Sugden and Others v Beaconhurst Dairies (Pty) Ltd and Others

• Jurisdiction: South Africa
• Judge: O'Hagan J
• Judgment Date: 15 February 1963
• Citation: 1963 (2) SA 174 (E)
• Court: Eastern Cape Division

O'Hagan, J.:

In September, 1960, the first respondent in this application, a company known as Beaconhurst Dairies (Pty.), Ltd., purchased the farm known as 'Bleakhouse', 2020 acres in extent, situate in the district of Stutterheim. The sellers and co-owners of the B property were Mr. F. T. van Niekerk (since deceased) and his wife Mrs E. E. van Niekerk. The purchase consideration was £55,000 (R110,000.00) of which sum £27,000 (R54,000.00) was to be paid over a period of four years. After this period transfer was to be given to the company against registration of a first mortgage bond in favour of the sellers for the unpaid balance of the purchase price. Interest at the C rate of 6½ per cent per annum was to be paid by the company on the outstanding balances calculated from time to time.

The company had difficulty in meeting its commitments under this contract. As a result a written mandate to sell the property at a price D of R110,000.00 '(or such other amount as may be acceptable to the sellers)' was given to Elliott Brothers (Pty.) Ltd. by A. M. L. Crawford, a director of the Beaconhurst company. The farm had in the meantime been sub-divided into four portions. Thereafter on the 28th April, 1962, Elliott Brothers sold these four portions separately by public auction. One portion was sold conditionally to the first E applicant, E. M. Sugden, for R28,000. In terms of the printed conditions Sugden was bound by his bid for a stated period, but the sale was subject to the seller accepting the bid within that time. Sugden increased his offer to R30,000 and this sum was accepted. Two portions were sold conditionally by public auction to the third applicant, Mrs. F M. M. Hewson, for the respective sums of R12,900 and R14,600. These bids were accepted on the 14th May, 1962. Finally, the fourth portion of the farm was sold conditionally to the second applicant, C. S. P. Hart, for the sum of R21,400 and this bid was accepted on the 28th July, 1962. The conditions of sale in every case required payment of the purchase price in cash against registration of transfer.

G On the face of it nothing stood in the way of the implementation of the four contracts. In August, 1962, the attorneys for the first and second applicants wrote to the auctioneer expressing their clients' concern at a report they had received to the effect that the Beaconhurst company was negotiating with one Mountford for the sale of the farm, the H four portions of which had already been sold to the three applicants. At the end of that month the company's attorneys communicated with the first and second applicants' attorneys conveying the laconic remark

'We are instructed to inform you that the alleged sales to Mr. E. M. Sugden and Mr. C. S. P. Hart are invalid.'

There was a remarkable degree of reticence on the part of the company with regard to the grounds of the alleged invalidity. At the end of September its attorneys wrote that

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'There is no obligation on Beaconhurst Dairies (Pty.) Ltd. to provide you with any information and they decline to do so.'

It was not until mid-October that the company's attorneys somewhat cryptically averred that the sales to the three applicants were invalid

A '(1) In terms of sec. 70 dec (2) of the Companies Act. (2) In terms of Articles 105 and 106 to Table A of the First Schedule to the Companies Act.'

The third applicant and her attorney joined forces with the first and second applicants and their attorneys, and these parties lost no time in initiating the present proceedings by way of motion for an order compelling the company to implement the four agreements of sale.

B The case made out by the applicants is a simple one for the performance of contracts of sale on the face of them valid and enforceable. In answer to this the company through its director A. M. L. Crawford filed an affidavit detailing a series of grounds on which it is claimed that the contracts have no legal force.

C In the first place it is said that the requirements of sec. 70 dec (2) of the Companies Act were not complied with when the various contracts of sale were concluded. This sub-section reads as follows:

'(2) Notwithstanding anything in the articles of association the directors of a company shall not be empowered without the approval of the company in general meeting to dispose of the undertaking of the company or of the whole or the greater part of the assets of the D company. No resolution of the company shall be effective as approving of such disposal unless it authorises in terms, the specific transaction proposed by the directors.'

