A.
57/2000

C.H.
KANDJOU & 2 OTHER vs SATJNDERSON ASSOCIATES
& 5
OTHER

Levy. AJ
2000-12-13

Transfer of
shares in a private company contrary to the provisions of the
Articles of Association. Shares to be re-transferred against payment
of the purchase price.

Case
No.:
A. 57/2000

IN THE HIGH
COURT OF NAMIBIA

In the matter
between:

C.H. KANDJOU

G. HOVEKA

N. NDAZAPO
(previously BUTKUS)

and

SAUNDERSON &
ASSOCIATES

E. RATJAMA

100. 
     NGUAPIA

     
     

101. 
     M.
     KATJIUONGUA
     

     
     

102. 
     A.S.
     KANGOOTUI

     
     

NGEUEMANGA
TRADING COMPANY (PTY)

CORAM:
LEVY, AJ Heard On: 4^th
December 2000 Delivered on: 13^th
December 2000 JUDGMENT

LEVY, AJ:
In this application the applicants are represented by Mr C Mouton and
third

respondent is
represented by Mr J Schickerling.

On 18^,h
January 2000, applicants instituted proceedings against respondents
by way of Notice of Motion for:

"1. An
order in terms whereof the sale of the Third Respondent's 1500 shares
in the Sixth Respondent to the Second Respondent be declared null
and void.

2. 
   An order in
   terms whereof the Second Respondent is ordered to take all the
   necessary steps to retransfer the said 1500 shares to the Third
   Respondent against repayment of the purchase price thereof.

   
   

3. 
   An order in
   terms whereof the sale of the Fourth Respondent's 500 shares in the
   Sixth Respondent to the Third Respondent be declared null
   and void.

   
   

4. 
   An order in
   terms whereof the Third Respondent is ordered to take all the
   necessary steps to retransfer the said 500 shares to the Fourth
   Respondent against repayment of the purchase price thereof.

   
   

5. 
   An order
   declaring the sale of Fifth Respondent's 500 shares in the Sixth
   Respondent to the Third Respondent null
   and void.

   
   

6. 
   An order in
   terms whereof the Third Respondent is ordered to take all the
   necessary steps to retransfer the said 500 shares to the Fifth
   Respondent against repayment of the purchase price thereof.

   
   

7. 
   An order in
   terms whereof the First Respondent, as the auditors of the Sixth
   Respondent, be directed and authorised to take all the necessary
   steps to give effect to the transfer of shares in accordance with
   the above orders of this Honourable Court.

   
   

8. 
   An order in
   terms whereof the Second Respondent is directed to pay the costs of
   this application on the attorney and client scale.

   
   

9. 
   An order in
   terms whereof any other Respondents opposing this application are
   directed to pay the costs of this application jointly and
   severally."

   
   

Second, third
and sixth respondents gave notice of opposition and affidavits were
deposed to and served by second and third respondents only. On 24^th
October 2000, second respondent gave notice of the withdrawal of his
opposition and tendered wasted costs.

Sixth
Respondent is a private company with limited liability duly
incorporated according to the Company laws of Namibia and with
registered offices at the offices of Saunderson and Associates, 34,
Pasteur Street, Windhoek West.

Mr
Schickerling says in argument that it is common cause that when sixth
respondent was registered on 15^th
January 1993 it had an issued share capital of 3,300 ordinary shares
held as

follows:

First
Applicant 500

Second
Applicant 500

Third
Applicant 300

Third
Respondent 500

Fourth
Respondent 500

Fifth
Respondent 500

One A.
Katjimuise 500

This being so
it is clear that second respondent was not an original member of
sixth respondent and only became a member when he purchased 1500
shares from third respondent for N$ 150,000,00 on or about 2^nd
June 1999.

