THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case no: 206/2022
In the matter between:

BUYISWA GRACE PASIYA
FIRST APPELLANT
THANDI VERONICA MOHALE
SECOND APPELLANT
KOLISWA NTOBONGWANA
THIRD APPELLANT
KEELY CANCA
FOURTH APPELLANT
PRIMROSE PASIYA
FIFTH APPELLANT
YOLISA QANGULE
SIXTH APPELLANT
SHARON MNQANDI
SEVENTH APPELLANT
KOLEKA MAKHONGOLO
EIGHTH APPELLANT
PUMLA MDLELENI
NINTH APPELLANT
OUMA RAMATLODI
TENTH APPELLANT
THEMBI ZUNGU
ELEVENTH APPELLANT

and

LITHEMBA MINING (PTY) LTD
FIRST RESPONDENT
YOLISWA BALFOUR
SECOND RESPONDENT
SIPHOKAZI NYAMAKAZI
THIRD RESPONDENT
VUYOLWETHU NTOMBEKHAYA NCWAIBA
FOURTH RESPONDENT
SIVE YIBANATHI STOFILE
FIFTH RESPONDENT
NKOSI YAWO GUGUSHE
SIXTH RESPONDENT
NOSINDA TENA
SEVENTH RESPONDENT
ZODWA ENID MAHLANGU
EIGHTH RESPONDENT
NTOMBIZAKHE MADALA
NINTH RESPONDENT
NOMFANELO MAGWENTSHU
TENTH RESPONDENT

LITHEMBA INVESTMENTS (PTY) LTD
ELEVENTH RESPONDENT
THE COMPANIES AND INTELLECTUAL
TWELFTH RESPONDENT
PROPERTY COMMISSION

THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT

Reportable
Case no: 264/2022
In the matter between:
BUYISWA GRACE PASIYA
FIRST APPELLANT
THANDI VERONICA MOHALE
SECOND APPELLANT
KOLISWA NTOBONGWANA
THIRD APPELLANT
KEELY CANCA
FOURTH APPELLANT
PRIMROSE PASIYA
FIFTH APPELLANT
YOLISA QANGULE
SIXTH APPELLANT
SHARON MNQANDI
SEVENTH APPELLANT
KOLEKA MAKHONGOLO
EIGHTH APPELLANT
PUMLA MDLELENI
NINTH APPELLANT
OUMA RAMATLODI
TENTH APPELLANT
THEMBI ZUNGU
ELEVENTH APPELLANT

and

LITHEMBA MINING (PTY) LTD
FIRST RESPONDENT
YOLISWA BALFOUR
SECOND RESPONDENT
SIPHOKAZI NYAMAKAZI
THIRD RESPONDENT
VUYOLWETHU NTOMBEKHAYA NCWAIBA
FOURTH RESPONDENT
SIVE YIBANATHI STOFILE
FIFTH RESPONDENT
NKOSI YAWO GUGUSHE
SIXTH RESPONDENT
NOSINDA TENA
SEVENTH RESPONDENT
ZODWA ENID MAHLANGU
EIGHTH RESPONDENT
NTOMBIZAKHE MADALA
NINTH RESPONDENT

NOMFANELO MAGWENTSHU
TENTH RESPONDENT
LITHEMBA INVESTMENTS (PTY) LTD
ELEVENTH RESPONDENT
THE COMPANIES AND INTELLECTUAL
TWELFTH RESPONDENT
PROPERTY COMMISSION

Neutral citation:
Pasiya and Others v Lithemba Mining (Pty) Ltd and Others
(206/2022) and Pasiya and Others v Lithemba Mining (Pty) Ltd
and Others (264/2022) [2023] ZASCA 169 (01 December 2023)

Coram:
SALDULKER, ZONDI, MOTHLE and MATOJANE JJA and KATHREE-
SETILOANE AJA

Heard:
17 August 2023

Delivered:
01 December 2023

Summary: Declaratory relief – when competent under s 21(1)(c) of Superior Courts
Act 10 of 2013 – company law – whether resolutions to increase authorised share
capital and conclusion of loan agreement validly passed – dilution of shareholding
resulting from perfection of security – whether appellants’ claims have prescribed.

___________________________________________________________________
ORDER
___________________________________________________________________
On appeal from: Eastern Cape Division of the High Court, Grahamstown (Gwala AJ,
sitting as court of first instance):
1 The appeal is dismissed with costs including the costs of two counsel where so
employed.
2 The cross-appeal is dismissed with costs including the costs of two counsel where
so employed.
___________________________________________________________________

JUDGMENT
___________________________________________________________________
Zondi JA (Saldulker and Mothle and Matojane JJA and Kathree-Setiloane AJA
concurring):

Introduction
[1] This is an appeal against the judgment and order of Gwala AJ, sitting in the
Eastern Cape Division of the High Court, Grahamstown (high court), in which he
dismissed with costs the appellants’ application for declaratory relief. The relief sought
included an order (a) declaring as unlawful and setting aside a loan agreement
concluded between the first respondent, Lithemba Mining (Pty) Ltd (LM) and the
eleventh respondent, Lithemba Investments (Pty) Ltd (LI) in 2009; (b) declaring as
unlawful and setting aside the purported changes to the LM shareholding which
occurred in January 2010 pursuant to the loan agreement between LM and LI; and (c)
directing that any dividends to be paid by LM to its shareholders be paid in accordance
with the shareholding prior to the alleged unlawful changes. This appeal is with leave
of the high court.

[2] The fourth, fifth, sixth and eleventh respondents were aggrieved that the high
court awarded them costs on a party and party scale instead of on an attorney and
client scale. These respondents sought and obtained leave from the high court to
cross-appeal against its cost order. They contended that the appellants’ claims were

vexatious and frivolous and that the high court should have, in the exercise of its
discretion, ordered the appellants to pay their costs on an attorney and client scale.
Two main issues therefore arise in this appeal. The first, is whether the high court
erred in dismissing the appellants’ application for declaratory relief and the
consequential relief.  The second, is whether the high court misdirected itself by failing
to dismiss the application with costs on a punitive scale.

Background facts
(i)
Formation of Lithemba Mining
[3] The following background facts are relevant to the consideration of the issues.
The appellants and the second respondent are all shareholders in LM. In 2000 the
second respondent, Ms Yoliswa Balfour founded LI and invited a group of black female
entrepreneurs to form a BEE investment holding company with the focus of serving as
an empowerment partner in the energy sector. Once established LI identified an
opportunity to develop a coal mine in Mpumalanga called the Wonderfontein Coal
Project (the Project).

[4] The Project involved the exploration and subsequent development of a coal
mine. The development would comprise the exploration, mining, processing, and
marketing of three million tonnes of coal per annum for the domestic and export
markets.

[5] At the LI shareholders meeting of 13 November 2004, the opportunity to invest
in the Project was presented to members of LI but they declined, apparently, for the
reason that this would have required a significant cash contribution which LI was not
able to provide. And not all of its members had the necessary financial resources or a
desire to invest in this capital-intensive opportunity. It was then resolved at this
meeting that certain of the members of LI would be free to invest in the Project through
a new entity, despite the provisions of the LI shareholders’ agreement, on the
understanding that LI would, at no cost, be entitled to 10% of non-financial obligated
equity shareholding in the investment opportunity. This was because the investment
opportunity in the Project was procured by LI. This shareholding percentage was
subsequently changed from 10% to 12% following investment in the Project by Middle
East South Africa Energy Investment Holdings (Pty) Ltd (MESA).

