Mogale Alloys (Pty) Ltd v Nuco Chrome Boputhatswana (Pty) Ltd 2011 (6) SA 96 (GSJ) : recent case law

• DOI: 10.10520/EJC135271
• Date: 01 January 2012
• Author: P.J. Badenhorst,J.J. Du Plessis
• Published date: 01 January 2012
• Pages: 388-404

388

Onlangse regspraak/Recent case law

Mogale Alloys (Pty) Ltd v Nuco Chrome

Boputhatswana (Pty) Ltd

2011 (6) SA 96 (GSJ)

Alienation or disposal of a “controlling interest” in a prospecting company

1Introduction

Section 11(1) of the Minerals and Petroleum Resources Development Act

28 of 2002 (hereafter “MPRDA”) contains a restraint against the

alienation or transfer of prospecting rights, an undivided share in such

rights or a controlling interest in a company or close corporation holding

such rights, unless the approval of the Minister of Mineral Resources is

obtained. The restraint also applies to mining rights to minerals,

exploration and production rights to petroleum (ss 11(1) and 69(2)

MPRDA). As the

Mogal

e decision dealt with prospecting rights, our

discussion shall focus on prospecting rights but the principles are of

course also applicable to the other rights. The

Mogale

decision is

significant because it gives some indication of what is meant by a

“controlling interest” in terms of section 11(1) of the MPRDA. It also

illustrates how important it is to meticulously execute conditions in

contracts, and to understand the consequences of the non-fulfilmen t of

suspensive conditions if these consequences are harsh and unfair but

stipulated in the agreement. In effect, the plaintiff in this case paid R3

million for shares, but was unsuccessful in enforcing the agreement

through an order for specific performance because two suspensive

conditions were not fulfilled, and the contract contained a clause

preventing the plaintiff reclaiming the R3 million. In short, the plaintiff

paid R3 million but never became a shareholder of the company and

could not recover the payment contractually.

At the outset, an exposition of the facts, the relief claimed, the

arguments of the court and what was decided by the court will be

covered. In our commentary the requirements for the granting of

prospecting rights will be given as background information, followed by

our analysis of section 11(1) and (2) of the MPRDA. We intend to show

that a clear distinction ought to be made between the alienation of a

prospecting right (or share thereof) and the alienation of a “controlling

interest” in a company or close corporation holding a prospecting right.

The meaning of a “controlling interest” in a company or close

corporation for purposes of section 11(1) will be examined, as well as the

complexities of determining such meaning. It will be argued that

requirements in terms of section 11(2) apply to the prospecting

company or close corporation that intends to alienate, transfer or

Onlangse regspraak/Recent case law

389

dispose of a prospecting right (or undivided share therein). However, the

requirements of section 11(2) do not apply to the shareholder or member

of a close corporation (whether a juristic person or a natural person) that

intends to alienate, transfer or dispose of the person’s “controlling

interest” in a prospecting company. Section 11(2) also does not apply to

the person (whether a juristic person or a natural person) that obtains

such a “controlling interest”. We argue that there is confusion in the

Mogale

case between the juristic person holding the prospecting right

and the shareholders or members of the close corporation holding a

“controlling interest” in a company or close corporation wanting to

alienate, transfer or dispose of such “controlling interest”.

2The Facts

Nuco Chrome Boputhatswana (Pty) Ltd (hereafter “Nuco”) is a private

company, which held a prospecting right for precious metals on certain

farms in the North West province (par 7). The shareholding of Nuco was

as follows: Butler held 52%; Van Zyl 12%; Uthango (Pty) Ltd 26%; and

the Royal Bafokeng Nation 10% (pars 2 and 8). Butler sold 33% of his

shares to Mogale Alloys (Pty) Ltd (hereafter “Mogale”) for R3 million. For

current purposes, four clauses in the agreement between Butler and

Mogale (Pty) Ltd are of particular importance.

There were two suspensive conditions in the agreement. The first

(clause 5.1.2) required “the approval of the Department of Mineral

Resources of the sale [of] equity to the purchaser, to the extent such

approval is required by law” (par 14). The parties were

ad idem

that this

clause was a reference to section 11(1) of the MPRDA (par 15). In terms

of section 11(1) of the MPRDA, such approval was required,

inter alia

, for

the transfer, alienation or disposal of a “controlling interest” in a private

company (or close corporation) holding a prospecting right (Nuco held

such right).

The second suspensive condition (clause 5.1.3) related to the pre-

emptive rights of other shareholders in Nuco (Pty) Ltd, as contemplated

in article 64.1 of Nuco’s Articles of Association – article 64.1 was very

similar to the standard pre-emptive right provision contained in private

companies’ Articles of Association, requiring shareholders in private

companies to first offer their shares to the other shareholders in such a

private company before the shares could be sold to third parties (see par

48). The question arose as to whether the Royal Bafokeng Nation, as one

of the shareholders, had such a right of pre-emption (par 4).

The third important clause in the contract between Butler and Mogale

was clause 5.3, which stipulated that if any of the suspensive conditions

were not fulfilled within a period of 180 days from the date of the

signature of the agreement, then the agreement was to lapse and be of

no force and effect (par 6).

The fourth important clause, clause 5.4, is quite a remarkable clause

as it stipulated that if the agreement failed because the Minister’s

approval was not obtained (the clause 5.1.2 suspensive condition),