Visser Sitrus (Pty) Ltd v Goede Hoop Sitrus (Pty) Ltd and Others

• Jurisdiction: South Africa

Visser Sitrus (Pty) Ltd v Goede Hoop Sitrus (Pty) Ltd and Others
2014 (5) SA 179 (WCC)

2014 (5) SA p179

Citation	2014 (5) SA 179 (WCC)
Case No	15854/2013
Court	Western Cape Division, Cape Town
Judge	Rogers J
Heard	May 28, 2014
Judgment	June 19, 2014
Counsel	A Ferreira for the applicant.; J Newdigate SC for the first respondent.

Flynote : Sleutelwoorde B

Company — Oppressive conduct — What constitutes — Directors' decision taken in terms of company constitution and meeting standard of conduct in s 76 which prejudices shareholder — Exceptional circumstances required for decision to cause 'unfair' prejudice within meaning of s 163 — Companies C Act 71 of 2008, ss 76 and 163.

Company — Oppressive conduct — What constitutes — Directors' decision to refuse to register transfer of shares — Decision taken in terms of company constitution — Directors complying with their fiduciary duties — Decision not unfairly prejudicial within meaning of s 163 — Companies Act 71 of 2008, ss 76 and 163. D

Company — Directors and officers — Director — Fiduciary duty — Duty to act in best interests of company — Ambit — Companies Act 71 of 2008, s 76.

Company — Directors and officers — Director — Fiduciary duty — Duty to act for proper purpose — Ambit — Companies Act 71 of 2008, s 76. E

Headnote : Kopnota

In this case Visser Sitrus (Pty) Ltd (Visser) sought to transfer its shares in Goede Hoop Sitrus (Pty) Ltd (Goede Hoop) to Mouton Sitrus. However Goede Hoop's board refused to approve the transfer and this caused Visser to approach a high court. There it sought an order amending Goede Hoop's F memorandum of incorporation insofar as it dealt with transfers of shares. The clauses in question provided that a shareholder required the approval of the board in order to transfer shares and that the board could decline to register a transfer without giving any reasons. Visser sought changes obliging the board to give reasons.

Held, that a memo could quite validly permit a board to not give reasons for G refusing to transfer shares. (Paragraphs [1], [7], [43] and [48] at 182D – E, 183C – E, 191A – B and 192A/B.)

Visser also sought an order compelling Goede Hoop to register the transfer of shares in terms of s 163 of the Companies Act 71 of 2008. That section allows a shareholder to apply to a court for relief if an act of the company has had a result that is unfairly prejudicial to it. It allows the court, in H determining the application, to make any order it considers fit. Visser based its s 163 claim on the alleged breach by Goede Hoop's directors of their s 76 fiduciary duties. (Section 76 provides inter alia that a director must act in good faith and for a proper purpose and in the best interests of the company.) (Paragraphs [1] and [52] at 182D – E and 192I.)

Visser's submissions raised this question: if directors exercise a power given to I them by the company constitution, and meet the standard of conduct in s 76, can a shareholder prejudiced by the decision complain that it unfairly prejudices him?

Held, that the circumstances would have to be exceptional for a decision taken in accordance with s 76 to cause unfair prejudice in terms of s 163. (Paragraphs [52], [59] and [65] at 192I, 194F/G and 196D.) J

2014 (5) SA p180

A Had then Goede Hoop's directors complied with their fiduciary duties in s 76? Visser did not allege an absence of good faith but alleged a failure to act for a proper purpose and in the best interests of the company. (Paragraphs [72], [79] and [85] at 198G, 201D/E and 202D/E.)

Held, as to the duty to act in the best interests of the company, that it was not B objective, in the sense of allowing a court to determine what was objectively in the best interests of the company. What it required was that the directors take reasonably diligent steps to become informed about the matter; that they subjectively believe their decision to be in the best interests of the company; and that their belief should have a rational basis (s 76(4)). The rationality criterion was objective, but more easily satisfied than a test of whether a decision was objectively in the best interests of a company. C (Paragraphs [74] and [76] at 199C – D and 200H.)

As to the duty to act for a proper purpose, it was objective: one had to determine the actual purpose the power was exercised for; the purpose the power was conferred for; and whether the actual purpose fell within the intended purpose. (Paragraph [80] at 201E – F.)

Held, applying the law, that the directors had acted in the best interests of the D company by refusing to register the transfer of shares: they had been sufficiently informed; had subjectively believed the decision was in the best interests of the company; and had acted rationally. (Paragraphs [82], [86] – [87] and [95] at 201I/J, 202G/H – J and 204G/H.)

They had also acted for a proper purpose. The actual purpose of refusing transfer E had been to prevent Mouton Sitrus increasing its shareholding, where this was believed to be against the best interests of the company. This actual purpose echoed the intended purpose of the provision. (Paragraphs [82] and [84] at 201I/J and 202C – D.)

Accordingly, s 76's standards having been met, the refusal to approve the transfer was lawful. (Paragraph [95] at 204H.)

This however left the question whether the refusal was nonetheless unfairly F prejudicial to Visser. (Paragraph [96] at 204H/I.)

