Louw v SA Mohair Brokers Limited

• Jurisdiction: South Africa
• Judge: Ebrahim J
• Judgment Date: 24 June 2010
• Docket Number: 368/09
• Court: Eastern Cape Division
• Hearing Date: 20 May 2010
• Citation: 2010 JDR 0730 (ECP)

Y Ebrahim J:

The applicants seek an order in the following terms:

'1.

Setting aside ordinary resolution number 1.4 passed at the annual general meeting of the First Respondent held on 4 December 2009;

2.

Setting aside the special resolution passed at the annual general meeting of the First Respondent held on 4 December 2009;

3.

Interdicting the Second Respondent from registering the special resolution passed at the annual general meeting of the First Respondent held on 4 December 2009 in terms of Section 200 of the Companies Act 1973;

4.

Interdicting the First Respondent from taking any further steps to implement ordinary resolution number 1.4 passed at the annual general meeting of the First Respondent held on 4 December 2009;

5.

Interdicting the First Respondent from taking any further steps to register the special resolution passed at the annual general meeting of the First Respondent held on 4 December 2009;

6.

Interdicting the First Respondent from taking any further steps to implement the sale of the Sale Shares and Sale Claims to the Third Respondent as contemplated in the

2010 JDR 0729 p3

Y Ebrahim J

special resolution passed at the annual general meeting of the First Respondent held on 4 December 2009.'

[2] The First to Fifth Applicants, who are shareholders in the First Respondent ('SAMB'), and the Sixth and Seventh Applicants aver that they are entitled to the relief they seek as the Fifth Respondent, 'in his capacity as chairman of SAMB and the AGM acted improperly and unlawfully:

'(a)

in ruling that proxies granted by 706 shareholders of SAMB ("the Proxy Grantors") in favour of Smith (the Seventh Applicant), Wolf Edmayr and Michael Nurse ("the Proxy Holders") to attend the AGM and to speak and vote thereat on their behalf as they deem fit, were invalid;

(b)

in evicting the Proxy Holders from the AGM at the commencement of the AGM.'

[3] The respondents oppose the application and dispute that the Fifth Respondent acted improperly and unlawfully in issuing the aforesaid ruling. It is common cause that the genesis of the decision to exclude the proxy holders from participating in the Annual General Meeting ('AGM') was a series of events preceding the AGM.

[4] The following is a brief summary of the pertinent facts that are at the centre of the dispute between the parties. On 27 October 2009 the Third Respondent ('OVK'), which held 34% of the shares in the Fourth Respondent ('CMW'), concluded an agreement with the directors of SAMB for the purchase of SAMB's 66% shareholding in CMW. Since this was the major asset of SAMB its shareholders were required to approve the sale to OVK in a special resolution. [1] Consequently, the members of SAMB were given

2010 JDR 0729 p4

Y Ebrahim J

notice that a special resolution [2] to this effect was being tabled for adoption at the AGM scheduled for 4 December 2009.

[5] The Sixth Applicant ('BKB'), a competitor in the mohair industry, was opposed to SAMB selling its 66% shareholding in CMW to OVK since it would result in OVK acquiring the entire shareholding in CMW. In the view of BKB and the other applicants this was not in the interests of the mohair industry as a whole as OVK operated in the grain farming industry.

[6] On 11 November 2009 BKB wrote to SAMB to advise that it was BKB's 'intention to submit an offer to SAMB for the acquisition of its shares in CMW' and that the offer would be delivered to the registered offices of SAMB the next week. It is common cause that the offer never materialised. BKB, in the weeks prior to the AGM of SAMB, concluded agreements with numerous shareholders in SAMB for the purchase of their shares. BKB also obtained a proxy from each of these shareholders to attend the AGM and vote on the shareholder's behalf, the intention being to vote against the adoption of the special resolution. [3]

2010 JDR 0729 p5

Y Ebrahim J

[7] On 2 December 2009 the attorneys representing BKB wrote to SAMB to inform it that certain shareholders of SAMB had sold their shares to BKB and 'in the agreements of sale concluded with BKB granted BKB an irrevocable authority to exercise the voting rights attaching to the Sold Shares'. A specimen of the agreements of sale [4] was attached to the letter. Transfer of the shares had however not been registered yet as the share register of SAMB had closed. [5] Accordingly, the shares remained registered in the names of the selling shareholders. [6] Copies of the proxy forms were annexed and the original proxy forms lodged timeously at the registered office of SAMB prior to the AGM.