[6] The Project required a significant amount of investment, and the members were
informed what their individual contribution would amount to. In furtherance of the
Project an existing company, Cream Magenta (Pty) Ltd, in which the Project would be
housed and pursued, was procured. On 15 February 2005, its subscribers resolved to
change its name to LM. This is how LM was formed. While certain LI shareholders did
not take the opportunity to invest, all shareholders of LM are also shareholders of LI,
save for one individual.

[7] LM participated in the Project through various structures. LM and MESA
entered into a joint venture and by agreement established a new company called
Lithemba Wonderfontein Coal (Pty) Ltd (LWC). LM took up 80% of the shares in LWC,
while MESA took the remaining 20%. The coal mine was owned by Umsimbithi Mining
(Pty) Ltd (Umsimbithi). On 26 September 2005 LWC and Umcebo Mining (Pty) Ltd
concluded a shareholders’ agreement in terms of which they agreed to establish
Mbokodo Mining (Pty) Ltd (Mbokodo agreement) to serve as a vehicle through which
to pursue a joint venture opportunity. Mbokodo managed and operated the coal mine.
Mbokodo was the only shareholder in Umsimbithi. LWC and Umcebo Mining (Pty) Ltd
(Umcebo) were the only shareholders in Mbokodo.

[8] The Mbokodo agreement contained a number of clauses which entailed the
transfer of shares by way of deemed offers in circumstances which were potentially
prejudicial to the interest of LM shareholders, including those of LI, the effect of which
would be to reduce the shareholding of LWC in Mbokodo. A number of these related
to circumstances where LWC was unable to make funding and capitalisation
obligations set out in the Mbokodo shareholders agreement. In particular, if Mbokodo
made a cash call and LWC and LM were unable to meet their respective obligations,
they would forfeit some of the shares and thus have a reduced stake in Mbokodo.

(ii)
Capital Call
[9] At a general meeting of LM in October 2008, the LM shareholders were
informed that there would be a call for a capital contribution for the funding of the
Bankable Feasibility Study (BFS) and other costs associated with the Project. LM was
informed at the 6 March 2009 Umsimbithi Board of Directors meeting and the 16 March

2009 Mbokodo Board of Directors meeting that LWC was required to provide
additional capital to cover budget overruns, a BFS and certain guarantees. In terms of
the Mbokodo shareholders’ agreement, LWC was afforded 90 days within which to
comply with capital calls otherwise it would be deemed to have offered its shares for
sale to Umcebo. The LM Board was also informed that Umcebo threatened to stop the
Project if funds were not paid on the due date. Thus, the LM Board urgently sought
funding to cover LWC’s R4.062 million portion of the Umsimbithi capital call.

[10] Various attempts were made to raise funds from financial institutions including
Anglo Coal. At this time a group of shareholders, under the name ‘Courageous
Consortium,’ also approached several parties to seek bridging finance to make an offer
to other shareholders who wanted to sell their shares in LM without success. After the
failure of these attempts to borrow funds, a meeting of LM Board was convened on 18
March 2009 where the Board discussed the issue of funding for the pre-feasibility and
BFS stages of the Project. The Board resolved to approach LI for short-term bridging
finance for the obligation, considering that even those individual shareholders who
were unable to contribute, would still benefit through LI because of its shareholding in
LM. LI had received a distribution from lthemba Trust, which in turn had received a
distribution from Stanlib, giving LI the ability to make the loan to LM, if it so chose. The
second respondent undertook to communicate with LI and report back on the terms
and conditions, if the loan application was successful.

[11] On 31 March 2009, the LM Board convened a meeting where the terms of LI
loan agreement were discussed. The Board first approved, the terms of a convertible
short-term loan agreement to be concluded between LM and LI. Second, it resolved
to increase the authorised share capital of LM from 10,000 ordinary par value shares
of R1 each to 50,000 ordinary par value shares of R1 each. And third, it resolved that
LI would be issued the appropriate number of shares required to perfect its security
under the LI loan agreement in the event that LM and its shareholders were to default
on repayment.

[12] On 3 April 2009, a memorandum describing the general meeting of LM
shareholders to be held on 18 April 2009 was circulated to all LM’s shareholders. This
was followed up with a notice convening a meeting circulated on 8 April 2009. Since

the date set for the meeting did not accord with the 21-day notice period for the
convening of the general meeting, when notice was given to shareholders, they were
requested that if there had any objections, they should communicate such objections
to LM’s chairperson.

[13] Ahead of the LM shareholders’ meeting to be held on 18 April 2009, a report on
the Project provided by the seventh respondent, Ms Nosinda Tena, was circulated on
17 April 2009 to LM’s shareholders. The report noted that there was a budget shortfall
in the Project and that LM shareholders were required to contribute pro rata towards
the shortfall. LWC had undertaken to make the payment to Mbokodo by 30 April 2009.
The report stressed that non-performance would trigger a deemed offer as stipulated
in the shareholder agreement and that the LM Board had to do everything within its
power to ensure that the clause would not be invoked.

[14] On 8 April 2009, the LM Board informed the shareholders of the amount each
shareholder was expected to contribute. The shareholders were warned that at the
general meeting on 18 April 2009, individual shareholders would be required to
contribute to certain projects.

[15]  Minutes dated 17 April 2009 detailing a meeting of LM’s Board meeting,
confirmed the minutes of the meetings of LM’s Board held via teleconference on 9
March 2009, 18 March 2009 and 31 March 2009. It further confirmed that the relevant
Board resolutions relating to the LI loan were adopted and signed.

(iii)
Shareholders meeting of 18 April 2009
[16] On 18 April 2009, a general meeting of LM’s shareholders was convened. The
shareholders were requested to confirm their consent to waive the 21-day notice
period. All members confirmed the waiver.

[17] The shareholders (including the appellants) unanimously resolved to:
(a)
Approve the conclusion of a convertible loan agreement between LM and LI.
The loan would be secured against the issuance of LM shares to LI should LM fail to
repay the loan.

(b)
Increase the authorized share capital of the company from 10,000 ordinary par
value shares of R1 each to 50,000 ordinary par value shares of R1 each.

(c)
The chairperson of the company or its company secretary was authorised to
sign all such documentation and do all such things as may be necessary for the
implementation of all resolutions taken at the meeting.

[18] On 8 May 2009, LM’s company secretary at the time lodged the special
resolution approving the increase of the authorized share capital from 10,000 to
50,000 ordinary par value shares of R1 each with the Registrar of the Companies and
Intellectual Property Commission (CIPC). The special resolution was stamped by the
Registrar on 15 May 2009.

[19] On 3 July 2009, the chairperson of the LM Board at the time, circulated a
memorandum to the shareholders in terms of which the shareholders were informed
of a capital call to reimburse LI by subscribing to additional shares at R444.44 each
pro-rata to the shareholders’ shareholding in LM. Shareholders were requested to do
so by 28 September 2009.

