company

ACCESS TO A COMPANY’S SHARE REGISTER – by Don Mahon

MGAdvocate Commercial Law, Company Law, Don Mahon, Media law , , , ,

“The question isn’t “What do we want to know about people?” It’s “What do people want to tell about themselves?”” – Mark Zuckerberg

The Companies Act 71 of 2008 (“the Act”) makes provision for any person to access a company’s share register. Section 26(2) of the Act states as follows:

“A person not contemplated in sub-section (1) has a right to inspect or copy the securities register of a profit company, or the member’s register of a non-profit company that has members, or the register of directors of a company, upon payment of an amount not exceeding the prescribed maximum fee for any such inspection.”

Sub-section (1) applies to persons who hold or have a beneficial interest in any securities issued by a profit company or who is a member of a non-profit company. This article is limited to persons other than those referred to in sub-section 1.

A case which is presently pending in the Supreme Court of Appeal calls into consideration the question of whether the right afforded to members of the public under section 26 of the Act is immutable or whether a company is entitled to refuse access to its share register on the basis that the information is sought for an unlawful purpose.

The Act accords no other right to inspect or to obtain or make a copy of or extract from the register of members (or any of those referred to above) beyond those accorded by this section. See       Henochsberg on the Companies Act 71 of 2008: Commentary on section 26; In re The Balaghât Gold Mining Co Ltd [1901] 2 KB 665 (CA).

Section 32(2) of the Constitution of the Republic of South Africa Act 108 of 1996 (“the Constitution”) obliges the State to enact national legislation to give effect to the right of any person to access information that is held by another person and that is required for the exercise or protection of any rights. That legislation is the Promotion of Access to Information Act No. 2 of 2000 (“PAIA”). See the Preamble to PAIA; Investigating Director of the Investigating Directorate; Serious Economic Offences v Gutman 2002 (4) SA 230 (SCA); SA Metal & Machinery Co (Pty) Ltd v Transnet Ltd [2003] 1 All SA 335 (W)

A request for access to records of a private body may be refused on one or other of the grounds contemplated in s 68 (1) of PAIA. A person aggrieved by a refusal to provide the requested information may, in terms of s 78 of PAIA, apply to Court for the appropriate relief provided for in s 82, after having exhausted the internal appeal procedure envisaged by s 78 (1).

Under PAIA, if a request is made for information held by a private body, the requester must state the nature of the right he seeks to protect and provide an explanation why the information (record) is required for the exercise or protection of that right. See          PAIA, s 53 (1) (d)

Accordingly, while the examination or enquiry may be private, it is submitted that the records thereof are subject to the provisions of PAIA. See La Lucia Sands Share Block v Barkhan 2010 (6) SA 421 (SCA)

It is submitted that, to the extent that the relevant legislation entitles a person to an invasion of a company’s privacy through access to its share register, such an invasion can only be justified in circumstances which are reasonable. To the extent that any person seeks to limit the company’s right to privacy enshrined in section 14 of the Constitution, such a limitation would not be reasonable in circumstances where this is done in furtherance of an improper motive.

In La Lucia Sands Shareblock Ltd and Others v Barkhan and Others 2010 (6) SA 421 (SCA) the Court stated as follows:

“For completeness, I record that the New Companies Act 71 of 2008 has been assented to but has not yet come into operation … It appears that in future the provisions of the Promotion of Access to Information Act 2 of 2000 will have to be employed by non-members seeking access to the register of members. The rationale set out above for obtaining information contained in the register of members will probably continue to apply, notwithstanding that the request for information will now have to be made in terms of that Act.”

In terms of PAIA, a request for access to records of a private body may be refused on one or other of the grounds contemplated in section 68(1) of PAIA. In terms of that section, access to a record of a company may be refused if the record:

  • contains financial, commercial, scientific or technical information, other than trade secrets, of the company, the disclosure of which would be likely to cause harm to the commercial or financial interests of the company;
  • contains information, the disclosure of which could reasonably be expected:
    • to put the company at a disadvantage in contractual or other negotiations; or
    • to prejudice the company in commercial competition.

It is therefore arguable that a refusal to provide a person with access to a company’s share register is justified on the basis of the provisions of section 68 of PAIA.

