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IN THE HIGH COURT OF SOUTH AFRICA

GAUTENG DIVISION, PRETORIA

 

Case No: 19269/2011

 

REPORTABLE: NO

OF INTEREST TO OTHER JUDGES: NO

REVISED

 

In the matter between:

 

 

STANDARD BANK NOMINEES (TRANSVAAL) (PTY) LTD              1^ST APPLICANT

 

SHAP ARON NOMINEES (PTY) LTD                                                 2^ND APPLICANT

 

BNS NOMINEES (PTY) LTD                                                               3^RD APPLICANT

 

WILLIAM JAMES SEBASTIAN BAILEY                                            4^TH APPLICANT

 

LISA DUTHIE                                                                                      5^TH APPLICANT

 

TRUSTEES OF THE GARCIA REVOCABLE FAMILY TRUST         6^TH APPLICANT

 

MARTINE MIGNON GUISE                                                               7th APPLICANT

 

TANIA HAMILTON                                                                              8^th APPLICANT

 

TRUSTEES OF THE JAPONICA TRUST                                           9^TH APPLICANT

 

MARY JANE HOPE ROBERTSON                                                    10^TH APPLICANT

 

DAVID JOHN SMYTH                                                                        11^TH APPLICANT

 

PATRICK CHARLES SMYTH                                                             12^TH APPLICANT

 

ANGLORAND SECURITIES LIMITED                                               13^TH APPLICANT

 

ELJAY INVESTMENTS INC                                                                14^TH APPLICANT

 

HENTIQ 1843 (PTY) LTD                                                                     15^TH APPLICANT

 

DEBORAH JANE PALMER                                                               16^TH APPLICANT

 

RAVEN CREST PROPERTY HOLDINGS (PTY) LTD                        17^TH APPLICANT

 

GERARD JOHN CHAPPEL                                                               18^TH APPLICANT

 

HELOISE LEONA MENNE                                                                 19th APPLICANT

 

ROGER PETER MUNDEL                                                                 20^TH APPLICANT

 

MATTHEW LEE STEADMAN                                                           21^St APPLICANT

 

ALLAN ERIC THOMPSON                                                                22^nd APPLICANT

 

NICHOLAS ZEHNDER                                                                      23^rd APPLICANT

 

STEPHEN RICHARD BUCKLE                                                         24^th APPLICANT

 

GARY DAVID CAHN tla POPS INVESTMENTS                               25^TH APPLICANT

 

ELIZABETH CATHERINA CHANDLER                                            26^TH APPLICANT

 

MURRAY FRANCIS CHANDLER                                                      27^TH APPLICANT

 

MOHAMED SHIRAZ GANI                                                                28^TH APPLICANT

 

THE TRUSTEES FOR THE TIME BEING                                          29^TH APPLICANT

OF THE GARY CAHN FAMILY TRUST

 

DOUGLAS GILFILLAN                                                                     30^TH APPLICANT

 

MAFUMISA INVESTMENT CLUB                                                   31^ST APPLICANT

 

THE EXECUTOR ESTATE LATE                                                       32^ND APPLICANT

ADOLF MARCEL VAN DER STRIECKT

 

IVO CARLO ZAMBETTI                                                                     33^RD APPLICANT

 

and

 

INVESTEC BANK LIMITED                                                               1^ST RESPONDENT

 

RANDGOLD & EXPLORATION COMPANY LIMITED                       2^ND RESPONDENT

 

 

JUDGMENT

 

 

Introduction

[1]          This application is brought by certain members of the second respondent (Randgold & Exploration Company Limited - "Randgold') in terms of section 252 of the Companies Act[1]. Randgold is cited as the second respondent by virtue of its interest in the matter. No relief is sought against it. Randgold has nevertheless entered the fray and filed voluminous opposing affidavits. Randgold's costs are paid for by Investec Bank Limited ("Investec') - the first respondent.

 

[2]          This application is a fallout from the tumultuous Brett Kebble era which was marred by allegations of fraudulent mismanagement of and theft from three publicly traded mining companies (Randgold, JCI Limited ("JCI') and Western Areas Western Ltd ("WAL') I Gold Fields[2]) effectively controlled by the late Brett Kebble and his father Roger Kebble ("the Kebbles'). Huge amounts of money and assets were syphoned off from Randgold and either delivered, lent or sold to JCI and/or third parties without Randgold's consent.

 

The relief sought

[3]          This matter revolves primarily around the conclusion of two agreements between Randgold and JCI. The applicants seek a declaration that the conclusion of the-

 

(i)           "Revised Settlement Agreement" ("RSA') on 20 January 2010 (which agreement was ratified by a simple majority of the shareholders of Randgold, JCI Limited ("JCI') and JCI Investment Finance (Pty) Ltd ("JCIIF') on 20 January 2010) and the

 

(ii)     "Litigation Settlement Agreement" ("LSA") concluded between various parties on 21 January 2010 the conclusion of which the applicants' claim was a condition precedent to the RSA,

 

constitute or involve an act or omission which is unfairly prejudicial, unjust or inequitable within the meaning of section 252(1}, as read with section 252(3) of the Companies Act. I will interchangeably refer to the two settlement agreements as "the settlement agreements" or the "offending agreements" as they are termed by the applicants.

 

[4]          The applicants premise their argument primarily on the fact that, at the time of the conclusion of the two offending agreements, Investec had already taken control of the boards of both Randgold ("the creditor') and JCI ("the principal debtor') and that it did so by reconstituting the boards of both entities to its (Investee's) satisfaction and to its own financial benefit. This Investec did through the appointment of Mr Nurek ("Nurek') (who was a full-time employee of Investec), Mr Gray ("Gray') and Mr Lamprecht ("Lamprecht') who were directors of both JCI and Randgold. By taking control of the two boards, that in turn put into place a process that was designed to ensure an outcome which was to Investee's substantial benefit but to the detriment ("unfair prejudice') of the applicants and the other minority shareholders. The applicants claim that Investec was at the date of the conclusion of the offending agreements, not only Randgold's largest shareholder, it was also the de facto controller of the Randgold board. In short, the applicants claim that Investec was "the clear winner' as a result of the conclusion of the offending agreements and the applicants "the clear losers". Investec is therefore accused of being the "effective architect of the prejudicial compromises" (reached in the two offending agreements).

 

[5]          The applicants claim that the settlement agreements had the effect of settling or requiring the withdrawal or abandonment of the following large pending legal claims instituted by Randgold against various third parties (most notably JC!} to the direct prejudice of the applicants and the other minority shareholders. Whether this constitutes "unfair prejudice" as contemplated in section 252 of the Companies Act, is central to this dispute. I will return in more detail to the circumstances that led to the conclusion of the agreements, their terms and some of the consequences of the conclusion of the settlement agreements later in the judgment. Although the applicants rely on only four claims in their papers, the following claims are listed as having been either withdrawn or abandoned in their heads of argument.

 

(a)       A legal claim by Randgold against JCI in which Randgold sought payment of an amount of approximately R21 billion which was settled in return for assets with an estimated value of only R648 466 004.00 which amount (according to the applicants) constituted about 3% of the claim against JCI.

 

(b)       Two claims against Investec:

 

(i)         A legal claim by Randgold against Investec brought in the Witwatersrand Local Division of the High Court for payment of R270 758 672.90 which was declared "full and finally settled" for no compensation and thus essentially abandoned.

 

(ii)        A legal claim by Randgold against Investec and Investec Bank (UK) Ltd ("IBUK') in the High Court of Justice in London in which Randgold claimed delivery of 5 460 000 shares in Randgold Resources Limited ("Randgold Resources') which at the time of the launch of these proceedings had the total highest value of R4 077 307 176 - which claim was also declared "full and finally settled" for no compensation and thus essentially abandoned.

 

(c)       A legal claim by Randgold against Goldfield Operations Limited ("GFO') formerly known as Western Areas Ltd ("WAL') for thefts of shares belonging to Randgold. At the time of the institution of that application, the highest value of the shares was R18 210 821 912. The applicants submitted that as a consequence of the settlement with JCI in terms of which GFO's liability as joint wrongdoer with JCI to Randgold was discharged, the claim was effectively rendered nugatory.

 

(d)       A legal claim by Randgold against Peter Henry Gray ("Gray') for R80 million for the un-authorised transfer of WAL shares owned by Randgold and which was abandoned.

 

(e)       In addition, the LSA required JCI to pay Letseng Diamonds Limited ("Letseng') and other companies controlled by Montague (Monty) Koppel ("Koppel') R40 million to terminate the litigation against Investec. The agreement further provided that JCI pay Investee's raising fee of R267.5 million in respect of a loan which Investec had to provide to JCI.

 

[6]          It is then on this basis that the applicants claim that it would be just and equitable in terms of section 252(3) of the Companies Act for Investec to be ordered by this court to purchase the applicants' shares in Randgold for a value calculated to bring the prejudice complained of to an end. The amount so claimed amounts to approximately R1.2 billion. In paragraph 3 of the Notice of Motion, the applicants acknowledge that the price at which Investec should be ordered to purchase the applicants' Randgold shares (in the event of this court making an order under section 252 of the Companies Act) may well not be capable of being determined on the papers. Accordingly, the Notice of Motion provides for the determination of that amount to be referred to a referee in terms of section 19(bis) of the Supreme Court Act[3] if agreed by the parties; alternatively for the determination of such amount to be referred to oral evidence in terms of Rule 6(5)(g) of the Uniform Rules of Court.[4]

 

Broad outline of the facts

[7]          The events that led to the conclusion of the two agreements are detailed in the voluminous papers and the heads of argument.[5]I intend to merely gloss over some of the key facts and events that gave rise to the conclusion of the agreements and in doing so, I have relied liberally on the very helpful and detailed heads of arguments submitted by the parties.

 

[8]          From the papers it appears that the dispute has its origins in a financial loan granted to JCI at a time when it was widely known that the Kebble empire was crumbling under the weight of years of illicit mismanagement when no bank institution was willing to throw any further financial lifelines to JCI.

 

[9]        Investec had already advanced financing to JCI as early as 2001. By June 2005, it was well-known in financial circles that JCI was on the brink of liquidation and rumours started to circulate in the media that the Kebbles were running their mining empire they effectively controlled, particularly Randgold, JCI and WAL, with no regard to any of the principles of good corporate governance. It also subsequently transpired that substantial asset of Randgold (its liquid listed shares in other companies) were syphoned off between 2002 and 2005 by JCI. The applicants claim that these assets were stolen and that the thefts were facilitated, under Brett Kebble's instructions, by the stockbroking firm Tlotlisa Securities (Pty) ltd ("T-Sec') and its CEO, Allan Gray (''Allan Gray'), who allegedly facilitated the sale of the assets. The proceeds thereof were allegedly deposited into accounts controlled by JCI, Western Areas and the Kebbles to the detriment of Randgold and without Randgold's consent. (I will later in the judgment refer to the respondents' take on these allegations.)

 

Broad parameters of the dispute between the parties

[10]      Although at the risk of simplifying the issues before the court, the broad parameters of the dispute between the parties are the following: The applicants paint a picture of a bank (Investec) that effectively took control of the boards of Randgold and JCI motivated by the significant financial benefits which could be extracted from the strained financial circumstances in which JCI (in particular) found itself. Despite the massive conflict of interest, by controlling the "thief' (JCI) and the "victim" (Randgold) and in collaboration with someone who was the "thiefs sidekick" (Gray and Nurek), Investec was able to orchestrate the conclusion of the two offending agreements to the detriment of the minority shareholders. It is further alleged that Investee's transparent purpose was to do whatever it took to protect its financial exposure to the Western Areas derivative structure and to prevent the default or liquidation of JCI which would almost certainly have been the result had Randgold with a board untainted by Investec connections taken appropriate steps against JCI to recover the stolen assets. Instead, the claims against third parties, most notable JCI, were settled in terms of the two offending agreements.

 

[11]       The respondents paint a vastly different picture. According to them, it became necessary, after months of trying to unravel the financial and corporate mess Kebble left behind, to consider various options on the table in an attempt to keep JCI from financial ruin. One of the options was a merger between Randgold and JCI (obviously with certain conditions attached to such a merger). The other was the possible liquidation of JCI. Ultimately Randgold and JCI agreed to the conclusion of the two settlement agreements (the RSA and LSA). The process leading up to the conclusion of these agreements took many years and is painstakingly recorded in great detail in the papers. I will gloss over some of these events later in the judgment. But, as I have pointed out, the main consequence that flowed from the conclusion of these agreements is the fact that ultimately various large pending legal claims instituted by Randgold against various third parties (most notably JCI) were either withdrawn or abandoned. And, to restate, it is the consequences resulting from these agreements that the applicants claim constitute an act or omission that was 'unfairly prejudicial, unjust or inequitable' to Randgold and the minority shareholders in terms of section 252 of the Companies Act.

 

[12]       There are broadly three main questions before the court in considering whether a case has been made out by the applicants having regard to the established facts -

 

(i)        Firstly, whether the decision taken by the Randgold board to conclude the two settlement agreements amounts to conduct that is "unfairly prejudicial" to the applicants.

 

(ii)       Secondly, can it be concluded that this decision was influenced by Investec.

 

(iii)      Thirdly, provided that all the other jurisdictional requirements have been established, whether it is 'Just and equitable" to order Investec to buy the applicant's Randgold shares on the basis set out in prayers 2 and 3 of the Notice of Motion.

 

The Investec Loan Agreement

[13]       By August 2005 (a month before Brett Kebble's passing in September 2005) JCI was, as stated, in serious financial trouble. JCI was highly illiquid and urgently in need of liquidity to remain solvent. Existing debts, running costs and the fact that the redemption of its convertible debentures for approximately R384m loomed in January 2006, contributed to the financial instability of JCI. JCI was at serious risk of liquidation and possibly also losing its shareholding in Western Areas. As a result of the negative publicity circulating in financial community regarding the financial mess the Kebble controlled companies found themselves in, no financial institution apart from Investec was even prepared to consider a proposal to advance loan finance to the highly compromised JCI and the Kebbles. By that time the Kebbles had lost all credibility in financial markets.

 

[14]       In 2005 JCI and/or Western Areas not only faced potential liquidation, it also risked defaulting on the loan already advanced to them by Investec as early as 2001. Because Investec faced serious financial exposure as a result of JCl's impending financial ruin, it agreed to extend a further loan to JCI (referred to in the papers as the "Investec Loan Agreement" or the "/LA'). The \LA was concluded between Investec and JCI on 31 August 2005 at a time when, as already pointed out, it was a well-known fact that no bank was prepared to extend any loans to the distressed JCI (group - including JCI Limited). Randgold itself confirms that "it was well known in financial and banking circles that ...[t]he JCI Group, including JCI Limited, ... could not raise project finance through normal banking channels".

 

[15]      It was a condition for the extension of the loan to JCI that Investec reconstitute the boards of both JCI and Randgold. This resulted in Investec effectively taking over the boards of directors of both JCI ("the debtor') and Randgold ("the creditor'') simultaneously. This, according to the applicants, created a glaring conflict of interest. According to the applicants, this conflict between the boards of Randgold and JCI permeated the events up until the offending agreements were concluded and which were prejudicial to the applicants. There is inter alia a dispute between the parties whether Investec contracted to "maintain" the composition boards in future. I will return to this issue.

 

The Disposal Agreement

[16]       At the same time as the ILA a further agreement, the Disposal Agreement was concluded between JCI and Investec. In terms of this agreement Investec insisted upon security as the creditor to JCI which involved assets pledged by JCI, through JCIIF, as a special purpose vehicle, the value of which was R1 334 607 497. The pledged assets had, according to the applicants, been funded from the sale of assets JCI had stolen from Randgold.

 

[17]       In addition to the fact that Investec has, according to the applicants, taken over the boards of both the debtor and the creditor, Investec built up its shareholding in Randgold, with the result that, by October 2009, it had acquired a de facto controlling share of Randgold. This was done in concert with Allan Gray Limited.

 

[18]       The conclusion drawn by the applicants from the events leading up to the conclusion of the offending agreements is neatly summarised in the heads of argument as follows:

 

"Exploiting, at various times, its conflicted powers on the boards, its de facto controlling equity stake, and, crucially, too, its possession, as creditor to JCI in terms of the ILA, of the proceeds of Randgold's stolen assets pledged to Investec by JCI, Investec engineered the conclusion of the prejudicial settlements to secure its own financial position, without regard for the unfair prejudice of Randgold and its minority shareholders. The ultimate financial effect of these settlements was to transfer substantial value from Randgold to JCI and Western Areas (both of which Investec and Allan Gray had an incentive to favour), as well as to Investec itself, to the obvious detriment of Randgold and thus, too, to the unfair disadvantage of Randgold's remaining shareholders.

 

A judicially-crafted exit route from a company - whereby the shares of aggrieved shareholders are purchased by the company's controllers who are held responsible for instigating the unfairly prejudicial conduct - is the typical remedy in such circumstances and specifically provided for in section 252(3)."

 

Post Kebble

[19]       After Kebble's passing in September 2005, it became more and more apparent that the Kebble empire and particularly the three publicly trading mining companies were in disarray (Randgold, JCI and Western Areas (later GFO). For months after Brett Kebble's passing, the financial affairs of particularly Randgold and JCI remained shrouded in mystery. Such was the extent of the confusion that Randgold and JCI each appointed separate legal teams and forensic auditors / investigators to independently investigate and unravel the various dealings Kebble was involved in and to determine what the real financial status of the different entities was. It was only much later that the auditors managed to unravel to some extent the financial status of the companies. The financial picture that slowly emerged was, to say the least, bleak. But, what can be said with certainty was that, with Kebble at the helm of the ship, the ship was fast sinking as a result of Kebble's grand scale mismanagement of the various mining companies: Randgold's forensic auditors determined that Roger and Brett Kebble had perpetrated very extensive frauds and defalcations against Randgold giving rise to losses totalling some R1 903 838 698,00.

 

Procedural matters

[20]       Before I turn in more detail to the facts. Two procedural issues were raised.

 

(i)        The respondents questioned whether it was appropriate for the applicants to have proceeded by way of motion as opposed to having proceeded by way of action.

 

(ii)       An issue was also raised in respect of the effect of section 2(13) of the Apportionment of Damages Act.[6] I will deal with this issue later in the judgment as it has a direct bearing on the question whether Randgold's board of directors and/or shareholders were misled about the effect of settling certain claims against JCI particularly in the context of litigation against Gold Fields.

 

Motion proceedings

[21]       This is a claim in terms of section 252 of the Act. The relevant part reads as follows:

 

"252. Member's remedy in case of oppressive or unfairly prejudicial conduct.

