THE SUPREME COURT OF APPEAL OF SOUTH AFRICA

JUDGMENT

Case No: 602/10

In the matter between:

SA MOHAIR BROKERS LTD

Appellant

and

DOUGLAS CHRISTOPHER LOUW

First Respondent
ANDRE HERMANN DANKWERTS

Second Respondent
ARTHUR OLIVER RUDMAN

Third Respondent
GEOFFREY GEORGE VAN COLLER

Fourth Respondent
JOHANNES THEUNIS VILJOEN

Fifth Respondent
BKB LIMITED

Sixth Respondent
RONALD JOHN SMITH

Seventh Respondent

Neutral citation:  SA Mohair Brokers v Louw (602/10) [2011] ZASCA 87 (27 May
2011)

Coram:
Harms DP, Brand, Heher JJA and Meer and Plasket AJJA

Heard:
18 May 2011

Delivered:
27 May 2011

Summary:
Company law – limitation on sale of shares contained in Articles –
effect.

___________________________________________________________________

ORDER
___________________________________________________________________

On appeal from: Eastern Cape High Court (Port Elizabeth) (Y Ebrahim J sitting as
court of first instance):
The appeal is dismissed with costs, including the costs of two counsel.
___________________________________________________________________
JUDGMENT
___________________________________________________________________

HARMS DP (BRAND, HEHER JJA and MEER AND PLASKET AJJA concurring)

[1] The appellant, SA Mohair Brokers Ltd, and BKB Ltd (one of the respondents)
carry on business as brokers in the mohair industry. They are competitors. The
appellant’s main asset consists of 66 per cent of the entire issued share capital of its
operating company, CMW Operations (Pty) Ltd. The balance of the shares belongs
to Oos-Vrystaat Kaap Operations Ltd. The appellant wished to dispose of its
shareholding in CMW to Oos-Vrystaat and for that purpose it required a special
resolution in terms of s 228 of the Companies Act 61 of 1973. BKB, in turn, wanted
to buy those shares but was advised that it could encounter problems with the
competition authorities. Preferring to retain the appellant as its competitor instead of
Oos-Vrystaat, it then devised a plan to stymie the special resolution by purchasing a
sufficient number of shares in the appellant from some of its shareholders and
obtaining proxies from them to defeat the proposal.
[2] The sellers completed four documents pursuant to their willingness to dispose
of their shares and handed them to BKB. These were (a) a sale agreement; (b) a
request to the appellant to issue the share certificate reflecting the seller’s
shareholding to enable the seller to transfer the shares to BKB; (c) a signed blank
securities transfer form; and (d) a signed blank proxy form enabling the proxy holder
to vote against the special resolution. BKB paid the sellers in full.
[3] The terms of the sale agreement (a) were as follows:

‘I, the undersigned (“the Seller”), hereby sell all my shares in SA Mohair Brokers Limited
(“SA Mohair”) (“the Shares”) and cede all my claims in and against SA Mohair (whether on
loan account or otherwise, “the Claims”) to BKB Limited or its nominee (“the Purchaser”), as
reflected in the attached CM42 transfer form, which I have duly signed.

I accept in full and final payment for the sale of the Shares and of the Claims the sum of R2,
which shall be paid to me by the Purchaser within 3 days of this undertaking.

I hereby give BKB Limited (or its nominee) (“BKB”) my irrevocable proxy to vote the Shares
as it in its sole discretion deems fit at the Annual General Meeting of Shareholders of SA
Mohair which has been called for 4 December 2009 and any adjournment or postponement
of that meeting. My signed proxy to that effect is attached hereto.

I further undertake to forthwith provide BKB with a signed proxy to vote all the Shares at any
meeting of shareholders in SA Mohair (as it in its sole discretion deems fit) which is called
prior to the registration of transfer of the Shares to into the Purchaser’s name.

I also undertake to forthwith on receipt to pay to the Purchaser any distribution or dividend
or any other payment which I may receive from SA Mohair in the period from the signature
of this undertaking to the date of transfer of the Shares to the Purchaser, up to the amount
of R2 per Share.’
[4] The proxies were duly lodged with the appellant prior to the meeting but the
chairman, acting on legal advice, ruled that they were invalid and refused the proxy
holders permission to speak or vote at the meeting. The advice was based on the
terms of the articles of association dealing with the transfer and transmission of
shares:
’14.1
The instrument of transfer of any shares in the company shall be in the form required
by Section 135 of the act or in such other form which the directors approve.
14.2
The transferor shall be deemed to remain the holder of the share until the name of
the transferee is entered in the register of members as holder thereof.
15.1
Any decision by the directors of the company shall be final and binding on a
shareholder of the company for the purposes of this clause 15.
15.2
A shareholder of the company may not sell, alienate, donate or burden in an manner

whatsoever the shares that he is the owner of, without prior approval of the directors

of the company.