(iv)
Loan agreement
[20] The LI loan agreement was subsequently concluded on or about July 2009. The
essential terms of the loan agreement were:
(a)
First, LI advanced a loan in the amount of R4,062,161 bearing interest at 7.5%
on a straight-line basis. The loan was repayable no later than four calendar months
after the drawdown date namely 9 November 2009.
(b)
Second, as continuing security, LM pledged to issue to LI, if the loan amount
was not paid, such number of ordinary shares in the company as would result in LI
owning 51% of LM shareholding. Where only a portion of the repayment amount was
settled, LI would be entitled to perfect a pro-rata portion of the security.

[21] On or about 9 July 2009, LI transferred the loan amount to LM. LM, in turn, used
the loan to meet its cash call obligations and as a result the deemed offer provision in
the Mbokodo shareholder agreement was not triggered to the disadvantage of LM and
its shareholders.

[22] On 16 September 2009, the LM Board advised the shareholders of the
extension of the due date for the acquisition of new shares. The date was extended
from 28 September 2009 to 9 October 2009. The rationale for the extension was that
the LI payment date was 9 November 2009. The extended date would allow for the
necessary processes to take place. The LM Board further advised the shareholders
that Price Waterhouse Coopers (“PwC’’) had been appointed to manage and
administer the process going forward.

[23] On 9 October 2009, the LM Board advised the shareholders of a further
extension period to subscribe for additional shares in LM. The period was extended to
16 October 2009 to minimize any potential prejudice to shareholders who had not been
able to meet the initial time frames that had been set.

[24] On 19 October 2009, the LM Board advised the shareholders of a further
extension to 23 October 2009. The Board stressed that this was the final extension
because any further extensions would jeopardize LM’s ability to meet its obligations to
LI.

[25] On 20 October 2009, the Board sent a memorandum to the LM shareholders
with the subject “Mbokodo Cash Calls & Other Capital Call’’ in which the Board
confirmed that:
(a)
the memorandum was an addition to the memorandum sent on 19 October
2009;
(b)
on or about 23 October 2009, the LM Board would communicate the results of
the round of capital raising;
(c)
in the event that not all of the LM shareholders subscribed for the shares that
they were entitled to, the remaining shares would be made available to the LM
shareholders who followed their rights in respect of the first round; and
(d)
payment of the second round of capital must be cleared into the LM bank
account by no later than 30 October 2019.

[26] By 9 November 2009 when the LI loan was due for repayment, LM did not have
sufficient funding to meet its obligations to LI. Despite the various extensions sought,
none of the shareholders that sought these extensions, save for the second applicant,

in fact contributed. The shareholders that contributed were the second respondent,
third respondent, fourth respondent, the second appellant, the fifth respondent, the
seventh respondent, Pam Mdaka and Nambitha Stofile.

[27] On 11 November 2009, LI demanded payment of the loan by no later than 20
November 2009, failing which it threatened LM with legal action. On 13 November
2009, the LM Board sent a memorandum to LM’s shareholders with the subject
‘’Mbokodo Cash Calls & Other Capita Call’’ in which it advised that it had requested
an extension from LI in respect of the amount of R4 366 823.07 that became due and
payable on 9 November 2009, but it was declined, and that LI had demanded payment
of the loan amount by 20 November 2009.

[28] On 2 December 2009, a meeting of the LM Board was held at which, amongst
other matters, the transfer of shares to LI was discussed. On 16 December 2009, LM
Board met to discuss the repayment of the LI loan.

(v)
Perfection of security by Lithemba Investment
[29] As a result, LI proceeded to perfect its security under the loan agreement
through the issuance of fresh shares in LM. The effect was that LI’s shareholding in
LM increased by 5 556 shares from 12.5% to 38.11%. On 8 January 2010 a CM15
form was filed with the CIPC reflecting the issuance of fresh shares under the LI loan
agreement, whereby LI’s shareholding in LM increased from 12.5% to 38.11%, a total
of 6 806 shares.

[30] At that stage the total indebtedness of LM to LI including the interest was R4
366 823. Repayments against the loan totalling R1 897 503 were made by LM to LI
during the period 20 November and 17 December 2009. Consequently, LM was in
default in the amount of R2 469 320.

[31] Before and after LI had perfected its security, the LM Board undertook various
endeavours to avoid LM shareholders being diluted. Some of these endeavours
included engagement by certain LM shareholders with Anglo Coal which expressed
willingness to assist and offered funding of R10 million through a special purpose
vehicle. This attempt failed because most of the LM shareholders including some of

the appellants refused to participate in the process. The LM Board also engaged LI to
negotiate an agreement to buy back the shares that LI had perfected as a security for
the loan. The newly elected LI Board determined that it was not in the interests of the
LI shareholders to sell the LM shares and consequently rejected LM’s proposed share
buyback agreement.

(vi)
Dilution
[32] One of the central issues that gave rise to unhappiness among the members of
LM was the inevitable consequence of the dilution that those shareholders suffered
because of their failure to follow the rights when offered further shares to fund the loan
repayment to LI. The appellants first expressed their dissatisfaction with the LI loan in
October 2009 when some of them, through their legal representatives, wrote to LM
seeking information and documentation related to the special resolutions passed at
the meeting of April 2009. LM replied promptly explaining the events that led up to the
18 April 2009 meeting, which subsequently resulted in the resolution of the loan
agreement.

[33] The LM Board met to discuss the concerns raised. It resolved to give the
shareholders a further extension to respond to the cash call. The Board also resolved
to seek advice as to whether a meeting could be convened with the dissatisfied
shareholders to deal with the issues.

[34] On 23 October 2009, another letter was sent to LM in which the appellants,
through their attorney, recorded their objection to the special resolution adopted by LM
shareholders at the 18 April 2009 meeting. On 26 October 2009, the LM Board
convened a special meeting to discuss the issues raised by the dissatisfied
shareholders including the appellants. The meeting further suggested that a round
table discussion be held with the dissatisfied shareholders to discuss the dispute. But
before the round table discussion occurred, on 18 January 2010, the appellants’
attorney wrote again to LM demanding that LM cease all actions to implement the
special resolution and threatened legal action if the demand was ignored.

[35] Various attempts were made by the LM Board to resolve the dilution dispute.
When those attempts failed, on 8 September 2012, the LM shareholders including the

appellants and the LM Board agreed that the matter relating to the dilution of
shareholding be regarded as closed. It was decided that if any shareholder still wished
to pursue the dispute, they could do so through expedited arbitration proceedings
under the auspices of the Arbitration Foundation of South Africa (AFSA).

[36] The only step taken by the appellants was in 2013. They attempted to lodge a
claim with the Companies Tribunal. The appellants sought an order requiring the
parties to undergo conciliation, mediation or arbitration to restore the share value lost,
and/or to compensate them with shares. The Tribunal, however, dismissed the
complaint for lack of jurisdiction. Thereafter, the appellants took no further steps.

[37] LM proceeded to conduct its business in accordance with the post-dilution
shareholding proportions. The coal mine became self-sustaining and, in 2014, some
five years after LM met its cash call obligations, LM declared its first dividend. In the
years since, over R130,044,845 worth of dividends have been declared and paid by
LM to its shareholders in the post-dilution shareholding proportions, and the appellants
received these payments without objection.