(1)     Any member of a company who complains that any particular act or omission of a company is unfairly prejudicial, unjust or inequitable, or that the affairs of the company are being conducted in a manner unfairly prejudicial, unjust or inequitable to him or to some part of the members of the company, may, subject to the provisions of subsection (2), make an application to the Court for an order under this section.

(2)

(3)     If on any such application it appears to the Court that the particular act or omission is unfairly prejudicial, unjust or inequitable, or that the company's affairs are being conducted as aforesaid and if the Court considers it just and equitable, the Court may, with a view to bringing to an end the matters complained of, make such order as it thinks fit, whether for regulating the future conduct of the company's affairs or for the purchase of the shares of any members of the company by other members thereof or by the company and, in the case of a purchase by the company, for the reduction accordingly of the company's capital, or otherwise.

(4)     …...

(5)     ……"

 

[22]       The parties disagree on whether these proceedings ought to have been brought by way of application as opposed to launching an action.

 

The applicants' submissions

[23]       The applicants submitted that the claim in terms of section 252 ought to have been brought by way of application. Furthermore, they argue that there are no genuine material disputes of fact that would prevent this court from ordering the relief sought in the Notice of Motion. The only qualification that the applicants suggest is that, should the court find in favour of the applicants, the issue of the price at which Investec should be ordered to purchase the applicants' Randgold shares, may not be able to be determined on the papers hence the provision in the Notice of Motion for the determination of that amount to be referred to a referee.

 

[24]      The deponent to the founding affidavit states two things: Firstly, that the facts upon which this application is based are generally speaking not within his personal knowledge and that it was gathered from various documents and affidavits. Secondly, that the allegations of fact made in this affidavit are not contentious and should be common cause. He further states that there are relatively few instances where genuine disputes of fact may arise in this matter but that the disputes should not be material to the determination of this application. He also states that he had been advised that an application under section 252 of the Companies Act ought to be brought by way of application.

 

The respondent's submissions

[25]       The respondents disagree with the applicants' take on section 252 and contend that, in light of the fact that the papers are infested with a plethora of material factual disputes which must have been obvious to the applicants at the time when this application was launched, the matter ought to have been brought by way of action. Because this was not done, this, according to the respondents, constitutes a complete bar to relief on motion.

 

[26]       The court was referred to the well-known rule laid down in Plascon-Evans (Pty) Ltd v Van Riebeeck Paints (Pty) Ltd[7] where the now trite principles are highlighted namely that, where disputes of fact arise on the affidavits in motion proceedings, a final order can only be granted if the facts averred in the applicants' affidavits which are admitted by the respondents together with the facts alleged by the latter, justify such order. It may be different if the respondents' version consists of bald or uncreditworthy denials, raises fictitious disputes of fact, is palpably implausible, far­ fetched or so clearly untenable that the court is justified in rejecting them merely on the papers.

 

[27]       Curiously the applicants make no reference to Plascon-Evans in their heads of argument and merely suffice with a "... primary submission, [that] there are no genuine, material disputes of fact that would prevent a court ordering Investec to purchase the applicants' shares in Randgold as sought in the notice of motion."

 

[28]       Investec disagrees with this assessment of the facts and submits that this submission is not borne out by the facts in this matter. Moreover, it argues that the applicants have overlooked the fact that, although legislation permits the launch of motion proceedings, that in itself does not entitle a party to contend that a resort to action proceedings is thereby precluded. It was submitted that the legislature could not have intended to restrict the procedural rights of a party by limiting litigation by way of motion proceedings. The Companies Act must therefore, according to Investec, be interpreted to mean that motion proceedings are only permissible where there are no anticipated disputes of fact.[8] Investec therefore argues that the applicants ought to have sought relief by way of action in light of the material disputes of fact that exist on the papers. Because they have not done so, Investec submitted that the application should be dismissed for that reason alone.

 

Evaluation

[29]      This court was referred to Harilal v Rajman and Others[9]. Harilal does appear to support Investee's submission that the applicants are not bound to proceed by way of motion proceedings in bringing a claim under section 252 of the Companies Act:

 

"[93] The correct approach is that relief should only be granted in motion proceedings when the facts set out in the Applicant's Affidavit are admitted and in their totality those put up by the Respondents permit the grant of such an order. It is not correct to suggest that because legislation permits the launch of motion proceedings that even where there are anticipated disputes such a party can come to court in the sure knowledge that they can contend that they have no right to launch action proceedings. It could never have been the intention of the legislature to restrict the procedural rights of parties in this way. The Companies Act must therefore be interpreted to mean that motion proceedings are permissible when there are no anticipated disputes of fact or these are easily determined by referral to trial.

[94] The Supreme Court of Appeal has reiterated the correct approach to disputes of fact in motion proceedings. It has said that "a real, genuine and bona fide dispute of fact can exist only where the Court is satisfied that the party who purports to raise the dispute has in his Affidavit seriously and unambiguously addressed the facts said to be disputed. There will off course be instances where a bare denial meets the requirement because there is no other way open to the disputing party and nothing more can therefore be expected of him. But even that may not be sufficient if the fact averred lies purely within the knowledge of the averring party and no basis is laid for disputing the veracity or accuracy of the averments. When the facts averred are such that the disputing party must necessarily possess knowledge of them and be able to provide an answer (or counter veiling evidence) if they be not true or accurate but, instead of doing so, rests his case on a bare or ambiguous denial the Court will generally have difficulty in finding that the test is satisfied. I say "generally" because factual averments seldom stand apart from a broader matrix of circumstances all of which need to be borne in mind when arriving at a decision. A litigant may not necessarily understand the nuances of a bare or general denial as against a real attempt to grapple with all relevant factual allegations made by the other party. But when he signs the Answering Affidavit, he commits himself to its contents, inadequate as they may be, and will only in exceptional circumstances be permitted to disavow them. There is thus a serious duty imposed upon a legal advisor who settles an ..... affidavit to ascertain and engage with facts which his client disputes and to reflect such disputes fully and accurately in the Answering Affidavit. If that does not happen it should come as no surprise that a Court takes a robust view of the matter. "

[95]   A litigant who therefore anticipates or knows that there is likely to be a dispute of fact and who nonetheless proceeds by way of motion proceedings runs the real risk that a Court, in the exercise of its discretion, particularly if there is suspicion about that party's version, may result in the application being dismissed with costs.

[96]    Room Hire Co. (Pty) Limited v Jeppe Street Mansions (Pty) Limited is authority for the proposition that it is not proper for a party to commence proceedings by motion "with knowledge of the probability of a protracted enquiry into disputes of fact not capable of easy ascertainment, but in the hope of inducing the Court to apply [Rule 6] to what is essentially the subject of an ordinary trial action".

[97]    Mr Kemp, after readily accepting that there were disputes of fact irresoluble on the papers, countered by saying that the Applicant was mandated by the legislature to proceed by way of application proceedings and that the legislature, when it drafted the Companies Act must be taken to have known the difference between application proceedings and trial proceedings. He added that the Applicant had also sought a winding up order which could only be brought on motion. He did not advance any authority for the propositions. Mr Singh who appears for the Respondents on the other hand argued that if a party knew or anticipated a real dispute of fact it would be unwise for that party to proceed on motion to wind a company up. It would be appropriate in those circumstances to first obtain a judgment and then rely thereon to wind the company up. In regard to the first point Mr Singh submitted that a party could proceed by way of a declarator as to that parties locus standi or in appropriate instances set out the disputes of fact and identify the issues which ought to proceed to trial.

[98]    He called to aid the case of Kalil v Decotex (Pty) Limited and Another 1988 (1) SA 943 AD as authority for the proposition that where in an opposed application for a winding up and the probabilities on the Affidavit are equipoised a Court would gravitate towards the hearing of oral evidence. However if the probabilities do not favour the Applicant a Court would be less likely to exercise its discretion in their favour. The probabilities do not favour the Applicant. The Applicant has not placed any material to exercise my discretion in her favour.

[99]    As a norm a Court should not order the hearing of oral evidence where the probabilities favour the Respondent. This is a salutary approach. I associate myself with such a long standing precept.

[100] Motion proceedings are not as a rule designed to determine the probabilities. Where a party's version consists of bald or uncreditworthy denials or raises fictitious disputes of fact which are palpably implausible, far­fetched or so clearly untenable it is permissible to reject them out of hand.

[101]  In my judgment a party seeking relief in terms of Section 163 of the Companies Act who knows that there are disputes which cannot be resolved in motion proceedings is entitled to either set those disputes out in the Founding Affidavit and to identify the issues which should be dealt with in a trial and to seek an order in terms of Section 163(2)(1) of the Companies Act. A Respondent faced with such an application would not be entitled to resist such a procedure. Such a party would also be entitled to bring a declarator that the disputes in question, properly identified, should be referred to trial. Finally, it is open to such a party to record the respective party's contentions and to cause these to be referred to trial.

[102] A party who is aware that there are likely to be serious conflicts of facts is also entitled to proceed by way of action. The answer to any defence that the legislature has restricted the remedy to motion proceedings would be that the factual disputes cannot be resolved on application and that the opposing party cannot complain of any prejudice. A Court would be wrong, in my view, to dismiss the application on this basis. Trial and motion proceedings are designed to arrive at the truth and to do justice between parties. There are clear instances developed in our common law when a party should not proceed by way of application proceedings. Beyond these clear instances, a party is entitled to bring application proceedings when there are no disputes of fact. But he cannot do so knowing that there are factual disputes.

[103] In Garment Workers Union v De Vries and Others Price J issued the following caveat as far back as 1949:

"It is becoming a habit to bring applications to Court on controversial issues and then to endeavour to tum them into trial actions. Applicants thereby obtain a great advantage over litigants who had proceeded by way of action and who may have to wait for many months to get their cases before the Court. Such applications - cum - trials interpose themselves, occupying the time of judges and still further delaying the hearing of legitimate trials. Applications for the hearing of viva voce evidence in motion proceedings should be granted only where it is essential in the interests of justice."

[104] The present application should never have been brought in the hope the matter would be referred to oral evidence. A party who is aware of the dispute but who chooses to remain silent about them in the founding papers and when confronted with evidence puts up a bare denial should expect that a Court would exercise its discretion against that party and dismiss the application with costs.

[105] In my judgment this is not a proper case to refer to trial for the hearing of oral evidence."

 

[30]       Also, having perused thousands of papers and having considered the oral submissions, there is no doubt that the papers are replete with factual disputes which are fundamental to the resolution of the disputes between the parties. I am inclined to agree with what the court in Harilal stated: 'A party who is aware of the dispute but who chooses to remain silent about them in the founding papers and when confronted with evidence puts up a bare denial should expect that a Court would exercise it's discretion against that party and dismiss the application with costs."

 

[31]       The applicants also submitted that, should the court ultimately decide that there are facts that it cannot adequately resolve on the papers, the court has the discretion to direct that oral evidence be heard. The matter should then be referred to oral evidence. I disagree. The court in Absa Bank Limited v Molotsi, Teboho Tommy[10] dealt at length with the desirability of this practice:

 

"Reference to evidence or trial?

[22] Two introductory remarks are appropriate on this score. The first relates to when an application for referral should be made, and the second relates to the nature of the so- called discretion which a court has to refer amatter to evidence or trial.

[23] On the first issue, the judgment of Morris, AJ in Marques v Trust Bank of Africa Ltd and Another has for some time now been interpreted in this division to permit an applicant to argue in the alternative: to ask for final relief and then to ask, conditional on the court refusing the final relief, for a referral order. The problem for a busy motion court is that the court is then burdened with the responsibility of first analysing the papers and then either granting final relief or referring to evidence.

[24] It results, often, in a win-win situation for an applicant, because it is unusual for a court to dismiss an application for foreseeable factual disputes when faced with such a request. In tum, this results too in an increased burden on the motion court, because there is little risk of dismissal, and so cases that ought from the onset to have gone to trial, first find their way to the motion court.

[25] It is, in our view, appropriate to bear in mind that the Supreme Court of Appeal has recently said the following about this practice (underscore supplied):

"[23] It is clear from this exposition of the complaints that were lodged with the appellant that the full bench failed to assess the facts properly and that its assumption that the respondents were not guilty of unprofessional dishonourable or unworthy conduct cannot be justified. There were further complaints levelled against them but these cannot be decided on the papers. The appellant submitted that in these circumstances we should refer those disputed for oral evidence. We cannot comply with the request. An application for the hearing of oral evidence must, as a rule, be made in limine and not once it becomes clear that the applicant is failing to convince the court on the papers or on appeal. The circumstances must be exceptional before a court will permit an applicant to apply in the alternative for the matter to be referred to evidence should the main argument fail (De Reszke v Maras and Others 2006 (1) 5,4 401 (C) ([2005) 4 All S/i 440) at paras 32 - 33). In a case such as this a law society might be able to apply in part A of its application for an order ordering the respondent to appear before its council for an oral enquiry."

[26]   The full court of the then Cape Provincial Division in De Reszke, referred to in the quote above, in tum referred to the judgment by the then Appellate Division in Administrator, Transvaal, and Others v Theletsane and Others, where Botha, JA referred to the approach of Morris, AJ as having much to commend itself. However, Comrie, J went on (underscore supplied):

"It is my impression in this division, however, that the pendulum has swung too far the other way. Some younger counsel, in particular, seem to take it half for granted that a court will hear argument notwithstanding disputes of fact and, failing success on such argument, will refer such disputes, or some of them, for oral evidence. That is not the procedure sanctioned by the Supreme Court of Appeal. On the contrary, the general rule of practice remains that an application to refer for oral evidence should be made prior to argument on the merits. The Supreme Court of Appeal has widened the exceptions to this general rule, but they remain exceptions."

[27] We respectfully subscribe to these remarks, for the very reasons that we have mentioned above."

 

[32]       I am in agreement with the court in ABSA. I am not inclined to entertain an application to refer the dispute to oral evidence once it transpires that the court, after days of argument, cannot resolve the numerous disputes of fact. No exceptional circumstances have been placed before this court to warrant the exercise of a discretion to refer the countless disputes of fact to oral evidence. That there existed numerous material disputes of fact must have been eminently obvious to the applicants once Investec had filed its answering affidavit and even more so when Randgold had entered the fray. The applicants will therefore have to stand and fall by the papers they have filed in this matter.

 

[33]       Lastly, the applicants' insistence that an application in terms of section 252 of the Companies Act has to be brought by way of application, is debunked particularly if regard is had to the matter in De Sousa and another v Technology Corporate Management (Pty) Ltd and others[11] where the dispute was brought by way of action.

 

RELEVANT FACTS

Introduction

[34]       I have already briefly touched on the precarious financial position JCI found itself in by mid-2005 and the potential financial exposure that Investec faced to Western Areas and JCI as a result to a prior loan advanced by Investec. One of the key pillars relied upon by the applicants in seeking relief is premised on the allegation that as from August 2005 when Investec became the de facto controller of both Randgold and JCI simultaneously, Investec used its position to engineer the offending agreements to their own huge financial benefit and to the detriment of Randgold and its minority shareholders including the applicants.

 

[35]       The manner in which the two offending agreements came about, is criticised by the applicants on, inter alia, the following grounds: Firstly, on the basis that, once Investec dominated the two boards and especially the board of Randgold, Randgold's board was no longer independent and was effectively exploited to the benefit of Investec. Secondly, Randgold shareholders did not consider or approve the LSA. Thirdly, the mediators (referred to in more detail later in the judgment) who were tasked to find a solution to the dispute between JCI and Randgold only considered the settlement of the claims against JCI. Fourthly, because the Randgold board was not truly independent none of these bodies or persons were properly informed that Randgold's settlement with JCI pursuant to the RSA would, by virtue of section 2(13) of the Apportionment of Damages Act effectively discharge Randgold's R18 billion claim against Gold Fields.

 

The conclusion of the August 2005 Investec loan agreement

[36]      By August 2005, although the value of JCI assets were in excess of its liabilities, JCI was due to various factors, unable to meet certain of its immediate commitments to some of its creditors and was at risk of being liquidated as a result. If any of JCl's creditors pressed for liquidation it would, inter alia, have triggered various default provisions in the arrangements with hedge providers such as AIG/lnvestec/Bayerisch Hydro. In short, JCI faced impeding demise. It was under those circumstances that JCI approached Investec with a view to restructure a transaction that would divert its liquidation.

 

[36]       This led to a meeting in London between Stephen Koseff ("Koseff) and Kebble. Kebble explained that the JCI Group was in need of finance to enable it to preserve its shareholding in WAL. Kebble's proposal was that Investec would provide loan finance to JCI. At the same time, a further agreement - the "Investec Disposal Agreement" - was concluded between Lexshell 658 Investments (a wholly-owned subsidiary of JCI). This entity subsequently changed its name to JCI Investments Finance (Pty) Ltd "JCIIF" or "Lexshell'). I do not intend for purposes of this judgment to discuss the details of this agreement. These agreements are complex. Simply put, the upshot of this agreement was that Investec would advance loan finance to Lexshell for up to R 460 million in order to enable JCI to meet its immediate cash-flow facilities. At the same time Lexshell, JCI and various other subsidiary and associate companies concluded the "Investec disposal agreement". In very brief terms, the Investec disposal agreement aimed to secure the loan indebtedness of Lexshell to Investec. Each of the JCI parties executed a guarantee wherein each irrevocably and unconditionally undertook as a principal and independent obligation to pay Investec all amounts which might become payable to it from time to time by Lexshell under the ILA.

 

[37]      In addition to the repayment of the amounts (to Investec) advanced under the facility together with interest thereon, Investec also become entitled to a raising fee equal to the greater of R50 million or an amount equal to 30% of the increase in value of each of the assets of Lexshell, together with an additional 10% of the amount representing the increase in the price of 2 218 476 730 JCI ordinary shares. This agreement, and particularly the amount of the raising fee, is contentious between the parties.

 

[37]       Pursuant to the various agreements having been concluded and in 2005, Investec loaned JCIIF the sum of R460 million. Investec submitted that the loan in essence constituted a "rescue package" in that it not only averted JCl's liquidation and increasing its net asset value but that it had the effect of preserving value in JCI.