Notwithstanding the aforegoing, however, it is submitted that quite apart from the application (or otherwise) of PAIA, in respect of the powers of a court to compel compliance with section 26, it has a discretion to grant or refuse the relief sought and may decline to make an order where, for example, it has been shown that the information is sought for some unlawful purpose. See        La Lucia Sands Shareblock Ltd and Others v Barkhan and Others 2010 (6) SA 421 (SCA); Bayoglu v Manngwe Mining (Pty) Ltd 2012 JDR 1902 GNP; Pelling v Families Need Fathers Limited [2002] All ER 440 CA at 447d; Henochsberg on The Companies Act 71 of 2008, Commentary on section 26 at page 114 (10)

This is borne out by the fact the section 26(9) of the Companies Act makes it an offence for a company to fail to accommodate any reasonable request for access or to unreasonably refuse access when faced with a request under section 26. SeeSection 26(9) of the Companies Act 71 of 2008

This implies that a company may refuse to comply with a request under section 26(2) under circumstances where it is reasonable to do so. Where the request is made for an unlawful purpose, it would be reasonable to refuse to comply therewith.

In order to counter this argument, reliance has been placed on a judgment of Nicholls, J in M&G Centre for Investigative Journalism NPC v CSR-E Loco Supply (Pty) Ltd case number 23477/2013.

It is submitted, however, that on a proper construction of the judgment of Nicholls J, a person’s right of access to company’s share register is absolute only in the absence of exceptional circumstances where, for example, access is sought for some unlawful purpose. If this qualification cannot be attached to the view of Nicholls J, then it must respectfully be submitted that the judgment is wrong and falls to declared as such in the pending matter before the Supreme Court of Appeal.

A New Approach To Claims By Shareholders For Loss Caused To A Company – by Don Mahon

MGAdvocate Commercial Law, Company Law, shareholders , , , , , ,

A New Approach To Claims By Shareholders For Loss Caused To A Company – by Don Mahon

 

Shareholder activism is not a privilege – it is a right and a responsibility. – Mark Mobius

 

The principle which has come to be known as the “Foss v Harbottle” rule (made famous in the English case of Foss v Harbottle (1843) 2 HARE 461: (1843) 67 ER 189) is not as entrenched as everyone may think. Simply put, the rule dictates that in any action in which a wrong is alleged to have been done to a company, the proper claimant is the company itself and a claim does not lie with the company’s shareholders, regardless of whether such wrong has caused a diminution in shareholder value.

An exception to this rule is the case of a derivative action enjoyed by shareholders and, save for this exception, it is commonly considered that the rule is Foss v Harbottle is immutable.

However, a closer consideration of the authorities demonstrate that this is not so.

In Mccrae v ABSA Bank, an exception was taken to a claim advanced by a shareholder who was alleged to have suffered a diminution in the value of his shareholding of a company as a result of the bank’s conduct. It was alleged that the bank had breach a duty of care owed to claimant which had caused his shareholding to diminish in value.

It is well-established that, for the purposes of determining whether a pleading is excipiable, all the factual allegations relied upon by the party claimaing are accepted as true – unless manifestly false.

See             TWK Agriculture Ltd v NCT Forestry Cooperative Ltd and Others 2006 (6) SA 20 (N) at 23B

Amongst the issues to be decided in the trial in due course was whether or not the Bank owed a duty of care to the claimant, would have foreseen the possibility of harm occurring to the claimant and ought to have taken steps to guard against its occurrence. These are ultimately policy questions.

See             McLelland v Hulett and Others 1992 (1) SA 456 (D) at 464

Her Ladyship stated that a Court faced with an exception to a claim should be careful not to make a premature decision as to whether a legal duty could be said to exist.

See             McCrae v ABSA Bank Ltd, unreported, case number 08/42229 at para 15

Where an exception had been taken solely on the grounds that the facts alleged by the plaintiff did not give rise to a legal duty of care by a collecting banker to the true owner of a lost or stolen cheque, the Supreme Court of Appeal held in Indac Electronics (Pty) Ltd v Volkskas Bank Ltd 1992 (1) SA 783 (A) that, at the stage of deciding an exception, a final evaluation and balancing of the relevant policy considerations which have been mentioned should not be undertaken.

Only rarely will the Court be in a position to determine the question or otherwise of a duty of care owed by professional advisors on a strike-out application and it is necessary to establish the full factual matrix before a final pronouncement is made.

See             Axiam Holdings Ltd v Deloitte & Touch 2006 (1) SA 237 (SCA); Andrews and Others v Kounnis Freeman (Affirm) [2000] Loyds Rep PN 263

It is well-established that the foundation of policy as to the existence of a legal duty of care is the “criterion of reasonableness” to which considerations of “moral indignation” and “the legal convictions of the community” contribute.

See             McLelland supra at p464

In the circumstances, in order to undertake a fair examination of the policy considerations involved, one must firstly, “proceed upon the assumption that the rule in Foss v Harbottle is not necessarily an absolute bar to the present action”, secondly, that the “defendant’s conduct should be regarded as unlawful”, thirdly, that “the true relationship between a shareholder and the commerce of the company … ought to be seen against a broader backdrop”.