[38] On 9 February 2019, the LM shareholders constituted an alternative dispute
resolution committee (the ADR committee). The ADR committee, comprising
independent persons as well as shareholder representatives, sought to develop a
commercial solution to remedy shareholder relations in the interests of the company.
The ADR committee formulated a report which was ultimately rejected by the
appellants on the basis that they were dissatisfied with the outcome despite having
actively participated in the process and even though the process was aimed at a
resolution in the best interest of LM.

Proceedings in the High Court
[39] On 29 July 2020, some 11 years after the passing of the relevant resolutions,
the appellants instituted these proceedings for the relief set out in para 1 above. In the
founding affidavit the appellants advanced various grounds on which their claim for
the declaratory relief was based.

[40] They alleged that:

(a) the second and third respondents connived to present the appellants, as
shareholders in LM, with a commercially prejudicial loan which resulted in the dilution
of the shareholding in LM and in the increase of LI’s shareholding in LM and this
resulted in the second respondent significantly benefitting in the transaction because
of her shareholding in LI;
(b) the loan was riddled with unlawfulness, improperly authorised, loan amount
inflated, loan being improperly funded and constituted a related party transaction;
(c) the minutes of the shareholders’ meeting of 18 April 2009 were misleading to the
extent that they reflected that the increase of the LM’s shares by 40,000 was
discussed;
(d) the resolutions emanating from that meeting were unlawful because no proper vote
on them was taken, and the objections to the resolutions by other shareholders with a
combined shareholding of 56%meant that the special resolution threshold could not
be achieved.
(e) other funding alternatives existed which could satisfy the capital call made to LM;
(f) the loan from LI to LM breached s 4 of the Companies Act 71 of 2008 (the 2008
Companies Act) and the Companies Act 61 of 1973 (the 1973 Companies Act)
because LI had no funds at the time it reportedly made the loan to LM; and
(g) the second respondent was not authorised by the LM shareholders to enter into
the loan agreement.

[41] The respondents opposed the relief sought. They contended that the appellants
failed to make out a case for declaratory relief. In support of this contention the
respondents stated that the loan agreement between LI and LM was lawfully
concluded. It was authorised and approved by the Board of Directors and the
shareholders’ meeting of LM on 18 April 2009. The loan was procured to meet the
cash call obligations. The respondents denied further that the loan agreement resulted
in unlawful dilution of the appellants’ shareholding in LM. They stated that the decision
was taken that the loan be secured, and specifically against the issuance of fresh
shares in LM to LI, and that LM shareholders had the opportunity to provide the
required capital, and if a shareholder failed to take up this opportunity, their
shareholding would be reduced proportionately.

[42] In addition to opposing the application on its merits, the respondents raised
procedural defences. They contended that (a) due to the numerous factual disputes
arising in the matter, the appellants should have proceeded by way of action
proceedings and not by way of motion proceedings; (b) the appellants’ claims have
prescribed (c); the appellants acquiesced to the dilution of shares (d); the appellants
have, by conduct, waived their rights; and (e) that the appellants should be estopped
from pursuing their claims.

[43] The high court with reference to Cordiant Trading CC v Daimler Chrysler
Financial Services (Pty) Ltd 1 (Cordiant) found that the appellants had established that
they had interest in an existing or contingent right by virtue of being the shareholders
in LM. However, in the exercise of its discretion, and because of the appellants’ undue
delay in instituting the proceedings, it refused to grant the declaratory relief sought and
dismissed the application with costs including costs of two counsel where so
employed.

[44] The appellants advanced two main grounds on which they based their attack
on the judgment of the high court. They submitted, first, that the high court erred in its
application of the test for declaratory relief. The high court, the appellants argued,
failed to deal with the first leg of the test. It dealt only with the delay, which is one factor
from the second leg of the test and decided the matter on that basis without
considering the merits. They submitted that the high court should have dealt with the
merits and only then should it have considered the question whether to exercise its
discretion in favour of, or against, the grant of the order.

[45] Second, it was submitted by the appellants that the high court erred in not
dealing with the merits of their claims and all of the defences raised by the
respondents. Relying on the Constitutional Court judgment in Spilhaus2 counsel for
the appellants argued that the high court should have dealt with all the issues before
it.  The Constitutional Court in Spilhaus3 held that it is desirable for a lower court to

1 Cordiant Trading CC v Daimler Chrysler Financial Services (Pty) Ltd [2005] ZASCA 50; [2006] 1 All
SA 103 (SCA); 2005 (6) SA 205 (SCA) para 17.
2 Spilhaus Property Holdings (Pty) Limited and Others v MTN and Another [2019] ZACC 16; 2019 (6)
BCLR 772 (CC); 2019 (4) SA 406 (CC).
3 Spilhaus paras 44-46.

pronounce on all issues before it as the litigants are entitled to a decision on all issues
raised especially where they have an option of appealing further.

Whether the test for declaratory relief was met
[46] The question is whether the high court erred in its application of the test for
declaratory relief. In terms of s 21(1)(c) of the Superior Courts Act 10 of 2013, a high
court may, in its discretion, and at the instance of any interested person, enquire into
and determine any existing, future, or contingent right obligation, notwithstanding that
such person cannot claim any relief consequential upon the determination. The
applicant who seeks a declaratory relief must satisfy the court that he or she is a
person interested in an ‘existing, future or contingent right or obligation’ and then if
satisfied on that point, the court must decide whether the case is a proper one for the
exercise of the discretion conferred on it. The question must be examined in two
stages.

[47] This Court in Cordiant formulated a two-stage approach to be followed in
determining whether to grant the declaratory relief as follows:
‘It seems to me that once the applicant has satisfied the court that he/she is interested in an
‘existing, future or contingent right or obligation’, the court is obliged by the subsection to
exercise its discretion. This does not, however, mean that the court is bound to grant a
declarator but that it must consider and decide whether it should refuse or grant the order,
following an examination of all relevant factors. In my view, the statement in the above dictum,
to the effect that once satisfied that the applicant is an interested person, ‘the Court must
decide whether the case is a proper one for the exercise of the discretion’ should be read in
its proper context. Watermeyer JA could not have meant that in spite of the applicant
establishing, to the satisfaction of the court, the prerequisite factors for the exercise of the
discretion the court could still be required to determine whether it was competent to exercise
it. What the learned Judge meant is further clarified by the opening words in the dictum which
indicate clearly that the enquiry was directed at determining whether to grant a declaratory
order or not, something which would constitute the exercise of a discretion as envisaged in
the subsection…’4

4 Cordiant fn 1 para 17.

[48] The appellants’ contention that the high court failed to correctly apply the test
for declaratory relief must fail. The high court considered the first leg of the test. It
found that the appellant had an interest in an existing or contingent right, as they are
shareholders in LM and their shareholding was diluted. This affected them not only in
relation to the sharing of dividends but also in relation to the voting rights, and thus the
first stage of the test was established. Thereafter the high court turned to the second
leg of the inquiry. It found that this was not the case where the court ought to exercise
its discretion in favour of granting the declaratory order sought. This was so, reasoned
the high court, because the appellants unduly delayed in approaching the court for
their relief which they sought. The appellants only sought the court’s intervention in
2020 imploring it to ‘turn the wheels back to the position prevailing in 2009’. It found
that whilst the appellants did nothing to vindicate their rights, LM and other
shareholders proceeded to organize their lives, planned, and conducted the business
in accordance with the position after the dilution of the shares and a number of
decisions had been made since 2009 relying upon resolutions which the appellants
belatedly sought to be declared unlawful.