 

[38]      Mr Krengel ("Krengel"- lnvestec's internal legal adviser) explains that Investec regarded the raising fee as appropriate in the context of the proposed transaction. He explains in his affidavit that Investec considered the transaction to be an investment banking transaction with a greater risk than a credit transaction and one that warranted a commensurately high return:

 

"Because of Allan Gray's significant interest in the JCI Group, Investec consulted with Allan Gray in regard to the determination of the Investec raising fee and the reconstitution of the relevant Boards in the JCI Group. Allan Gray was insistent that Investee's interests be aligned with those of the JCI shareholders and hence a portion of the Investec raising fee was linked to the increase in the value of the JCI assets and the JCI share price."

 

[39]      According to Investec, Randgold benefited substantially from the conclusion of the agreement of loan because without it JCI would have been liquidated. In that event any claims Randgold may have had against JCI would have been rendered valueless and Randgold's shareholding in JCI would have decreased in value.

 

The reconstruction of the Boards

[42]       Prior to Kebble's death and as at 23 August 2005 the Board of Directors of Randgold comprised of Mr Roger Kebble ("Roger”), Brett Kebble, Mr H Buitendag ("Buitendag”), Ms Brenda Madumise ("Madumise”), Mr L Ncwana ("Ncwana”) and Mr C Nissen ("Nissen”).

 

[43]       On 24 August 2005, and at the instance of Investec, the boards of directors of Randgold, Western Areas and JCI were reconstituted. Nurek, Gray and Lamprecht were appointed to the Randgold Board which then comprised of Nurek, Gray Lamprecht, Madumise and Nissen. Nurek, Gray and Lamprecht were appointed to both Randgold and JCI. Gray was appointed CEO of both JCI and Randgold. Nurek was at the time a permanent employee of Investec and its Global Head: Legal Risk. He was appointed as non-executive chairman of both JCI and Randgold.

 

The condition imposed by Investec and its motivation for doing so

[44]     There is a dispute pertaining to the terms of the reconstitution of the boards. Randgold insists that, although Investec did acquire the right to reconstitute the boards, it did not acquire the right to maintain the composition of the boards as reconstituted. Randgold points out that, although Allan Gray at the time supported the reconstruction of the Boards it did no more than to furnish an undertaking to Investec that they would recommend to their clients that they vote in favour of the reconstitution of the Board. Randgold insists that Allan Gray was not prepared to furnish undertakings in regard to the future composition of the Randgold board.

 

[45]       Investec motivates their insistence on the aforementioned condition as being necessary in light of the prevailing circumstances: At the time when the loan agreement was under consideration it was well known that the Kebbles had treated Randgold, JCI, Western Areas and other entities as a single entity with no regard to corporate governance. Investee's internal legal adviser Krengel explains the thinking behind the condition as follows:

 

"This was important to both Investec as a prospective lender and Allan Gray as a shareholder. Both Investec and Allan Gray, in the light of allegations which questioned Kebble's integrity and his adherence to principles of corporate governance, wanted the Kebble-controlled Boards to be replaced with Boards comprised of persons who could be relied upon to observe acceptable levels of corporate governance and manage the business of each of the companies in the best possible way. In identifying appropriate persons to serve as Directors of JCI, Randgold and WAL, Investec and Allan Gray were motivated solely by the need to identify persons of high repute in whom trust could be reposed... "

 

He goes on to state:

 

"39. Given the perception at the time that Kebble had mismanaged Randgold, JCI and WAL (albeit that the full nature and extent of its conduct would only become apparent later), it was clear that competent, experienced and responsible individuals would need to be appointed to replace Kebble and his associates on the Boards of these companies in order to regulate their affairs and ensure that the advances under the I.L.A were properly managed. This would obviously benefit Investec as lender and JCI shareholders and creditors."

 

[46]       Gray and Lamprecht were considered such persons. Gray was then appointment as a director of both Randgold and JCI. His appointment was proposed by Lamprecht and accepted by Investec.

 

The appointment of Nurek to both boards

 

[47]       The appointment of Nurek to both boards was at the instance of Investec and was as a result of a right which Investec acquired under the (new) agreement of a financial loan which it was (as already pointed out) about to conclude with a number of companies in the JCI conglomerate of companies.

 

[48]       The appointment of Nurek as non-executive director to both Randgold's and JCl's Boards is explained as follows: The reconstituted boards were confronted with the fact that the affairs of Randgold and JCI were "a mess" and were in a chaotic state of disarray due to an extreme lack of corporate governance and the frauds and thefts seemingly perpetrated by Kebble and his cohorts. No documents of significance existed in respect of many of the transactions that Randgold and JCI had concluded. Some were either non-existent and in some instances the documents that did exist, were fictitious. None of the members of the prior executive teams were still employed and Nurek was informed by Gray and Lamprecht that there was no one who could or was prepared to explain the transactions to the new board. Most of the prior executives with whom Gray and Lamprecht were able to communicate also refused to speak to them regarding these transactions.

 

[49]       Investec explains that it was one of Nurek's first objective to restore Randgold and JCI to a state in which audited accounts could be finalized so that they could profitably pursue their respective business interests. As already pointed out, JCI was also faced with the prospect of imminent liquidation. There accordingly existed an urgent need to unravel the affairs of both companies. To this end, both Randgold and JCI independently of each other appointed forensic investigators to carry out a forensic investigation. The Randgold board appointed John Lauw McKnight (formerly Umbono Financial Advisory Services (Pty) Ltd - "Umbono') with effect from 14 October 2005 and the JCI board appointed KPMG on 27 October 2005.

 

Applicants' criticism of the appointment of Nurek

[50]       The applicants are critical of the appointment of Nurek as a non-executive director of Western Areas, JCI and Randgold and allege that Nurek was beholden to Investec to accept the position. They accuse Investec of having engineered a massive conflict between Randgold and JCI. This is denied by Nurek who states in his affidavit that:

 

"I was under no obligation to Investec to respond affirmatively to Koseffs request. I am not employed by Investec to be appointed as a Director to other corporate entities nor does Investec remunerate me in respect of those appointments. I could have refused the appointment as a Director of Randgold, JCI and WAL as I have done at various points in the past when I have been requested to accept an appointment as a Director of a company by Investec. I was willing to accept the appointment to the Boards in order to introduce appropriate governance structures and management to these companies. The challenge appealed to me and I was confident based on my considerable experience as a Director of companies that I could add real value."

 

What did Investec in 2005 know about the indebtedness of JCI to Randgold?

[51]       Investec insists that, at the time of the reconstitution of the boards, it was not known whether Randgold was a potential creditor of JCI and, if so, the extent thereof. It only knew of the contingent exposure of JCI to Randgold under the suretyship provided by JCI for the Indebtedness of Bookmark Holdings (Pty) Limited ("Bookmark”) to Randgold.

 

[52       At the time of the reconstitution of the boards, the forensic investigators had not yet been appointed. The extent of any liability of Randgold and JCI to the other was therefore yet unknown. Certainly, at the time there was no knowledge of any " ...thefts and frauds perpetrated by JCI ... during the Kebble Era...". I should also mention that to date Randgold has not proven the perpetration of any such "...thefts and frauds..." by JCI.

 

[53]      The extent of the corporate disarray gradually became apparent. Without going into much detail, it was discovered, for example, that some inter-company loans between JCI and Randgold and through subsidiaries were not properly accounted for. It also become apparent that there had been irregular dealings in Randgold's assets through, inter alia, the sale of its Resources shares and that the proceeds derived from those sales benefitted persons and/or entities other than Randgold. The real challenge facing the Randgold board at the time was to quantify the amount in respect of which JCI and other subsidiary companies might possibly have been indebted to Randgold.

 

[54       Investec throughout these proceedings strongly disputed the contention that it insisted upon the reconstitution of the boards in order to acquire control over them with the objective of insulating JCI from either being sued or be liquidated by Randgold. Investec also denies that it had concluded a "pact" with Allan Gray with the aim of exercising shareholder control. Investec points out that it had no more than a minority shareholding in Randgold. Investee's shareholding in Randgold was until 2008 negligible. It was only later that Investee's shareholding rose to just more than 26.26%.

 

The start of the negotiation process

October 2005: Umbono interim forensic report: Randgold

[55]      On 25 October 2005, Umbono produced its first interim progress report. This report records various irregular dealings in Randgold's assets. One of the various issues highlighted in the report is the sale of Randgold's Resources shares with the proceeds derived from this sale applied for the benefit of entities other than Randgold.

 

[56]      The report was considered by Randgold's directors and a decision was taken that it would be in its shareholders' best interests that the claims which Randgold may have had against JCI be resolved by way of negotiation rather than litigation as litigation was perceived to be complex, time-consuming and costly. At that time, it was accepted by the board that JCI will have to compensate Randgold for the loss it sustained as a consequence of the use of its (Randgold's) assets for the benefit of JCI and/or its associated companies. But, so the papers explain, it was at that stage still impossible to determine the incidence of the burden of debt between Randgold and JCI.

 

[57]       At that stage Randgold was also still unable to produce audited statements and it realised that the previous audited financial statements had been misstated.

 

Joint meetings between the JCI and Randgold Boards

[58]       On 16 November 2005 a joint meeting between the boards of JCI and Randgold was held to, inter alia, discuss the progress and findings made by their respective forensic auditors (KMPG and Umbono). A further meeting was held on 8 December 2005.

 

[59]       During a Randgold board meeting held on 20 December 2005, the board was, inter alia, given an update on the ongoing investigations by the forensic investigators. Lamprecht reported that KPMG was in the process of quantifying the stolen funds. He also informed the meeting that one of the final investigations envisaged was to ascertain whether any claims could be made by Randgold against JCI or whether JCI could claim against Randgold and that this would need to be reflected in the final accounts. The boards were advised that legal advice was needed for both companies, each from their individual perspective.

 

JCl's indebtedness to Investec

[60]       By January 2006, JCI had become indebted to Investec in a very substantial amount under the agreement of loan. Pursuant to this event, various meetings took place between Investec and the board of directors of both Randgold and JCI. Some of the meetings were held at Investee's offices in Sandton.

 

[61]       Not surprisingly the applicants express their own suspicions regarding the fact that these meetings were held at Investee's offices as it reinforced the applicants' perception that Investec controlled the two boards. Investec is at great pains to explain that nothing done or said during these various meetings even remotely suggested that Investec had assumed control of Randgold or had in any way influenced the decisions which Randgold's directors were required to make in relation to its business affairs. Krengel explains why Investee's representatives attended these meetings and why some of these meetings took place at Investee's premises:

 

"101. The meetings which were attended by representatives of Investec were held in the period 6 October 2005 to 11 January 2006 being the critical period immediately after the conclusion of the /LA and when further Joan funding by JCI from Investec was required. It is significant that Investec representatives did not attend any subsequent meetings relevant to the case made out in the founding affidavit and the decision of Randgold's board from time to time in relation to its various claims.

102.   Nurek will be approached to depose to a standalone affidavit insofar as:

102.1 The fact that meetings at Investee's head office in Sandton was simply a matter of convenience. The alternative was for the meetings to be held at 28 Harrison Street in the Johannesburg city centre which was inconvenient to most of the people concerned.

102.2 The meetings were "informal" in the sense that they were not formally convened board meetings with an agenda in terms of the Articles. No board packs were prepared. The primary information that was provided to the persons attending the meetings were the progressive forensic reports produced by Umbono and KPMG.

102.3 The relationship with Investec was collaborative and cooperative. JCI was in dire straits and Randgold's position was also precarious. Although, in terms of the /LA which was concluded on 31 August 2005, the loan facility was expressed to be up to an amount of R460 million, as things progressed there were constant requests by JCI for further funding. Contemporaneously, the wrongdoings that had taken place in JCI and Randgold were being uncovered by the forensic investigations.

102.4 It was clear that Investec as lender would need complete and open disclosure of what the forensic investigations were uncovering before it could be requested to advance any further funding to JCI. For that reason, it made sense to have Investec representatives present at the meetings to learn about the forensic investigations at the same time as the Boards of both companies.

102.5 Had Investee's representatives not been invited to attend the meetings, Investec would have required insight into what the forensic reports were uncovering."

 

Krengel further states elsewhere that -

 

"There is nothing unusual or sinister about the fact that as a lender of substantial sums of money to the JCI Group, Investec wished to understand what the forensic investigations were uncovering. Any responsible lender in the position of Investec would have acted similarly."

 

[62]       By October 2005, it became apparent that Randgold was potentially JCl's largest creditor.

 

The winding-up application of Randgold: Trinity Preferred litigation

[63]       In March 2006, Trinity Preferred Endowment Fund ("Trinity Preferred') and six others instituted proceedings out of the Witwatersrand Local Division (as it then was) for the winding-up of Randgold ("the Trinity Preferred application'). The application was instituted in terms of sections 344(e) and (h) of the Companies Act. In those proceedings it was alleged that JCI was indebted to Randgold in an amount of approximately R120 000 000.00.

 

[64]       This application is relevant to this application in that it echoes very similar allegations against the board of directors of Randgold and JCI and the potential conflict of interest that loomed over Nurek, Gray and Nissen.

 

[65]       It was, inter alia, asserted that Nurek, Gray and Lamprecht, by virtue of their presence on both boards, created a conflict of interest that was inconsistent with their fiduciary duties to Randgold. They sought an interdict and restraining order against them from involving themselves in, or exercising any powers concerning, any issue relating to Randgold's claims against JCI. Reliance was, inter alia, placed on the assertion that Randgold was a creditor of JCI in respect of substantial sums of money. The Trinity Preferred application was settled on the basis that Mr Johan Blersch ("Blersch') and Mr Tom Dale ("Dale') were appointed to the board of directors of Randgold. After their appointment on 14 August 2006, the Randgold board then comprised of Nurek, Gray, Madumise, Nissen, Blersch and Dale. I will return to the conflicts that arose amongst the directors of Randgold after the appointment of Blersch and Dale. The appointment of Blersch and Dale was therefore not as a consequence of any request from Investec, but was as a result of the insistence by Trinity Preferred pursuant to a settlement of the litigation. Their appointment was supported by Gray and Nurek.

 

The Mediation and Arbitration Agreement: 7 April 2006

[66]       The next significant event was the conclusion of the Mediation and Arbitration Agreement. The conclusion of this agreement came about as a result of a unanimous decision of Randgold's board of directors. On 7 April 2006, Randgold (represented by Lamprecht) and JCI (represented by Gray) concluded a comprehensive Mediation and Arbitration Agreement.

 

[67]       At the time of the conclusion of the Mediation and Arbitration Agreement it was still not clear whether any indebtedness existed between JCI and Randgold and, if so, who the creditor in that relationship was. For this reason, the agreement had an objective to identify the existence of a common indebtedness (if any) between Randgold and JCI and thereafter to submit disputes that may exist to arbitration. The agreement provided, inter alia, for the finalisation of the Umbono and KPMG forensic investigations and for the provision of the reports to the other party. Both parties undertook to formulate its claims and prepare a statement of claim. Each party also had the opportunity to deliver its statement of defence against the other party's statement of claim. The parties shall thereafter approach the mediators to mediate the dispute and to make recommendations, if possible, regarding how the respective claims should be resolved.

 

[68]       The agreement then set out the procedure to be followed thereafter. Ultimately provision was made for formal arbitration proceedings in terms of the agreement which may culminate in the making of an award.

 

[69]       Randgold and its subsidiaries and associated companies, on the one hand, and JCI and its subsidiary and associated companies, on the other hand, would be treated as single entities for the purposes of this agreement. The agreement also provided for the exchange of separate forensic reports detailing the basis of any claims which the parties wished to proffer against one another.

 

[70]       The agreement provided for three highly experienced and multi-disciplinary mediators of impeccable repute, comprising of a senior counsel, a mediation speciali!it and a professor in accounting, to be appointed to manage the mediation process and make recommendations to Randgold and JCI. Following the recommendations of the mediators, general meetings of Randgold and JCI would be convened and the shareholders of both parties would be required to accept any recommendations which the mediators might make in relation to the resolution of the competing claims if they were to be bestowed with binding force. Should any of the shareholders of Randgold and/or JCI fail to endorse the recommendations of the mediators, the claims would by agreement be referred to arbitration.

 

[71]       On 7 April 2006, JCI published its provisional and unreviewed financial results. JCl's net asset value was, as at 31 March 2006, reflected as R1.9 million.

 

Rationale for the conclusion of the Mediation and Arbitration Agreement

[72]       Randgold contended that it concluded the Mediation and Arbitration Agreement on the basis that its board believed that a negotiated settlement would provide a practical and commercially compelling alternative to litigation. Whilst it was recognised that the preliminary investigations of the independent forensic investigators suggested that there potentially existed a substantial indebtedness of JCI to Randgold and also a potential liability of Randgold to JCI, the view was held at the time that litigation would be to the detriment of both Randgold and JCI. Mediation was considered to be more cost-effective and expeditious to uncover any claims Randgold may have had against JCI and conversely any claims JCI may have had against Randgold. A further consideration, according to Randgold, that was taken into account was the uncertainty whether Randgold and JCI would, in the event of litigation, be financially able to meet any awards as might be made against them.

 

[73]       Nurek explained that, because the roll players were mindful of a possible perception of conflict (but not accepting the existence of any such conflict during the mediation phase), a process was ultimately agreed upon whereby the directors of both Randgold and JCI would be precluded from deciding upon an appropriate resolution of the disputes between Randgold and JCI. This decision would rather be taken by the shareholders of Randgold and JCI based on the recommendation of the mediators who were to be individuals who were highly skilled, independent and who enjoyed impeccable reputations. Nurek further explained that the mediation process was to be directed by separate and independent legal representatives engaged by Randgold and JCI.

 

[74]       The first leg of the mediation process was overseen by three mediators: Advocate Schalk Burger SC ("Burger'), Mr Charles Nupen ("Nupen') and Mr Tom Wixley (subsequently replaced by Professor Harvey Wainer).

 

The composition of the Randqold board in May 2006

[75]       In May 2006, Lampbrecht resigned as director of Randgold. The board then comprised of Nurek, Gray, Madumise and Nissen.

 

JCI and Randgold's forensic reports

[76]       Following upon the conclusion of the Mediation and Arbitration Agreement, KPMG submitted a report dated 8 May 2006 to its legal team. Mr McKnight (the successor of Umbono) submitted his financial report dated 20 June 2006 to Randgold's legal team. The preliminary findings in the KPMG report reflected that the JCI Group had made unauthorised use of Randgold's assets. The respective reports of Randgold and JCI were exchanged.

 

[77]       The board of Randgold on legal advice declined to make the forensic report available to its shareholders and explained that a disclosure of the report would have prejudiced Randgold. Randgold claims that this decision was supported by the mediators. Randgold did, however, make such a disclosure at a later stage.