In their
founding affidavit applicants say:

"11.
During July 1999 it came to my knowledge that:

2. 
   the Fifth
   Respondent had resigned as a director of The Sixth Respondent;

   
   

3. 
   the Third
   Respondent had been appointed as director of The Sixth Respondent;

   
   

4. 
   the Fourth
   Respondent had sold to the Third Respondent his 500 shares in The
   Sixth Respondent and that these shares had been transferred;

   
   

5. 
   the Fifth
   Respondent had sold to the Third Respondent his 500 shares in The
   Sixth Respondent which shares were transferred to the Third
   Respondent. This all allegedly occurred on the 28^th
   of November 1997.

   
   

6. 
   the Third
   Respondent had sold to the Second Respondent 1,500 shares in The
   Sixth Respondent which were transferred to the Second Respondent;

   
   

7. 
   the Third
   Respondent has resigned as director of The Sixth Respondent.

   
   

8. 
   the Second
   Respondent had been appointed as director of The Sixth Respondent
   and this all allegedly happened on the 7^th
   of July 1999."

   
   

Save for an
inconsequential amendment, Table B of Schedule 1, constitute the
registered Articles of Association of Sixth Respondent. Articles 21
and 22 of the Articles of Association provide:

"21. If
a member of the company desires to sell all or any of his shares in
the company he shall give notice in writing, of his intention to
sell, to the directors of the company, and state the price he
requires for the shares.

22. 
    The
    directors shall within one month of the date of receipt of the
    notice referred to in art 21 advise every other member of the
    company of the contents thereof and each such member shall be
    entitled to acquire the shares so offered within one month after the
    date of receipt of such advice; provided that if more than one

    
    

23. 
    member makes
    an offer for all of the shares offered, the shares shall be sold to
    each such member in equal proportions, and where fractional
    proportions of shares remain, such members shall become joint
    holders of such fractional proportions of the shares."

    
    

Articles of
Association, when registered bind a company and its members to the
same extent as if each and every member had signed them.

(See Section
65(2) of the Companies Act 61 of 1973)

They
constitute a contract between the company and its members and between
the members inter se regulating their conduct in respect of certain
matters between themselves and any member can apply to Court to
enforce compliance with the Articles should one of the members commit
a breach of a particular provision of the articles.

At the time
when fourth and fifth respondents intended to sell their shares they
were by reason of the aforesaid provisions of Article 21, obliged to
give written notice of such intention to the directors. Fifth
respondent who was a director has made an affidavit saying that he
was not so informed nor did he have any notice concerning the price
of the shares.

In terms of
Article 22 whoever was a director at the time should have advised
every shareholder of the contents of the notice aforesaid so that
members who wished so to do could acquire the shares within one
month.

Applicants
say they did not receive any notice that third, fourth or fifth
respondents were selling their shares or were offering their shares
for sale. This is not disputed.

Therefore
there was no compliance with the provisions of Articles 21 and 22 of
sixth respondent.

Mr
Schickerling argues that by reason of the judgment of Greenacre
& Others v Falkrik Iron Co Ltd & Others 1953(4)
SA 289 compliance was unnecessary as the sale was from one member to
another and that the provisions of the Articles were only applicable
where there was an intended sale to a non-member of sixth respondent.

I
pointed
out above that second respondent was not an original member of sixth
respondent and only became a member on transfer to him of 1500 shares
sold to him by third respondent. Unquestionably therefore the
Articles were applicable to him and notice had to be given in respect
of shares to be acquired by him.

In any event
the Greenacre
case
is distinguishable on the facts. In the said case Table B of Schedule
1 of the Companies Act and the provisions of Article 21 and 22 were
not applicable. The Company concerned had drafted its own Articles of
Association which the learned judge interpreted to mean that members
could sell and transfer to each other without the restrictions which
only applied where a non-member wished to buy shares.

Furthermore
and in any event, Articles 21 and 22 are certainly applicable to
members inter se. It could indeed be a great concern and prejudicial
to those members who join a private company having an equal
shareholding with others to find suddenly that one member has
secretly acquired the shares of other members and has a majority
shareholding entitling him to outvote all other members.

