Mbethe v United Manganese of Kalahari (Pty) Ltd

• Jurisdiction: South Africa
• Citation: 2016 (5) SA 414 (GJ)

Mbethe v United Manganese of Kalahari (Pty) Ltd
2016 (5) SA 414 (GJ)

2016 (5) SA p414

Citation	2016 (5) SA 414 (GJ)
Case No	42213/2014
Court	Gauteng Local Division, Johannesburg
Judge	Wentzel AJ
Heard	October 26, 2015
Judgment	February 11, 2016
Counsel	J Brett SC for the applicant.; A Bham SC for the respondent.

Flynote : Sleutelwoorde B

Company — Proceedings by and against — Derivative action — Leave — Requirements for in s 165(5)(b) — Onus and standard of proof — Nature of good faith — Companies Act 71 of 2008, s 165(5)(b).

C Company — Proceedings by and against — Derivative action — Leave — If requirements for established, no discretion to refuse — Companies Act 71 of 2008, s 165(5)(b).

Headnote : Kopnota

This was an application for leave to bring proceedings in a company's name under s 165(5) of the Companies Act 71 of 2008. (The section is set out in D full in [39].)

The facts were that a company cancelled its ore-crushing agreement with another corporation, an action that Mr Mbethe, a director of the company, was opposed to. Ultimately he demanded that the company take steps inter alia to restore the agreement; the company refused; and Mbethe applied for the court's leave to bring proceedings in the company's name (s 165(5) of E the Act). The proceedings would be to enforce the demands.

This gave the court an opportunity to consider s 165(5)(a) and (b). It held as follows:

•

Paragraph (a)'s requirements are disjunctive while those of (b) are conjunctive (see [46] and [53]);

•

F the applicant must establish the requirements of para (b) on a balance of probabilities (see [82], [157] and [170]);

•

good faith (subpara (b)(i)) is composed of: a reasonable belief that there is a cause of action with prospects of success; and a proper purpose (see [154]);

•

a court should consider all of the facts to decide if the applicant is in good faith (see [184]);

•

G with regard to 'the court may grant leave only if [the requirements of paras (a) and (b) are met]': if the applicant establishes the requirements, the court has no discretion to refuse leave (see [190]).

The court concluded that Mbethe's demands had no basis and were not in good faith, and dismissed his application (see [189] and [194]).

Cases Considered

Annotations H

Case law

Southern Africa

Amdocs SA Joint Enterprise (Pty) Ltd v Kwezi Technologies (Pty) Ltd 2014 (5) SA 532 (GJ): referred to I

Larret v Coega Development Corporation (Pty) Ltd and Others 2015 (6) SA 16 (ECG): referred to

Mouritzen v Greystones Enterprises (Pty) Ltd and Another 2012 (5) SA 74 (KZD): dictum in para [59] applied

Mthimunye-Bakoro v Petroleum and Oil Corporation of South Africa (Soc) Ltd J and Another 2015 (6) SA 338 (WCC): referred to

2016 (5) SA p415

Sammel and Others v President Brand Gold Mining Co Ltd A 1969 (3) SA 629 (A): referred to.

Australia

Swansson v RA Pratt Properties (2002) 42 ACSR 313: dictum in para [26] applied.

Canada B

Richardson Greenshields of Canada Ltd v Kalmacoff [1995] BLR (2d) 197 (CA): referred to.

England

Burland v Earle [1902] AC 83 (PC): referred to C

Estmanco (Kilner House) Ltd v Greater London Council [1982] 1 WLR 2 (QB): referred to

Foss v Harbottle (1843) 2 Hare 461 (67 ER 189): referred to

Harley Street Capital v Tchigirinsky (No 2) [2006] BCC 209: referred to

Wallersteiner v Moir (No 2); Moir v Wallersteiner (No 2) [1975] 1 All ER 849 (CA): referred to. D

United States

Diamond v Oreamuno 24 NY 2d 494: referred to.

Statutes Considered

Statutes

The Companies Act 71 of 2008, s 165: see Juta's Statutes of South Africa 2015/16 vol 2 at 1-376. E

Case Information

J Brett SC for the applicant.

A Bham SC for the respondent.

An application by a director of a company for leave to bring proceedings in its name. The order is in [194]. F

Order

1.

The main application is dismissed with costs, including the costs consequent upon the employment of two counsel. These costs do not include the costs of Badenhorst SC's report.

2.

The costs of the interlocutory application to set aside the appointment G of the respondent's attorneys and Badenhorst SC and to strike out Badenhorst's report are awarded to the applicant.