 

Randgold institutes litigation against JCI: 3 August 2006

[78]      Pursuant to the procedures set out in the Mediation and Arbitration Agreement (although the time periods were extended from time to time by the mediators) Randgold served its statement of claim on JCI on 3 August 2006. Randgold instituted 13 claims amounting to approximately R5,8 billion in value against JCI.

 

[79]      On 8 September 2006, JCI filed a statement of defence raising a plethora of defences, inter alia, that (i) the acts and/or conduct of Brett Kebble and those who made common cause with him ("the perpetrators'' did not fall to be ascribed to JCI as such conduct fell outside its plenary powers and that it had not been incorporated for the purposes of engaging in unlawful conduct; (ii) the perpetrators were able to deal with, and enjoyed access to, the listed securities of Randgold by reason of the positions which they held within Randgold and not by virtue of the positions which they held within JCI; (iii) JCI had not authorised the perpetrators to participate in the alleged unlawful conduct; (iv) the perpetrators were not clothed with the necessary authority to bind JCI by conduct; (v) JCI could not be held vicariously liable for the unlawful conduct of the perpetrators; (vi) JCI had not receive any benefit from the misappropriation of Randgold's listed securities, it being contended that these benefits were derived by third persons other than JCI; and (vii) JCI could not be held liable for the highest value of the listed securities which had allegedly been misappropriated. JCI also asserted that it was not liable for any debts other than for the debts of JCI Limited and that it was not liable to Randgold for any debts due to Randgold of the subsidiaries of JCI.

 

The dysfunctional board

[80]      I have referred to the appointment of Blersch and Dale as a result of the settlement that was reached in respect of the Trinity Preferred application. Following their appointment, Randgold's board then comprised of Nurek, Gray, Madumise, Nissen, Blersch and Dale. At that point in time both Nurek and Gray remained on Randgold's board. After their appointment to the board of Randgold, Blersch and Dale steered the mediation process.

 

[81]      Not long after the appointment of Blersch and Dale to the board, the various members of the Randgold board frequently clashed often with Nurek on the one side and Blersch and Dale on the other side. This resulted in the board becoming somewhat dysfunctional.

 

KPMG report: 14 September 2006

 

[82]       KPMG issued a further report on 14 September 2006. This report differed from the previous one dated 8 May 2006 in material respects. The report addressed some of the claims made by JCI against Randgold and highlighted the wide-ranging array of disputed facts that would arise in the proposed litigation. The report also illustrated the need for evidence that Randgold would have to adduce in an arbitration in support of its claims against JCI, should that point be reached.

 

[83]       What the KPMG report showed at the time was that Randgold's claims against JCI were very much disputed to such an extent that a winding-up application would have been rendered futile as a result of these factual disputes. More in particular, what this report also showed was that the facts which underpinned the legal basis upon which Randgold sought to attribute the alleged thefts perpetrated by the Kebbles and others to JCI, were strongly in dispute. It also emerged from this report that significant proceeds derived from the sale of the assets of Randgold Resources and Randgold, were seemingly not directly applied for the benefit of JCI, but had been channelled through its subsidiary and associated companies for the benefit of others. This conclusion made it considerably more difficult for Randgold to assert that JCI was liable.

 

[84]       Because the debt due by JCI to Randgold was heavily disputed at the time (and remained so up until the settlement agreements were concluded), Randgold's board was advised by its legal team that it could not be argued that the dispute was not based on bona fide and proper grounds.

 

The Letseng Diamonds Limited ("Letseng') application

[85]       In September 2006, Letseng Diamonds Limited (as the beneficial owner of a significant number of shares in the issued share capital of JCI) brought an urgent application to interdict JCI from tabling resolutions to be adopted by the shareholders for the ratification of the agreement of loan and for an interdict preventing JCI from making payment of the raising fee.

 

[86]       The Letseng matter was eventually settled on 27 November 2006 resulting in an order by consent to the effect that, pending the outcome of the application, JCI was interdicted from making certain payments except that JCIF was able to pay the balance of the capital in terms of the impugned agreements without prejudice to the rights of any party.

 

Repayment of the Investec loan

[87]      In November 2006, JCI repaid Investec the funds that it had advanced under the agreement of loan, together with prescribed interest thereon. At that time, the raising fee due to Investec had been assessed by JCI in the sum of R361 000 400,00.

 

Trinity Asset Management litigation

[88]      On 21 November 2006, Trinity Asset Management (Pty) Limited, Trinity Endowment Fund {Pty) Limited and LJ Investments Limited, as the first, second and third applicants respectively ("Trinity'1 also instituted an urgent application wherein it sought an order declaring that the agreement of loan was "void for vagueness and/or impossible of performance". An interdict was also claimed against Investec prohibiting it from "in any way implementing or benefiting from the ILA". The order sought was for a Rule Nisi calling upon the respondents to show cause as to why an order, in inter alia, the following terms should not be granted:

 

"a)  declaring that the loan agreement concluded between Investec, JCI and Lexshell on 16 January 2006 [the Operative Loan Agreement] is void for vagueness and/or impossibility of performance;

 

b)        in the alternative, and only in the event of the above Honourable Court finding that the Operative Loan Agreement was not void for vagueness and/or impossibility of performance, declaring that the conditions precedent to the agreement (as set out in clause 3 thereof) have not been met;

 

c)         ordering the first respondent [Investec] to restore to the second and third respondents, within ten (10) days of the order into the position that they would have been in had the Investec Loan Agreement not been concluded ... " ("the Trinity application”).

 

[89)     One of the allegations made (similar to what is being alleged in this application) in that application was that the ILA and the agreements associated therewith were not binding because they were concluded by a "rogue board" representing JCI contrary to its interests. Investec was also accused of always having been aware that it was intended to protect the members of the "rogue board" and not for the benefit of JCI and that the board which subsequently replaced it was nothing more but an instrument of Investec.

 

[90]       An order was granted by consent in terms whereof JCI undertook not to pay the raising fee (which had then been assessed in the sum of R410 million) pending the determination of that application. The application was postponed to 24 April 2007. An order by consent was also made on similar terms in the Letseng application.

 

[91]       In both these applications (the Trinity and Letseng applications) affidavits were exchanged. Both Investec and JCI took issue, inter alia, with the attack raised by Letseng and Trinity against the validity of the ILA.

 

[92]       An important point taken by Investec was that Letseng and Trinity lacked the necessary locus standi in law to attack the validity of the loan agreement with Investec.

 

[93]       Both applications served before Blieden, J who subsequently held that Letseng did not have the necessary locus standi to raise the issues. A similar order was made in respect of the Trinity matter.

 

[94]       Leave to appeal was granted to the Supreme Court of Appeal ("SCA') and by agreement the interim interdict was reinstated.

 

[95]       The proceedings that served before Blieden, J and the SCA featured in this application because the applicants similarly attacked the validity of the ILA in these proceedings.

 

[96]       In those proceedings, the applicants claimed that the ILA was invalid and that this was the conclusion reached by the SCA. In fact, it is stated in the papers by the applicants that the SCA "... would have made it clear to both Investec and Randgold that Investec was not entitled to any raising fee ... ".

 

[97]       In its judgment which was handed down on 27 November 2008, the SCA reversed the judgment of Blieden, J. In doing so, the SCA referred to paragraph 41 of Blieden, J's judgment where the following is stated:

 

"Both JCI and Investec have expressed their wish to be bound by the documents concerned, even though various clauses in such documents and agreements are prima facie incapable of performance, and the resultant contracts can be said to be voidable at the instance of any of the contracting parties."

 

In its judgment the SCA made the following observation:

 

"[21] It is appropriate at this stage to point out that in the judge's statement ... (in para 41) of his judgement which I have quoted ... above that 'both JCI and Investec have expressed their wish to be bound' by the agreements even though, they 'can be said to be voidable at the instance of any of the contracting parties' is not strictly correct. During the course of the argument before [us] Mr Williamson said in answer to a question from the bench that the directors of JCI do not say that they will regard their company as bound under the loan agreement even if the points taken by the applicants and Letseng are correct...".

 

The SCA's further said:

 

“[20] Mr Williamson, who appeared on behalf of [JCI and JCIIF] confirmed during the hearing of Letseng's appeal against the judgment in the Court a quo, which was heard by this Court on the day before the present appeal was argued, that his clients wanted the issue dealt with. During this appeal he stated that if the Court were to hold that the loan agreement is invalid they would not pay the 'raising fee' because to do so would constitute making a gratuitous payment.

 

"Because JCI's counsel made it clear in open court that JCI would not pay the raising fee if the Operative Loan Agreement were found to be invalid, the legal basis upon which Investec resisted such a finding (namely that the parties thereto regarded it as binding despite the fact that the condition precedents had failed) fell to the ground. In other words, since the factual substratum of Investee's argument had been shown to be false, its legal contention that the loan agreement remained binding became untenable"."

 

[98]       The appeal of Trinity was upheld and the order of the court a quo was set aside and replaced by an order declaring that Trinity had locus standi to raise the contention that the loan agreements had lapsed due to the non-fulfilment of their suspensive conditions. The appeal in Letseng was similarly upheld. The order of the court a quo was accordingly set aside and replaced by an order declaring that Trinity and Letseng did have locus standi to raise the contention that the loan agreement had lapsed due to the non-fulfilment of the suspensive conditions and that in consequence the main application was postponed sine die for the adjudication of the other issues.

 

Did the SCA therefore decide that the loan agreement was invalid?

[99]      It was submitted on behalf of Randgold, and in my view correctly so, that the only issue that was resolved by the SCA related to the question of the locus standi of Letseng and Trinity to impugn the validity of the agreements (referred to in those applications). The issue regarding the validity itself has not been disposed of by the SCA, but has been remitted to the court a quo for determination. In these proceedings Randgold submitted as follows:

 

"From the aforegoing it is clear that the only issue resolved by the judgements of the [SCA], related to the question of the locus standi of Letseng and Trinity to impugn the validity of the suite of agreements to which reference has been made.

538. The [SCA] thus made no decision whatsoever on the merits of the declaratory application and the validity of the [ILA], which quite obviously would have had to be determined by the court a quo in the fullness of time. These issues raised disputes of fact and law. Thus, and by way of example, JCI's and Investee's case that it was their common continuing intention that the suspensive conditions contained in the [Operative Loan Agreement] (of January 2006) had been erroneously inserted therein and was never intended to form part thereof, would need to be tested either by way of viva voce evidence or in a trial".

"861.2.1 It is palpable that the Applicants have resorted to a warped and misleading analysis of the issues in dispute in regard to the validity of the loan agreement.

861.2.2 One of the issues raised by JCI and Investec related to a claim for the rectification of the loan agreement to reflect the common continuing intention of the parties thereto, to the effect that the suspensive conditions had been erroneously inserted therein and were never intended to form part thereof.

861.3 The judgments of the [SCA] were in no way dispositive of that defence which in due course would have to be tested, either pursuant to a referral thereof to oral evidence or to trial.

861.4

861.4.1                  The statements attributed to JCl's counsel have no bearing on the issue, postulating as they do, what would occur in the event of invalidity being established.

861.4.2                  They do not with respect amount to a concession that the Joan agreement was in fact invalid"

 

[100]    The judgment of the SCA can therefore not be said to have been dispositive of that defence. The question of the validity of the ILA therefore remained an issue as between Letseng and Investec.

 

[101]    The matter was set down for hearing by way of a special allocation for 24 August 2009. The matter was, however, removed from the roll by agreement in order to pursue settlement discussions. On 21 March 2009, despite the allegation that Investec was not entitled to a raising fee, Trinity withdrew its application against payment by JCI of the full costs expended by it of R2.6 million. In conclusion therefore, I am in agreement with the submission that the SCA did not hold that Investec was not entitled to the raising fee because the ILA was invalid.

 

Steyn's appointment

[102]    In November 2006, Steyn was appointed as Randgold's financial director. His appointment, although not initially, became a contentious issue in this application. I will return to this dispute.

 

[103]    After Steyn's appointment, Randgold's Board was comprised of Nurek, Gray, Madumise, Nissen, Blersch, Dale and Steyn. The result was that the directors who had been common to Randgold and JCI ceased to constitute the majority of directors on Randgold's board. At one of the board meeting, Steyn, by majority vote (with Blersch and Dale dissenting), was appointed to manage the mediation process on behalf of Randgold.

 

The merger option

[104]    Shortly after Steyn had been put in charge of the mediation process, Gray and Blersch suggested that the merger of Randgold and JCI might provide the best mechanism for the resolution of the disputes between them. Steyn was initially dismissive of the proposed merger. In the meantime, Steyn, as the financial director of Randgold, instructed Randgold's legal team and its forensic auditors to identify all persons who might be liable to compensate Randgold in consequence of the losses which it had sustained through the theft of its assets. He also instructed that persons who are so identified were to be sued, provided that a cause of action fell to be asserted against them and that it was considered commercially viable to proceed against them.

 

[105]   In December 2006 Steyn eventually changed his mind and formed the view that a merger between Randgold and JCI may well constitute an appropriate mechanism to bring about a resolution of the disputes between Randgold and JCI, as opposed to the need to engage in long drawn-out litigation. At the time Blersch supported the option of a merger.

 

 

[106]    In January 2007, it became apparent that the members of Randgold's board were not ad idem about the strategy going foreward. Nurek and Gray (supported by Nissen and Madumise) were of the view that a form of settlement between Randgold and JCI would be better and was preferable to a long drawn-out and expensive litigation. Blersch and Dale, on the other hand, supported a merger between Randgold and JCI. Steyn, faced with the views of the two factions was of the view that a merger might well have constituted the only method of constructively resolving the dispute between Randgold and JCI.

 

[107]    On 9 February 2007, the mediators were advised of the decision by both Randgold and JCI to explore the desirability of a merger and, if supportive, to settle the terms thereof. At that time, the net asset value of JCI was estimated in an amount of approximately R1 700 000 000,00.

 

The meeting of 22 February 2007: Formal proposal re merger option

[108]    On 22 February 2007, at a meeting of Randgold's board of Directors (also attended by Nurek, Gray, Nissen, Blersch, Dale and Madumise), Steyn made a proposal regarding the merger. The content of the proposal is not relevant for purposes of this judgment.

 

[109]    At this meeting the question of the possible liquidation of JCI was also raised. The minutes record, inter alia, the following comments from Blersch:

 

"Mr. Blersch reported that he had always been in favour of a merger and had presented a paper on the proposal in 2006. He stated that in his view JCI was technically insolvent as a result of R & E's claims. R & E could bring an action to liquidate JCI, however this would result in further losses to the shareholders in lawyers and liquidators' fees. He agreed that the settlement figure must be sufficient so that the JCI shareholders would be happy to settle. The Mediator Mr. Schalk Burger had suggested a going away present for JCI to make the deal work."

 

[110]   Randgold's board voted unanimously in favour of the merger on the basis of a proposed ratio of 106 JCI shares for 1 Randgold share.

 

Interim report of the Mediators

[111]   On 28 February 2007, the mediators published an interim recommendation supporting the merger option:

 

"16. To ameliorate the difficulties in making an accurate assessment of the net asset value, it is recommended that an overall settlement be pursued on the basis of a merger between the companies. On a merged entity basis, at least any under/over estimation of the asset values will be captured within the shareholders' shareholding in the combined entity. Thus if, for example, certain assets ultimately yield a value of Rx more than the amount estimated for the purposes of the overall settlement, that amount will inure for the benefit of both sets of shareholders (albeit in diluted proportions)."

 

[112]   The mediators premised their recommendation taking into account the following four factors:

 

"11. Having considered the various Randgold claims and taking into account the areas of agreement and disagreement in relation to the underlying cashflows, it appears to us that the value of sustainable Randgold claims might well exceed the net asset value of JCI.

12.      In our view, a protracted arbitration between Randgold and JCI followed by the spectre of a liquidation to satisfy any judgment is commercially and practically unattractive and will be value destructive for both sets of shareholders. The ultimate outcome of litigation would be uncertain and valuable management time will be sterilised in the process.

13.      Litigation is also likely to be time-consuming and expensive, create share value inhibitions during its duration and be significantly value destructive on a liquidation - both by the realisation of fire sale prices for assets and due to costs of liquidation.

14.      Any settlement proposal which leaves no value for JCI shareholders is in our view unrealistic and would, for JCI, be a poor alternative to the litigation process, irrespective of its probable outcome. "

 

[113]   The mediators also noted that the mediation process would not be finalised as originally planned, and that the timetable had to be amended; that the outcome of litigation would be uncertain, time-consuming and expensive; that an overall settlement be pursued on the basis of a merger between Randgold and JCI and that a recommended settlement figure was in the range of R1.2 billion to R1.5 billion and that these figures constitute "a realistic starting point to resolve the dispute between the companies".

 

[114]   There is a dispute between the parties about how this report should be interpreted. Randgold submitted that this statement by the mediators in their interim report constituted no more than a recommendation to Randgold and JCI that they pursue an overall settlement and that this figure was based on the assumption of a merger between Randgold and JCI at a ratio of 1 Randgold share for every 95 JCI shares. It was submitted that this report did not convey either as a matter of fact or law that the mediators had determined that Randgold had established some claims against JCI. Randgold also point out that such an interpretation would be inconsistent with the mediators' mandate. Randgold further submitted that this recommendation dated 28 February 2007 also did not render the mediators functus officio and therefore it was open to JCI and Randgold to extend the mandate delegated to them.

 

[115]   The gist of the argument is that the report cannot be regarded as a definitive finding by the mediators that JCI was indebted to Randgold and more so, in an amount in excess of JCl's asset value.

 

[116]   At the time Nurek was concerned that the mediators' statement could convey to the shareholders of Randgold and JCI that they (the mediators) found as a fact that Randgold's claims have been established and that JCl's defences were without merit.

 

[117]   As a result of this controversy about what was conveyed by the mediators, Burger SC (one of the mediators) wrote a letter to Investee's attorneys clarifying the following:

 

"2 Although I write this letter in my personal capacity, I have shown the contents thereof to my erstwhile co-mediators, Professor Wainer and Mr Nupen, and they agree with the content thereto to the extent that it relates to them.

4.         Our reference to 'sustainable Randgold claims' in paragraph 11 was intended to convey that these claims were 'able to be upheld or defended' or 'able to be maintained at a certain ... level', as that adjective is defined in the Shorter Oxford Dictionary. What we intended to convey was that Randgold, would have exceeded the net asset value of JCI.

I did not then, nor do I now believe that that statement was ambiguous.