See also     Stellenbosch Farmers Winery Ltd v Distillers Corporation SA Ltd and Another 1962 (1) SA 458 (A)

What is, in effect, required, is that, not merely the interests of the parties inter se, but also the conflicting interests of the community, be carefully weighed and that a balance be struck in accordance with what the Court conceives to be society’s notions of what justice demands. It is impossible to arrive at a conclusion except upon a consideration of all the circumstances of the case and of every other relevant factor which indicates that the matter should be considered by means of a trial and not be disposed of on exception.

See             Minister of Law & Order v Kadir 1995 (1) SA 303

The bank argued, in essence, that the claimant was not entitled to endeavour to construe a duty of care by the bank to him in circumstances where the law did not recognise his claim and that the claim lies with the company and not the shareholder. In advancing this contention, the plaintiff relied upon the rule against “double jeopardy”/”double recovery”, usually referred to as the rule in Foss v Harbottle.

The rationale for the rule and the basis upon which the claimant’s exception was advanced, relied upon the risk of placing a third party in jeopardy of double litigation and double payment; the mischief of allowing a shareholder to recover twice – personally and through the company must be prevented.

In excepting to the claim, the bank did not advert to any risk to which it would be subject. Instead, it approached the exception on the basis that the claimant was non-suited because no claim vests or can vest in the shareholder.

The risk of double jeopardy or double recovery is something which can only be considered once evidence is heard.

Furthermore, the liquidation of a company may affect assessment of the risk of double recovery: the mischief of double recovery ought not to be decided at the exception stage because “at this stage I am not aware whether or not the liquidator has elected to pursue any claim which the company may have against the defendants arising out of their alleged wrongful conduct. At the trial it may transpire that the liquidator, upon the instructions of the general body of creditors, has been precluded from pursuing any litigation on behalf of the company. In that event the potential mischief of “double recovery” alluded to in the authorities cited above will not occur. In such event it would be open to the plaintiff to pursue his remedy. On the other hand it is equally open to the defendant to plead in defence to plaintiff’s claims, that the liquidator has decided to pursue its remedies against the defendants in which case plaintiff may very well be non-suited in regard to his derivative action”.

See             Kalinko v Nisbet and Others 2002 (5) SA 766 (W) at 778

There are a number of imponderables and permutations which at the exception stage cannot be properly assessed or contemplated.

See             Kalinko supra at 779

The bank contended that a finding of liability, even on the pleaded facts, would be untenable as the loss would have been suffered by the company and not the shareholder.

The rule in Foss v Harbottle is not immutable nor is it unchanging or inflexible. When the decision in Foss v Harbottle supra was originally pronounced, the derivative action was recognised to allow relief for oppressed minority shareholders.

In Foss v Harbottle, the Court conceded that the rule might have been too broadly stated and that “there are cases in which a suit might properly be so framed”. Such a case was found where a society of private persons would:

“be deprived of their civil rights”, [where] “no adequate remedy remained except that of a suit by individual corporatives in their private characters” [and where the] “claims of justice would be found superior to any difficulties arising out of technical rules …” (202/203)

In Berland v Earl [1902] AC 83, it was held that it was a “mere matter of procedure to give a remedy for a wrong which would otherwise escape redress”.

See also     TWK Agriculture Ltd v NCT Forestry Cooperative Ltd and Others 2006 (6) SA 20 (N) at para 16

In McLelland supra, the learned Judge acknowledged that “the more pressing demand of justice and of the law is that wrong should be redressed and that structural or technical impediments should not likely be permitted to stand in the way of redress of a wrong”.

See            page 464

It was also held that in a certain context, too narrow a view of the definition of a shareholder’s rights was not justified:

“A reliance on this “technical” status of a shareholder ought not to be allowed as a matter of policy”.

See            McLelland supra at p487

Where the risk is non-existent and a shareholder is left with a diminished patrimony, the continued application of the rule would amount to an unwarranted and technical obstruction to the course of justice.

See             McLelland supra at p467

In Letseng Diamonds Ltd v JCI Ltd and Others; Trinity Asset Management (Pty) Ltd and Others v Investec Bank and Others 2007 (5) SA 564 (W), it was recognised that there could be very exceptional circumstances where “there was no remedy available to a plaintiff” where such relief might be granted.

See             para 61

In short, therefore, the rationale for the exceptions to the rule against double recovery/double jeopardy arise from an acknowledgment that considerations of equity and the interests of justice require a recognition of a shareholder’s rights and protection of same and that technical niceties should not obstruct such recognition and protection.

See             McCrae v ABSA supra at p49

From this, it becomes clear that the Rule in Foss v Harbottle is not immutable. Although a defendant to a claim by a shareholder will be able to plead and rely on policy considerations which would dictate that the rule cannot, in the circumstances of a particular case, be departed from. This would not be a basis for an exception to the claim.