Tigon Ltd v Bestyet Investments (Pty) Ltd

• Jurisdiction: South Africa
• Judge: McCall J, P C Combrinck J and Theron J
• Judgment Date: 10 May 2001
• Citation: 2001 (4) SA 634 (N)
• Docket Number: AR 226/01
• Hearing Date: 25 April 2001
• Counsel: J J Brett SC (with him L J van Tonder) for the appellant. P J van Blerk SC (with him S C Vivian) for the respondent.
• Court: Natal Provincial Division

P C Combrinck J:

In terms of a written agreement concluded on 15 October 1998, the Cayli Trust, the TMS F Family Trust and Johbert (Pty) Ltd (the sellers) sold to Synergy Management (Pty) Ltd 30% of the shareholding in EuroPoint Communications SA (Pty) Ltd, their shareholders' loan accounts, together with an interest in the EuroPoint Communications partnership. The purchase price was R12 273 723, which was payable by the issue to the sellers or their nominees of 767 100 shares in Tigon Ltd. The G issue of the shares was made possible by the fact that Synergy Management (Pty) Ltd is a subsidiary of Duty Free Wholesalers (Pty) Ltd, which in turn is a subsidiary of Tigon Ltd.

The sellers in the aforementioned agreement appointed Bestyet Investments (Pty) Ltd (Bestyet) as its nominee and the shares in Tigon Ltd (Tigon) were registered in its name. There was a split in the H shares on a 10:1 basis, with the result that Bestyet was the holder of 7 671 000 shares. In terms of the sale agreement the sellers were precluded from disposing, pledging or dealing with the Tigon shares in any manner prior to 31 January 2001.

On 26 January 2001, five days before the two year restraint in dealing with the shares expired, Tigon addressed the following letter I to the sellers:

'Notification of cancellation of agreement and of share issue being void

As you will recall, we acquired 30% of the shares and all the shareholders' loan accounts of the Cayli Trust and the TMS Family Trust in EuroPoint Communications J

P C Combrinck J

SA (Pty) Ltd together with the entire interest of Johbert (Pty) Ltd in the EuroPoint partnership with effect A from 1 February 1998 for a purchase consideration of R12 273 723 payable by the issue of 767 100 Tigon shares to your nominees, which shares were not tradable prior to 31 January 2001.

The said agreement was entered into based upon the performance of EuroPoint as represented by you at the time. A forensic audit which is currently being conducted into the financial affairs of EuroPoint has revealed that the representations which were made were false. At this B stage the exact extent of the false representations which were made has not yet been determined. Nevertheless, what is already known is that the misrepresentations made were material and, as such, allow us to repudiate the contract and accordingly also to proceed with its cancellation. We hereby give you notice that we repudiate the contract by virtue of the said false misrepresentations, greater details whereof will be provided to you in due course. We accordingly also cancel the C contract.

In repudiating the transaction we place on record that we do so, inter alia, due to the fact that the value which was placed on the transaction was determined on facts which were materially incorrect and false. The result is that, albeit that shares were issued in Tigon Ltd as being fully paid up, by virtue of the value of the transaction being totally overstated, it can never be said that the shares were fully paid up. That being so, the issue of the shares D concerned is irregular and in contravention with the provisions of s 92(1) of the Companies Act Act 61 of 1973 and thus a nullity. Their issue being a nullity, the share certificates need to be returned to the company forthwith so that the necessary administrative procedures can be finalised to deal with the events referred to above.

In the circumstances, notice has been given to the Registrar of Companies in terms of s 93(4) of the Companies Act that the allotment E of the shares is void.

The JSE Securities Exchange have been apprised of the situation and the necessary arrangements have been made to expunge the void shares from the register. You are also requested to confirm forthwith and in any event by no later than 12 noon on 29 January 2001 that you will not attempt to trade in the said shares. In making this request to you we draw your attention to the fact that should you, notwithstanding F this request, proceed to deal in the shares, such dealing would inevitably amount to a fraudulent transaction.

We look forward to your timely co-operation.'

It will be noted that Tigon was not a party to the original agreement and did not purport to act in the letter of cancellation under a mandate from the purchaser. In addition, there was no tender of G restitution. This letter was followed up by Tigon with a further letter on 29 January 2001 advising the sellers that the 7 671 000 shares had been expunged from the register. The letter was brief and to the point:

'Notification of expungement of shares from register H

Further to our letter dated 26 January 2000, we hereby notify you that we have received confirmation from the transfer secretaries that the 7 671 000 shares (767 100 shares split 10:1) referred to therein have been expunged from the register.'

By letter dated 29 January 2001 the sellers, through their attorney, rejected the purported cancellation of the agreement, warned I that the expungement from the register of the shares and the alteration in the register of the company amounted to self-help and threatened that, unless the register was restored to reflect the issue of the shares and the sellers as the holder, application would be made to Court. No response was received to this letter. J

P C Combrinck J

Bestyet then launched an urgent application out of this Court in which it claimed an order that Tigon forthwith restore Bestyet's name A to the share register of members in respect of the 7 671 000 shared held under share certificate No 534. In its founding affidavit, Bestyet claimed that Tigon had resorted to unlawful self-help by altering its register of members without the authority of the Court or the consent of the applicant and had thereby deprived Bestyet of its ability to trade in the shares and dispose of them on the JSE Securities Exchange B or privately. In essence it claimed that it had been spoliated and that it was entitled to an order restoring the position ante omnia.

In its answering affidavit Tigon contended, first, that no adequate grounds for urgency had been made out and, second, that it was not legally competent to order the restoration of Bestyet's name to C the register because the issue of the shares was void in terms of s 92 of the Companies Act. The main thrust of the defence was that the contract of purchase and sale had been induced by fraud, that Tigon had elected to declare it void and consequently, because the shares had not been fully paid up, their issue was void. The contention was variously put as follows: D

'I deny that the applicant is the holder of 7 671 000 shares as claimed, as the face value of these shares was never received due to the aforesaid misrepresentation by the sellers, accordingly the shares should never have been allotted or issued, the purported issue being void as it is tainted by the fraud. The applicant is merely the holder of certificate No 534, which represented a void issue and as such has E been expunged from the register.'

And further:

'The respondent was thus entitled and obliged to rectify its original instruction to the transfer secretaries (in terms of which the share certificates was issued to Bestyet) as the shares do not exist and their issue, having been void from the date of issuance, never have F existed.'

And:

'The respondent has not taken possession of the shares away from the applicant. Nor has the respondent...