5.         To the extent that the facts relate to me, I confirm the correctness of Mr Nurek's version of events as explained in paragraphs 1.4 and 1.5 (sic) Ad paragraph 314, on pages 8147 (J5 to the letter under reply). In the same context I confirm the correctness, to the extent that it relates to me, of the allegations contained in paragraphs 232 to 233 on K3 {pages 1054 - 1057) to your letter under reply.

6.         This gives the factual backdrop to the issue of the postscript of 5 March 2007 by the three mediators (G to your letter under reply). The postscript made it clear that we did not make a finding - that was never our mandate or role.

7.         To the extent that the deponent's version as reflected on F1 to F7 to your letter under reply differs from the facts of what I believe to be a proper interpretation of the statement and the postscript, I disagree with the gloss sought to be placed on those documents, and the arguments raised by the deponent. No purpose will be served by me engaging in that argument.

8.         You are welcome to place this letter before the Court. Having signed it, I obviously take responsibility for the correctness of its contents."

 

[118]   Investee's take on the interim report is that the mediators held the view that the pursuit of an overall settlement was preferable to prolonged litigation which view was shared by Blersch, Dale, Steyn, Nissen, Nurek and Madumise.

 

[119]    There is a suggestion by the applicants that Investec influenced Burger SC to change the wording in the report. There is no merit in this suggestion. Firstly, the mediators did not have the authority to have made a factual and legal determination to the effect that JCI was indebted to Randgold in an amount in excess of its net asset value and that it was in consequence insolvent. Secondly, when the confusion arose, Burger SC explained that the report is not ambiguous and that the mediators did not make a finding in respect of JCl's indebtedness.

 

Randgold's Board as at 9 March 2007

[120]    Following some internal squabbles most notably about the re-election of Blersch and Dale, Nurek, Gray, Madumise, Nissen and Steyn were re-elected to the Randgold Board. Blersch and Dale were not successful.

 

[121]    Randgold submitted that notwithstanding extensive allegations relating to their conflict of interest, the shareholders of Randgold were happy to retain Nurek and Gray as directors. Moreover, the shareholders of Randgold knew that Nurek and Gray were also directors of JCI.

 

Investee's shareholding as at 9 March 2007

[122]    Investee's shareholding in Randgold as at 9 March 2007 was negligible. The respondents argue that this fact support their contention that shareholders could not have played a role to retain Nurek and Gray on the Randgold board at the expense of Blersch and Dale.

 

Randgold's meeting of the Board on 22 March 2007

[123]    The issue regarding a possible merger between Randgold and JCI was still very much alive during March 2007. Prior to the meeting of Randgold's board of directors (which was to be held on 22 March 2007), Steyn submitted documents to his co-directors relating to the proposed merger. At the board meeting held on 22 March 2007, Steyn pertinently addressed the issue of a possible merger. Nurek, Gray and Nissen also attended the meeting. The minutes record the decision as follows:

 

"The board formally approved the proposal and resolved to take the necessary actions required to proceed with the proposed merger as presented. Executive management was instructed to consult with the major shareholders as soon as possible for their views. It was also decided that an announcement referring to the merger is to be prepared and sent to all shareholders."

 

The appointment of De Bruin to Randgold's Board

[124]    Nissen resigned from Randgold's Board with effect from 1 April 2007. On the same day, De Bruin was co-opted as a member of Randgold's board of directors.

 

Merger announcement

[125]    After the board meeting of Randgold, and on 23 April 2007, the merger announcement in its final form was submitted to, inter alia, the members of Randgold's board of directors. On the same day Randgold and JCI made a joint SENS announcement wherein it was indicated that, pursuant to a recommendation which the mediators had made, the boards of both parties intended to propose the merger to their respective shareholders by way of a Scheme of Arrangement in terms of section 311 of the Companies Act. This proposal was also submitted to the mediators.

 

[126]    By 20 June 2007 Randgold's legal team together with the forensic auditors and on the instructions of Steyn, compiled a schedule identifying a multitude of parties who might be sued for the recovery of damages arising from the alleged theft of Randgold's assets. One of the claims then under scrutiny was a potential claim against Investec Bank United Kingdom PLC ("/BUK'). At that time, the proposed merger was very much still on the agenda with Steyn informing Randgold's directors at a meeting in June that the vast majority of shareholders had given their support to the proposed merger. A document was also delivered to the Securities Regulations Panel ("SRP') and the Johannesburg Stock Exchange ("JSE') regarding the proposed merger. At that stage it was contemplated that the SRP would arrange for a public hearing regarding the proposed merger.

 

[127]    Talks regarding the possibility of a merger continued throughout the remainder of 2007. One of the issues that was debated, and in respect of which there was a difference in opinion, was whether the merger constituted a full and final settlement of the claims between the companies or a compromise between shareholders and not a settlement of the claims. The common cause indebtedness between Randgold and JCI was also the subject of numerous discussions. A perusal of the various exchanges shows that, although some progress has been made, Randgold and JCI were still far apart on issues such as the basis of indebtedness: An example of the differences of opinion at this stage is contained in an email dated 4 March 2008 in which Nurek complained about the allegations that were made relating to JCl's alleged participation in the thefts and frauds:

 

"My understanding of Randgold's case has always been that the thefts and frauds were perpetrated by the late Brett Kebble and various of his colleagues. Because some or all of them were members of the JCI Board, and because JCI allegedly received certain benefits from such activities, Randgold's legal team contends that the actions of the late Brett Kebble and his colleagues are attributable in law to JCI.

JCI, in response thereto, contents that the acts of the persons concerned are not, in law, attributable to JCI.

This dispute is somewhat different to the wording contained in the circular in which it is alleged that JCI was a co-perpetrator of the alleged unlawful activities. It is this latter allegation which I cannot support and in respect of which, as far as I am aware, there is no evidence whatsoever.

In the circumstances, I believe that Randgold's legal team needs to consider the wording contained in the draft Randgold circular and, more particularly, the allegations set out in the annexures thereto which set out the nature and basis of Randgold's claims against JCI. If, upon a consideration of those matters, Randgold is advised to persist in its allegations, then I believe that Peter and I will need to incorporate a specific section in the Randgold circular in which we disassociate ourselves from those allegations."

 

[128]    Steyn held the contrary view that Randgold sought to hold JCI liable on the basis that it had been particeps criminis with Poole, Beale, Buitendag, Brett Kebble and others in the theft of the assets of Randgold and/or Holdings. Steyn states that he had always been under the impression that the legal basis of any litigation against JCI had long since been formulated and that Nurek was fully aware of the approach. Such was the extent of the disagreement between Nurek and Steyn that counsel had to intervene in settling the dispute which was ultimately done on the basis that "they agreed to disagree".

 

[129]   By the end of 2007, Randgold was still unable to secure a formal acknowledgment from JCI of an indebtedness to Randgold. One of the reasons for this failure was the fact that JCl's lead counsel had advised JCI to, under no circumstances, make any admission to Randgold in relation to the existence of any indebtedness.

 

[130]   By March 2008, it appeared that there was still considerable disagreement amongst board members of Randgold regarding the legal basis of possible legal action against JCI. Central to this dispute was the "definition of the perpetrators" with Randgold holding the view that this reference to JCI (as a perpetrator) was appropriate. Randgold's board seems to be split into two camps with Steyn, Kovarsky, De Bruin and Madumise, on the one hand, and Nurek and Gray on the other. The correspondence shows, in particular, a deterioration in the relationship between Nurek and Steyn with the former questioning Steyn's motive regarding the "common cause indebtedness" issue.

 

[131]   By March 2008 Randgold's legal team concluded that the receipt by Western Areas of some of the proceeds derived from the sale of Randgold's stolen assets and that the circumstances associated therewith, may well have made it particeps criminis with JCI. The result of this conclusion was that members of Randgold's legal team came to appreciate that Randgold may possibly have enjoyed a claim against Western Areas. Steyn then instructed Randgold's legal and forensic teams to consider the possibility of the institution of an action against Western Areas (later Gold Fields Operations Limited - "Gold Fields').

 

JCl's legal opinion regarding a merger

[132]    Both Randgold and JCI procured counsels' opinion whether or not a merger would be in the best interests of their respective shareholders.

 

[133]    The legal opinion procured by JCI from Bham SC is instructive. He, inter alia, stated the following:

 

"1.     I have been requested, on behalf of JCI, to prepare an opinion on the proposed merger between JCI and R&E [Randgold] ...

2.         My opinion is...directed principally to the question of whether or not in

the circumstances of the various claims between JCI and R&E, the forensic investigations...the various meetings with the mediators and statements made by the mediators, as well as...various documents ...it would be preferable for JCI and R&E to merge rather than to continue litigating with each other in order to try to resolve the substantial differences which exist between them...

3.         In preparing this opinion, I have had regard to the forensic reports prepared by KPMG ...on behalf of JCI as well as the forensic reports prepared by Umbono as well as the mediators and the investigation summary of John Louw McKnight & Company ("JLMC") during September 2007 ...

4.         I do not intend, in this opinion, to canvass the prospects of success of either the R&E claims or of the JCI defences... Rather, I will consider the complex factual and legal matters which, taken together, would make the final resolution of the claims between JCI and R&E not only incredibly difficult but also very time consuming and costly. In other words, I will concentrate on why, in my view, the resolution of these claims are fraught with difficulties and uncertainties of such a nature that in principal, the proposed merger between the parties is the more practicable solution...

22.      I earlier indicated that unravelling the facts in this matter will not only be incredibly difficult but will also be very time consuming and costly. However, there is also a possibility that the true facts may never emerge.

23.      Having regard to reports prepared by KPMG, Umbono and JLMC, it is clear that [the] entire factual matrix as presently presented is a reconstruction based on thousands of documents and accounting entries. One of the major difficulties in this case is that those who were directly involved in the many transactions which Jed to substantial losses are either not available to testify to the facts or would be unwilling to do so. Secondly, it seems likely that many documents and facts relevant to the various issues between JCI and R&E either have been concealed or destroyed, and probably deliberately so having regard to the magnitude of the unlawfulness. Finally, even in instances where there is no active concealment, it does appear as if many of the instructions for the unlawful purchase and sale of shares and the transfer of funds from and into various accounts were given orally and thus did not leave any reliable documentary trail from which the facts can be clearly and accurately reconstructed.

24.      I refer to these difficulties in ultimately gathering the true facts, particularly if this matter goes to arbitration, mindful of the tremendous task undertaken by the forensic auditors who have managed to piece together what appears to be likely to have happened in many instances. However, even then there is no unanimity. What is set out in KPMG's forensic reports differs in material respects on significant transactions from what is set out in the reports prepared by Umbono and JLMC. These differences illustrate that even in attempting reconstruct events from documents presently available to both parties, different interpretations can be given and different conclusions drawn.

25.      If anything, the substantial differences in the factual findings of KPMG on the one hand and Umbono and JLMC on the other hand illustrates that if one considers the monumental task which will have to be undertaken to unravel the facts of the case for purposes of arbitration, then the principle of a merger is not only preferable but significantly more practical...

45.     In relation to most of the principal issues, I have come to the conclusion that because of the difficult legal issues and the complex and incomplete factual matrix which would take a long time to unravel, the final resolution of the claims between JCI and R&E would not only be difficult and uncertain, but it could also take an inordinately long time. In addition, it also appears clear that [Kebble] treated JCI, R&E and their subsidiaries as a single entity, without any regard to separate corporate identities and without any desire to maintain accurate records (often probable deliberately so).

46.     In these circumstances, it is my view that it is preferable for the parties in principle to pursue the merger rather than to seek to have a final resolution of their respective claims determined through a lengthy arbitration process...".

 

[134]    Due to the complexity of the disputes between the parties and the uncertainty regarding whether the factual matrix could even ultimately be resolved, Sham, SC expressed the view in no uncertain terms that a merger was preferable to a lengthy arbitration process.

 

[135]   This legal opinion was also circulated to JCl's shareholders ahead of its shareholder's meeting that took place on 19 January 2008 in order to ratify the merger proposal between Randgold and JCI.

 

Webber Wentzel report: 18 May 2008

[136]   A further complication arose in the already strained relationship between directors of the Randgold Board. On 18 May 2008, Webber Wentzel Attorneys furnished Randgold with a written legal opinion which was highly critical of the role which Gray had played in relation to the theft of Randgold's assets. In this legal opinion Webber Wentzel contended that Gray must have known that Randgold's shares had been sold and that the very substantial proceeds derived therefrom were being paid to parties other than it. According to Steyn, up until then, he had had no reason to doubt Gray's integrity. Steyn also provided Nurek with a copy of the opinion.

 

[137]   In May 2008, Steyn, in consequence of the opinion which he had received from them, instructed Webber Wentzel to institute action against T-Sec, Mr Steenkamp ("Steenkamp') and Gray. During this time, other potential persons were identified as being potentially liable to Randgold. These include Investec and/or IBUK, Gray, Nurek, Lamprecht, Steenkamp, the Brett Kebble Estate and Roger Kebble. At that stage a claim has also been instituted by Randgold against Price Waterhouse Coopers Inc.

 

Randgold's board meeting on 28 May 2008

[138]    Randgold's board met on 28 May 2008. The meeting was attended by Nurek, Gray, De Bruin, Kovarsky, Madumise and Steyn.

 

[139]    Steyn gave the meeting a lengthy update on the merger attempts. He informed the meeting that the JSE and the SRP were still the main stumbling blocks to the merger. One of the issues referred to was the fact that the JSE requested the appointment of an independent person to verify the appropriateness of the merger and the value allocated to each of Randgold's claims.

 

Brink Cohen Le Roux Attorneys: 23 June 2008

[140]    Without going into the details of the letter of Brink Cohen Le Roux Attorneys, this letter conveyed to the directors of Randgold that action should be instituted against various individuals and entities listed in the letter. The names of Allan Gray, Nurek and Lamprecht and Investec (South Africa) were, inter alia, listed in this letter.

 

[141]    Pursuant to this letter, the legal team of Randgold considered whether legal action should be instituted against additional parties arising from the theft of Randgold's assets.

 

Randgold's board meeting on 25 June 2008

[142]    Gray's position was pertinently raised at a meeting of Randgold's board on 25 June 2008. After extensive debate, a resolution was adopted with Kovarsky, De Bruin and Steyn in support of it but with Nurek and Madumise dissenting, that Gray was to be called upon to resign from the board of Randgold.

 

The merger option and the commencement of settlement negotiations

[143]    In view of the passage of time and the inability to fully comply with the regulatory requirements of the JSE and the SRP, Randgold and JCI commenced negotiating a possible settlement of the matter on commercial terms similar to the proposed merger. To this end, and on 2 July 2008, Steyn gave instructions for a Memorandum of Understanding to be drafted for execution by Randgold and JCI in relation to the settlement of the disputes between them. The draft was submitted to Nurek, Gray, Kovarsky, De Bruin and Madumise.

 

Randgold's board meeting of 3 July 2008

[144]    On 3 July 2008, Randgold's board met with Kovarsky, De Bruin and Steyn. Three important decisions were taken: Firstly, every effort should be made to sign the Memorandum of Understanding on that day; Secondly, Kovarsky was authorised to sign it on behalf of Randgold; and thirdly, Nurek and Gray should be asked to formally resign as directors of Randgold by close of business that day.

 

[145]   On 9 July 2008, Nurek resigned from the board of Randgold.

 

JCI and Randgold Boards as of 9 July 2008

[146]   With effect from 9 July 2008, Randgold and JCI ceased to have common directors.

 

[147]   Gray also resigned from Randgold's Board on 11 July 2008 and Steyn succeeded him as Randgold's Chief Executive Officer.

 

[148]   Following thereon the board of Randgold was reduced to four members, comprising of Kovarsky, Madumise, De Bruin and Steyn.

 

Randgold's and JCl's joint announcement regarding the merger option

[149]    On 14 July 2008, Randgold and JCI made a joint announcement that the "Regulatory approvals necessary for the proposed merger had not yet been secured." Importantly, during this time, JCI, though its attorneys, recorded that JCI had not admitted or agreed to admit to a common cause indebtedness in the sum of R767 million or any other amount.

 

Action against Investec and IBUK

[150]    On 22 July 2008, advocate G Pretorius SC at a meeting attended by Steyn and Randgold's attorneys, advised that he did not believe that a cause of action was capable of being sustained against Investec and IBUK. Despite such advice, Steyn indicated that KPMG had been instructed to prepare a dedicated report for JCI in relation to the IBUK transaction and that, once it had become available, Randgold's legal team was to consider it with a view to finally determining whether a cause of action existed or not. Randgold was also later advised by Driscoll QC that the prospects of a claim against Investec and IBUK were difficult to predict (for the reasons set out in the lengthy opinion). In August 2008, Mr Paul Hastings (the lawyer appointed in England) advised Randgold's legal and forensic teams that a claim was potentially sustainable at the instance of Randgold and/or Holdings against Investec and/or IBUK, and that there appeared to be a sufficient connection between the facts of the matter and the United Kingdom to justify the institution of an action in the courts of that country. Upon receipt of the legal opinion, Steyn instructed Paul Hastings to commence formulating a broad skeleton of the potential claims required to commence English proceedings against IBUK and Investec and to draft and issue a claim as a precautionary measure as the claims against Investec in South Africa were likely to prescribe. Ultimately, however, the claims against Investec and IBUK were settled. will return to the circumstances leading up to the settlement later in the judgment.

 

Update to Randgold's shareholders

[151]    On 24 July 2008, Randgold published a circular entitled "Information Updates to R&E Shareholders" wherein it set out the fifteen claims which Randgold had proffered against JCI and the defences which JCI had raised to them. Some of the salient points noted in this circular are the following: (i) Randgold remained unable to produced meaningful annual financial statements; (ii) 15 separate claims were instituted against JCI; (iii) Randgold was in the process of preparing further claims against other parties; (iv) Randgold's board had taken into account commercial and practical considerations and concluded a number of settlements with third parties. (v) Randgold instituted action against PWC; (vi) Randgold was advised in a legal opinion of Advocate Pretorius SC that a cause of action against IBUK was not capable of being sustained but that an opinion from a lawyer in England will be obtained to advise on the prospects of Randgold being able to successfully sue Investec and IBUK in the United Kingdom. (vii) Regarding the proposed merger, the circular set out the problems encountered with it due to the inability of Randgold and JCI to produce financial statements and JCl's denial of any indebtedness to Randgold. As a result, it was not possible for either company to comply with the formal requirements of the JCI and SRP; (viii) That Randgold and JCI had engaged in negotiations to settle the disputes on commercial terms similar to the proposed merger. (Although the Memorandum of Understanding had been signed, it had not yet been given effect to.)

