TWK Agriculture Ltd v NCT Forestry Co-Operative Ltd and Others

• Jurisdiction: South Africa
• Citation: 2006 (6) SA 20 (N)

TWK Agriculture Ltd v NCT Forestry Co-Operative Ltd and Others
2006 (6) SA 20 (N)

2006 (6) SA p20

Citation	2006 (6) SA 20 (N)
Case No	8328/2004 and 9765/2004
Court	Natal Provincial Division
Judge	Theron J
Heard	September 23, 2005
Judgment	April 4, 2006
Counsel	T W Beckerling (with A de Kok) for the plaintiff.; A J Dickson SC for the second defendant.

Flynote : Sleutelwoorde B

Company — Proceedings by and against — Derivative action by shareholder — Shareholder having common-law derivative action to enforce company's rights where persons controlling company (a) wrongfully or in breach of duty, benefiting themselves; and (b) using their control to ensure that no C action brought against them by company — Shareholder not required first to propose resolution that company institute action where such proposal would be exercise in futility.

Co-operatives — Rights of members — Co-operatives Act 91 of 1981 — Rights of minority — Whether common-law principles of minority protection in companies applicable to D co-operatives — Common-law derivative action — No reason why shareholder derivative actions should not also apply to co-operatives.

Headnote : Kopnota

The plaintiff instituted, on behalf of the fifth respondent, two actions against the defendants based on alleged breaches by the first defendant co-operative and its directors, the second to E fourth defendants, of their fiduciary duties to the fifth defendant co-operative in appropriating to themselves opportunities which properly belonged to the fifth respondent. The plaintiff's claim was that the first to fourth defendants were liable to account to the fifth respondent, alternatively, were liable in damages to the fifth respondent. The plaintiff and the first F respondent were the only members of the fifth respondent and the structure of the latter was such that they held an equal number of votes in both the general meeting of the fifth respondent and on its board of directors. The plaintiff alleged that, in those circumstances, there was no prospect that the directors or members of the fifth respondent would adopt a resolution authorising the G institution of action by the fifth respondent against the first to fourth respondents and that the fifth re- spondent was thus unable to institute action against the defendants. In both actions the defendants excepted to the plaintiff's particulars of claim on the basis that the plaintiff was not entitled in law to pursue the claims on behalf of the fifth respondent. They contended that (1) the common-law derivative action did not form part of South African law; (2) even if it did form part of South African law, it was not applicable to co-operatives; and (3) even if it did apply to H co-operatives, the plaintiff had not followed the correct procedure in that it had not made application for leave to sue in the name of the fifth respondent.

Held, that the 'proper plaintiff' rule was to the effect that where a wrong had allegedly been committed against a company, the company itself was the proper plaintiff to sue the wrongdoer. (Paragraph [9] at 24B.) I

Held, further, that the exception to that general rule, generally described as the 'fraud on the minority' exception, was that a shareholder was entitled to enforce the company's rights where the persons who controlled the company (a) wrongfully or in breach of duty, benefited themselves; and (b) used their control to ensure that no action was brought against them by the company. (Paragraphs [10] and [11] at 24D - I.) J

2006 (6) SA p21

Held, further, as to (1), that an examination of the case law revealed that the common-law derivative action was indeed a part of A South African law. (Paragraph [23] at 28G.)

Held, further, as to (2), that there was no reason why shareholder derivative actions should not be applicable to co-operatives: co-operatives had a separate corporate identity distinct from its members, that separate corporation was controlled by its B members and the majority of members controlled what the entity did. (Paragraph [38] at 31E - F.)

Held, further, as to (3), that English caselaw did not support the defendants' contention that the shareholder was required first to seek leave to sue. (Paragraph [40] at 32B.)

Held, further, that where it would be an exercise in futility, a member had standing to bring a derivative action even though he failed first to propose a resolution that the company C institute action. (Paragraph [42] at 32F.)

Held, further, on the facts of the present case, that either in general meeting or on the board of directors of the fifth respondent, the plaintiff would not be able to secure a majority vote to authorise the institution of action by the fifth respondent against the first to fourth respondents. In those circumstances, the derivative action was clearly available to the plaintiff. Furthermore, it would be an exercise in futility to propose a D resolution to institute actions in the name of the fifth respondent. (Paragraph [43] at 33C - D.) Exceptions dismissed.

