springs Dagga Gold Mines Ltd ('Springs Dagga') from a Johannesburg mining house, Johannesburg Mining and Finance Corporation Ltd ('JMFC'). The matter was considered by Wit Nigel's board of directors at a meeting on 15 April 1987. The board decided to take up 3 215 000 Springs Dagga shares in exchange for the F issue to JMFC of 1 995 000 Wit Nigel shares, which represented 14,99% of the existing issued share capital of the company. The transaction was made conditional on the JSE approving the listing of the new shares.

Rule 2.3 of section II of the listings requirements of the JSE (which G I shall refer to again later) provides as follows:

'All announcements other than dividend announcements and interim reports on behalf of listed companies, must be submitted for approval by the manager (listings) prior to publication.

Such proposed announcements will be scrutinised by the manager (listings) in order to ensure, as far as may be possible in the H circumstances, that all relevant facts are adequately disclosed in the clearest manner possible, and approval of the announcements will be granted on this basis.

Approval of announcements by the manager (listings) will not in any way reflect the committee's views as to the fairness or reasonableness of the underlying transactions which are the subject of such announcements. Neither does such approval constitute a guarantee by the JSE or its officials of the accuracy of the contents of such I announcements.'

On 15 April 1987 Wit Nigel's stockbroker, Mr J Blersch of Ed Hern, Rudolph Inc ('Ed Hern'), acting on behalf of Wit Nigel, submitted a draft announcement to shareholders of this transaction to Gair, in his capacity as manager (listings) of the JSE, for approval in terms of rule 2.3. The draft announcement gave details of the transaction and J indicated certain

Corbett JA

A financial advantages to be derived from the acquisition of the Springs Dagga shares (and in this connection made reference to a proposed merger of Springs Dagga and Consolidated Modderfontein Mines Ltd ('Modder'). The second paragraph of the announcement read as follows:

'Application will be made to the Johannesburg Stock Exchange and the Stock Exchange, London, for a listing of these additional shares in Wit B Nigel. The transaction is conditional upon the Johannesburg Stock Exchange approving the listing of the new shares. This transaction would increase the issued capital of the company by 14,99% to 15 295 407 ordinary shares of 25 cents each.'

The submission of this announcement to Gair took place at a meeting held C in Gair's office. At the meeting Gair told Blersch that he was unable to approve the announcement and was referring it to the next meeting of the listings subcommittee. He read out to Blersch his letter of 20 January 1987 and apparently indicated that he was not satisfied that the proposed transaction was not one of accommodation, ie he was not satisfied that it was indeed a commercial transaction to be concluded at D arm's length. This intimation was conveyed by Blersch to George. George was concerned by what appeared to him to be an unreasonable attitude on the part of the JSE, since (according to him) the Springs Dagga deal was indeed a commercial transaction concluded at arm's length and did not involve any arranged 'buy-back'. On his instructions and on 15 April E 1987 Ed Hern addressed a letter to Gair...