[49] As regards the interests of other shareholders, the high court found that LM and
the other shareholders would suffer great inconvenience and prejudice should the
status quo be changed after so many years. Furthermore, it held that it would be unjust
to the other shareholders, who paid and met their financial obligations at the time, to
accede to the relief sought by the appellants. One of the factors the high court
considered in exercising its discretion against granting the declaratory relief sought,
was the effect of prescription on the appellants’ claims. It found that even if the
declaratory order were to be made, it would have no practical effect as the appellants
would not be able to claim the restoration of the shares, and payment of dividends in
accordance with the shareholding applicable before the changes in the shareholding.
This was because those claims would have been extinguished by prescription as a
dilution of shareholding occurred in 2009. Having considered all the relevant factors,
the high court found that there was no basis for it to exercise its discretion in favour of
granting the declaratory relief sought by the appellants.

[50] The appellants have not demonstrated why they contend that the high court
did not exercise its discretion judicially, or why it was influenced by wrong principles

or misdirected itself in respect of the facts. In Recycling and Economic Development
Initiative of South Africa v Minister of Environmental Affairs; Kusaga Taka Consulting
(Pty) Ltd v Minister of Environmental Affairs5 (REDISA) this Court held, with regards
to the exercise of a discretion, that on appeal a court will only interfere if the trial court
exercised its discretion on the wrong principle or made a decision that was not
reasonably open to it.

[51] Since the high court correctly applied the test applicable to declaratory orders,
the attack on its judgment based on this ground must fail. There is therefore no basis
for this Court to conclude that the high court misdirected itself on the facts or the law
in the exercise of its discretion, or that it exercised its discretion injudiciously.

Whether the loan was unlawful
[52] To the extent that the high court erred in not dealing with the merits of the
appellants’ claim, I shall address them. But before I do so, it is necessary to distinguish
the appellants’ pleaded case from their case on appeal. The case that is advanced by
the appellants in their heads of argument differs in material respects to the one they
advanced in their papers. Nowhere in their papers in the court a quo did the appellants
seek the setting aside of the impugned minutes and resolutions of the 18 April 2009
meeting, that gave effect to loan agreement between LM and LI. This ground is raised
for the first time in the heads of argument in the appeal. On appeal, the appellants
advance three grounds on which they seek the setting aside of the underlying
resolutions. They contend, in this regard, that:
(a) the reasons given to the LM shareholders were different to those relied on by the
LM Board of Directors to change LM’s authorised share capital;
(b) the intended increase was for 10,000 shares and not 40,000 shares; and
(c) the way the loan agreement was thrust upon the appellants, and subsequently
adopted, breached the provisions of the 2008 Companies Act and the 1973
Companies Act. The appellants argue that a decision of a company’s board to increase
a company’s authorised share capital must be exercised in accordance with the
directors’ duties as set out in s 76 of the 2008 Companies Act, including the duty to

5 Recycling and Economic Development Initiative of South Africa v Minister of Environmental Affairs;
Kusaga Taka Consulting (Pty) Ltd v Minister of Environmental Affairs [2019] ZASCA 1; [2019] 2 All SA
1 (SCA); 2019 (3) SA 251 (SCA) para 87.

act in good faith and for a proper purpose. They aver that viewed objectively, the LM
Board did not act in good faith and in the best interests of LM when they increased its
authorised share capital.

[53] The appellants’ case raises an important question regarding the identity of the
Companies Act applicable to this dispute. Should it be determined in terms of the 1973
Companies Act or the 2008 Companies Act? During the hearing a considerable
amount of time was spent on this issue. The respondents submitted that the 2008
Companies Act does not find application whereas the appellants argued that it does
and relied on it for this contention on s 224 of the 2008 Companies Act which deals
with transitional arrangements. The appellants referred to items 2, 4, 7 and 11 of
Schedule 5 in support of their contention that the Legislature intended the 2008
Companies Act to apply to the transactions under consideration as from 1 May 2011
when it came into operation.

[54] The respondents’ submission that the 1973 Companies Act and not the 2008
Companies Act applies to the dispute, is correct. My conclusion is based on the
following grounds. First, the general rule is that, in the absence of express provision
to the contrary, statutes should be considered as affecting future matters only. This
means that the 2008 Companies Act must be construed as operating only on facts
that came into existence after its passing (Veldman v Director of Public Prosecutions,
Witwatersrand Local Division).6

[55] The events giving rise to the dispute occurred before the 2008 Companies Act
came into operation. The demand for capital contribution was made in 2009. The
relevant loan agreement was concluded on 6 July 2009. The resolutions concerned
were passed and registered with the Registrar in 2009 and LI’s security under the loan
agreement was perfected in 2010. It is clear that at this stage the transactions were
implemented, and rights had vested.

6 Veldman v Director of Public Prosecutions, Witwatersrand Local Division [2005] ZACC 22; 2007(3)
SA 210 (CC) paras 26-27.

[56] As a result of the transactions which were implemented under the 1973
Companies Act rights accrued or were acquired and obligations were incurred. The
repeal of the 1973 Companies Act did not affect the rights which any person acquired
before the repeal and did not extinguish any obligations any person incurred before
the repeal. That much follows from the provisions of s 12(2) of the Interpretation Act
33 of 1957:
‘Where a law repeals any other law, then unless the contrary intention appears, the repeal
shall not-
(a) revive anything not in force or existing at the time at which the repeal takes effect; or
(b) affect the previous operation of any law so repealed or anything duly done or suffered
under the law so repealed; or
(c) affect any right, privilege, obligation or liability acquired, accrued or incurred under any law
so repealed; or
(d) affect any penalty, forfeiture or punishment incurred in respect of any offence committed
against any law so repealed; or
(e) affect any investigation, legal proceeding or remedy in respect of any such right, privilege,
obligation, liability, forfeiture or punishment as is in this subsection mentioned, and any such
investigation, legal proceeding or remedy may be instituted, continued or enforced, and any
such penalty, forfeiture or punishment may be imposed, as if the repealing law had not been
passed.’

There is nothing in the 2008 Companies Act to suggest that the provisions of s 12(2)
(c) of the Interpretation Act should not apply to a right which accrued to any person or
an obligation which was incurred as a result of implementation of transactions under
the 1973 Companies Act.

[57] Second, the transitional arrangements in Schedule 5 of the 2008 Companies
Act are also unhelpful as these provisions relate to matters that were pending
resolution as at the date the 2008 Companies Act was made effective. Section 224 of
the 2008 Companies Act appears under the heading ‘Consequential amendments,
repeal of laws and transitional arrangements.’ Section 224(1) repeals the 1973
Companies Act subject to subsection (3), which preserves certain transitional

arrangements in Schedule 5. Schedule 5 of the 2008 Companies Act sets out the
transitional arrangements applicable to pre-existing companies and how they are to
be regulated ‘as of the general effective date’, being 1 May 2011.

[58] Item 4(3A) of Schedule 5 does not support the appellants’ argument. It provides
that ‘if, before the general effective date, the shareholders of a pre-existing company
had adopted any agreement between or among themselves, under whatever style or
title, comparable in purpose and effect to the agreement contemplated in s 15(7), any
such agreement continues to have the same force and effect – (a) as of the general
effective date, for a period of two years, despite section 15(7), or until changed by the
shareholders who are parties to the agreement…’ It therefore does not apply to
agreements such as the loan agreement between LM and LI, but only to shareholders’
agreements.

