SA Mohair Brokers Ltd v Louw

SA Mohair Brokers Ltd (appellant) and BKB Ltd (sixth respondent) were competitors in the mohair industry. The appellant wished to dispose of its 66% shareholding in its operating company CMW Operations to Oos-Vrystaat through a special resolution under s 228 of the Companies Act 61 of 1973. BKB, preferring to keep the appellant as its competitor rather than Oos-Vrystaat, devised a plan to defeat this resolution by purchasing shares from some of the appellant's shareholders and obtaining proxies from them to vote against the special resolution. The sellers completed four documents: a sale agreement, a request for share certificates, a blank securities transfer form, and a blank proxy form. BKB paid the sellers in full. The proxies were lodged with the appellant prior to the shareholders' meeting on 4 December 2009. However, the chairman of the meeting, acting on legal advice, ruled that the proxies were invalid and refused the proxy holders permission to speak or vote at the meeting. This advice was based on article 15.2 of the appellant's articles of association, which required prior approval of the directors for any sale or transfer of shares. The chairman believed the sale agreements were null and void, and therefore the proxies, being part of these void agreements, were also void.

• Whether a sale of shares without prior approval of directors as required by the company's articles of association is null and void
• Whether proxies given pursuant to such sales are invalid and can be rejected by the chairman at a shareholders' meeting
• Whether the rejection of proxies on the basis that the underlying sale agreements were void was lawful
• Whether the first respondent's proxy, which did not involve a sale of shares, was properly rejected

The appeal was dismissed with costs, including the costs of two counsel. The resolutions taken at the shareholders' meeting of 4 December 2009 were set aside.

A sale of shares in contravention of a restriction in the company's articles of association requiring prior approval of directors is not null and void. Such a sale remains binding between the parties (inter partes). The only legal effect is that the company is not obliged to register the purchaser as a shareholder. The purchaser may not be able to obtain registration, which could constitute breach of contract by the seller, but the agreement itself is valid. A company must accept proxies that are facially valid and given by registered shareholders. The underlying reasons or motives for giving proxies, including whether they form part of a sale agreement for shares, do not concern the company from a legal or administrative perspective and do not affect the validity of the proxies. A sale agreement for shares is res inter alios (a matter between others) and does not directly involve the company as a party.

The court preferred not to express a definitive view on whether the disallowance of Mr Louw's proxy (from a shareholder who had not sold his shares but merely given a proxy) would have been a sufficient ground for setting aside the resolutions taken at the meeting, as this matter was only raised in reply and was affected by misleading correspondence. The court observed that while the court below based its decision on s 252 of the Companies Act 61 of 1973 (which allows a court to set aside acts or omissions by a company that are unjustly prejudicial, unjust or inequitable), on the view that the rejection of proxies was unlawful, this equitable jurisdiction under s 252 did not arise. This suggests that where there is a clear legal basis for relief (unlawfulness), the broader equitable jurisdiction may not be necessary.

This case is significant in South African company law for clarifying the effect of restrictions on share transfers contained in a company's articles of association. It establishes that a sale of shares in contravention of such restrictions is not void ab initio, but remains valid and binding between the parties. The restriction merely prevents the company from being obliged to register the transfer. The case also clarifies the distinction between the validity of an underlying sale agreement and the validity of proxies given by shareholders who remain registered as such. It reinforces the principle that a company must accept facially valid proxies from registered shareholders, regardless of the reasons or motives behind their grant. The judgment provides important guidance on the legal effect of pre-emptive rights and director approval requirements in articles of association, distinguishing between the inter partes effect of contracts and their effect vis-à-vis the company.