Southern Witwatersrand Exploration Co Ltd v Bisichi Mining plc and Others

• Jurisdiction: South Africa
• Judge: Cameron J
• Judgment Date: 30 June 1997
• Citation: 1998 (4) SA 767 (W)
• Docket Number: 23059/96
• Hearing Date: 23 May 1997
• Counsel: PA Solomon (with him GE Turner) for the applicant MD Kuper (with him DN Unterhalter) for the first, second, sixth and seventh respondents
• Court: Witwatersrand Local Division

Cameron J :

Introduction B

This application arises from a dispute between the shareholders in a coal mining operation near Middelburg. At issue is an agreement whose validity depends on the fulfilment or waiver of a condition precedent. The applicant's case is that the condition was neither fulfilled nor waived. The respondents (of whom all but the fifth formally C oppose the application) dispute this. If the applicant's contentions are correct, then the agreement did not come into force, with the result that a previous agreement it was intended to supersede has not been cancelled. This would have dramatic consequences for the shareholdings in and the control of the colliery. D

Factual background

The dispute may be traced historically to a general meeting of the applicant ('Southwits') on 4 December 1995. Resolutions were passed removing three directors, including two of the respondents. One of the new appointees, E Dorfan, initiated the coup. He investigated a number of matters relating to Southwits' investment in the second respondent ('Black Wattle'), including the agreements that lie at the heart of the dispute. After obtaining legal advice, he challenged the share re-allocation. Dorfan is the deponent to the founding affidavit. His deposition sets out the factual background somewhat sketchily. The details of the dispute appear more fully from the answering F affidavit, whose deponent is the sixth respondent, Andrew Heller ('Heller'). According to the well-established formula for motion proceedings, the application must be determined, apart from common cause facts and uncreditworthy denials, on the respondents' version. The essential dispute, as will appear, is narrow. But, since G the arguments depended in part on the nuances arising from the broader facts, it is necessary to set them out in some detail.

Southwits, a public company listed on the Johannesburg Stock Exchange, was floated in 1988. The first respondent ('Bisichi') is a listed company in the United Kingdom. Its 'prime objective' is stated to be the pursuit of capital growth, inter alia, 'by financing mining ventures around the world'. It invested in Southwits when H Southwits was floated. Southwits on 9 October 1991 obtained a mineral lease from the Middelburg Town Council. This granted Southwits the exclusive right to mine and extract coal on a farm. Bisichi made its first direct investment in this project in late 1992. At that time it purchased a quarter share of the royalties due to Southwits I from the coal project. But the first venture foundered. The second respondent (Black Watt Colliery (Pty) Ltd) was then established to take over the coal mining operations. It became the sublessee of Southwits' mining lease, and assumed liability for payment of royalties. In October 1993 and March 1994, agreements were concluded in which Bisichi purchased from Southwits further portions of its royalty entitlement. Bisichi's share of the royalties rose to J

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44,11%. The March 1994 agreement also gave Bisichi a 13% equity stake in Black Wattle. In consideration for A the increased royalty and the share acquisition, Bisichi made a loan of R1,2 million to Southwits to permit Black Wattle's capitalisation.

Black Wattle's other shareholders were now Southwits (51%) and the eighth respondent, Magnama (Pty) Ltd ('Magnama') (36%). On 24 June 1994, these shareholders concluded an agreement. The notice of motion and B the founding papers refer to it as 'the first Magnama agreement' (I shall refer to it also as 'the shareholders' agreement'). Although its title page, its introductory recordal of the parties and its 'miscellaneous matters' clause suggest that Black Wattle was itself a party, this was not the case. Clause 3.1.4 defines the parties as Southwits, C Bisichi and Magnama; and it was signed on their behalf only. The agreement regulated the shareholders' relationship for the development of the mine regarding Black Wattle's dividends, share transfers, directors, management, administration and decision-making.

But problems arose with Reserve Bank approval for Bisichi's royalty investment in Black Wattle. The Bank took D the view that the Exchange Control Regulations did not permit Southwits to sell Bisichi a share of the royalties payable to it, nor for Southwits in consideration of the sale to have obtained a loan from Bisichi. Specifically, the Bank's stance was that Bisichi's loan to Southwits, and Southwits' cession of part of its royalties to Bisichi, E contravened Regulations 3(1)(c) and 10(1)(c). The Bank therefore insisted that Bisichi's royalty investment in Black Wattle be 'unbundled'. Despite negotiations, it was not prepared to depart from this requirement.

