Shares row ends up in ConCourt

THE PROPOSED sale of a Northern Cape broad-based black economic empowerment company for R250 million has ended up in the Constitutional Court.

The court handed down judgment recently in an application for leave to appeal against a judgment of the Supreme Court of Appeal that dismissed an appeal from the Northern Cape High Court.

The Constitutional Court judgment was handed down on September 25.

The matter was taken to the Constitutional Court after the Northern Cape High Court dismissed an application for rescission of an earlier court order.

In a media summary on the case issued by the Constitutional Court, it was pointed out that in 1997 a group of individuals in the Northern Cape acquired NC Housing Services and Development Co Limited (company), to use as a vehicle to exploit commercial opportunities in the Northern Cape for the benefit of black people.

The applicants in the case before the Constitutional Court, Mosalasuping Morudi and 70 others, are some of the many people who are shareholders of this company. Many of those interested in participating in the venture contributed at least R100 towards the purchase of shares.

In September 2007 the company was deregistered for failure to file annual company returns. Four years later the company wanted to sell its major asset, which was shares in NWC Manganese for R250 million.

A dispute arose between the applicants and the second and third respondents, Scholtz Babuseng and Seodi Mongwaketsi, regarding the proportion of shares owned by the various shareholders.

Summing up how the dispute arose, Constitutional Court Judge Mbuyiseli Russel Madlanga explained in his judgment that long before its deregistration, the company had resolved to purchase an 8% shareholding in Meriting Investments, which is a substantial shareholder in Teemane. (Teemane, which owns the Flamingo Casino, is a joint venture company between Meriting and Sun International).

“The company did not have funds to purchase the Meriting shares,” Judge Madlanga said. “A Mr Van Rensburg provided R191 000 for the purchase of the 8% shareholding in Meriting. According to the second and third respondents (Babuseng and Mongwaketsi) Van Rensburg later sold his equity interest in the company to Mongwaketsi for R300 000. It is this purchase that – according to Babuseng and Mongwaketsi – caused the Mongwaketsi’s claim to shareholding to shoot up to 50%. Needless to say, the applicants (Morudi and the other shareholders) dispute this. They also say from inception the idea behind the creation of the company was broad-based black economic empowerment; it was never the intention of those who formed the company to permit the disproportionate enrichment of any one individual. The applicants aver that every contributor towards the purchase of shares in the company is entitled to roughly the same amount of shares.”

Babuseng and Mongwaketsi launched an application in the high court against the company, as well as Morudi and three other shareholders in their capacities as directors of the company, seeking a determination of who was entitled to shareholding in the company and in what proportion.

The high court referred the matter to trial.

“A shareholders meeting was held on April 19 2013 at which a resolution was taken to withdraw the company’s opposition to the court application launched by Babuseng and Mongwaketsi,” the summary states further.

“When the application came to trial before the high court for the determination of the company’s shareholding, the court held that the shareholders did not have standing to participate in the trial in their personal capacities as they had been cited in representative capacities as directors of the company.

“The Northern Cape High Court also held that, since the company had withdrawn its opposition to the trial, there was no other basis on which these applicants could have standing in the proceedings. The high court refused to give them an audience, immediately granting an order in accordance with a draft order agreed to between Babuseng and Mongwaketsi, on the one hand, and the company, on the other.”

All 71 applicants applied to the high court for a rescission of the order, but their application was denied, partly on the basis that they had been present in court when the order was made and were therefore not entitled to have the order rescinded as it was not granted in their absence.

The applicants took the matter on appeal to the Supreme Court of Appeal. A majority judgment of the Supreme Court of Appeal upheld the order of the high court. Additionally, the Supreme Court of Appeal held that although the applicants had been participating in the proceedings both as directors and as shareholders, the April resolution barred them from participating any further in the litigation because they failed to have the resolution set aside by the high court.

In an unanimous judgment, the Constitutional Court, however, held that when an individual shareholder is cited as “shareholder” in proceedings, she or he is a party to the litigation in her or his personal capacity.

The Constitutional Court pointed out further that the trial was intended to determine who the shareholders in the company were.

“That meant every potential shareholder – the 71 applicants, Babuseng and Mongwaketsi included – had a direct and substantial interest in the outcome of the trial because it would have had a direct impact on the rights of each potential shareholder. “The high court was therefore obligated to ensure that anyone directly affected by its order was joined to the proceedings.

“In refusing to grant an audience to the first four applicants before the Constitutional Court, the high court denied them their right of access to courts which is guaranteed by section 34 of the Constitution.

“The order was therefore erroneously granted. Moreover, although the Uniform Rules of Court require that a party must have been absent when the order was granted, the Constitutional Court held that the first four applicants may have been physically present in the courtroom, but the high court’s refusal to grant them an audience meant that they might as well have been absent.

“On these grounds, the Constitutional Court granted the first four applicants rescission in terms of the Uniform Rules of Court and granted the further applicants leave to intervene in the trial resuscitated by the rescission.”