Naidoo and Another v Dube Tradeport Corp and Others
| Jurisdiction | South Africa |
Naidoo and Another v Dube Tradeport Corp and Others
2022 (3) SA 390 (SCA)
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Citation |
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Case No |
972/2020 |
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Court |
Supreme Court of Appeal |
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Judge |
Mocumie JA, Makgoba JA, Mothle JA, Mabindla-Boqwana JA and Weiner AJA |
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Heard |
November 27, 2021 |
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Judgment |
November 27, 2021 |
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Counsel |
GD Harpur SC for the appellants. |
Flynote : Sleutelwoorde
Close corporation — Members — Derivative action — Common-law derivative action still available, including to unregistered member — Beneficial owner of member's interest in close corporation can invoke derivative action on behalf of close corporation.
Close corporation — Members — Power to bind corporation — Third party seeking to rely on s 54 of CC Act must be bona fide and innocent — Close Corporations Act 69 of 1984, s 54.
Close corporation — Proceedings by and against — Common-law derivative action by member — Still available, including to actual, unregistered member — Beneficial owner of member's interest in close corporation can invoke derivative action on behalf of close corporation.
Practice — Pleadings — Exception — Approach of court — Must accept factual averments in particulars as truthful unless manifestly false — Cannot go beyond pleadings at exception stage.
Headnote : Kopnota
A and B were brothers locked in an acrimonious dispute over control of a close corporation, X, and the sale of its only asset to another concern, Y.
A claimed he was the beneficial owner of the member's interest in X and that B, X's sole registered member, held his member's interest on A's behalf as his nominee, and hence had no right to cause X to sell the property without first obtaining A's consent. When A and X later sued B and Y out of the Durban High Court to set aside the sale, the court upheld Y's exception to the effect that the claim was a doomed attempt by A, a non-member, to institute a derivative action on X's behalf. In the exception Y also claimed it was protected by s 54 of the Close Corporations Act 69 of 1984 (the CC Act), which provided that 'any member of a corporation shall in relation to a person who is not a member and in dealing with the corporation, be an agent of the corporation', because it had transacted with A on the basis that he was an agent of X who had the authority to bind it.
In its judgment the High Court held that, while a common-law derivative action was available to close corporations, A could not sue on X's behalf or in its name because he was not a registered member of X. The High Court also held that s 54 precluded the action by A and X against Y since Y had transacted with B, who, as X's sole member, had the power to bind it. Thus, the High Court reasoned, Y was protected against the negative effects of both the ultra vires and constructive notice doctrines. The High Court, having found that A and X's pleaded case did not set out a cause of action against Y, upheld the exception. In coming to its decision, the High Court seemingly doubted A's claims to membership of X, characterising him as 'a legal stranger to' X who was 'not capable of passing a resolution . . . authorising the institution . . . of proceedings in [its] name'.
In an appeal to the Supreme Court of Appeal Y argued that the abolition of the common-law derivative by s 165 of the Companies At 71 of 2008 meant
2022 (3) SA p391
that there was no derivative action applicable to close corporations either. Y further argued that s 49 and s 50 of the CC Act, respectively, barred A and X from bringing the action. [*]
Held
There were three issues for determination: (i) the locus standi of A and X, which was dependent on A's claim that he was a 'beneficial owner' of the member's interest in X; (ii) whether the common-law derivative action on which A relied was available in respect of close corporations; if so, (iii) whether A was entitled to bring such an action on behalf of X; and (iv) whether s 54 of the CC Act protected Y.
Ad (i): it was clear, on a simple and sensible reading of the allegations in the particulars, that A was suing on X's behalf and in his own name. While X was not, on the established principles of derivative action, supposed to be cited as plaintiff, this did not detract from the fact that A purported to sue on behalf of X. On the pleadings, A's locus standi to bring a derivative action on behalf of X was clear and should have been accepted by the High Court. (See [16] – [18].)
Ad (ii): The abolition of the common-law right of derivative action in s 165 did not affect the common-law rights in respect of close corporations incorporated prior to the commencement of the Companies Act that were not converted to companies. The common-law right of a member of a close corporation — including an actual, unregistered owner of a member's interest — to a derivative action was still available and not affected by s 49 and s 50 of the CC Act. A did not rely on s 49 or s 50 but was pursuing his common-law right as X's actual, albeit unregistered, member (See [21] – [22].)
