This dispute arose from a power struggle for control of African Legend Investments (Pty) Ltd (ALI), a B-BBEE company founded around 1996. ALI, through OTS56, held a 23% shareholding in Astron Energy acquired through vendor finance from CGEI. In 2017, OTS56 concluded a Framework Agreement with Glencore to exercise a right of pre-emption to acquire CGEI's 75% shareholding in Astron, funded by Glencore. The transaction was to be immediately on-sold to Glencore (Transaction 2), with OTS56 retaining options to acquire additional shareholdings. The director Mashudu Ramano, who held 40% voting rights despite only a 7% economic interest (stemming from a 1998 restructuring), interpreted a letter from Glencore dated 27 September 2018 (the September letter) as granting OTS56 an enforceable option to find alternative funding and prevent Transaction 2. Based on this interpretation, Ramano attempted to delay Competition Commission approval and frustrated the closing of Transaction 2, breaching contractual undertakings. Other directors (the Ahmed group) removed Ramano as chairperson and proceeded to close Transaction 2. In February 2020, to raise capital for exercising an option to acquire Astron Botswana shares, the Ahmed group passed a board resolution (the impugned resolution) by round robin to issue ALI shares to the Astron Trust for R24 million. This diluted the Ramano group's voting rights from 51% to below majority, preventing them from removing the Ahmed group at a shareholders meeting on 27 February 2020. The Ramano group launched the main application to set aside the impugned resolution. The Ahmed group counter-applied to declare Ramano a delinquent director.
Main application dismissed with costs (upheld on appeal). First cross-appeal (delinquency) upheld by majority: Ramano declared a delinquent director for 7 years, with costs against the Ramano group. Second cross-appeal (validation of 1998 share issue) dismissed save for amendment to costs order to exclude OTS56 and directors unique to it.
The binding legal principles established are: (1) Under section 76(3)(a), where directors act with multiple purposes, the 'dominant purpose' or 'primary purpose' test applies - if the dominant purpose is proper (in the company's interests and bona fide), the exercise of power is not invalidated by subsidiary purposes that, standing alone, would be improper. (2) Section 74 requires only that each director receive 'notice of the matter to be decided' for a round robin resolution - it does not require advance notice that a round robin will be used, unlike the notice requirements for formal board meetings under section 73. (3) Section 76(4)(a)(iii) applies a subjective test: directors must have had a rational basis for believing their decision was in the company's best interests - the court does not objectively assess what was in the best interests. (4) Where directors satisfy section 76 standards, circumstances must be 'exceptional' to establish oppressive conduct under section 163(1)(a). (5) Under section 162(5)(c)(iv), conduct amounting to 'gross negligence, wilful misconduct or breach of trust' in relation to performance of directors' functions warrants a delinquency declaration. Courts have no discretion to refuse the order or reduce the minimum 7-year period under section 162(6)(b). Wilful misconduct includes intentionally preventing a company from complying with binding contractual obligations. (6) Deliberately misrepresenting to the board that legal advice has been received, unilaterally suspending compliance with binding agreements, and breaching undertakings to the board constitute breach of fiduciary duty warranting delinquency.
Gorven AJA made several non-binding observations: (1) The interpretation of 'proper purpose' in section 76(3)(a) required construction without direct South African authority, necessitating reliance on Commonwealth jurisprudence. (2) The 'but for' test suggested in Darvall is a useful rule of thumb for determining dominant purpose - would the directors have taken the action but for the allegedly improper purpose? (3) Directors may properly act to prevent others from taking control where they genuinely believe this would be detrimental to the company, even if it has the effect of entrenching their own positions. (4) The lodestone for assessing proper purpose is directors' bona fide belief that they acted in the company's best interests, appropriately linking the good faith and proper purpose requirements. (5) In B-BBEE contexts, directors' interpretation of transformation commitments may inform their understanding of what is in the company's interests. Molemela P observed: (1) The Supreme Court's exercise of discretion to determine delinquency where the High Court found factual disputes raises questions about the appropriate standard of appellate review. (2) Corporate disputes involving acrimonious board relationships and shareholder oversight committees require particular care in determining whether to resolve matters on affidavits. (3) The SOC reports, advocating for independent directors and expressing shareholder dissatisfaction with both factions, provided important context suggesting neither group had clean hands. (4) Gender empowerment considerations are relevant when assessing dilution of women-owned entities' voting rights in B-BBEE companies. (5) Where action proceedings are already pending on the same issues, courts should be slow to entertain overlapping motion proceedings. (6) The timing and speed of corporate transactions shortly before scheduled shareholder meetings affecting director composition warrants scrutiny. (7) Business people often conduct affairs with vague or incomplete agreements, relying on good faith and commercial expediency, which courts must bear in mind when evaluating probabilities on affidavits.
This judgment provides authoritative guidance on several important aspects of South African company law: (1) It establishes the 'dominant purpose' test for section 76(3)(a), clarifying that where directors have multiple purposes, if the primary purpose is proper (in the company's interests), subsidiary improper purposes do not invalidate the decision. This adopts the approach followed in Commonwealth jurisdictions rather than the stricter 'all purposes must be proper' test. (2) It clarifies that section 74 round robin resolutions require only notice of the matter to be decided, not advance notice that a round robin will be used. (3) It confirms that section 76(4)(a)(iii) applies a subjective test - whether directors had a rational basis for believing their decision was in the company's interests - not an objective assessment by the court. (4) It demonstrates the high threshold for finding oppressive conduct under section 163 where section 76 standards are met. (5) It affirms that courts have no discretion to refuse a delinquency order where section 162(5)(c) requirements are satisfied, and cannot reduce the minimum 7-year period. (6) The split on whether factual disputes precluded determination highlights ongoing tensions in applying the Plascon-Evans rule to complex commercial disputes, particularly regarding delinquency applications where conduct spans multiple incidents. The case is significant for its detailed consideration of directors' fiduciary duties in the context of corporate power struggles and B-BBEE transactions.
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