Cases Considered

Annotations

Reported cases E

Southern African cases

Anirudh v Samdei and Others 1975 (2) SA 706 (N): dictum at 708E applied

Fedsure Life Assurance Co Ltd v Worldwide African Investment Holdings (Pty) Ltd and Others 2003 (3) SA 268 (W): applied

Francis George Hill Family Trust v South African Reserve Bank and Others 1992 (3) SA 91 (A): discussed F

Garment Workers' Union and Others v Smith 1936 CPD 249: applied

Gr\)ndling v Beyers and Others 1967 (2) SA 131 (W): referred to

Gundelfinger v African Textile Manufacturers Ltd and Others 1939 AD 314: dictum at 324 - 5 applied

Karroo Valley Farms Bpk en Andere v Klein Karoo Koöperasie Bpk en 'n Ander 1998 (4) SA 226 (C): dicta in paras [24] and [29] applied G

Land and Agricultural Bank of South Africa v Parker and Others 2005 (2) SA 77 (SCA): referred to

McLelland v Hulett and Others 1992 (1) SA 456 (D): dictum at 467G - I applied

Moti v Moti and Hassim Moti Ltd 1934 TPD 428: applied H

Natal Fresh Produce Growers' Association and Others v Agroserve (Pty) Ltd and Others 1990 (4) SA 749 (N): dictum at 754J - 755B applied

Petersen and Another v Amalgamated Union of Building Trade Workers of SA 1973 (2) SA 140 (E): applied

Sammel and Others v President Brand Gold Mining Co Ltd 1969 (3) SA 629 (A): referred to I

Voget and Others v Kleynhans 2003 (2) SA 148 (C): applied.

Foreign cases

Atwool v Merryweather (1867) LR 5 Eq 464: referred to

Burland v Earle [1902] AC 83: dictum at 93 applied

Dominion Cotton Mills Co v Amyot [1912] AC 546: applied

Foss v Harbottle (1843) 2 Hare 461 (67 ER 189): dictum in para 492 applied J

2006 (6) SA p22

Hargrave v Canadian Valley Electric Co-operative Inc 792 P 2d 50 (Okla, 1990): applied A

McDougall v Gardiner (1975) 1 ChD 13: referred to

McGauley v British Columbia 39 BCLR (2d) 223: applied

Menier v Hooper's Telegraph Works (1874) 9 Ch App 350: referred to

Mozley v Alston (1847) 1 Ph 790: referred to

Russel v Wakefield Waterworks Co (1875) LR 20 Eq 474: applied B

Wallersteiner v Moir (No 2); Moir v Wallersteiner and Others (No 2) [1975] 1 All ER 849 (CA): dicta at 857d and 858f - g applied.

Statutes Considered

Statutes

The Co-operatives Act 91 of 1981: see Juta's Statutes of South Africa 2005/6 vol 2 at 1-359. C

Case Information

Exception to the plaintiff's particulars of claim as lacking averments necessary to sustain a cause of action. The facts appear from the reasons for judgment.

T W Beckerling (with A de Kok) for the plaintiff.

A J Dickson SC for the second defendant. D

No appearances for the first, third, fourth and fifth defendants.

Cur adv vult.

Postea (April 4). E

Judgment

Theron J:

Introduction

[1] The plaintiff has instituted two actions against the five defendants: an action under case No 8328/2004 (the Durban Wood Chips action) and an action under case No 9765/2004 (the ShinCel F action). Both actions are based on a breach by the first defendant and its directors, the second to fourth defendants, of their fiduciary duties to the fifth defendant (CTC). In the Durban Wood Chips action, the breach arises from the acquisition by the first defendant of shares in NCT Durban Wood Chips (Pty) Ltd and the G construction and operation of a chipping facility by this company in competition with CTC. In the ShinCel action, the breach arises from the acquisition by the first defendant of shares in ShinCel (Pty) Ltd, a company that trades in competition with CTC, and the conclusion of a supply agreement by this company, in competition with CTC. H

[2] It is contended by the plaintiff that the acquisition of shares in NCT Durban Wood Chips (Pty) Ltd and ShinCel (Pty) Ltd, and the activities subsequently conducted through these companies, were opportunities that properly belonged to CTC and that the first to fourth defendants were obliged to procure for the benefit of CTC I and not for their own benefit.

[3] It is common cause that the claims advanced by the plaintiff are advanced on behalf of CTC. The plaintiff claims that the first to fourth defendants must account to CTC, alternatively, must pay to CTC damages suffered by the latter. J

2006 (6) SA p23

Theron J

The exceptions A

[4] The second defendant has delivered an exception in both actions. The terms of both exceptions are identical. In essence, the second defendant contends that the plaintiff has no entitlement in law to pursue the claims on behalf of CTC. B

The general approach to exceptions

[5] For the purpose of determining whether the plaintiff's particulars of claim are excipiable, all the factual allegations therein must be taken to be admitted. [1] Only allegations that are manifestly false or so divorced from reality that they cannot possibly be proved, need not be...