Held, that it was not: Visser had not established an informal arrangement which invariably allowed shareholders to transfer their shares to other shareholders; nor had it proven a legitimate expectation that the directors would not exercise their power to refuse a transfer; and there was no authority of a G shareholder obtaining unfair-prejudice type relief where the directors had exercised their power to refuse a transfer in accordance with their fiduciary duties. (Paragraph [96] at 204I – 205B.)

The application was consequently dismissed. (Paragraph [98] at 205F.)

Cases Considered

Annotations

H Case law

Southern Africa

Aspek Pipe Co (Pty) Ltd and Another v Mauerberger and Others 1968 (1) SA 517 (C): referred to

Association of Regional Magistrates of Southern Africa v President of the Republic of South Africa and Others I 2013 (7) BCLR 762 (CC) ([2013] ZACC 13): referred to

Bayly and Others v Knowles 2010 (4) SA 548 (SCA): referred to

Estate Milne v Donohoe Investments (Pty) Ltd and Others 1967 (2) SA 359 (A): referred to

Grancy Property Ltd v Manala and Others [2013] 3 All SA 111 (SCA): J referred to

2014 (5) SA p181

Louw and Others v Nel 2011 (2) SA 172 (SCA) ([2010] ZASCA 161): A dictum in para [22] applied

McMillan NO v Pott and Others 2011 (1) SA 511 (WCC): referred to

Minister of Defence and Military Veterans v Motau and Others 2014 (5) SA 69 (CC) ([2014] ZACC 18): referred to

Peel and Others v Hamon J & C Engineering (Pty) Ltd and Others 2013 (2) SA 331 (GSJ) B ([2013] 1 All SA 601): dictum in para [53] not followed

Pharmaceutical Manufacturers Association of SA and Another: In re Ex parte President of the Republic of South Africa and Others 2000 (2) SA 674 (CC) (2000 (3) BCLR 241; [2000] ZACC 1): referred to

Richter NO v Riverside Estates (Pty) Ltd 1946 OPD 209: referred to

Sammel and Others v President Brand Gold Mining Co Ltd 1969 (3) SA 629 (A): dictum at 678H applied C

Smuts v Booyens; Markplaas (Edms) Bpk en 'n Ander v Booyens 2001 (4) SA 15 (SCA): referred to.

Australia

Cassegrain & Co Pty Ltd v Cassegrain [2011] NSWSC 1156: considered

Catalano v Managing Australia Destinations Pty Ltd (No 2) [2013] FCA 672: D considered

Fexuto Pty Ltd v Bosnjack Holdings Pty Ltd [2001] NSWCA 97: referred to

Manning River Cooperative Dairy Co Ltd v Shoesmith (1915) 19 CLR 714 (HC): referred to

Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692 ((1987) 5 ACLC 222): referred to E

Smolaret v Liwszyc [2006] WASCA 50: referred to

Wayde v New South Wales Rugby League Ltd [1985] HCA 68: considered.

Canada

Ontario Inc v Harold E Ballard Ltd (1991) 3 BLR (2d) 113 (Ont Div Ct): referred to. F

England

Charles Forte Investments Ltd v Amanda [1963] 2 All ER 940 (CA): referred to

Charterbridge Corporation Ltd v Lloyds Bank Ltd [1969] 2 All ER 1185 (Ch): referred to G

Ebrahimi v Westbourne Galleries Ltd [1973] AC 360 (HL) ([1972] 2 All ER 492): referred to

Mactra Properties Ltd v Morstead Mansion Ltd [2008] EWHC 2843 (Ch): referred to

Re A Company (No 00709 of 1992), O'Neill and Another v Phillips and Others [1999] UKHL 24 ([1999] 1 WLR 1092 (HL); [1999] 2 All ER 961): H referred to

Re A Company (No 8699 of 1985) [1986] BCLC 382 (Ch): referred to

Re Guidezone Ltd [2000] 2 BCLC 321: referred to

Re Saul D Harrison & Sons plc [1995] 1 BCLC 14 ([1994] BCC 475): referred to I

Re Smith & Fawcett Ltd [1942] 1 All ER 542 (CA): followed

Scottish Co-Operative Wholesale Society Ltd v Meyer [1958] 3 All ER 66 (HL): referred to

Village Cay Marina Ltd v Acland [1998] UKPC 11 (PC): referred to.

Ireland

Banfi Ltd v Moran [2006] IEHC 257: referred to. J

2014 (5) SA p182

Statutes Considered

Statutes A

The Companies Act 71 of 2008, ss 76 and 163: see Juta's Statutes of South Africa 2013/14 vol 2 at 1-344 and 1-380.

Case Information

A Ferreira for the applicant.

J Newdigate SC for the first respondent. B

An application for relief in terms of s 163 of the Companies Act 71 of 2008. The order is in para [98].

Order

C The application is dismissed with costs.

Judgment

Rogers J:

Introduction

[1] This application concerns the refusal by the board of the first D respondent (GHS) to approve a transfer by the applicant (VC) to the second respondent (MC) of the shares held by VC in GHS. VC seeks to compel GHS to register the transfer by way of relief in terms of s 163 of the Companies...