Sage Holdings Ltd v the Unisec Group Ltd and Others

• Jurisdiction: South Africa
• Judge: Goldstone J
• Judgment Date: 15 October 1981
• Citation: 1982 (1) SA 337 (W)
• Court: Witwatersrand Local Division

Goldstone J:

Introduction

H These proceedings were commenced against the background of a take over bid which the applicant had launched at the end of January 1981 for the acquisition of the whole of the issued share capital of the first respondent.

The primary purpose of the applicant's take over bid has failed. Of the issued capital of 49 807 282 ordinary shares of 20 cents each the applicant has a direct or indirect interest in 7 494 027 of such shares, ie the applicant and its subsidiaries are alleged by applicant to be the beneficial owners of that number of shares. The take over bid is thus

Goldstone J

now only of historical interest. That, however, has not in any way dulled the vigour with which the applicant still persists in its claim for the relief sought in the notice of motion. The substantive relief A sought is the following:

(a)

A declaration that the second respondent and the third respondent are subsidiaries of the first respondent;

(b)

a declaration that, by reason of s 39 of the Companies Act 61 of B 1973 (hereinafter referred to as 'the Act'), the second and third respondents may not vote on the ordinary shares they hold in the first respondent;

(c)

an interdict prohibiting the second and third respondents from voting on the shares they hold in the first respondent at meetings of its members;

(d)

an interdict restraining the first respondent from recognising C or acting upon any votes cast by the first and second respondents at meetings of the first respondent; and

(e)

an order that the Minister of Commerce and Industries appoint an inspector or inspectors to investigate the affairs of the respondents in terms of s 258 (1) of the Act.

D The relief under s 258 was added by way of an amendment which I allowed in terms of a judgment delivered on 21 May 1981. Since that date further affidavits have been filed by the respondents and by the applicant.

For convenience and clarity I shall refer to:

(a)

the applicant as 'Sage';

(b)

the first respondent as 'Unisec'; E

(c)

the second respondent as 'Newstock';

(d)

the third respondent as 'Billhawk';

(e)

the fourth respondent as 'Plover';

(f)

the fifth respondent as 'OTC'; F

(g)

the sixth respondent as 'Unit Securities';

(h)

Slawal Nominees (Pty) Ltd as 'Slawal';

(i)

Goshawk Securities Ltd as 'Goshawk';

(j)

Unisec Securities Ltd as 'USL';

(k)

Luxot Ltd as 'Luxot'; G

(l)

Trustion Nominees (Pty) Ltd as 'Trustion';

(m)

London and Dominion Trust as 'L and D'.

Unisec is a public company the shares of which are quoted on the Johannesburg Stock Exchange. Its consolidated assets amount to some R113 million. Newstock, Billhawk, Plover, Goshawk and Unit Securities are all H investment holding companies in the Unisec group. It is common cause that Plover and Unit Securities have at all material times and still are wholly owned subsidiaries of Unisec.

OTC is a company of which the chairman of the board of directors of Unisec, Dr A S Pienaar, is a director. OTC's shares are beneficially held, directly or indirectly, by Dr Pienaar's wife and members of her family.

It will be more convenient to identify the other companies named above as their roles in the relevant events emerge later in this judgment.

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Disputes of fact

With regard to the relief claimed, other than that under s 258, there appear to be no material disputes of fact. In Sage's founding affidavit, A its managing director, Mr L Shill, made many assumptions based upon such documents and information as were then available to Sage. Prior thereto Unisec and its associate companies had refused to furnish Sage with information concerning, inter alia, the shareholding of Newstock and Billhawk and their respective holdings of Unisec shares. However, in the answering affidavit filed on behalf of Unisec the relevant facts B concerning these matters were furnished by Dr Pienaar and it is principally on the basis thereof that this application must be decided.

In so far as Sage seeks final relief on motion, this application must be decided on the facts stated by the respondents together with such facts C advanced by Sage as are admitted by the respondents: see, eg, National Chemsearch (SA) (Pty) Ltd v Borrowman and Another 1979 (3) SA 1092 (T) at 1095B - C.

Unless the contrary is expressly stated by me, the facts to which I shall refer fall into one or other of the two categories which I have just mentioned.

Relevant history of Newstock and its dealings

D Newstock was incorporated on 18 January 1933 under the name Leon Motors Ltd. On 26 June 1964 it changed its name to Don Lewis Investments Ltd and thereafter on 28 May 1975 became a private company. On 14 November 1977 it assumed its present name.