 

End of the merger option: 28 August 2008

[152]    By August 2008, it became clear that the prospects of a merger were tenuous. Randgold made a SENS announcement that the dispute would now be referred to arbitration. A number of Randgold's shareholders {including Allan Gray, Trinity, Clear Horizon, John Garcia, and several other small shareholders) approached Steyn with the request that the merger between Randgold and JCI be reconsidered in preference to the dispute being referred to arbitration. The body of shareholders was of the view that a merger was the preferred option as opposed to an arbitration that could be long and drawn-out affair with no clear or immediate resolution in sight.

 

Legal actions instituted by Randqold as at August 2008

[153]    As at the end of August 2008, Randgold had instituted actions against various persons most notably PWC in the South Gauteng High Court; Investec; Gold Fields; IBUK, Investec and Rensburg Sheppards. Numerous settlement agreements were concluded with, inter alia, Roger Kebble and other entities. There were pending claims against, inter alia, the late Brett Kebble. Randgold had resolved not to proceed against, inter alia, Nurek and Allan Gray.

 

[154]    Steyn is adamant that he did not seek Investee's counsel whether to sue any particular party or not and further that he knows of no other director or employee of Randgold who in fact did so.

 

Resurrection of the merger option

[155]    During the latter part of 2008, it appeared that the merger option had better prospects particularly after discussions with JCI and its representatives to such an extent that a SENS announcement was issued announcing that Randgold had engaged (without prejudice) in relation to the possibility of a merger.

 

[156]    On 6 November 2008, Randgold and JCI issued a joint announcement setting out that their respective boards had resolved to proceed with the merger based on the ratio of 1 Randgold share in exchange for every 95 JCI shares.

 

Position as at the end of December 2008

[157]    During December 2008 a circular was prepared for submission to Randgold's shareholders regarding a possible merger. All the directors endorsed the merger on the terms set out in the circular which was ultimately sent to the shareholders. By December 2008, Investec held 5,3% of Randgold's issued share capital.

 

[158]    The position Randgold legally found itself in, as of the end of December 2008, is set out in the circular and I quote at length therefrom:

 

"3.2 An important legal question relates to whether the actions and conduct of Kebble and his accomplices can be ascribed to JCI so as to render is liable for the losses which R&E has sustained in consequence thereof. R&E contends in this regard that the perpetrators comprised the controlling mind of JCI, directed the affairs of JCI and that their actions are imputable to JCI, although JCI does not admit this. R&E's Counsel have opined that R&E enjoys a reasonable prospect of success in the arbitration, however, litigation cannot be predicted with any degree of certainty. Should the merger between R&E and JCI not eventuate, the Mediation Agreement provides for arbitration."

 

"The perpetrators" were defined in the said circular as follows:

 

"The persons whom R&E asserts are perpetrators and whom it alleges comprise a number of persons, some of whom were formerly employed by JCI alternatively associated with the JCI group and/or who served as directors of JCI/the JCI group prior to 24 August 2005. R&E alleges that such persons at all times acted within the field of operation assigned to them by JCI when assisting either directly or indirectly in some or all of the schemes more fully detailed in the Overview of R&E's claims (being Annexure 2 hereto) on behalf of JCI, with the objective of benefitting JCI and/or the JCI group and whose knowledge and conduct R&E alleges is, as a matter of law, imputable to JCI:"

 

In respect of the rationale for the merger, the circular stated the following:

 

"5.1.1 In the absence of a merger, the present Board of R&E will have little choice but to refer the R&E claims to arbitration. Much time and significant cost will be expended on preparing for and prosecuting the arbitration and it has been conservatively estimated that the arbitration will endure for a considerable period of time (the preparation and hearing thereof being estimated at approximately 18 months). The attrition associated with arbitration may detract from its desirability.

5.1.2 Should the R&E claims be successfully sustained after a lengthy arbitration, the final result may not vest in R&E a tangible financial advantage which R&E could not otherwise obtain through a responsibly negotiated resolution of the present impasse. More importantly, the success of the arbitration is constrained by JCI's NAV, of R1,02 billion as at the last practicable date, as set out in this Circular. There is no prospect of R&E being able to satisfy its claim (if successful) beyond the extent of JCI's NAV at present. The merger may therefore result in a savings of costs which could otherwise make inroads into JCI's NAV. Management's time will a/so be saved, as will the a/location of resources in pursuing the arbitration, with the concomitant advantages which could arise therefrom. In short, R&E may be in a more favourable financial position should the matter be resolved on the basis of a merger than it otherwise might be were the arbitration to proceed. (It should however be noted that R&E and certain of its subsidiaries have proceeded with a number of summonses against a variety of parties whom it is contended have occasioned R&E and such subsidiaries loss. The possibility exists that such parties may seek to hold JCI accountable in respect thereof, the likelihood and the extent of which and ability of JCI to meet same not being possible to quantify or determine.

5.1.3 Should JCI fail in its defence in the arbitration, its liquidation could follow. Where JCI to be would up, the costs of liquidation could substantially erode any possible recovery by R&E. And reduction in the NAV of JCI will filter directly through to R&E and its shareholders, and impact directly upon the extent of the recovery available to R&E. A merger will not extinguish the R&E claims. Such claims will be preserved for the board of R&E to determine how best to deal therewith for the benefit of the shareholders of the merged entity in due course. Any possible liquidation may also hold grave implications in respect of JCI's portfolio of prospecting rights. In terms of the MPRDA Act, were JCI to be wound-up, the prospecting rights which it has converted to date may/apse.

5.1.4 During such arbitration process, the engagement of R&E's senior executive management and the commitment of vast financial resources to such process (which may extend to in the region of R10 to R35 million), will need to be dedicated to the prosecution of R&E's claims.

5.1.5 The merger ratio of one new R&E share for every 95 JCI shares will effectively allocate approximately 77% of the combined companies to R&E shareholders and 23% to JCI scheme participants in the post-merger group (on the basis that the scheme of arrangement becomes unconditional.)

5.1.6 This merger proposal is the final attempt by the company to resolve the difficulties facing the companies in a commercially pragmatic fashion."

 

Investee's shareholding in 2009

[159]    By 19 January 2009, Investec held 14,6% of Randgold's issued share capital.

 

Meeting with shareholders: 19 January 2009

[160]    On 19 January 2009, Randgold's shareholders at a general meeting adopted the merger proposal with approximately 95% of its shareholders voting in favour thereof.

 

[161]    At that meeting, the question of Investee's raising fee pertinently arose for discussion. Following upon the adjournment of the meeting, Gray, on behalf of JCI, Mr Kerr ("Kerr') on behalf of Investec and Steyn on behalf of Randgold commenced discussions to determine whether Investec was prepared to limit the raising fee which it contended was due to it. Kerr indicted that Investec might be agreeable to doing so, but would then insist upon Randgold abandoning the action which it had instituted against Investec in the South Gauteng High Court and the action which it had instituted against IBUK, Investec and Rensburg Sheppards in the High Court in London. Kerr also indicated that once the raising fee as ultimately agreed upon had been paid by JCI, Investec would release the assets which it held in security but indicated that all of this was contingent upon JCI and Randgold merging.

 

Resumption of settlement negotiations: 2009

[162]    During February 2009, Gray, Mr Maxwell (JCl's financial director- "Maxwell'') and Steyn discussed how the dispute between them could be resolved in the event that the merger option did not materialise.

 

[163]    Gray and Maxwell made it plain that any such settlement would necessarily require Randgold to indemnity JCI in the event it being joined in any litigation against third parties for the recovery of its losses. Kovarsky, De Bruin and Madumise were appraised of these discussions.

 

[164]    Discussions continued regarding an overall settlement of not only the dispute between Randgold and JCI, but the dispute between Randgold and Investec. Steyn was mandated by Madumise, Kovarsky and De Bruin to proceed with the negotiations. Madumise, Kovarsky, De Bruin and Steyn all held the view that Randgold's best interests would be served by the conclusion of a settlement with JCI as opposed to time consuming litigation.

 

Following the failure of the merger

[165]   JCI was unable to secure the requisite majority of at least 75% of its shareholders for the approval of the merger on 9 April 2009. As a result of the failure of the merger negotiations, Randgold had little choice but to proceed to arbitration, which was an option that Randgold sought to avoid.

 

[166]    Following the failure to successfully conclude the proposed merger, JCI and Randgold increasingly considered the benefit of settling the matter. Various discussions were then held between Randgold, JCI and Investec. The details of these discussions need not be repeated. But, it appears that Madumise, Kovarsky and De Bruin all held the view that Randgold's best interests would be served by settling the dispute with JCI as opposed to the pursuit against it of time-consuming litigation.

 

[167]    To this end, Randgold's board (on a without prejudice basis to its rights to proceed to arbitration) proceeded to negotiate with JCI with a view to possibly settling the dispute. Randgold points out that, in order for it and JCI to arrive at a settlement, the following, inter alia, needed to occur: (i) Investec would need to relinquish its pledge over the shares of JCI in JCIIF and the cession which it held in respect of JCIIF's assets; (ii) The obligation of JCI to pay Investee's raising fee and the amount thereof would also have to be resolved, for without an agreement in regard thereto, it could not be expected of Investec to abandon the securities which it held; (iii) Letseng would be required to waive its rights under the interdict which precluded JCI and JCIIF from making payment of the raising fee to Investec, whether in whole or in part. Some form of payment would be required from Investec or JCI to Letseng as Koppel had made it clear that he would not consent to the release of the interdict and would continue to litigate against Investec until such time as payment for the time, trouble and expense associated with the legal proceedings in question had been made; (iv) The actions which Randgold and Holdings had instituted against Investec in South Africa and IBUK in the United Kingdom needed to be withdrawn.

 

[168]   JCI also insisted that it and its directors be immunised from claims which might be brought against them by such other wrongdoers as Randgold might have elected to proceed against. Randgold was prepared to indemnify certain named directors and office bearers of JCI, both past and present, as there was little prospect of securing a significant recovery from them, whether individually or collectively. It was also prepared to do the same in respect of actions instituted against, inter alia, Lamprecht and Gray.

 

[169    Randgold was, however, reluctant to furnish an indemnity in respect of the Gold Fields action, because the prospects in relation to that action were considered good and Gold Fields had the means to satisfy a judgment of substance.

 

[170]    In an attempt to settle the matter, Randgold also extended to JCI the indemnity in respect of the Gold Fields action. Randgold submitted that, notwithstanding the grant of the indemnity, Randgold would nonetheless retain a residual claim against Gold Fields. I will return to the issue of Gold Fields as this is a bone of contention between the applicants and the respondents. Randgold insisted that, although it was reluctant to extend the indemnity to JCI in respect of the Gold Fields action, had it not done so, the settlement would have collapsed in its entirety.

 

17 April 2007 SENS announcement

[171]    On 17 April 2009, Randgold issued the following SENS announcement:

 

"Further to the separate announcements released by R&E and JCI on SENS on 9 April 2009 relating to the lapsing of the scheme of arrangement referred to therein, shareholders in the companies are advised that the companies have re-engaged in negotiations regarding either a settlement of the claims made by R&E against JCI or an alternate resolution.

 

Renewal of cautionary announcement

 

In the light of the above, JCI and R&E shareholders are advised to continue to exercise caution in trading their shares over the counter until such time as a further announcement is made."

 

Memorandum of understanding: 5 May 2009

[172]    On 5 May 2009, Randgold, JCI and JCIIF concluded a Memorandum of Understanding to serve as a precursor to a settlement agreement which was to be concluded by Randgold and JCI on terms acceptable to them by 31 May 2009. Of importance is the provision provided in clause 13 thereof:

 

"INDEMNITY

The settlement agreement is to provide for the parties to be indemnified in the event that a third party against whom an action has been instituted by the Randgold group or the JCI group (as the case may be) secures an award against either the JCI group or the Randgold group (as the case may be), on account of such third party action."

 

[173]    Following upon the conclusion of the Memorandum of Understanding, the SRP ruled that the transfer by JCI to Randgold of the assets referred to therein was hit by the provisions of section 228 of the Act and that the transaction contemplated thereunder would thus be an affected transaction in terms of the Companies Act.

 

[174]    On 4 June 2009, Randgold's board, by majority decision, mandated Steyn to continue to negotiate with JCI in order to arrive at an overall settlement of the dispute.

 

Draft Litigation Settlement Agreement

[175]    Following numerous meetings and on 5 June 2009, Investec, through its attorneys, furnished Steyn with a draft of the Litigation Settlement Agreement ("LSA”). Steyn in turn sent it to De Bruin, Kovarsky, Madumise and Botha. At that stage it was envisaged that the settlement was to be concluded before the end of June 2009.

 

[176]    Shortly thereafter, Randgold's attorneys provided Steyn with a copy of a draft of the RSA which agreement made provision for the indemnification by Randgold of JCI and its subsidiaries in the event of a third party securing a contribution from the JCI Group in consequence of such third party being successfully sued by Randgold. Clause 16 of the draft agreement of settlement which makes provision for an indemnity, read as follows:

 

"5.4 Without any admission of liability or the making of any concessions on the part of either Randgold or JCI and purely with a view to avoiding costly litigation and for commercial reasons, Randgold and JCI wish to:

5.4.1    effect a personal discharge of the JCI group from the Randgold claims and the JCI group wishes to secure a personal discharge thereof.

5.4.2    effect a personal discharge of the Randgold group from the JCI Claims and the Randgold group wishes to secure a personal discharge thereof...

16.1      Notwithstanding anything to the contrary contained in this Agreement, to the extent that the Randgold parties obtain a third party award against any third party in respect of whom the Randgold parties have proceeded with a third party claim and the third party successfully obtains a final award against the JCI parties for a contribution by the JCI parties to it in respect of the third party award, then and in such event, the following shall apply:

16.1.1 the Randgold parties shall not enforce the full extent of the third party award granted in its favour but only such amount as equates to the difference between the third party award and the JCI contribution, plus interest and costs. For the avoidance of any doubt, the Randgold parties shall grant the third party a full release of the JCI contribution such that the third party's liability to the Randgold parties in respect of the third party award shall be reduced by the extent of the JCI contribution;

16.1.2 the Randgold parties agree to indemnify and hold the JCI parties harmless in respect of any claim which may be brought or made against the JCI parties for payment of the JCI contribution, including costs.

16.2      Upon a third party securing an award against the JCI parties for a contribution by it/them to such third party on account of any award granted in favour of the Randgold parties against such third party, the JCI parties shall:

16.2.1 immediately consult with the Randgold parties and their legal advisors as to whether or not the award granted against the JCI parties for a contribution to such third party should be appealed against;

16.2.2 to the extent that Randgold in its sole discretion determines that the JCI parties should appeal against any award made against the JCI parties in favour of such third party, the JCI parties shall prosecute such appeal to finality.

16.3      The JCI parties shall immediately notify the Randgold parties of any claim intimated or brought against the JCI parties for a contribution in respect of any third party claim, as soon as practicable thereafter and shall:

16.3.1 1 consult with the Randgold parties and their legal advisors in order to determine how best to address such claim(s);

16.3.2 take such steps as are necessary to defend such claim(s) and institute any counterclaim(s) which may be available against such third party (the proceeds of which shall, in the event of the Randgold parties obtaining an award against such third party and such third party obtaining an award against the JCI parties for a contribution to it, vest in and be payable to the Randgold parties upon a successful recovery thereof).

16.4      The JCI parties shall not do anything which may have the effect of compromising or settling any claim(s) which may be brought, intimated or made against them by any third party, without first obtaining the written consent of the Randgold parties;

16.5      The JCI parties and the Randgold parties shall co-operate fully with one another in regard to any c/aim(s) which may be intimated or made against the JCI parties by any third party.

16.6      The provisions of the whole of this clause shall apply mutatis mutandis to any third party award obtained by the JCI parties in respect of any third party claim instituted by the JCI parties and in respect of which the Randgold parties are liable to make payment of a contribution (the Randgold contribution), to any third party...

22.7    In concluding this Agreement, neither Randgold, nor the Randgold Group nor JCI, nor the JCI Group, shall be deemed to have waived, abandoned or compromised any claim(s) enjoyed by any of them against any other person against whom either Randgold, and/or the Randgold Group or JCI, and/or the JCI Group, enjoyed a cause(s) of action prior to the conclusion of the Agreement, all of which such claims (save for the Claims to be settled in terms of this Agreement), shall remain intact and of full force and effect.

22.8    Nothing contained in this Agreement is intended to operate and is to be construed as operating as a complete discharge of the whole obligation due to the Randgold group of the damages which it allegedly sustained in consequence of the conduct which underpins the Randgold claims. For the avoidance of any doubt, the terms of this Agreement constitute a release of the JCI group of its alleged liability to the Randgold group for its proportionate share of the losses allegedly sustained by the Randgold group."

 

The indemnity clause: Discussions on 18 June 2009

[177]    The indemnity clause and the effect thereof are highly contested in these proceedings, the most contentious issue being the applicants' accusation that the consequences of this clause were not fully disclosed to or ventilated with board members and shareholders.

 

[178]    On 12 June 2009, Steyn sent a memorandum accompanied by the most recent drafts of the LSA and the RSA. This memorandum is lengthy but states, inter alia, that JCl's board is not in a position to enter into a settlement with Randgold if the settlement does not include an appropriate, although limited, indemnity provision. The viability of a claim amounting to RB0 million against Gray is also addressed. It is stated that although this claim is not waived, the claim against Grey will in all likelihood be imperilled as a result of the indemnity given to JCI. Steyn also records that JCl's senior counsel has advised JCI that any settlement with Randgold, other than a full and final settlement, will place the board at risk of being pursued in terms of section 424 of the Companies Act trading under insolvent circumstances.

 

[179]    Randgold states the following in the memorandum furnished to the board in respect of the indemnity that was to be granted to JCI:

 

"...the Randgold parties shall not enforce the full extent of the third party award granted in its favour but only such amount as equates to the difference between the third party award and the JCI contribution, plus interest and costs. For the avoidance of any doubt, the Randgold parties shall grant the third party a full release of the JCI contribution such that the third party's liability to the Randgold parties in respect of the third party award shall be reduced by the extent of the JCI contribution."

 

[180]    The draft settlement agreement submitted by Steyn to the Randgold board contained the indemnity clause. I again repeat what is contained in this clause:

 

"5.4 Without any admission of liability or the making of any concessions on the part of either Randgold or JCI and purely with a view to avoiding costly litigation and for commercial reasons, Randgold and JCI wish to:

5.4.1  effect a personal discharge of the JCI group from the Randgold claims and the JCI group wishes to secure a personal discharge thereof.

