Liquidators Union Share Agency v Hatton

• Jurisdiction: South Africa
• Judge: Innes CJ, De Villiers JA, Kotzé JA, Wessels JA and Stratford AJA
• Judgment Date: 14 January 1927
• Citation: 1927 AD 240
• Hearing Date: 07 October 1926
• Court: Appellate Division

Innes, C.J.:

This is an appeal from an order of the Natal Provincial Division reversing a judgment of the magistrates courts of Durban. The case illustrates the necessity there was for a Companies Act for the Union, such as has recently become law, and the desirability of identical legislation on that subject throughout South Africa. The claim is upon the face of it a simple one; but its origin, and the circumstances surrounding it, raise a number of interesting questions, most of which it is unnecessary to decide, but some of which need to be kept in mind if we would appreciate the inwardness of the controversy and the views taken of it in the courts below. The demand is for payment of the balance of the price of certain shares purchased by the respondent in terms of a contract to which more detailed reference will presently be made. The seller was the Union Share Agency and Investment Limited - which for convenience will be referred to as the Agency - and the subject matter of the sale was 50 shares in the Union and Rhodesia Wholesale Limited, - which will similarly be called the Wholesale. The Agency was a private company incorporated in the Transvaal with a capital of £1,000. It was formed with the object, among others, of acquiring all rights under an agreement by which one Harris was to receive 6 per cent. commission on all shares sold by him in the Wholesale then in course of formation. It was registered at Pretoria on the 19th December, 1918.

Innes, C.J.

Thereupon it became promoter of the Wholesale, undertaking by contract dated 8th September, 191,9 with one Kemp, who acted on behalf of the contemplated company, that it would bear all the expense of promotion and flotation in return for the benefits which the contract conferred. The memorandum and articles of the Wholesale were signed at Cape, Town; the company was incorporated under the laws of. Southern Rhodesia, and it was registered at Salisbury on the 14th January 1920. Its objects covered practically the whole ground of mercantile activity; but its main business was to be that of a universal household provider; and one of its expressed purposes was to enter into and carry out a contract on the lines of the one which had been signed by Kemp on its behalf. In pursuance of this purpose an agreement was executed on the 7th February 1920 between the two companies. Its terms may be briefly summarised: the Wholesale undertook, in return for services rendered and money expended in connection with promotion and registration to issue 50,000 fully paid up shares at par to the Agency or its nominees. It also appointed the Agency the sole selling agent "of the present and all future issues" of Wholesale shares at a commission of 5 per cent. "upon the fully paid up value of all shares sold." And there was a special provision entitling the Agency to sell the shares in such manner as it thought fit, and to retain any difference between the price of issue and the price of sale. Now the Wholesale, as already stated, was incorporated at Salisbury; its statutory registered office was at Bulawayo, where its name plate was exhibited at the office of a local accountant. But at the date of the winding up order - to be presently mentioned - it had done no business in Rhodesia. Its head office was at East London, and by means of branches or agents it traded in every Province of the Union; but no business was ever done at Bulawayo except the issue of shares. The reason why it was not formed and registered in the Province where its head office was located was probably that the Company law of Rhodesia was regarded as less hampering to the operation of the very remarkable contract above summarised than the Company law of the Cape. And that was the fact. There Was no provision in the Rhodesian statutes corresponding to sec. 58 of Act 25 of 1892 (Cape). And the rigid directions governing the issue of shares contained in sec. 28 of Ordinance 2 of 1895 (Southern Rhodesia) and

Innes, C.J.

corresponding substantially with sec. 97 of the Cape Act had been replaced by the more elastic machinery of Ordinance 11 of 1907. However that may be, the Agency entered into a very large number of contracts for the sale of Wholesale shares, - most of them apparently upon the basis of payment by instalments spread over a considerable period. And the Wholesale embarked upon trading operations on a considerable scale. Its avowed policy was to cheapen the cost of living; and every "investor" who contracted to purchase its shares was given the privilege, upon deposit of the initial instalment, to purchase goods from Wholesale stores at wholesale prices, But while the instalments were slowly maturing, the liabilities of the wholesale were rapidly increasing. On the 27th April, 1921, a provisional winding-up order was issued by the Cape Provincial Division, which was made absolute on the 24th June following. A similar order was made in Natal on the 17th May, 1921, with the direction, however, that the winding-up should be ancillary to that at the Cape. Winding-up orders appear also to have issued in the Transvaal and in the Orange Free State; and the position of the Cape liquidators was recognised and approved by an order of the Eastern Districts Local Division. A provisional order for liquidation...