15.3
A shareholder in whose name any share or shares has been registered, contrary to
the provisions of clause 15.2, shall not in respect of such shares –

15.3.1 be entitled to exercise any vote, provided that any decision taken on the

strength of such shares shall be deemed to be valid if a similar decision

would have been taken by the required majority of votes;

15.3.2 be entitled to receive any dividend or other advantage, which dividend or

advantage shall revert to the company to be utilized to the advantage of the

company as the directors may determine.’
[5] The advice was this. A sale of shares without prior approval of the directors,
being in conflict with clause 15.2 of the articles of association, is null and void. The
proxy was part and parcel of the void agreement. It was an indivisible transaction.
The resultant proxy was, accordingly, also void. The chairman of the meeting could
therefore reject the proxies.
[6] The advice, which was accepted, was based on an incorrect premise. An
agreement can only be null and void if it is in conflict with the law, statutory or
otherwise. A sale of shares without the prior approval of the directors is not void as
much as the sale of another’s property is not void. The only effect is that the
appellant is not obliged to register the purchaser as shareholder. But the sale is inter
partes binding. It might be that the seller may not be able to obtain registration of the
shares in the name of the purchaser which could amount to breach of contract by
the seller, but nothing more. It would then be for the purchaser to pursue its ordinary
contractual remedies if it so wished.
[7] The quoted clause 15.3 supports the conclusion that a sale without prior
approval is not void. It postulates a case where shares are transferred to a
purchaser in spite of the lack of prior approval. In that instance non-compliance only
means that the purchaser may not vote or receive dividends. It does not mean that
the purchaser may not take cession of the claim for dividends or that the purchaser
may not hold a proxy – all matters that were provided for in the cited agreement.
Clause 15.4 in addition states that the appellant may waive the requirement of prior
approval, another indication that such a sale in not without legal effect.
[8] Furthermore, the sale agreement was res inter alios and did not involve the
appellant. BKB duly lodged proxies in the prescribed form. The reasons or motives

of the shareholders (who also were sellers) in giving proxies did not concern the
appellant from a legal or administrative perspective. The appellant had to accept
proxies that were on their face valid because they were given by the sellers who, as
at that date, were still shareholders.
[9] There is another matter that needs mentioning. The first respondent, Mr
Louw, was the chairman of BKB but also a shareholder in the appellant. He did not
sell his shares to BKB but gave it a proxy to speak and vote on his behalf. His proxy
was also rejected, presumably because the chairman of the meeting, Mr Short,
believed that Louw had also sold his shares. This misapprehension resulted from the
preceding correspondence in which BKB’s attorneys did not draw a distinction
between the proxies held pursuant to a sale and those that did not involve a sale of
shares. The letter was misleading because it was written on behalf of the ‘proxies
appointed by the Selling Shareholders’. And at the meeting, when Short dealt with
the proxies of the sellers, the proxy holder did not inform him that he also had
proxies from shareholders who had not sold their shares. In view of these facts I
prefer not to express any view on whether the disallowance of Louw’s proxy –
something only raised in reply – would have been a ground for setting aside the
resolutions taken at the meeting.
[10] The court below was correct in setting aside the resolutions taken at the
impugned meeting of 4 December 2009. It needs to be mentioned, however, that the
court below, taking its cue from the submissions made by the respondents – and
repeated in the heads of argument in this court – based its decision on the
provisions of s 252 of the Act which entitles a court to set aside at the behest of any
shareholder an act or omission by a company that is unjustly prejudicial, unjust or
inequitable. On the view I take of the matter namely that the rejection of the proxies
was unlawful, the equitable jurisdiction under s 252 does not arise.
[11] The appeal is dismissed with costs, including the costs of two counsel.

____________________
L T C Harms
Deputy President

APPEARANCES

APPELLANT/S

J J Gauntlett SC (with him R G Buchanan SC)

Instructed by Spilkins Inc, Port Elizabeth

Symington & de Kok, Bloemfontein

RESPONDENT/S:
S du Toit SC (with him F Odendaal SC)

Instructed by Mike Nurse Attorneys, Port Elizabeth

Webbers, Bloemfontein

THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA

MEDIA SUMMARY – JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL

From:
The Registrar, Supreme Court of Appeal
Date:
26 May 2011
Status:
Immediate

Please note that the media summary is intended for the benefit of the media and does not
form part of the judgment of the Supreme Court of Appeal.
* * *
SA MOHAIR BROKERS V LOUW

The Supreme Court of Appeal (SCA) today dismissed an appeal by SA Mohair Brokers
(the appellant) against an order of the Eastern Cape High Court (Port Elizabeth) setting
aside its special resolution in terms of section 228 of the Companies Act 61 of 1973 (the
Act) to dispose of its main asset.

The appellant wished to dispose of its main asset, 66 per cent of the entire issued share
capital of its operating company, CMW Operations (Pty) Ltd to Oos-Vrystaat Kaap
Operations Ltd, is the owner of the remaining 34 per cent in CMW. It required a special
resolution in terms of section 228 of the Act in order to achieve this goal and called a
meeting of shareholders which was scheduled to be held on 4 December 2009. In an effort
to thwart the passing of the special resolution, BKB Ltd, the appellant’s competitor in the
mohair industry, purchased a sufficient number of shares in the appellant from some of its
shareholders and obtained proxies from them to defeat the proposal. The proxies were

lodged with the appellant prior to the meeting but the chairman, acting on legal advice that
the sale of the shares was null and void as it had been concluded without the prior approval
of the directors as required by clause 15.2 of the articles of association, and that the
resultant proxy was also void as it formed part and parcel of the void agreement, ruled that
the proxies were invalid and refused the proxy holders permission to speak or vote at the
meeting.

In dismissing the appeal the SCA held that the sale of the shares to BKB without the prior
approval of the directors was not void. The only effect was that the appellant was not
obliged to register BKB as shareholder. The sale was binding between BKB and the
shareholders. The reasons or motives of the shareholders in giving proxies did not concern
the appellant from a legal or administrative perspective. Therefore, the SCA held, the
appellant was obliged to accept proxies that were on their face valid because they were
given by the sellers who, as at that date, were still shareholders. Having held that the
rejection of the proxies was unlawful, the SCA found that the equitable jurisdiction under
section 252 of the Act did not arise.