In 2016, the respondents sold 56.94% of shares in Tekkie Town (Pty) Ltd to Steinhoff International Holdings NV (Steinhoff NV) for R3.257 billion, with consideration paid in Steinhoff NV shares. Through a series of subsequent transactions, these shares were transferred from Steinhoff NV to Steinhoff Investments Holdings Ltd, then to Steinhoff Africa Holdings (Pty) Ltd, and ultimately to Pepkor Holdings Ltd (Pepkor) in July 2017 for R3.39 billion. The Tekkie Town business was later integrated into Pepkor Speciality (Pty) Ltd in October 2017. In March 2018, the respondents alleged that they had been induced to enter the sale agreement by fraudulent misrepresentations made by Mr Markus Jooste (former CEO of Steinhoff NV) regarding Steinhoff NV's financial position. They instituted action in May 2018 seeking redelivery of the equity (alternatively damages) and later, in April 2019, applied for an urgent interim interdict to preserve the Tekkie Town shares and business pendente lite. The high court granted the interdict, restraining the appellants from dealing with their property. The Pepkor entities were not initially parties to the main action but were joined after the interdict was granted.
The appeals were upheld with costs, including costs of two counsel. The order of the high court was set aside and replaced with an order dismissing the application for an interim interdict with costs, including costs of two counsel. The application to adduce further evidence on appeal was dismissed with costs, including costs of two counsel.
The binding legal principles established are: (1) The res litigiosa doctrine can only apply where there is a lis between the plaintiff and the possessor of the property that is the subject of the litigation; it cannot apply to parties not involved in the main action. (2) Property cannot be res litigiosa if it was transferred before the action was instituted. (3) In an action in personam based on contract, property becomes res litigiosa only after litis contestatio (close of pleadings), not upon service of summons. (4) Companies in a group are separate legal entities even where one is wholly-owned or majority-owned by another. Property owned by a company is not property of its shareholders. (5) The board of a company, including a subsidiary, must independently manage and direct the business and affairs of that company under section 66(1) of the Companies Act 71 of 2008. (6) A holding company cannot be restrained from dealing freely with shares it holds in a subsidiary nor directed to exercise control over a subsidiary in a particular manner, absent exceptional circumstances. (7) Courts should not make findings of fraud on motion proceedings based on untested allegations that are disputed on grounds that are not far-fetched or untenable. (8) The corporate veil may only be pierced in rare cases involving fraud or other improper conduct in the establishment, use, or conduct of the company's affairs.
Schippers JA made important observations on procedural fairness: The judge criticized the high court's procedure of inviting parties to submit draft orders via email after the hearing had concluded, then issuing an order materially different from the relief claimed in the notice of motion without giving the opposing party an opportunity to be heard. The court stated this was inappropriate and likely to bring the administration of justice into disrepute. The judgment emphasized that the duty to give reasons is a function of due process embodied in section 34 of the Constitution, and that fairness requires parties should be left in no doubt as to the reasons for an order. The court cited with approval English authority that in applications involving questions of law, a judge cannot properly make an order without giving reasons, as litigants are entitled to know the grounds on which their cases are decided. The court also observed, obiter, that it would not decide the validity of the appellants' defences to alleged fraud as these were triable issues in the main action and it was unnecessary given the conclusions reached. The court noted that subsequent amendments to pleadings after the high court order were irrelevant since an appellate court must decide whether the judgment was right according to facts existing at the time it was given.
This case is significant for several important principles in South African law: (1) It clarifies the requirements for interim interdicts based on res litigiosa, particularly distinguishing between actions in rem and in personam and the timing when property becomes res litigiosa. (2) It strongly reaffirms the principle of separate legal personality of companies within a corporate group, even where one company is a wholly-owned or majority-owned subsidiary. (3) It emphasizes that boards of subsidiary companies have independent duties and cannot simply be directed by holding companies. (4) It confirms that findings of fraud should not be made on motion proceedings based on untested allegations that are denied on grounds that are not far-fetched or untenable. (5) It underscores the importance of procedural fairness, including the duty to give reasons for judicial decisions. (6) It clarifies the narrow circumstances in which corporate personality may be disregarded, requiring evidence of fraud or improper conduct. The judgment has important implications for corporate governance, shareholder rights, and preservation of property pending litigation in South Africa.
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