5.4.2  effect a personal discharge of the Randgold group from the JCI Claims and the Randgold group wishes to secure a personal discharge thereof. "

 

Motion of no confidence and discussion of the indemnity clause: 18 June 2009

[181]    De Bruin tabled a motion of no confidence before Randgold's board which was considered at the meeting on 18 June 2009. The motion of no confidence was highly critical of Steyn and, inter alia, accused him of bias in that he was not able to "push Investec for fear they might remove him from the board". Steyn was also accused of not allowing proper deliberation on the indemnity clause matter. At this meeting of 18 June 2009, Randgold's board of directors considered the motion of no confidence and rejected it by majority vote.

 

[182]    The meeting was attended by Kovarsky, De Bruin Madumise and Steyn. (At this stage neither Nurek nor Gray were no longer on the board of directors.)

 

[183]    Steyn responded to the allegations levelled against him particularly the allegation of fear for Investec, and stated the following:

 

"45. On this score, I concede that I did in fact utter the words attributed to me in the said transcript, namely "after this I won't be able to work for Investec", or something to that effect. This must be seen in the context in which the words were uttered. In this regard I point out that during the course of my involvement with my co-directors on Randgold's board I had occasion to narrate to them what had transpired during the course of some of the negotiations I had conducted on behalf of Randgold. I had in this regard made it perfectly plain to them that some of my responses to proposals made by Investec, were dismissed by me out of hand and in a manner which would have made it very apparent to Investee's representatives that I had considered such proposals with derision. It is in this context that I uttered the words in question, intending to convey no more than the notion that my popularity with Investec was at so low a level that I would never again be asked to perform any services on its behalf I certainly did not intend to convey and could not have been understood to convey that my dealings on behalf of Randgold with Investec was based on a willingness to do whatever it required for fear of being removed from Randgold's board of directors.

46.         I moreover point to the transcript where I emphatically deny ever having told Mr de Bruin that it was not open to Randgold to take certain steps against Investec or to ''push them too hard' for fear of being removed from Randgold. Instructively, Mr de Bruin neither in the formulation of his motion of no confidence, nor at the meeting at which it was considered, made reference to any facts or circumstances supportive of his somewhat glib and generalised accusation. This omission is with respect somewhat telling.

47.         I wish to make it plain that I at no stage harboured any fear for Investec or any other shareholder for that matter and that every decision taken by me was assessed on the basis of what I believed represented the best interests of Randgold."

 

[184]    At this meeting the memorandum sent out by Steyn (dated 12 June 2009) and the drafts of the RSA and the LSA were extensively discussed and debated. By majority vote Steyn (with De Bruin abstaining) was mandated to execute the RSA and the LSA in their then form. From the transcript of the meeting, it appears that the question of the indemnity was debated. De Bruin undertook at this meeting to consider the drafts and advise the next day whether he was prepared to support the motion authorising Steyn to execute the documents.

 

30 June 2009

[185]    As at 30 June 2009, the LSA and the RSA had not been concluded. Shortly thereafter Steyn was furnished by JCI with yet a further draft of the RSA. In this draft the indemnity was extended to the then directors of JCI. In a letter dated 13 July 2009, Randgold's attorneys addressed the differences between the various latest drafts and recorded in respect to the effect of the further proposed changes the following:

 

"The effect of clause 9 (Full and Final Settlement)

As mentioned earlier, clause 9 of the Settlement Agreement (as it stands at present) provides (following the transfer of the settlement assets to Randgold), that subject to the fulfilment of the suspensive conditions and the provisions of clauses 12 and 18, as follows:

the Randgold group shall have no further claims against the JCI group or any

of the directors and officers of JCI in respect of and/or in connection with the Randgold Claims or any of them (save that the excluded claims shall remain intact and be of full force), such that as between the JCI group and the directors and officers of JCI and the Randgold group only, the R&E Claims are fully and finally settled; The JCI Group shall have no further claims of whatsoever nature against the Randgold group or any of the directors and officers of Randgold in respect of and/or in connection with the JCI Claims, or any of them (save that the claim in respect of the Roger Kebble amount shall remain intact and be of full force and effect), such that as between the Randgold group directors and officers of Randgold and the JCI group only, the JCI Claims are fully and finally settled; Whereafter the JCI group and the Randgold group will be deemed to have been personally discharged and released from respectively, the Randgold claims (in the case of the JCI group) and the JCI Claims (in the case of the Randgold group). (For the avoidance of any doubt, prior to the transfer/issue of the JCI settlement assets as provided for in this Agreement, none of Randgold's rights against JCI, nor JCl's rights against Randgold arising from the Mediation Agreement, shall be regarded as having been waived, compromised or abandoned.)"

…

As a general observation we point out, that Randgold has steadfastly maintained in the various actions instituted by it, that JCI through its directing and controlling mind is a joint wrongdoer and that it is jointly and severally liable to Randgold together with the other joint wrongdoers whom Randgold has instituted action against.

In terms of the Settlement Agreement JCI denies that it is indebted to Randgold for the amounts claimed or at all and furthermore that it was party to and/or benefited from the schemes which were devised and implemented as set out in the Statement of Claim.

To the extent that it may ultimately be found in any of the litigation which Randgold has instituted against a third party (such as Gold Fields who is also alleged to be a joint wrongdoer), that JCI is a joint wrongdoer, such party is likely to contend that they ought to be released from any obligation which may be found to be owing to Randgold, for the difference between so much of that portion of the damages which, but for the said Agreement of Settlement could have been recovered by Gold Fields from JCI (or could have been apportioned to JCI), as exceeds the amount if any, for which JCI is liable in terms of the Agreement of Settlement, which Randgold shall not recover from any other a joint wrongdoer.

The effect of such a provision finds expression in section 2(10) of the Apportionment of Damages Act No. 34 of 1956 to which we invite your attention, which records the following:

"If by reason of the terms of an agreement between a joint wrongdoer and the plaintiff the former is exempt from liability for the damage suffered by the plaintiff or his liability thereof is limited to an agreed amount, so much of that portion of the damages which, but for the said agreement and the provisions of paragraph (c) of subsection (6) or paragraph (b) of subsection (7) or could have been apportioned to him in terms of subparagraph (ii) or (iii) of paragraph (a) of subsection (8), as exceeds the amount, if any, for which he is liable in terms of the said agreement, shall not be recoverable by the plaintiff from any joint wrongdoer. "

 

Randgold's board meeting: 18 July 2009

[186]    On 17 July 2009, Werksmans furnished Steyn with a revised draft of the LSA. The minutes of the meeting of Randgold's board of directors of 18 July 2009 record that the issue of the indemnity clause and the issue relating to the apportionment of damages were discussed:

 

"3. Mr. Steyn informed the meeting that he had been advised by senior counsel that, even if clause 16, relating to the apportionment of damages was excluded, by settling with JCI all joint wrongdoers joined to JCI in any action could also be indemnified. According to the Apportionment of Damages Act, any third party found to be a joint wrongdoer with JCI could apply to the court for relief in terms of damages awarded and the court could apportion a percentage application to JCI and the third party respectively. The third party would then be liable only for the percentage damages apportioned to it. The PWC matter does not appear to be able to be joined to JCI and would be treated independently."

 

Randgold's board meeting: 31 July 2009

 

[187]   On 31 July 2009, Randgold's board again held a meeting which was attended by Kovarsky, De Bruin, Madumise and Steyn. The various drafts of the LSA and the RSA were again debated. At that stage, the board unanimously approved draft 14 of the RSA and Steyn was again mandated to continue with his efforts to finalise both that agreement and the LSA. De Bruin was now supportive of the said agreements but remained dissatisfied that the settlement agreement extended to Gray.

 

[188]    As at 30 July 2009, the latest settlement agreement (draft 14) contained the following clauses regarding to JCl's personal discharge and the indemnity:

 

"5.4 Without any admission of liability or the making of any concessions on the part of either Randgold or JCI and purely with a view to avoiding costly litigation and for commercial reasons, Randgold and JCI wish to:

5.4.1 effect a personal discharge of the JCI group from the Randgold Claims (without the JCI group in any way recognising the existence thereof) such that as between the JCI group and the Randgold group only, the

Randgold Claims are fully and finally settled and the JCI group wishes to secure such a personal discharge thereof, to the extent necessary;

5.4.2 effect a personal discharge of the Randgold group from the JCI Claims (without the Randgold group in any way recognising the existence thereof) such that as between the Randgold group and the JCI group only, the JCI Claims are fully and finally settled and the Randgold group wishes to secure such a personal discharge thereof, to the extent necessary;

 

FULL AND FINAL SETTLEMENT

9.1 Save for the excluded claims and the Roger Kebble amount (which shall remain of full force and effect and unaffected by this Agreement), subject to the fulfilment of the suspensive conditions in clause 6 and the provisions of clauses 12 and 18, following the transfer/issue of the JCI settlement assets to Randgold and the distribution thereof to the Randgold shareholders as provided for in this Agreement:

 

1.1.1  the Randgold group shall have no further claims against the JCI group or any of the directors and officers of JCI in respect of and/or in connection with the Randgold Claims or any of them (save that the excluded claims shall remain intact and be of full force), such that as between the JCI group and the directors and officers of JCI and the Randgold group only, the Randgold Claims are fully and finally settled;

1.1.2  the JCI Group shall have no further claims of whatsoever nature against the Randgold group or any of the directors and officers of the Randgold group in respect of and/or in connection with the JCI Claims, or any of them (save that the claim in respect of the Roger Kebble amount shall remain intact and be for full force and effect), such that as between the Randgold group directors and officers of the Randgold group and the JCI group only, the JCI Claims are fully and finally settled;

whereafter the JCI group and the Randgold group will be personally discharged and released from respectively, the Randgold Claims (in the case of the JCI group) and the JCI Claims (in the case of the Randgold group). (For the avoidance of any doubt, prior to the transfer/issue of the JCI settlement assets to Randgold as provided for in this Agreement, none of Randgold's rights against JCI, nor JCI's rights against Randgold arising from the Mediation Agreement, shall be regarded as having been waived, compromised or abandoned."

 

16.      INDEMNITY

 

16.1   Notwithstanding anything to the contrary contained in this Agreement, to the extent that the Randgold parties obtain a third party award against any third party in respect of whom the Randgold parties have proceeded with a third party claim and the third party successfully secures an award for the JCI contribution, then and in such event, subject always to what is contained in clause 16.7 hereof, the following shall apply -

16.1.1                       the Randgold parties shall not enforce the full extent of the third party award granted in its favour but only such amount as equates to the difference between the third party award and the JCI contribution, plus interest and costs. For the avoidance of any doubt, the Randgold parties shall grant the third party a full release of the JCI contribution such that the third party's liability to the Randgold parties in respect of the third party award shall be reduced by the extent of the JCI contribution;

16.1.2                       the Randgold parties agree to indemnify and hold the JCI parties harmless in respect of any claim which may be brought or made against the JCI parties for payment of the JCI contribution, including costs.

16.2   Upon a third party securing an award against the JCI parties for a contribution by it/them to such third party on account of any award granted in favour of the Randgold parties against such third party, the JCI parties shall:

16.2.1                       immediately consult with the Randgold parties and their legal advisors as to whether or not the award granted against the JCI parties for a contribution to such third party should be appealed against;

16.2.2                       to the extent that Randgold in its sole discretion determines that the JCI parties should appeal against any award made against the JCI parties in favour of such third party (in consequence of which the JCI contribution arises), the JCI parties shall prosecute such appeal to finality.

16.3   The JCI parties shall immediately notify the Randgold parties of any claim intimated or brought against the JCI parties which would result in the JCI contribution in respect of any third party claim, as soon as practicable thereafter, and shall:

16.3.1                       consult with the Randgold parties and their legal advisors in order to determine how best to address such claim(s);

16.3.2                       take such steps as are necessary to defend such claim(s) and institute any counterclaim(s) which may be available against such third party (the proceeds of which shall, in the event of the Randgold parties obtaining an award against such third party and the JCI parties successfully raising a counterclaim(s), vest in and be payable to the Randgold parties upon a successful recovery thereof).

16.4   The JCI parties shall not do anything which may have the effect of compromising or settling any claim(s) which may be brought, intimated or made against them by any third party as envisaged in the Damages Act, without first obtaining the written consent of the Randgold parties which consent may not be unreasonably delayed or withheld;

16.5   The JCI parties and the Randgold parties shall co-operate fully with one another in regard to any claim(s) which may be intimated or made against the JCI parties by any third party which could result in the JCI contribution.

16.6   The provisions of the whole of this clause 16 shall apply mutatis mutandis to any third party award obtained by the JCI parties in respect of any third party claim instituted by the JCI parties in respect of which the Randgold parties are liable to make payment of a contribution (the Randgold contribution), to any third party."

16.7   The provisions of this clause 16 shall immediately cease to be of any force and/or effect, in the event that:

16.7.1                       JCI and/or JCIIF is finally liquidated and/or JCI and/or JCIIF are provisionally liquidated and such provisional liquidation has not been discharged after 6 (six) months;

16.7.2                       Randgold is obliged to transfer any of the shares received by it in terms of this Agreement to a third person as envisaged in clause 12 and JCI and/or JCIIF (as the case may be) fails to replace such shares within 30 (thirty) business days of the date of transfer thereof by Randgold to such third person.

16.7.3                       this Agreement is cancelled.

23.     GENERAL

…

23.8 In concluding this Agreement, neither Randgold, nor the Randgold Group nor JCI, nor the JCI Group, shall be deemed to have waived, abandoned or compromised any claim(s) enjoyed by any of them against any third party against whom either Randgold and/or the Randgold Group or JCI and/or the JCI Group enjoyed a cause(s) of action prior to the conclusion of this Agreement, all of which such claims (save for the Claims to be settled in terms of this Agreement), shall remain intact and of full force and effect."[12]

 

[189]    Following the board meeting held on 31 July 2009, negotiations between the parties continued. The indemnity issue remained very much alive and, in particular, whether Randgold should agree to a widening of the indemnity. At issue was whether a widening of the indemnity clause would place Randgold's claim against PWC in jeopardy. On 27 August 2009, Steyn updated Kovarsky, De Bruin and Madumise regarding the status of the negotiations. The board was informed that JCI had requested a widening of the indemnity provision which in turn could prejudice the PWC claim. JCI had conceded that the PWC claim would be excluded from the indemnity provision in the latest draft of the settlement agreement. That would then allow Randgold to pursue its claim against PWC without the risk of having to indemnity JCI in the event that PWC pursues a claim against JCI. He further informed the board that the settlement agreement was now in a final format and that Randgold was in a position to sign the agreement.

 

Approval of the RSA on 31 August 2009

[190]    The negotiations continued and the RSA which had been approved by Randgold's Board on 31 July 2009, was executed by Randgold, JCI and JCIIF on 31 August 2009.

 

[191]    De Bruin now seemed to be on board with the content of the agreements and on 31 August 2009 sent an e-mail to Kovarsky, Madumise and Steyn wherein he, with reference to the settlement reached, recorded that:

 

"(i) it is a great achievement to have signed the settlement agreement. I would like to congratulate Marais and the team. Let's hope Koppel also sees the light."

 

The RSA lapsed

 

[192]    The RSA lapsed more than once as a result of the non-fulfilment of a suspensive condition. Steyn was thereafter authorised by Kovarsky, De Bruin and Madumise to re-sign the agreement which he did, but it again lapsed following the non-fulfilment of its suspensive conditions.

 

[193]    Finally, and on 23 September 2009, JCI published a SENS announcement wherein it, inter alia, stated that the dispute between Randgold and JCI remained unresolved and that the disputed claims would consequently have to be referred to the appropriate forum for adjudication.

 

1 December 2009

[194]    On 1 December 2009, JCI furnished Steyn with fresh drafts of the RSA and the LSA. As at 31 December 2009, JCl's total net asset value amounted to some R1 244 266 000,00. It subsequently dropped to below R1 billion.

 

[195]    Negotiations were re-opened in late January 2010 and on 20 January 2010 the RSA was executed by the parties. At the same time the LSA agreement between Randgold, Letseng and IBUK and other parties were in the process of being finalised. The LSA was finally executed on 22 January 2010.

 

The shareholders of Randgold

[196]    Randgold points out in its papers that, for the purposes of ensuring that the RSA was adopted by shareholders, Randgold was required to procure irrevocable undertakings from Investec (which at that stage held 26,26% of the issued share capital of Randgold) and Allan Gray (which at that stage held, either directly or indirectly, 24,35% of Randgold's issued share capital) that they would support the adoption thereof at a general meeting of Randgold shareholders.

 

SENS announcement on 22 January 2009

[197]    On 22 January 2010, Randgold issued a SENS announcement recording the following:

 

"JCI, JCI Investment Finance (Ply) Limited ("JCIIF”) and R&E ("the parties') are pleased to announce that earlier today the parties signed a Revised Settlement Agreement ("the Revised Settlement Agreement”), following the lapsing of the settlement agreement concluded between them on 31 August 2009 and then again on 18 September 2009, the terms of which were previously communicated to R&E and JCI shareholders.

In terms of the Revised Settlement Agreement, and subject to the fulfilment of various suspensive conditions as detailed in such agreement:

1.        JCI and JCIIF shall cause 6 051 632 Goldfields Limited ("GFl'J ordinary shares to be transferred to R&E;

2.        JCI shall allot and issue 1 555 710 220 new JCI ordinary shares ("the new JCI shares”) to R&E, representing approximately 44% of the issued share capital of JCI post the issue of such new JCI shares.

3.        R&E shall, following the transfer of the GFI shares to R&E, make a capital distribution of such GFI shares to R&E shareholders in proportion to their respective shareholdings;

4.        R&E shall distribute the new JCI shares to R&E shareholders in in proportion to their shareholdings.

R&E intends also, as part of an unbundling process, to distribute its existing JCI shares comprising 305 186 049 shares to R&E shareholders in proportion to their respective shareholdings;

The Revised Settlement Agreement once implemented will be as between the R&E group and the JCI group only, give rise to the JCI group being discharged from R&E's claims against the JCI group and vice versa, without the parties making any admissions of liability or any concessions in regard to their respective claims.

The terms of the Revised Settlement Agreement will be detailed in a further detailed announcement and circulars will be furnished to the shareholders of R&E and JCI in due course, to whom the Revised Settlement Agreement will be presented for approval. The parties have procured irrevocable undertakings from certain key shareholders as required in terms of the Revised Settlement Agreement.