Judgment

Wentzel AJ: H

[1] This is an application in terms of s 165(5) of the Companies Act, 2008 (the Act), to institute a derivative action in the name of the respondent, United Manganese of Kalahari (Pty) Ltd, in terms of a demand made by the applicant, Lazarus Mbethe, in terms of ss (2), which the respondent has refused to comply with as contemplated in ss (4)(b)(ii). I

[2] This has, in and of itself, conferred upon the applicant, as a director and chairman of the respondent, locus standi to approach the court in terms of ss (5) as contemplated in ss (2)(b).

[3] However, the applicant insists that in bringing the application he does so, not only in his capacity as chairman and a director of the J

2016 (5) SA p416

Wentzel AJ

A respondent, but also in his representative capacity as chairman and director of Majestic Silver Trading 40 (Pty) Ltd (MST), its majority shareholder and as chairman and director of Pitsa Ya Setshaba Holdings (Pty) Ltd (PYS), and as a trustee of the Kalahari Community Trust (KCT), both indirect shareholders of the respondent, for whose benefit the B respondent was allegedly formed. However, no resolution to this effect was produced and it is of some significance that neither PYS nor KCT has itself leveled the complaints against the management of the respondent, which are the subject-matter of the current demand, nor are they parties to the current proceedings which have been launched in the applicant's name. The applicant thus only has locus standi to bring the current C proceedings in his capacity as a director of the respondent, dealt with below.

The facts

[4] The applicant is one of the largest producers of manganese ore in the world. The applicant was formed as a special purpose vehicle for black D economic empowerment purposes, which was a precondition for the granting of the prospecting and, ultimately, mining rights to the respondent on 10 March 2008.

[5] The shares in the respondent were allocated in the ratio 51% to 49% between a local company, Majestic Silver Trading 40 (Pty) Ltd (MST) E with BEE objectives, and a Russian-based company, Renova Manganese Investments Ltd (Renova), that was tasked with establishing and running the mining operations. With a view to benefiting the local Kuruman community and to achieve its BEE objectives, the KCT was founded by the applicant, and MST's majority shareholding in the respondent was in turn allocated to:

[5.1]

F Samancor Manganese — 38%

[5.2]

Chancellor House Minerals Resources — 27%

[5.3]

PYS — 27%

[5.4]

KCT — 8%.

[6] Although KCT's shareholding is by far the smallest shareholding in G MST, much has been made of its interest in the respondent in the current application, whose interests the applicant, as a trustee of KCT, has claimed to champion. But more in this regard below.

[7] The respondent was established in 2005 and commenced with exploration and feasibility studies pursuant to a new-order exploration H permit granted to it in 2005. This was followed by the grant of a mining right. Mining operations commenced in 2008 and the respondent soon became a multibillion-rand company, with assets in its balance sheet by 2014 valued in excess of R2,5 billion.

[8] With assets of this magnitude, attempts have been made to skim off I the profits generated by the respondent through management and other contracts, leaving little, in relative terms, for the benefit of the community for whose benefit KCT was formed. Indeed, there is no evidence of any dividends having been declared to the trust to date, despite profits having been made. Amongst these contracts are the extremely lucrative iron-ore-crushing contracts awarded to mobile operators which form the J subject-matter of the current application.

2016 (5) SA p417

Wentzel AJ

[9] In order to conduct its mining operations the respondent requires to A crush the ore-bearing rock and commenced the construction of a fixed crushing and screening plant which was designed to handle the entire projected production of ore-bearing rock. However, whilst this plant was being built and thereafter, to absorb increased demand, the respondent elected to employ a number of mobile crushing and screening contracting companies to perform this task on a month-to-month basis. B

[10] One of such companies was Zastrospace, which was employed and retained, it is conceded, not for commercial reasons but to further broaden BEE objectives and to benefit the some 27 local communities that it purportedly represented. Indeed it is averred that the Zastrospace C contract has always been considered as an initiative to benefit local communities and it is conceded that it was not 'an arm's length' transaction in the strict commercial sense. [1]

[11] The preservation of the Zastrospace contract, worth several millions of rands, which was allegedly terminated for commercial reasons due to D the decrease in demand for iron ore, is an overriding motivation for the current application, as I will demonstrate below.

[12] Despite the termination of the Zastrospace contract, that of another mobile crushing operator, African Mining Contractors (AMC), was retained in circumstances dealt with by me below, which also forms part of the complaints levelled against the management of the respondent in E the statutory demand.

[13] Zastrospace was introduced to the respondent by the applicant, who was admittedly longtime friends with its CEO, Mr Roelofse (Roelofse), who secured a substantial management fee of 30% for F himself, through his management company, Cytopix...