I point out
that in paragraph 11.1 of his affidavit, third respondent himself
says;

"It was
incumbent upon those shareholders as aforementioned who intended to
sell their shares in Sixth Respondent to comply with the provisions
of Article 21 of Table B of Schedule 1 of the Companies Act 1973."

It is
therefore essential that there be compliance with the Articles of
Association by members who wish to sell shares even to other members
of the company.

Van
den Berg v Transkei Development Corporation 1991(4)
SA 78;

Mendonides
vMendonides and Others 1962(2)
SA 190 (D);

Estate
Milne v
Donohoe
Investments (Pty) Ltd and Others 1967(2)
SA 359 (A);

Lombard v
Suid-Afrikaanse Vroue-Federasie, Transvaal 1968(3)
SA 473 (A);

Swart v
Cilliers 1976(2)
PH E10.

Third
respondent says he in fact gave the Notice which the Article required
from him and he refers to a letter dated 2^nd
June 1999 copy whereof applicant annexed to its affidavit (CHK5).

In terms of
the Articles the notice had to be given to the directors of sixth
respondent. This letter, however is addressed to:

"The
Chairman

Omuhuka
Holdings Co (Pty) Ltd

P.O. Box
20855

Windhoek".

The Chairman
of that company may have been a director of sixth respondent at the
time. This letter, however, is certainly not the notice required by
the Articles. It is a letter to a separate and distinct persona and
reference to the letter dated 8^th
June 1999 written by the Chairman aforesaid in response to third
respondent's said letter (CN9 to third respondent's affidavit) shows
that the Chairman himself did not receive the letter as a director of
sixth respondent but as the Chairman of Omuhuka Holdings Co (Pty) Ltd
and submitted third respondent's offer to his Board of Directors who
decided "to take it up".

Applicants,
however, only asked for costs against those respondents who opposed.

Second
respondent who was not a member of sixth respondent at the time he
purchased the shares says he believed that those members who sold him
shares had complied with the Articles. Prior to becoming a member, he
was entitled to believe that this had been done without checking the
internal activities of sixth respondent. This is certainly not a
defence and had he not withdrawn his opposition he would have been
mulcted in costs to the same extent as third respondent.

Third
respondent was at all material times in a position to verify the
situation and to follow the same course as the other respondents.
However, no case for a special order as to costs has been made out
against him. Second respondent, must pay costs on the usual scale up
to 24^th
October 2000 when he withdrew his opposition as no case for a special
order as to costs has been made out against him.

The Order of
this Court therefore is:

1. That
the sale of 1500 shares by Third Respondent in Sixth Respondent to
the Second

Respondent is
declared null
and void.

2. 
   That Second
   Respondent is ordered to take all necessary steps to retransfer the
   said 1500 shares to Third Respondent who is hereby ordered to repay
   the purchase price of NS 150,000-00 against transfer of the shares.

   
   

3. 
   That the
   sale by Fourth Respondent of 500 shares to Third Respondent is
   declared null
   and void.

   
   

4. 
   Third
   Respondent is ordered to take all necessary steps to retransfer the
   said 500 shares to the Fourth Respondent against repayment of the
   purchase price thereof and Fourth Respondent is ordered to repay to
   Third Respondent the purchase price in respect thereof.

   
   

5. 
   That the
   sale by Fifth Respondent of 500 shares to Third Respondent is hereby
   declared null
   and void.

   
   

6. 
   That Third
   Respondent is ordered to take all necessary steps to retransfer the
   said 500 shares to Fifth Respondent against repayment of the
   purchase price and Fifth Respondent is ordered to repay such
   purchase price to Third Respondent.

   
   

7. 
   That First
   Respondent is ordered to give effect to the above orders in so far
   as is necessary to comply with the Articles of Association.