Grey Global Group Inc v Khumalo and Another

In 2003 Bongani Khumalo purchased 25.1% of the shares in Grey Group South Africa (Pty) Ltd from Grey Global Group Inc for R8 million under a sale agreement, funded by a promissory note. A shareholders’ agreement followed, granting Khumalo a put option to require Grey Global to repurchase his shares after five years at a price determined by a contractual formula. In September 2008 Khumalo exercised the put option. The agreed valuation mechanism resulted in a purchase price of zero. Khumalo then refused to deliver his share certificate, contending that no binding sale had come into existence because the provisions dealing with ‘closing’ in the shareholders’ agreement were conditions that had not been fulfilled. Grey Global applied to compel delivery of the share certificate. The High Court held the option was conditional and dismissed the application, prompting this appeal.

The appeal was upheld with costs. The High Court’s order was set aside and replaced with an order granting Grey Global the relief sought, including an order compelling delivery of the share certificate.

The case authoritatively confirms in South African law that the exercise of an option (including a put option in a shareholders’ agreement) gives rise to a binding contract of sale, and that contractual provisions regulating ‘closing’ ordinarily concern performance rather than contract formation. It provides important guidance on the distinction between suspensive conditions and obligations in commercial and corporate agreements.