According to a schedule annexed to A. M. L. Crawford's affidavit the company owned fixed assets valued at R208,183.30, and of these the whole farm 'Bleakhouse' was shown at a value of R110,000 - more than half E of the total. For the company it was argued that the directors' decision to sell this property, followed by four separate sales to the three applicants, constituted a disposal of the 'greater part of the assets of the company', and that inasmuch as the directors' actions had not received the approval of the company in general meeting, the sales were void. Counsel for the applicants met this argument on several F grounds. I need deal with only one which appears to dispose of the point raised by the company. In doing so I shall assume that sec. 70 dec (2) governs the transactions concerned.

At the times relevant to this matter until the 29th June, there were only two shareholders in and directors of the company. They were A. M. G L. Crawford and J. R. Crawford. This fact is acknowledged in a letter of the company's attorneys to the applicants' attorneys dated the 15th October, 1962. In February, 1962, a mandate to sell the whole farm was given to the auctioneer by A. M. L. Crawford on behalf of the company. The auction took place on the 28th April. On the same day, according to a company minute, a meeting of directors resolved to authorise the H auctioneer to accept Sugden's increased offer of R30,000; and this authority was recorded in writing by A. M. L. Crawford on behalf of the company on the conditions of sale which Sugden had signed. The auctioneer then signed an acceptance of the offer. Another minute reveals that on the 14th May a directors' meeting resolved that the auctioneer be authorised to accept on the company's behalf the two offers made by the third applicant for portions 2 and 3 of the farm. On the same day the auctioneer signed the conditions of sale accepting the two offers.

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At the two directors' meetings held on the 28th April and the 14th May only one director, A. M. L. Crawford, was present - apart from the company's secretary. Crawford signed the resolutions I have mentioned.

A On the 18th July another meeting of directors was held. Both A. M. L. Crawford and J. R. Crawford were present. It was resolved that the auctioneer be authorised to accept on the company's behalf the second applicant's offer for portion 4 of the farm; and it was resolved further that the resolutions taken on the 28th April and the 14th May be confirmed.

B In an affidavit filed in answer to the present application A. M. L. Crawford makes the point that there was no formal resolution of either shareholders or directors authorising him to give a mandate to the auctioneer to sell the farm. While it is true that there appears to have been no formal participation by J. R. Crawford in transactions C concerning the applicants before the meeting of the 18th July, 1962, there is no suggestion that he was unaware of any of these transactions, or that what A. M. L. Crawford had been putting in train on behalf of the company did not carry his consent and approval. J. R. Crawford, indeed, has filed no affidavit in these proceedings.

The total sum payable by the three applicants for the portions purchased D by them amounted to R78,000. In September, 1962, the company's directors succeeded in effecting a sale of the farm to one Mountford at R94,000. It is, I consider, more than a matter of surmise that efforts to find a way out of transactions which had been sanctioned by the unequivocal agreement of all interested persons were prompted by a E dazzling opportunity of obtaining a substantially larger purchase consideration.

In my opinion it is to be inferred from all the evidence that the decision to dispose of 'Bleakhouse', and the implementation of that decision, was founded upon the joint consent and approval of both of the company's two shareholders and directors. Counsel for the company, F however, invites me to hold that because the approval of the shareholders was not expressed in general meeting, there was no compliance with sec. 70 dec (2).

The sub-section concerned is a fairly recent innovation in our company legislation. It has no counterpart in the English statute. Its purpose, G I think, was to secure a measure of protection for shareholders by giving them control over the disposal of the undertaking of a company or the whole or greater part of the assets of the company - vide Lindner v National Bakery (Pty.) Ltd. and Another, 1961 (1) SA 372 (O) at p. 378.

H By its memorandum of association the Beaconhurst company is empowered 'to sell or dispose of the undertakings of the company or any part thereof'. The transactions with the three applicants were, therefore, intra vires of the company, subject to the provisions of sec. 70 dec (2) - assuming that the sub-section governs the particular circumstances. The English Courts have, in several cases, dealt with the effect of the approval of the shareholders to transactions which could not lawfully be carried out by the directors. In Baroness Wenlock v River Dee Company, (1887) 36 Ch. D. 674, a company had by Act

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of Parliament been empowered to borrow £25,000 on...