[59] Item 7 deals with ‘Company Finance and Governance. Item 7(5) makes
provision for the 2008 Companies Act to apply as from 1 May 2011 relating to the
duties, conduct and liability of directors of the pre-existing companies despite anything
to the contrary in a company’s Memorandum of Incorporation. This must relate to the
acts performed as from 1 May 2011 and not those that were performed or done before
1 May 2011. It follows that the dispute should be determined in terms of the 1973
Companies Act which is the statute that applied when the relevant transactions were
concluded.

[60] I proceed to consider the merits of the appellants’ claim as set out in their
application and in their heads of argument on appeal. The relief sought by the
appellants in the notice of motion is unsustainable. The undisputed facts show that the
loan agreement was lawfully authorised, concluded and repaid; the changes to the
shareholding were lawfully and properly authorised and effected; and dividends were
declared and paid in accordance with the changed shareholding. The loan agreement
and the board and shareholder authorisations approving its conclusion and repayment
complied with the 1973 Companies Act.

(i)
LM Board Resolutions

[61] As regards the Board resolutions it is not seriously disputed that the Board and
shareholder meetings and all resolutions passed at such meetings, approving the loan,
were recorded in the minutes. Section 205 of the 1973 Companies Act provides that
where minutes have been made of the proceedings at any general meeting of a
company, such meeting will be deemed to have been duly held and convened, and all
proceedings will be deemed to have been duly held and convened, and all
proceedings will be deemed to be valid, until the contrary is proved.

[62] Accordingly, all proceedings and resolutions recorded and passed at LM Board
and shareholders’ meetings are deemed to have been valid, unless the contrary is
proved. The contrary has never been proven, nor did the applicants adduce any proof
that would suggest that such grounds exist, particularly given the effluxion of some ten
years since these events in question took place.

[63] In terms of article 75 of the Table B Articles, the quorum of the meetings of
directors may be fixed by the directors and, unless so fixed, shall, when the number
of directors exceeds three, be three, and if the number of directors does not exceed
three, it shall be two. At the time of LM’s board meetings dated 18 March 2009 and 31
March 2009, LM had four directors: namely, Ms Balfour, Ms Tena, Ms Mahlangu and
Ms Nyamakazi, the third respondent. Accordingly, the quorum for the board meeting
was sufficiently met.

[64] Article 73 of the Table B Articles provides that questions arising at any meeting
shall be decided by a majority of votes. Article 74 of the Table B Articles provides that
a director may not vote in respect of any contract or proposed contract with the
company in which he or she is interested, or any matter arising therefrom, and if he or
she does so vote, his or her vote will not be counted. All of the 2009 directors were
shareholders of LI at the time of the passing of the relevant resolutions, and the 2009
Directors’ interests in this regard were public knowledge and known to both the Board
and shareholders at the time. On the basis that the resolutions passed by the Board
were unanimously approved, and further approved by LM’s shareholders, they were
thus validly passed.

(ii)
Shareholders’ resolutions

[65] Article 34 of the Table B Articles provides that an annual general meeting for
the passing of a special resolution must be called by not less than 21 clear days’ notice
in writing and article 35 of the Table B Articles provides that, unless provided
otherwise, a quorum for such a meeting shall be two members present in person or
by proxy.

[66] Article 34 of the Table B Articles provides that the notice of a general meeting
must specify the place, the day and the hour of the meeting and must be given in
manner set out in the Table B Articles or in such other manner, if any, as may be
prescribed by the company in a general meeting, to such persons as are entitled to
receive such notices from the company. The notice of 3 April 2009 convening the
shareholders meeting of 18 April 2009 specified the place, the day and the hour of the
meeting and further set out the resolutions to be tabled at the meeting.

[67] Further, LM’s shareholders agreed to waive the 21-day notice period, as set out
in the minutes of the meeting. In terms of s 186 of the 1973 Companies Act and article
34 of the Table B Articles, a meeting of a company is deemed to have been duly called,
in the case, if a meeting which is called on a short notice period, if it is agreed before
or at the meeting by a majority of shareholders having a right to attend and vote at
such meeting who hold not less than 95% of the voting rights. The minutes of the
meeting reflect that the meeting was attended by the shareholders holding 97.5% of
the voting rights, and that the waiver of the notice period was agreed by all. The
quorum requirement for the shareholders meeting was sufficiently met as the general
meeting was attended by 14 shareholders and six proxies.

[68] Article 47 of the Table B Articles provides that, subject to any rights or
restrictions for the time being attached to any class or classes of shares, on a show of
hands every member present in person, and if a body corporate, its representative,
will have one vote, and on a poll every member present in person or by proxy will be
entitled to exercise the voting rights as determined by a company’s articles.

[69] The minutes of the meeting further reflect that the shareholders in attendance
were asked if they had any objections in respect of the loan agreement and it was
recorded that there were no objections in respect of the resolutions relating to the LI

loan and issuance of LM shares as security. The resolution was thus unanimously
adopted at the meeting.

[70] The minute of the meeting also records that LM’s shareholders were requested
to participate in signing the requisite documents to pass the special resolution because
of the time constraints, all the shareholders agreed that the chairperson of the meeting
could sign the special resolution on their behalf. Therefore, on the basis that the notice
of the meeting was properly given, the notice period was waived, and the quorum for
the meeting was sufficiently met, the resolutions tabled at the meeting were lawfully
passed and adopted.

(iii)
Validity of the shares issuance
[71] In terms of s 221 of the 1973 Companies Act, the directors of a company did
not have the power to allot or issue shares of the company without the prior approval
of the company in a general meeting. The issue of shares to LI was approved by the
shareholders at the general meeting held on 18 April 2008.

[72] Section 92 of the 1973 Companies Act provides that a company may not issue
shares unless the full issue price of, or other consideration for, such shares has been
paid to, and received by, the company. As the shares issued to LI were issued in terms
of the LI loan agreement, i.e., by way of set-off against the portion of the loan amount
that remained outstanding, that amount was paid to and received by LM by way of set-
off.

[73] Section 93 of the 1973 Companies Act provides that whenever a company
makes any allotment of its shares, the company must within one month thereafter
lodge with the CIPC:
‘(b)
in the case of shares allocated otherwise than for cash, a copy of the contract
in writing constituting the title of the allottee to the allotment, together with any contract
of sale, or for service or other consideration in respect of which that allotment was (or
if such contract is not in writing, a memorandum containing full particulars of such
contract), and a return in the prescribed form stating the number and description of the
shares allotted, the name and address  of such allottee and the consideration for which
they have been allotted.’ (Emphasis added.)

[74] The return of allotment in respect of the issue of shares subsequent to the rights
issue was lodged with the CIPC by LM’s company secretary at the time, PwC, within
one month. The shares were therefore validly issued to LI in accordance with the
provisions of the 1973 Companies Act.