E As at 31 December 1974 the issued share capital of Newstock was 800 000 ordinary shares. At that date Unisec and Unit Securities were the holders of 725 757 of these shares. On 17 February 1975 Newstock became a wholly owned subsidiary of Unisec following the cancellation of the 74 243 shares not held by Unisec or Unit Securities. In July 1977 the directors of Newstock were Messrs Brown, Thomas and Conn. The relevant F events of July 1977 are best told in the words of Dr Pienaar, the deponent of the replying affidavit filed on behalf of all the respondents. I quote from para 6 (d) - (f ) of that affidavit:

'(d)

At the end of July 1977 and during the first week of August 1977 discussions took place between Mr E G H H Blohm, the then chairman of Unisec's board of directors (who retired from that office on 31 G December 1979 and who lives in Hermanus), Mr E Tenderini (the then executive director of Unisec who resigned from that position on 18 May 1979 and no longer lives in the Republic), Mr P R S Thomas and Mr G B Brown (who were directors and executives of Unisec) and me, in regard to Unisec's ordinary shares which were then dealt in on the Johannesburg Stock Exchange ('the JSE') at or below 100 cents per share and which, in our opinion, was low in comparison to the H real worth of those shares.

(e)

We also had regard to the following facts -

(i)

the dividend declared by Unisec on its ordinary shares for its financial year which ended on 31 December 1976 was 10,25 cents per share and gave a dividend yield of approximately 10 per cent on the price referred to in (d);

(ii)

in our opinion there would be substantial growth, from a long term point of view, in the 'net asset value' of an ordinary share in Unisec and, therefore, a similar substantial increase in the dividends which would be declared by it on its ordinary shares in the years to come.

Goldstone J

(f)

In those circumstances, and as the management of Unisec was vested in us as its directors and therefore the right and duty of deciding A the manner in which Unisec's interests and therefore those of all its members would best be served and in the bona fide exercise of our judgment as those directors, we decided that it would be in the long term interests of Unisec and all its ordinary shareholders and Newstock that Newstock should cease to be Unisec's subsidiary and then use its shareholders' funds to purchase Unisec's ordinary shares.'

Then, according to Dr Pienaar,

B 'Messrs Tenderini, Brown and Thomas, as executives of Unisec, were instructed to take steps immediately to ensure that -

(i)

... Newstock ceased to be Unisec's subsidiary; and

(ii)

Newstock then purchased ordinary shares in Unisec.'

In consequence of the aforegoing 'instruction', on 9 August 1977, an C agreement was entered into between Unisec, Unit Securities and Goshawk. I shall henceforth call that agreement 'the Goshawk agreement'. Pursuant to the terms of the Goshawk agreement Newstock's issued and paid-up share capital was converted into 363 'A' shares of 50 cents each and 363 'B' shares of 50 cents each.

D As contemplated in the Goshawk agreement, Newstock's articles of association were amended to provide, inter alia, that:

(i)

The special rights attaching to both the 'A' and 'B' shares may only be amended with the prior approval of at least the holders of three-fourths of the 'A' and 'B' shares (art 7).

(ii)

Any share of any class may be sold and transferred to any person E who is already the holder of a share in the same class (art 10 (c) (i)).

(iii)

The holder of an 'A' share may not sell or transfer it unless all the 'A' shares and the 'A' shareholders' loan accounts have been offered in writing to the holders of the 'B' shares, pro F rata to their holdings, and in regard to this offer there are a number of provisions regulating the rights of pre-emption (art 10 (d)).

(iv)

The same type of pre-emptive right exists in respects of the 'B' shares, mutatis mutandis (art 10 (e)).

(v)

G A quorum for a general meeting is at least one 'A' member and one 'B' member (art 15).

(vi)

If there is a deadlock at any general meeting or no quorum, then the matters under discussion may be submitted to and decided by arbitration in terms of an arbitration clause contained in the articles (art 21).

(vii)

H The company is always to have an even number of directors but not less than four nor more than eight (art 24).

(viii)

Half of the directors may be nominated by the holders of the 'A' shares while the other half of the directors may be nominated by the holders of the 'B' shares (art 25).

(ix)

All the 'A' directors present at any meeting have one vote collectively between them, whilst all the 'B' directors present at any meeting collectively have one vote between them (art 35 (d) and (e)).

(x)

The quorum for a directors' meeting is two, of which half must

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consist of 'A' directors and half must consist of 'B' directors (art 37 (a)).

(xi)

Article 45 is of...