Charalambos Commercial Properties CC v Transkei Furnishers (Pty) Ltd

On 21 August 2015, the applicant (as lessee) entered into a 30-year notarial lease with the first respondent (as lessor) for Erf 407 Mount Frere. The lease contained an option to purchase (clause 19) which could be exercised within 30 days of the death of Mrs Nozibele Vakalisa for R1,400,000 plus CPI escalation. At the time of concluding the lease, Mrs Vakalisa was the sole director of the first respondent, though its articles required at least two directors. She was also the estate representative of her late husband Sandile Vakalisa's estate, which was the sole shareholder of the first respondent. In September 2014, when the first respondent was deregistered, a resolution was passed by two directors (Mrs Vakalisa and Mr Melani) authorizing Mrs Vakalisa to conclude the lease subject to reinstatement. The company was reregistered on 21 October 2014. Mr Melani was removed as director on 25 March 2015, leaving Mrs Vakalisa as sole director when the lease was executed. Mrs Vakalisa died on 23 January 2022. The applicant exercised the option to purchase but the first respondent, through its new directors (Mrs Vakalisa's son Chuma and Sandile's grandson Mandisile), refused to sign the sale agreement, challenging the validity of the lease and the option.

• Whether the lease was validly concluded despite Mrs Vakalisa being the sole director when the first respondent's articles required at least two directors
• Whether the September 2014 resolution was validated by the subsequent reregistration of the company under s 82(4) of the Companies Act 71 of 2008
• Whether the disposal of the first respondent's sole asset complied with s 112 of the Companies Act requiring shareholder approval
• Whether the principle of unanimous consent applied to validate the disposal
• Whether the applicant dealt in good faith and was entitled to rely on the Turquand rule and s 20(7) of the Companies Act
• Whether clause 19 (the option to purchase) offended public policy

The court declared that the applicant validly exercised its option to purchase. The first respondent was ordered to sign the agreement of sale within 10 days, failing which the Sheriff was authorized to sign on its behalf. The applicant was directed to comply with its obligations under the sale agreement. The first respondent was ordered to pay costs on scale C, including costs of two counsel.

The binding legal principles established are: (1) Section 82(4) of the Companies Act 71 of 2008 has automatic retrospective effect upon reregistration, validating corporate activities during the period of deregistration; (2) The principle of unanimous consent applies under the 2008 Companies Act and can satisfy the requirements of ss 112 and 115 where a sole shareholder (including one acting in a representative capacity as estate executor) approves a disposal of company assets; (3) A third party dealing with a company in good faith is entitled to presume compliance with internal requirements under s 20(7) of the Companies Act and the Turquand rule, unless the third party actually knew or reasonably ought to have known of non-compliance; (4) Allegations challenging good faith must be based on evidence, not speculation or hearsay; (5) An option to purchase clause does not offend public policy merely because it is exercisable upon the death of a director/shareholder representative, and pacta sunt servanda will be enforced absent clear evidence of constitutional violation.

The court made several non-binding observations: (1) The court noted that Cameron J's footnote in Aquila Steel regarding the status of Newlands Surgical Clinic did not amount to an insinuation that the judgment was not settled law, and the Constitutional Court made no decision on the matter; (2) The court observed that no director acting responsibly could reasonably be expected to object to an option exercisable on the death of a key person involved with the company, distinguishing this from arbitrary conditions such as the death of a messenger; (3) The court noted that heirs in an estate have no interest in shareholding of a company held by the estate until the liquidation and distribution account is approved under s 35 of the Administration of Estates Act; (4) The court observed that the mortgaging of a lease for raising finance is not unusual and does not necessarily indicate commercial exploitation; (5) The court commented that if a sale is completed, the company receiving the purchase price continues to exist, and there is nothing unusual about option to purchase clauses or disposal of company assets if legally executed.

This case confirms important principles of South African company law: (1) The automatic retrospective effect of company reregistration under s 82(4) of the Companies Act 71 of 2008, following the Supreme Court of Appeal's decision in Newlands Surgical Clinic; (2) The continued application of the principle of unanimous consent under the 2008 Companies Act where a sole shareholder (even in a representative capacity) approves a transaction, thereby satisfying statutory requirements for special resolutions under ss 112 and 115; (3) The protection afforded to third parties dealing with companies in good faith under s 20(7) and the common law Turquand rule; (4) The high threshold for establishing that a party lacked good faith or had knowledge of internal irregularities - mere suspicion, speculation or hearsay is insufficient; (5) The constitutional principle of pacta sunt servanda continues to play a crucial role in contract enforcement, and will not be displaced by public policy considerations absent clear evidence of constitutional violation. The case also provides guidance on the enforceability of option to purchase clauses linked to contingent events such as death.