[75] The appellants in their heads of arguments advance a new ground on which
they rely for the setting aside of the relevant resolutions. They contend that the LM
Board did not act in good faith and in the interests of LM when they resolved to
increase its authorized share capital. In support of this contention the appellants
submit that the LM Board should have provided, but failed, to provide them as
shareholders with sufficient information regarding the reason for the increase of the
LM share capital. This contention relies for support on Trinity Asset Management (Pty)
Limited and Others v Investec Bank Limited and Others7 (Trinity) and CDH Invest NV
v Petrotank South Africa (Pty) Ltd and Another8 (CDH Invest NV HC) which was
confirmed on appeal by this Court in CDH Invest NV v Petrotank South Africa (Pty) Ltd
and Others 9 (CDH Invest NV SCA).

[76] The appellants’ reliance on Trinity is misplaced. Trinity does not apply to the facts
of the present case. Trinity only decided that a company's shareholders have a right
to receive accurate information and to seek an interdict to stop a shareholders’
meeting until correct information has been furnished. It does not support a proposition
that a shareholder is entitled to claim the failure to receive accurate information
entitling him to a declaration that the resolutions adopted, and the acts subsequently
taken by the company are unlawful.

[77] The issue in Trinity was whether the court below was correct to dismiss an
application by a company’s shareholders to declare a loan agreement between the
company and the creditor on the basis that the shareholders did not have locus standi.

7 Trinity Asset Management (Pty) Limited and Others v Investec Bank Limited and Others [2008] ZASCA
158; 2009 (4) SA 89 (SCA); [2009] 2 All SA 449 (SCA).
8 CDH Invest NV v Petrotank South Africa (Pty) Ltd and Another [2017] ZAGPJHC 324; [2018] 1 All SA
450 (GJ); 2018 (3) SA 157 (GJ).
9CDH Invest NV v Petrotank South Africa (Pty) Ltd and Others [2019] ZASCA 53; 2019 (4) SA 436
(SCA).

This Court held that the shareholder’s right to seek the declarator was triggered by the
fact that a meeting had been called at which the members were asked to ratify the
loan agreement. Before the shareholders could decide whether to attend the meeting
to vote for or against the resolutions, or to give proxies to others to vote for or against
on their behalf, or to do none of these things and to leave it to the majority to decide,
they needed to have sufficient information to be able to come to an intelligent
conclusion on the matter on which they were asked to vote. This right arises from a
term implied in the company contract.

[78] This Court went on to hold that:
‘Regard being had to the fact that an individual shareholder will be bound by the votes of the
majority it must follow that the shareholder’s rights extend not only to his or her being furnished
with the necessary information but that all his or her fellow shareholders also receive such
information. It also follows that a shareholder has the right flowing from the company contract
to insist that he or she and his or her fellow shareholders do not receive information which is
inaccurate and to enforce such right by applying for an interdict to prevent a meeting from
proceeding.’ 10

[79] In this case, the minutes of the general meeting show that:
(a)
the general meeting of 18 April 2009 was attended by shareholders
representing 97.5% of the total voting rights of all shareholders of LM;
(b)
all shareholders agreed to waive their 21-day notice period right;
a comprehensive report was represented to LM shareholders describing the need to
raise funds to contribute to the BFS to avoid the deemed offer provisions;
(c)
the LM shareholders were provided with detailed information regarding the
Loan Agreement and its terms;
(d)
the meeting was attended by Mr Andrew Thomas, an independent consultant,
who explained the deemed offer provisions and provided advice and answered various
questions on the loan agreement, including the security provisions under the loan
agreement. Having done so, he requested LM shareholders to indicate if there were
any objections to the resolution taken;
(e)
on this basis the shareholders adopted various resolutions unanimously,
including that LM conclude the LI loan agreement; LM would pledge shares to LI as

10 Trinity fn 8 para 36

security for the loan; the authorized share capital of LM be increased by 40 000
ordinary shares; and PwC in East London be instructed to register the above with the
Companies and Intellectual Registration Office (CIPRO) and to issue the appropriate
shares to LI to perfect its security on default. PwC proceeded to lodge the resolutions
with CIPRO by filing the necessary CM26 and CM11 forms, which were accepted on
19 May 2009.

[80] Similarly, it is clear on the facts that the CDH Invest SCA judgment does not
apply because LM’s Board exercised their powers bona fide in the interest of the
company. In CDH Invest SCA this Court held that:
‘CDH’s directors knew on 28 March 2014 that the round robin resolution upon which the
directors were called to vote was contrary to the proclaimed purpose. They also knew
that it was contrary to the MOU. Nonetheless on 31 March 2014 they signed the
resolution. The egregious conduct on the part of CDH's directors was compounded when,
on 4 April 2014, CDH's directors were reminded that the resolution was contrary to the
express purpose as contained in the preamble to the resolution. Mr Sontshaka of
Amabubesi wrote to Stadler on 4 April 2014 in this connection:

"It should be noted that there is no impediment in terms of the MOI against employing the
methods in s 36(2)(a) and (b) and s 36(3). Therefore, the MOI can be amended by any
one of the above methods, but only to the extent that it reflects 100 000 (one hundred
thousand) authorised shares, which have already been issued, instead of the current 1 000
(one thousand) shares. The current resolution requiring that the authorised share be increased
to 1 000 000 (one million) is incorrect and needs to be amended accordingly."

Notwithstanding these objections, and significantly employing the services of a firm other than
Petro tank's appointed auditors, the majority proceeded to give effect to the resolution by
submitting the resolution to the CIPC for filing.’11

[81] In the present case the LM Board acted in the best interests of LM in securing
the loan to ensure that it could meet the capital call. Although only seven LM
shareholders accepted the opportunity and participated by purchasing the additional
shares, all LM shareholders benefited, either directly and/or indirectly. As a

11 CDH Invest NV SCA fn 10 para 22.

consequence of LI having enabled LM to meet a capital call, both the shareholders
of LM and of LI greatly benefited over the years from the dividends which flowed
through these companies from LWC. Had this capital call not been met, these
dividends would not have been received by LM or by LI and both sets of shareholders
would have been deprived of substantial funds which are to date in excess of R130
million. Had LI not granted a loan to LM, LM would not have been in a position
financially to meet the capital call and all LI and LM shareholders would have lost the
benefit of the Project.

[82] The relief sought by the appellants in prayer 3 of the notice of motion, namely
an order directing that dividends be paid by LM in accordance with the shareholding
prior to January 2010 is not competent unless the shares held by LI and those
shareholders who raised funds and participated in the rights issue are transferred to
the appellants. The transactions which gave rise to the dilution of the appellants’
shareholding were concluded in 2009 and implemented in 2010 when the share
register was updated to reflect an increase of LI shareholding in LM. The dilution was
based on a single act which occurred more than three years before the appellants
instituted these proceedings. It did not constitute a continuous wrong.12 The claim for
the delivery of shares therefore prescribed in 2013. In the light of the conclusion I
have reached, it is unnecessary to consider the rest of the technical defences raised
by the respondents.

Cross Appeal
[83] As regards the fourth, fifth, sixth and eleventh respondents’ conditional cross-
appeal on the incorrect scale of costs granted by the high court, I am satisfied that
the high court did not misdirect itself by not awarding costs on a punitive scale against
the appellants. There is no basis to find that the proceedings brought by the
appellants are frivolous and vexatious. As shareholders of LM, they have a right to
bring the proceedings to challenge LM’s decisions which gave rise to the reduction of
their shareholding in LM. The high court exercised its discretion judicially and that
being the case there is no basis to interfere with the high court’s cost order.13

12 Barnett v Minister of Land Affairs [2007] ZASCA 95 para 20.
13Florence v Government of the Republic of South Africa [2014] ZACC 22; 2014 (6) SA 456 (CC); 2014
(10) BCLR 1137 (CC) paras 113-114.

