Trinity Asset Management (Pty) Ltd and Others v Investec Bank Ltd and Others

• Jurisdiction: South Africa
• Judge: Farlam JA, Mthiyane JA, Jafta JA, Maya JA and Cachalia JA
• Judgment Date: 27 November 2008
• Citation: 2009 (4) SA 89 (SCA)
• Docket Number: 574/07
• Hearing Date: 26 August 2008
• Counsel: CDA Loxton SC (with MW Janisch) for the appellants. SA Cilliers SC and AP Rubens SC (with J Blou and A Rowan) for the first respondent. AL Williamson for the second and third respondents.
• Court: Supreme Court of Appeal

Farlam JA: G

[1] This is an appeal from a judgment of Blieden J, sitting in the Johannesburg High Court, in which he dismissed with costs the appellants' application for certain relief. The relief sought included: (a) an order declaring that a loan agreement concluded, on the one hand, between Investec Bank Ltd, the first respondent, and, on the other, JCI Ltd, the second respondent, and Lexshell 658 Investments (Pty) Ltd (whose name H was changed to JCI Investment Finance (Pty) Ltd and which is a wholly owned subsidiary of the second respondent), the third respondent, was void for vagueness and/or impossibility of performance; (b) alternatively to (a), an order declaring that conditions precedent to the agreement had not been met; (c) an order interdicting the first respondent 'from in any I way implementing or benefiting from' the loan agreement; and (d) an order ordering the first respondent to restore the second and third respondents into the position that they would have been in had the loan agreement not been concluded; alternatively such order as to the restitution of the parties inter se as the court may deem fit. In what follows, I shall call the first respondent 'Investec' and the second respondent 'JCI'. I

Farlam JA

A [2] The appellants' application was heard by the court a quo together with another application brought by Letseng Diamonds Ltd (which I shall call in what follows 'Letseng') in which that company also sought certain relief against the same three respondents, arising from the same loan agreement. The relief sought in what may be called the 'Letseng B application' included declarations to the effect that the loan agreement was void or voidable on various grounds, as well as an interdict restraining the second respondent from tabling certain resolutions at a general meeting of its shareholders which it had called and at which the shareholders were asked to ratify the loan agreement. (The wording of the agreement which was to be ratified was amended from time to time C as reference was made to further agreements by which it was amended but the details thereof are not relevant for the purposes of considering the issues arising for decision in this matter.)

[3] Save for one aspect the loan agreement was implemented on both sides. Amounts totalling more than R1 billion were lent and advanced by D Investec to JCI, and subsequently repaid with interest. The aspect outstanding related to the payment of what was described in the agreement as'a raising fee', amounting to R50 million or 30% of the aggregate increase in the value of the assets which JCI furnished as security for its indebtedness (whichever was the greater on the agreed E due date of repayment). Although JCI was in a parlous state, staring bankruptcy in the face when the original loan agreement was concluded, it recovered significantly after it received the loans made to it by Investec. As a consequence the value of the assets it furnished as security increased to such an extent that, at the time of the application before the court a F quo, it was calculated that the'raising fee' amounted to a sum substantially in excess of R400 million.

[4] Before the two applications were argued before him Blieden J had, at the first respondent's instance, ordered in terms of rule 33(4) of the Uniform Rules, that the question as to whether the appellants and the applicant in the Letseng application had locus standi to raise certain G issues which arose in the two cases should be argued and decided separately. He did so because he was of the view that if his decision on this point went in favour of the respondents, it would be dispositive of the appellants' application and would determine the majority of the issues between the parties in the Letseng application. Having heard H argument on the locus standi point, he decided it in favour of the respondents and accordingly dismissed the appellants' application. He also ordered that the Letseng application be postponed for the remaining issues arising therein, which were not covered by his judgment on the locus standi point, to be adjudicated.

I [5] His judgment has been reported: see Letseng Diamonds Ltd v JCI Ltd and Others; Trinity Asset Management (Pty) Ltd and Others v Investec Bank Ltd and Others 2007 (5) SA 564 (W).

[6] As far as concerned the appellants (whom the judge collectively described as 'Trinity'), the issue to be decided separately was whether J the loan agreement had lapsed due to non-fulfilment of suspensive

Farlam JA

conditions in it and another agreement, which was referred to as 'the A disposal agreement' and which followed on and was dependent upon it.