Ad (iii): The purpose of s 54 of the CC Act was to protect third parties who had bona fide transacted with a member of a close corporation against the negative effects of the ultra vires doctrine and the doctrine of constructive notice. While the submission that s 54 protected Y was attractive at face value, the caveat in s 54(2), that where the third party knew, or ought reasonably to have known, that the member it was dealing with had no power to act for the close corporation, it did not enjoy the protection afforded by s 54. Here, Y was not a bona fide, innocent purchaser since it could not have believed, given the acrimony of the dispute between A and B, that A would have consented to the sale of X's property. Since Y had the imputed knowledge envisaged in s 54(2), it was removed from the protection of s 54(1), and it followed that the s 54 issue should also have been decided against Y. (See [29] – [34].)
Concluding remarks: The main flaw in the High Court's judgment was the failure to apply the established approach in respect of exceptions, namely to accept as correct the factual averments in the particulars of claim unless clearly false and untenable, which led to the wrong conclusion that A was not a member of X. Had it adopted the proper approach, it would have accepted that A was the beneficial owner of the member's interest in X and that B was his nominee and, on that basis, found that B had no authority to sell the property to Y. (See [35].)
2022 (3) SA p392
Cases cited
Southern Africa
Cassim and Another v Voyager Property Management and Others 2011 (6) SA 544 (SCA): referred to
Communicare and Others v Khan and Another 2013 (4) SA 482 (SCA): referred to
Dhayanundh v Narain 1983 (1) SA 565 (N): dictum at 576A – C applied
Fairoaks Investment Holdings (Pty) Ltd and Another v Oliver and Others 2008 (4) SA 302 (SCA) ([2008] 3 All SA 365; [2008] ZASCA 41): dictum in para [12] applied
Francis George Hill Family Trust v South African Reserve Bank and Others 1992 (3) SA 91 (A) ([1992] ZASCA 50): referred to
Gihwala and Others v Grancy Property Ltd and Others 2017 (2) SA 337 (SCA) ([2016] 2 All SA 649; [2016] ZASCA 35): referred to
Itzikowitz v Absa Bank Ltd 2016 (4) SA 432 (SCA) ([2016] ZASCA 43): referred to
Letseng Diamonds Ltd v JCI Ltd and Others 2009 (4) SA 58 (SCA): referred to
Lewis Group Ltd v Woollam and Others 2017 (2) SA 547 (WCC) ([2017] 1 All SA 192): dictum in para [30] applied
Meridian Bay Restaurant (Pty) Ltd and Others v Mitchell NO 2011 (4) SA 1 (SCA) ([2011] ZASCA 30): dictum in para [17] applied
Natal Fresh Produce Growers' Association and Others v Agroserve (Pty) Ltd and Others 1990 (4) SA 749 (N): dictum at 754J – 755B applied
Telematrix (Pty) Ltd t/a Matrix Vehicle Tracking v Advertising Standards Authority SA 2006 (1) SA 461 (SCA) ([2006] 1 All SA 6; [2005] ZASCA 73): referred to
Trinity Asset Management (Pty) Ltd and Others v Investec Bank Ltd and Others 2009 (4) SA 89 (SCA) ([2009] 2 All SA 449; [2008] ZASCA 158): dictum in para [55] applied
TWK Agriculture Ltd v NCT Forestry Co-Operative Ltd and Others 2006 (6) SA 20 (N): compared
Voget and Others v Kleynhans 2003 (2) SA 148 (C): dictum in para [9] applied
Wimbledon Lodge (Pty) Ltd v Gore NO and Others 2003 (5) SA 315 (SCA) ([2003] 2 All SA 179): referred to.
England
Foss v Harbottle (1843) 2 Hare 461 (67 ER 189): referred to.
Legislation cited
The Close Corporations Act 69 of 1984, s 54: see Juta's Statutes of South Africa 2020/21 vol 2 at 1-333.
Case Information
GD Harpur SC for the appellants.
AJ Dickson SC for the first respondent.
No appearance for the other respondents.
Order
The appeal is upheld with costs.
The order of the High Court is set aside and substituted with the following:
The exception is dismissed with costs.'
2022 (3) SA p393
Judgment
Makgoka JA (Mocumie JA, Mothle JA, Mabindla-Boqwana JA and Weiner AJA concurring):
[1] This is an appeal against the order of the KwaZulu-Natal Division of the High Court, Durban (the High Court), which upheld the exception of the first respondent, the Dube Tradeport Corporation (Dube Tradeport), to the appellants' particulars of claim. In the action, the first appellant, Mr Sagadava Naidoo (Sagadava) and the second appellant, Odora Trading CC (Odora), a close corporation, sued the first defendant, Mr Sivaraj Naidoo (Sivaraj) and Dube Tradeport to set aside the sale of certain farms, known as the Penare Farm Properties (the properties), by Odora to Dube Tradeport. Sagadava and Sivaraj are brothers, hence the reference to them by their first names. This is without any disrespect, but solely to distinguish the two brothers.
[2] Sivaraj is the sole registered member of Odora, and...
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