Therefore, the cross-appeal must fail.

Order
[84] In the result I make the following order:
1 The appeal is dismissed with costs including the costs of two counsel where so
employed.
2 The cross-appeal is dismissed with costs including the costs of two counsel where
so employed.

_________________
D H ZONDI
JUDGE OF APPEAL

APPEARANCES

For Appellants:

T Ngcukaitobi SC, K Premhid

Instructed by:
Madlanga & Partners Inc   Attorneys,
Sandton

Lovius Block Attorneys, Bloemfontein

For first Respondent:

T J B Bokaba SC and M Kruger
Instructed by:

Webber Wentzel Attorneys, Sandton

Honey Attorneys, Bloemfontein

For second, eighth and tenth
Respondents:

P L Carstensen SC
Instructed by:

Edward Nathan Sonnenbergs, Sandton

Webbers Attorneys, Bloemfontein

For fourth, fifth, sixth and eleventh
Respondents:

R G Buchanan SC and D van Niekerk
Instructed by:
Cliffe Dekker Hofmeyer Inc, Cape Town

Claude Reid Inc, Bloemfontein

THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
MEDIA SUMMARY OF JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL

From:
The Registrar, Supreme Court of Appeal
Date:

01 December 2023
Status:
Immediate
The following summary is for the benefit of the media in the reporting of this case and does not
form part of the judgments of the Supreme Court of Appeal
Pasiya and Others v Lithemba Mining (Pty) Ltd and Others (264/2022) [2023] ZASCA 169 (01
December 2023)
Today the SCA dismissed with costs, an appeal and cross-appeal, including costs of two counsel on
both appeals, against the decision of the Eastern Cape Division of the High Court, Grahamstown (the
high court).
This was an appeal against the judgment and order of the high court, where it dismissed with costs the
appellants’ application for declaratory relief. The relief sought included an order (a) declaring as unlawful
and setting aside a loan agreement concluded between the first respondent, Lithemba Mining (Pty) Ltd
(LM) and the eleventh respondent, Lithemba Investments (Pty) Ltd (LI) in 2009; (b) declaring as unlawful
and setting aside the purported changes to the LM shareholding which occurred in January 2010
pursuant to the loan agreement between LM and LI; and (c) directing that any dividends to be paid by
LM to its shareholders be paid in accordance with the shareholding prior to the alleged unlawful
changes. This appeal was with leave of the high court. The fourth, fifth, sixth and eleventh respondents
were also aggrieved that the high court had awarded them costs on a party and party scale instead of
on an attorney and client scale. These respondents sought and obtained leave from the high court to
cross-appeal against its cost order. They contended that the appellants’ claims were vexatious and
frivolous and that the high court should have, in the exercise of its discretion, ordered the appellants to
pay their costs on an attorney and client scale.
Two main issues therefore arouse in this appeal. The first, was whether the high court erred in
dismissing the appellants’ application for declaratory relief and the consequential relief.  The second,
was whether the high court misdirected itself by failing to dismiss the application with costs on a punitive
scale.
The appellants advanced two main grounds on which they based their attack on the judgment of the
high court. They submitted, first, that the high court erred in its application of the test for declaratory
relief. The high court, the appellants argued, failed to deal with the first leg of the test.  It dealt only with
the delay, which was one factor from the second leg of the test and decided the matter on that basis
without considering the merits. They submitted that the high court should have dealt with the merits and
only then to have considered the question whether to exercise its discretion in favour of, or against, the
grant of the order. Second, it was submitted by the appellants that the high court erred in not dealing
with the merits of their claims and all of the defences raised by the respondents. Relying on the
Constitutional Court judgment in Spilhaus Property Holdings (Pty) Limited and Others v MTN and
Another [2019] ZACC 16; 2019 (6) BCLR 772 (CC); 2019 (4) SA 406 (CC), counsel for the appellants
argued that the high court should have dealt with all the issues before it, especially where they had an
option of appealing further.
Regarding the first point of contention raised by the appellants, the SCA held that the high court correctly
applied the test applicable to declaratory orders and that the attack on its judgment based on that

ground must fail. The SCA further held that there was no basis to conclude that the high court
misdirected itself on the facts or the law in the exercise of its discretion, or that it exercised its discretion
injudiciously. Additionally, the SCA held that the high court had in fact considered the first leg of the
test. It found that the appellant had an interest in an existing or contingent right, as they were
shareholders in LM and their shareholding was diluted. That affected them not only in relation to the
sharing of dividends but also in relation to the voting rights, and thus the first stage of the test was
established. Thereafter the high court turned to the second leg of the inquiry. It correctly found that this
was not the case where the court ought to have exercised its discretion in favour of granting the
declaratory order sought. This was so, reasoned the high court, because the appellants unduly delayed
in approaching the court for their relief which they sought. The appellants only sought the court’s
intervention in 2020 where it implored the high court to turn the wheels back to the position prevailing
in 2009. It found that whilst the appellants did nothing to vindicate their rights, LM and other
shareholders proceeded to organize their lives, planned, and conducted the business in accordance
with the position after the dilution of the shares and the number of decisions had been made since 2009
relying upon resolutions which the appellants belatedly sought to be declared unlawful. As regards the
interests of other shareholders the high court correctly found that LM and the other shareholders would
suffer great inconvenience and prejudice should the status quo be changed after so many years.
Furthermore, that it would be unjust to the other shareholders, who paid and met their financial
obligations at the time, to accede to the relief sought by the appellants. One of the factors the high court
considered in exercising its discretion against granting the declaratory relief sought, was the effect of
prescription on the appellants’ claims. It found that even if the declaratory order were to be made it
would have no practical effect in that the appellants would not be able to claim the restoration of the
shares and payment of dividends in accordance with the shareholding applicable before the changes
in the shareholding as such claims would have been extinguished by prescription as a dilution of
shareholding occurred in 2009. After having regard to all the relevant factors, the high court correctly
found that there was no basis for it to have exercised its discretion in favour of granting the declaratory
relief sought by the appellants. When it came to the second point of contention raised by the appellants,
the SCA held that the relief sought by the appellants in the notice of motion was unsustainable. The
undisputed facts, according to the SCA, show that the loan agreement was lawfully authorised,
concluded and repaid; the changes to the shareholding were lawfully and properly authorised and
effected; and dividends were declared and paid in accordance with the changed shareholding. The loan
agreement and the board and shareholder authorisations which approved its conclusion and repayment
complied with the 1973 Companies Act. With regards to the cross-appeal instituted by the respondents,
the SCA held that it was satisfied that that the high court had not misdirected itself by not awarding
costs on a punitive scale against the appellants. There was no basis, according to the SCA, to have
found that the proceedings brought by the appellants were frivolous and vexatious. As shareholders of
LM, they had a right to bring the proceedings to challenge LM’s decisions which gave rise to the
reduction of their shareholding in LM. The SCA also held that the high court exercised its discretion
judicially and that there was no basis to interfere with the high court’s cost order.  Therefore, the cross-
appeal must fail.
~~~~ends~~~~