[7] It was common cause before us that the learned judge had correctly approached the locus standi point on the assumption that all allegations of fact relied upon by the appellants and Letseng are true.

[8] In para 7.14 of his judgment (at 570C - E), Blieden J characterised B the issue before him as follows:

'In short, the present proceedings are concerned with the right of two shareholders of JCI, being Letseng and Trinity, to have a suite of agreements, including the [loan agreement], to which neither of them is a party, declared invalid one and a half years after their implementation, C apart from the payment of the raising fee. The parties to the agreements, JCI and Investec, have at all times regarded all the agreements to be binding on them.'

[9] The judge then proceeded to consider what he described as 'the relevant general legal principles applicable to the position of shareholders in companies' (paras [15] to [22] of the judgment (at 572 - 574D)). D

[10] The conclusion to which he came (at 573D - G (paras 19 and 20)) was that (save for limited exceptions not here relevant) 'a shareholder is a stranger to the company in its dealings with third parties' and he or she cannot interfere in the terms and conditions contained in an agreement between the company and a third party. Persons in the position of the E appellants and Letseng, he said, had no right as shareholders to attack the loan agreement: this could be done only by JCI, the management and control of the business of which vest in the directors whose functions cannot be usurped by individual shareholders.

[11] The judge (in para 27 at 575D - G) referred to Ex parte Ginsberg F 1936 TPD 155, in which it was held that it was not open to a litigant to bring an application for declaratory relief merely to be advised of his legal position and not where the order sought would not have the effect of binding some parties.

[12] The judge also held (in para 38 of his judgment at 578C - D) that G the appellants had only a 'financial interest', and not a 'legal interest', in the declaratory relief they claimed: in this regard he referred with approval to the distinction between direct legal interests and indirect financial interests in litigation upheld in Henri Viljoen (Pty) Ltd v Awerbuch Brothers 1953 (2) SA 151 (O) and United Watch & Diamond Co (Pty) Ltd and Others v Disa Hotels Ltd and Another 1972 (4) SA 409 (C). H

[13] In para 41 of his judgment (at 579A - B) the judge said that -

'both JCI and Investec have expressed their wish to be bound by the documents concerned, even though various clauses in such documents and agreements are prima facie incapable of performance, and the resulting contracts can be said to be voidable at the instance of any of I the contracting parties.'

[14] He continued (in paras 42 and 43 at 579B - E):

'[42] As is plain from the legal principles relating to declaratory orders to which reference is made above, a court is not entitled to give advice unless such advice is binding on some party. In the present case whether the agreements are binding or not, is not the question, it is J

Farlam JA

A whether the applicants, Letseng and Trinity, as individual shareholders of JCI, are entitled to have them set aside in the face of the two affected parties, JCI and Investec, adopting the stance that such contracts are binding. In my view they have no locus standi to do this.

[43] The shareholders, such as Letseng and Trinity, have full knowledge of all the facts, so much is plain from the affidavits filed on their B behalf. Whatever order they wish the Court to make cannot affect the agreement between Investec and JCI. It is only the decision of the general meeting that can have influence on the ratification or otherwise of the agreements concerned. There is nothing to stop either of the applicants informing the shareholders of JCI of their views before C the general meeting and canvassing the individual shareholders at the meeting to refuse to ratify the actions of the board in regard to the agreements concerned.'

[15] Does the case raise the simple question to which the judge referred in para 7.14 of his judgment that I have quoted in para [8] above?

D [16] Mr Cilliers, who appeared together with Mr Rubens, Mr Blou and Mr Rowan for Investec, contended that it did. He submitted that the question whether the appellants had the right to have the loan agreement and the other agreements which followed it declared invalid had to be answered by having regard to the memorandum and articles of JCI, which constitute the so-called 'company contract' between the company E and its members created by s 65(2) of the Companies Act 61 of 1973, as amended. There is no provision, he said, in the memorandum and articles that entitles a shareholder to meddle in the contracts of the company.

[17] On the other hand Mr Loxton, who appeared with Mr Janisch on F behalf of the appellants, contended that the judge had mischaracterised the question. The true question was not whether, in abstract, as it were, the appellants had the right to have declared invalid a contract between the company of which they were members and...