Robinson v Randfontein Estates Gm Co Ltd

• Jurisdiction: South Africa
• Judge: Innes CJ, Solomon JA, De Villiers JA, Wessels JA and Kotzé JA
• Judgment Date: 12 January 1925
• Court: Appellate Division

Innes, C.J.:

These proceedings present some very remarkable features. The appellant who was, when the transaction at issue took place, the chairman of the respondent company, claims the sum of £193,233, being the difference between the amount he paid the respondent in respect of 125,600 of its own shares and the proceeds of those shares when sold by him many years later. The claim is based upon a contract stated to have been concluded nearly 20 years ago.

The declaration alleges: -

(1)

A purchase by the Robinson Bank in December, 1904, of the shares in question and payment by the bank of £94,125 on account.

Innes, C.J.

(2)

A verbal agreement in July, 1905, between the appellant, the liquidators of the bank (which had gone into liquidation in February), and the respondent, to the effect: -

(a)

that the shares should be transferred to the appellant;

(b)

that the appellant should pay to the respondent the balance of £407,875 on condition that should the shares be sold for less than 65s. each the respondent would make good the shortfall, and if for more than 65s., the appellant would account for the excess;

(c)

that the bank should be released from further liability.

(3)

Payment thereunder by the appellant of £407,875 to the company in February, 1907.

(4)

The sales by the appellant between December, 1909, and 16th January, 1917, of all the shares for a total of £211,641.

So that to establish his claim to the difference between the two amounts, the appellant must prove a sale to the bank at the price stated; a due substitution of himself in the place of the bank, subject to the condition mentioned; and payment of the balance of the purchase price in terms of the contract. The declaration does not state whether the special condition as to re-sale was also a condition of the sale to the bank, but the subsequent pleadings indicate that it was. And that makes the case more remarkable still. For the balance which the appellant undertook to pay works out at exactly 65s. per share the pivotal price of the special condition. From which it would follow that the bank originally entered into a contract on which it was bound to lose £94,125, and could gain nothing, and that the appellant took over the liability which the bank had incurred upon terms which precluded the possibility of any profit to himself. A transaction so exceptional calls for explanation, and its true inwardness can only be appreciated by reference to the circumstances under which the shares in question were issued, and the occurrences which led up to their ultimate acquisition by the appellant. The pleadings are involved, and the evidence is of inordinate length. But they have been stated and summarized in the very able judgments of CURLEWIS, J.P., and TINDALL, J., and no good purpose would be served by repeating the process. As regards the pleadings, several defences were raised with which it will be found unnecessary to deal; but certain aspects of the respondents' pleas will call for

Innes, C.J.

consideration at a later stage. The facts will be referred to as far as may be necessary to elucidate an enquiry into the four main stages of a very complicated series of transactions the application for and allotment of the shares in question and the subsequent circumstances connected therewith; the alleged sale to the bank in December, 1904; the arrangement by which in 1905 the appellant took the place of the bank; and the circumstances and effect of the payment made by him in 1907.

It is well to realize at the outset the relationship in which the appellant stood to the institutions concerned. He had long been connected with the respondent company which had grown and prospered under his direction. The Robinson bank had been floated by him in 1895; it had originally included a powerful French interest, which however ceased in 1901. During 1902 it was reconstructed, without however any special change in its objects. Though nominally a bank, it was in reality a financial company formed for the purpose of assisting in the development of properties and of engaging in business more speculative than that ordinarily undertaken by bankers. The appellant was the chairman and the guiding spirit of both concerns. He entirely dominated the Randfontein board. The vice chairman, Langerman, who presided during his absence, was his salaried representative in South Africa bound to devote all his time and energies to his interests. The other directors were departmental employees of the company, nominated and qualified by himself and holding their seats at his pleasure. Though competent and able to manage their own departments and to deal with the routine work of the mine, they left larger questions to him. On matters of policy or finance he communicated his wishes to Langerman, who laid them before the board for ratification as a matter of course. He scorned in his evidence the idea that the other members should be consulted on such questions. As regards the bank he appears always to have been the largest shareholder; And by the articles, both of the original and of the reconstructed company, he was permanent chairman so long as he held sufficient qualifying shares. His fellow directors, after the reconstruction, were for the most part employees of the bank, and he admits that he probably qualified them. It is safe to say that no matter of policy or importance would have been entered upon without his initiation. And the transactions with which we are concerned must be considered in the light of these facts.