Bisichi, which had always sought royalties rather than the prospect of dividends, was reluctantly forced to F reconfigure its investment in Black Wattle. This led to the agreement that forms the core of these proceedings: the 'second Magnama agreement', concluded on 3 February 1995. It provided for Bisichi to acquire from Southwits and Magnama shares giving it a 50% stake in Black Wattle. This was to be effected by converting Bisichi's previous payments for its royalty share, and its loan, into a consideration for the enlarged shareholding. In G addition, to be able to pursue its mining operations, Black Wattle required a further injection of capital from Bisichi. This Southwits was not in a position to contribute. The second Magnama agreement provided for this.

The Reserve Bank advised Bisichi's South African lawyers that this proposed restructuring of Bisichi's investment H would receive approval.

The corporate parties to the second Magnama agreement were Southwits, Bisichi, Black Wattle and Magnama (applicant, first, second and eighth respondents). In addition, Dr Nicholas Stavrakis (third respondent), Jacques de Villiers (fourth respondent), Robert Corry (fifth respondent) and Heller (sixth respondent) signed in their I personal capacities. These persons and entities were closely linked - a point the significance of which will later become apparent. Black Wattle's directors at the time were Stavrakis, De Villiers, Corry and Heller. Magnama's representatives in the conclusion of the agreement were Stavrakis and De Villiers. (De Villiers appended his signature on Magnama's behalf.) J

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These two were also directors of Southwits and controlled the management company that operated Southwits. A

These parties agreed that all the previous agreements concluded between Bisichi and Southwits (including not only the October 1993 and March 1994 royalty agreements, but the June 1994 shareholders' agreement) would B be cancelled and substituted by the second Magnama agreement.

The agreement was, however, by clauses 3.1 and 17.1 made subject to the fulfilment of two conditions precedent. The initial date set for their fulfilment was 31 March 1995. This was extended (in circumstances that do not for present purposes require examination) to 31 July 1995 ('the cut-off date'). The first condition was C Reserve Bank approval (clause 17.1.1). This was obtained. The second was 'the cession, with the approval of the [Middelburg] Town Council, of Southwits' rights and obligations in terms of the mineral lease to Black Wattle' (clause 17.1.2). In terms of clause 17.2: D

'The condition precedent in 17.1.2 is inserted solely for the benefit of Black Wattle and may be waived by it in writing at any time prior to the date stipulated in 17.1 for fulfilment of the conditions precedent.'

Did Black Wattle waive the condition relating to cession? E

The Town Council's approval for the cession proved difficult to procure, and was not obtained before the cut-off date. Instead, Black Wattle's directors purported to waive the condition. Whether they did so validly is the first issue.

The answering affidavit recounts the following facts. Before the cut-off date, it had become clear that the F condition precedent relating to the cession would not be fulfilled in time. Heller therefore on 24 July 1995 telefaxed Stavrakis from London. He put an alternative to him. The first was that the parties to the second Magnama agreement should extend the deadline for the cession by a further two months to 30 September 1995. G The second was for Black Wattle to waive fulfilment of the condition in clause 17.1.2. In effect Stavrakis and De Villiers were invited either, as directors of Southwits, and as personal signatories, to extend the period to 30 September, or, as directors of Black Wattle, to sign the resolution waiving the condition. Heller expressed Bisichi's preference for extension. H

Heller's fax appended documentation designed to effect each of the alternatives. The draft extension had already been signed in London by Heller (in his own name) and Corry (in his own name and also on behalf of Bisichi and Black Wattle). Heller and Corry had also already signed the proposed Black Wattle resolution. With the I correction of a typing error in the date, it was headed:

'Circulated resolution of the Directors of Black Wattle Colliery (Pty) Ltd at London and Johannesburg on 24 July 1995.'

Heller's fax concluded by posing a deadline: '[I]f we have received nothing in writing from you by Tuesday afternoon, 25 July, we will have J

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to assume that you are not prepared to agree to the resolution waiving the condition precedent and consequently A there will again be deadlock on the Board of Black Wattle.'

The fax was transmitted to Southwits' fax number, as identified in both agreements for the purposes of notice. I return to the significance of this later. B

On 24 July, the proposed resolution was faxed back to London. Now, together with the signatures of Corry and Heller, it bore Stavrakis' signature. According to Stavrakis, he and De Villiers had already on 21 July 1995...