[8] The first applicant, who had not sold his shareholding in SAMB, also appointed a proxy and authorised the proxy holder to attend the AGM and vote on his behalf.

[9] A special meeting of the directors of SAMB was convened on 3 December 2009 at which the letter from BKB's attorneys was considered. The chairman referred to

2010 JDR 0729 p6

Y Ebrahim J

section 15.2 [7] of the Articles of Association of the company and thereafter the meeting, acting on legal advice that had been obtained from senior counsel, resolved inter alia:

'That the purported sales to BKB by members of the company recorded by Attorneys Pagdens for BKB be disallowed and that they are hereby not approved.

That the proxies produced by BKB be regarded as part of an indivisible transaction of sale of shares and as such are not recognized.

That representatives of BKB are accordingly not entitled to attend the Annual General Meeting to vote and be required to leave the meeting. …………….' [8]

[10] After opening the AGM on 4 December 2009 the chairman raised the issue of the eligibility of certain proxy holders to attend the meeting and referred to what had taken place in the meeting of the directors the previous day. He informed the AGM that as the prior approval of the directors had not been requested by shareholders for the sale of their shares the directors had 'decided that they are unable and unprepared to approve these sales.' Further, they had taken 'Senior Counsel, Mr R van Rooyen SC, [sic] opinion with effect to the sales and that the sales were accordingly invalid. Senior counsel has advised further that because the sales are invalid and the proxies are given in pursuance of the sales as one indivisible transaction the said proxies are similarly invalid and cannot be entertained. I as the Chairman rule that the proxies are invalid as is the reported [sic] sale of the shares accordingly the representatives of BKB have no standing to be present at this meeting and are required to leave the meeting at once as also any of their representatives if any. So I therefore request that those who are here representing those proxies would then leave the meeting.' [9] The proxy holders thereupon left the meeting which continued in their absence with the

2010 JDR 0729 p7

Y Ebrahim J

items of business enumerated on the agenda. In due course the special resolution was adopted by the members present.

[11] The attack directed by the applicants at the ruling that excluded a number of proxy holders from participating in the AGM and at the decision of the directors of SAMB (which the AGM endorsed) that the sale agreements concluded by BKB with certain shareholders of SAMB was invalid, is premised on various grounds.

[12] The respondents have not disputed that the proxy holder of the First Applicant should have been allowed to remain in the AGM and that he was entitled to participate in the meeting but dispute that his shares carried sufficient votes to prevent the special resolution from being approved by the requisite majority. Insofar as the other applicants are concerned the respondents deny that they are entitled to the order sought.

[13] Mr Odendaal SC who, with Mr Rorke, appeared for the applicants submitted that in terms of the provisions of s 252 of the Companies Act the applicants were entitled to approach the Court for relief. Section 252 permitted any member of a company to apply for an order not only if the act or omission or the conduct of affairs was unjust or inequitable towards him but also if it was unjust or inequitable towards other shareholders. The conduct of SAMB in excluding proxy holders, representing 706 shareholders of SAMB, [10] from participating in the AGM was oppressive towards the proxy grantors. If these proxy holders had not been excluded the special resolution would not have attained the requisite majority of votes. Mr Odendaal contended that

2010 JDR 0729 p8

Y Ebrahim J

by not disclosing their intention to exclude the proxy holders the conduct of the directors lacked probity and smacked of mala fides.

[14] Mr Buchanan SC, with Mr Brookes, appeared for the respondents. He submitted that if one shareholder at a shareholders meeting was prevented from casting his vote against a resolution that the other shareholders had voted in favour of it was a technical irregularity and inappropriate to set aside the proceedings because of this. Such a dispute had to be resolved according to the Law of Meetings which had developed in regard to meetings of voluntary associations and companies both here and in England. [11] In the Garment Workers Union case the Court held that an applicant who sought relief on this basis had to show that his rights had been violated by a diminution of the effect of his votes through the failure to vote of a substantial number of persons who were entitled to vote by reason of the irregularity complained of. These basic principles had been followed in a number of cases over many years [12] and the correct enquiry was always whether the excluded votes would have affected the end result. [13]

[15] In response to the submissions by the respondents, Mr Odendaal submitted that the case of the Jockey Club of South Africa was inapposite in relation to the present application. It did not deal with s 252 or the Law of Meetings but with review

2010 JDR...