Innes, C.J.

It will be convenient first to consider the circumstances, connected with the issue of these shares to the bank. The resolution to increase the capital by half a million was adopted by the respondent's board on the 13th January, 1902. Immediately thereafter Pierce, the Johannesburg manager of the bank, received cabled instructions from the appellant to go to Pretoria find see that the new capital was registered, and from his bank to sign for the whole issue. It was to the interest of both that the new shares should be taken up promptly and on terms favourable to the company. They were both large holders who had sold heavily in 1901, and who continued to sell heavily in 1902; and a speedy flotation of the increased capital would naturally improve the value of the scrip. Pierce acted promptly, for on the 14th January, 1902, he, on behalf of the bank, signed the statutory deed as a subscriber for 500,000 shares. The wholesome restrictions prescribed by the legislature in respect of such transactions were however disregarded. Law No. 5 of 1874, sec. 6, made it essential to the due registration of a deed providing for an increase of capital that it should be accompanied by the sworn declaration of two directors to the effect that not less than 10 per cent. had been paid by the holder on each share subscribed. No such payment had been made when Pierce signed the deed. Yet on the 15th January the two directors who had passed the resolution executed the necessary declaration before a Justice of the Peace, and the deed was registered the same day. They are both dead, and it is impossible to enquire into the circumstances which induced them to act as they did. But the fact remains that the declaration was false. The appellant at once took the disposal of the new capital into his own hands. He sold 50,000 himself at 70s. he devoted 50,000 more to the satisfaction of an earlier option at 60s.; he arranged that 200,000 should be underwritten at 75s. less 5s. for underwriters commission; and he granted an option to Hirsch & Company over the remaining 200,000 for one year from the 8th February, 1902, at 70s. less 1s. per share commission if option exercised. When the arrangements had been completed, he notified the board of the accomplished fact, and his action was confirmed - a typical example of the manner in which the financial business of the company was conducted. The evidence shows that 300,000 new shares were registered in the bank's name in February and March, 1902. The parcel of 200,000 which had

Innes, C.J.

been underwritten was issued direct to the subscribers. The two lots of 50,000 already referred to were transferred to the purchasers so that 200,000 remained in the bank's name, but under option to Hirsch. In the result that option was only exercised in respect of 74,500, leaving a balance of 125,500 shares, with which the present controversy is concerned. Now the appellant says that the bank's application for 500,000 shares, and their subsequent allotment, was only a nominal transaction; the real intention was that the bank should be the agent of the company to sell the shares, and that they should be placed in the name of the bank for convenience of transfer. And I think that, as between the parties that was the position. The application was not a genuine one. Indeed it was unlikely that the bank, which had been selling Randfontein shares steadily during 1901, would contemplate the heavy expenditure involved in taking up the new issue at a high premium. More than that, the terms of a genuine application had never been settled. For the issue was to be at a premium; and the amount of the premium had not been agreed upon. A man who accepts the allotment of a share for a fixed amount becomes liable to pay that amount - a principle derived from the statute and apt to be invoked when shares have been issued at a discount. But where the issue is at a premium there is a liability to pay more than the face value - a liability arising from the acceptance of an application at a higher figure. Here the price had never been fixed. Moreover the fact that the shares were forthwith distributed by the chairman of the company over the head of the bank, goes to show that the latter was not regarded as the owner. I am satisfied that as between the...