Shareholders are further advised that a Litigation Settlement Agreement between the parties, Letseng Diamonds Limited, Investec Bank Limited Pie and certain other parties was also concluded, the details of which will also be included in a detailed announcement to shareholders in due course and the abovementioned circulars ... ".

 

[198]    On 22 January 2010 De Bruin addressed an e-mail to Steyn extending his congratulations:

 

"Congrats on Settlement agreement.

AGM also went very well.

I believe it is important for me to go to indaba. Let me know re R&E payment?"

Believe I could assist in great deal."

 

De Bruin's resignation

[199]    On 19 February 2010, De Bruin resigned as a director of Randgold and was on the same day replaced by Mr Hulme Scholes ("Scholes" - a qualified attorney).

 

Fairness opinion

[200]    The Randgold board as at 12 May 2010 unanimously supported the RSA. The mediators also supported the RSA and expressed the opinion that"... the proposed settlement... and the terms thereof are fair and reasonable and in the interests of R&E shareholders given the current circumstances of R&E and JCI".

 

[201]   On 19 April 2010, the mediators issued a report stating that the RSA was in their opinion commercially prudent and not inequitable to shareholders of Randgold and JCI, which report was based on the following considerations: (i) The financial position of the JCI group as at 31 December 2009 and the underlying Rand value of the settlement of approximately R950 million relative to the JCI net asset value of approximately R1.2 billion (based on values as at 31 December 2009); (ii) The protracted period over which future litigation/arbitration might run, the likely costs involved therein and the inherent uncertainty of the outcome thereof; (iii) The sustainable claims of Randgold against JCI were likely to run into amounts that might well exceed the net asset value of JCI; (iv) A protracted litigation/arbitration between Randgold and JCI followed by possible liquidation proceedings was commercially and practically unattractive and would be value destructive for both sets of shareholders and valuable management time would be sterilised in the process; (v) The estimated amount that Randgold would receive in the event of a liquidation (which could only be roughly estimated due to the various variables and uncertainties), relative to the Rand value of the settlement; (vi) Any settlement which left no value to JCI shareholders would be unrealistic and might persuade JCI, to entertain such litigation irrespective of the outcome; (vii) After the settlement (and taking into account its effect on the value of JCl's shareholding in Randgold), the remaining net asset value of JCI would not be inconsequential; (viii) The negative effects on shareholder value of the continued share suspension and the ongoing uncertainty; (ix) The cross-holding that existed between Randgold and JCI (the companies hold shares in each other), one of the effects of which was that JCI would effectively participate in the increased value of Randgold pursuant to the settlement receivable by Randgold; (x) Due to the cross­ holding of shares, the value of Randgold and JCI were mutually dependent; (xi) The fair net asset value of JCI (which was a fundamental determinant of the settlement value) was dependent, inter alia, on the market price of certain investments held by JCI, which had been and were variable over time; (xii) The fact that no exact settlement figure could be calculated due to the inherent uncertainties involved.

 

[202]    The fairness opinion was furnished by the mediators with the concurrence of the JSE, with Randgold and JCI having formally applied to it to appoint the mediators to express an opinion relating to the fairness of the proposed settlement. The RSA and the LSA were made available to the mediators for the purpose of enabling them to discharge their mandate to furnish the fairness opinion.

 

Gray and Investee's support to the conclusion of the settlement agreements

[203]    During March 2010, Investec and Allan Gray furnished Randgold with their irrevocable undertakings to support the conclusion of the RSA.

 

Shareholders meeting: 8 March 2010

[204]    On 8 March 2010, the shareholders of JCI in a general meeting voted to adopt the LSA. The LSA became unconditional on 9 March 2010. The result thereof was that (i) JCI became obliged to pay an amount of R40 000 000,00 into an account nominated by Letseng; (ii) JCI became obliged to pay Investec an amount of R267 500 000.00; (iii) Investec, on receipt of payment of the sum of R267 500 000.00 became obliged to release the assets of JCI and JCIIF held as security in terms of the Investec loan agreement.

 

Claim against Investec (South Africa); IBUK and Investec (United Kingdom)

[205]    In March 2010, the actions which Randgold had instituted against Investec in South Africa and Investec in the United Kingdom were withdrawn.

 

Circular to shareholders: 12 May 2010

[206]    On 12 May 2010, Randgold issued a circular to its shareholders which circular embodied an endorsement by its directors of the RSA and the LSA. The purpose according to Randgold was to provide its shareholders with the requisite information to enable them to make a decision whether or not to adopt the RSA. The shareholders were informed of, inter alia, the following:

 

"5.7.1 R&E and JCI shareholders are referred to inter alia, prior announcements and shareholder updates regarding the disputes between R&E and JCI, the proposed merger between R&E and JCI and the failure thereof, and the conclusion and lapsing of the initial settlement agreement between R&E and JCI. Such strategies were pursued by the boards of both R&E and JCI. In keeping with such strategy the parties have again, for commercial reasons, and in order to avoiding costly and protracted litigation, concluded the Revised Settlement Agreement.

5.7.2    The rationale for the proposed settlement as set out in 5.7.1 above follows the rationale for the proposed merger of R&E and JCI as was recorded in the Merger Circular. As previously reported to R&E's shareholders, JCI has denied all liability to R&E in respect of the R&E claims and failing the Revised Settlement Agreement being implemented the impending arbitration or litigation (in the event of the relief sought in the JCI application being upheld) is inevitable. The board of R&E is however aware of the costs which may be incurred in protracted litigation against JCI before a resolution of R&E's claims can be obtained. Furthermore, should R&E be successful in obtaining an award against JCI in respect of R&E's claims, any recovery which R&E may make is likely to be constrained by JCI's NAV of approximately R1,2 billion at 31 December 2009. There is no prospect of JCI being able to satisfy the R&E claims (if successful) beyond the extent of JCl's NAV and furthermore R&E's prospect of success against JCI cannot be assured.

The board of R&E is also cognisant of the substantial time that executives and management of R&E would have to dedicate in prosecuting such claims which may impact the operations of R&E.

5.7.3    Based on the above, the present Board of R&E is of the opinion that costly and protracted litigation against JCI is not in the best interests of shareholders and R&E regards the proposed settlement as a pragmatic means to restore shareholder value and as representing a sensible resolution to the impasse with JCI.

5.7.4    The implementation of the Revised Settlement Agreement in its entirety will thus result in the JCI group and the directors and officers of the JCI group only being released from the R&E group's claims against the JCI group and such directors and officers, and vice versa, this without the parties making any admissions of liability or any concessions in regard to their respective claims. "

 

In respect of the LSA the following is stated in the circular:

 

"14. THE LIT/GATION SETTLEMENT AGREEMENT

A Litigation Settlement Agreement was concluded between R&E, JCI, Letseng, Hawkhurst, Investec, Investec PLC, JCIIF, Discus, Global, Latitude, Holdings and Azalia on 22 January 2010, the salient details of which are set out below. It must be noted that the Litigation Settlement Agreement and the Revised Settlement Agreement are separate agreements. The implementation of the Litigation Settlement Agreement will enable JCIIF to deliver the settlement GFI shares on R&E as contemplated in terms of the Revised Settlement Agreement.

Shareholders are informed that R&E has no relationship with Letseng and Hawkhurst, save to the extent that they are parties to the Litigation Settlement Agreement. R&E is the largest creditor in the insolvent estate of BNC, and in terms of the Litigation Settlement Agreement has procured that the liquidators of BNC waive all existing and future legal claims against Letseng and Hawkhurst as set out in clause 14.2.5 below.

Letseng is the registered owner of 212 165 328 ordinary shares and Hawkhurst is the registered owner of 177 455 684 ordinary shares in the ordinary share capital of JCI.

On 8 March 2010, the shareholders of JCI voted in favour of the Investec Raising Fee to Investec and the Letseng Indemnity Costs to Letseng, in consequence of which the Litigation Settlement Agreement has become unconditional.

Final implementation of the Litigation Settlement Agreement remains outstanding but is expected to be fully implemented by the effective date of the Revised Settlement Agreement."

 

In respect of the "R&E's Litigation Statement" the following is stated:

 

"The Litigation Settlement Agreement

28.      On 22 January 2010, R&E and African Strategic Investment (Holdings) ("ASI”) concluded an agreement with, JCI, JCIIF, Investec Bank Limited ("Investec''), Investec Bank PLC ("Investec PLC''), Letseng Diamonds Limited ("Letseng''), Hawkhurst Investments Limited, Discus Limited, Global Management Overseas Limited, Latitude Investments Limited and the Azalia Trust ("the Litigation Settlement Agreement'').

29.      Certain legal proceedings in relation to various legal disputes, which legal disputes are defined in the Litigation Settlement Agreement, have been instituted against certain of the parties to Litigation Settlement Agreement ("the Litigation Disputes'').

30.      The provisions of the Litigation Settlement Agreement and the payments to be made in terms thereof constitutes a settlement of the Litigation Disputes insofar as the parties to the Litigation Settlement Agreement are concerned. From an R&E perspective the Litigation Settlement Agreement settles the claims enjoyed by R&E and AS/ against the other parties to the Litigaticn Settlement Agreement (on the terms thereof), including inter alia, the claims against Investec and Investec (Ply) Ltd only.

31.      On 8 March 2010, the shareholders of JCI in general meeting voted in favour of the Litigation Settlement Agreement.

32.      On 9 March 2010, the Litigation Settlement Agreement became unconditional, in consequence of which inter alia:

32.1   JCI became obliged to pay an amount of R40 000 ODO.DO into an account nominated by Letseng;

32.2   JCI became obliged to pay to Investec an amount of R267 500 ODO.DO, in respect of which arrangements are being made to give effect hereto;

32.3   following receipt of the amount of R267 500 000.00 Investec is obliged to release the assets of JCI and JCIIF held as security in terms of the Investec Loan Agreement;

32.4   Letseng is to transfer 42 000 shares in the issued share capital of Randgold Resources Limited ("RRL'J to R&E.

33.      The Litigation Settlement Agreement is independent of the updated Settlement Agreement.

34.      The salient terms of the Litigation Settlement Agreement appear in the main section of the Circular.

35.      Further detail regarding both the updated settlement agreement and the Litigation Settlement Agreement were published on SENS on 28 January 2010 to which R&E's shareholders are referred."

…

"57. Investec and Investec PLC

Following the Litigation Settlement Agreement having become unconditional on 9 March 2020, the SA action and the UK action were settled in terms of thereof."

 

[207]    The applicants claim that this circular relating to the LSA was "highly misleading". There is no merit in this submission. The circular set out the facts pertaining to the settling of the Investec and IBUK claims. The then members of the board, Kovarsky, Madumise, Scholes, Botha and Steyn, were aware of the circular and its contents, and were in agreement therewith.

 

Re-listing of Randgold

[208]    On 4 June 2010, Randgold was re-listed on the JSE.

 

Meeting of Randgold shareholders: 20 June 2010

 

[209]    On 20 June 2010, the shareholders of Randgold at a general meeting, ratified the RSA. 93% of the shareholders present at the meeting voted in favour of the RSA

 

[210]   Excluding Investec and Allan Gray, 60% of the remaining shareholders who attended Randgold's General Meeting in May 2010, voted in favour of the adoption of the RSA Randgold submitted in this regard that it should be clear that a substantial body of the shareholders of Randgold supported the conclusion of the RSA, which shareholders included those who owed no allegiance to either Allan Gray or Investec.

 

[211]    The effect of the settlement was to reduce Investee's raising fee from R575 million to R267.5 million.

 

[212]    Randgold insisted that it has always been intended in terms of the Mediation and Arbitration Agreement that the shareholders of both Randgold and JCI would be the final arbiters of the resolution of the dispute between them. For that reason, there was a need on the part of Randgold to refer the RSA to its shareholders for their approval.

 

[213]    Regarding the complaint about the fiduciary alliance of the Randgold board, Randgold submitted that, at the time of the conclusion of the impugned agreements in January 2010, the board of Randgold comprised of Kovarsky, Steyn, De Bruin and Madumise. De Bruin was later replaced by Scholes. Randgold accordingly submitted that it cannot be concluded that any of the remaining directors owed any allegiance to either Allan Gray or Investec. Moreover, Randgold submitted that the conclusion of the RSA was the result of a very protracted effort on the part of Randgold's board to resolve the impasse between Randgold and the JCI Group and it was considered a constructive alternative to the costly, expensive, and value-destructive process of arbitration.

 

[214]    Randgold summarises the consequences of the agreements and why they were concluded in the interest of Randgold: (i) Randgold secured the release of the JCI assets which had been pledged to Investec, thereby ensuring their availability for the purpose of enabling JCI to effect a substantial distribution thereof in settlement of Randgold's claims against it; (ii) Randgold secured a limitation on the Investec raising fee, thereby saving JCI some R100 million, with a corresponding increase of its asset base to the obvious advantage of Randgold; (iii) Randgold secured the payment to it of a substantial sum, by way of the transfer of assets; (iv) Koppel was taken out of the equation which resulted in the lifting of the interdict which had been obtained in relation to JCl's assets, thereby placing JCI in a position to transfer such assets to Randgold in settlement of the claims; (v) Randgold avoided the need to engage in costly and time consuming arbitration proceedings which may have taken many years before being ultimately determined and where the outcome could by no means be assured and where the prospect of a meaningful recovery was remote. (vi) Randgold had restored to it 42 000 shares with a value of R30 000 000.00. (vii) A further consequence was that Randgold withdrew its actions against Investec, IBUK, Rensburg Sheppards and Gray and indemnified JCI and its directors against claims which may have been instituted against it by third parties which had been sued by Randgold. (viii) Most importantly, Randgold submitted that the agreements had the effect of salvaging some value for both the shareholders of JCI and Randgold, which state of affairs would not have been achieved through protracted litigation.

 

[215]    The value of the assets which Randgold was to receive under the RSA amounted to the sum of R914 594 853.00728 or, on the hypothesis adopted by the applicants, to the sum of R783 549 000.00.

 

The PWC action

[216]   On 16 April 2014, Randgold and PWC settled their action on the basis that PWC agreed to pay Randgold an amount of R150 million, subject to the agreement becoming unconditional in accordance with its terms. This payment had the effect of doubling the net asset value of Randgold and enabled it to prosecute the Gold Fields action.

 

Claim against Gold Fields

[217]    After having held the action against Gold Fields in abeyance for some time, Werksmans attorneys were advised on 23 June 2014 that Randgold and Holdings had resolved to proceed with their claims against Gold Fields.

 

The Apportionment of Damages Act[13]

[218]    There was a debate about the effect of section 2(13) of the Apportionment of Damages Act and whether Steyn played open cards with the Randgold Board and its shareholders regarding the effect of the indemnity that was granted to JCI vis-a-vis the Gold Fields action.

 

[219]    Section 2(13) reads as follows:

 

"Whenever judgment is in any action given against any joint wrongdoer for the full amount of the damage suffered by the plaintiff, or whenever any joint wrongdoer has agreed to pay to the plaintiff a sum of money in full settlement of the plaintiff's claim, and the judgment debt or the said sum of money has been paid in full, every other joint wrongdoer shall thereby also be discharged from any further liability towards the plaintiff."

 

[220]    In brief, the dispute centred around whether Randgold's settlement with JCI had the effect of discharging Gold Fields from any liability in terms of section 2(13) of the Apportionment of Damages Act. This point is also taken in Gold Field's plea to Randgold's claim. The action is still pending.

 

[221]    According to the applicants, Randgold had a claim against JCI for approximately R20 billion in respect of (inter alia) the theft from Randgold of 24 624 962 shares in Randgold Resources and 102 1000 000 shares in Aflease ("the JCI claim'). Randgold also had a claim against Gold Fields in the amount of approximately RB billion in respect of the theft from Randgold of 21 820 000 of shares in Randgold and of 94 000 000 of shares in Aflease ("the GFO claim') in respect of which claim JCI was a joint wrongdoer.

 

[222]    The applicants argued that by virtue of section 2(13) Randgold's "full and final settlement" of its JCI claim pursuant to the RSA discharged the Gold Fields claim. More in particular it is contended that Randgold's board was not advised about the implications of section 2(13) or alerted to the possible significance of that provision.

 

[223]    For this reason, the applicants (inter alia) contended that Randgold's conclusion of the RSA and the LSA was "unfairly prejudicial, unjust or inequitable" in terms of section 252(1) of the Companies Act.

 

[224]    The respondents dispute that section 2(13) is applicable in the present matter and contend that this section does not apply if the settlement results in a "personal discharge" (or "constitute a settlement of [one joint wrongdoer's) portion of the total liability') as opposed to "extinguishing the liability as a whole" (or constituting "a complete discharge of the whole obligation'). The respondents submitted that the RSA involved a ''personal discharge" or ''personal release" for JCI as opposed to an extinction of the whole debt.

 

[225]   The respondents rely on the decisions in Prinsloo v Du Preez NO[14] and Picbel Groep Voorsorgfonds (in liquidation) v SomeNille & Related Matters[15] as authority for the following propositions: (i) a distinction must be drawn between a "personal discharge" and a "complete discharge of the whole obligation"; (ii) Where a settlement agreement between a creditor and one joint wrongdoer amounts to the "complete discharge" of the whole obligation, section 2(13) finds application and discharges the second joint wrongdoer from all previously shared liability to the creditor; (iii) Where the settlement agreement will amount merely to a ''personal discharge" rather than a "complete discharge" if the creditor and first joint wrongdoer agree to settle merely a ''portion" of the joint and several liability, section 2(13) finds no application and the second joint wrongdoer remains liable for the remaining portion of the previously shared liability to the creditor. The court in Prinsloo held as follows:

 

"'Wessels, Law of Contract, para 15-26, says:

 

'The interpreters of the civil law draw a distinction between a discharge which is intended by the parties concerned to operate merely as a personal discharge and one which is intended to operate as a complete discharge of the whole obligation. Multum enim interest utrum res ipsa solvatur an persona liberetur. Cum persona liberatur, manente obligatione, alter durat obligatus. (D.45.2.19; Voet, 45.2.5)"'

 

…

According to that authority, therefore, if the creditor gives a personal discharge to one of two co-debtors he discharges that co-debtor altogether and he discharges the other co-debtor to the extent to which he would have had a claim for contribution against the debtor originally discharged. The reason is obvious; that the creditor cannot be generous at the expense of one of the co­debtors; he can be generous at his own expense; but he cannot prejudice the position of the codebtor. Burge, vol. 3, is to the same effect, and he quotes a passage from the Digest, 46.1.15. sec. 1, which is exactly in point. True it deals with the release of one of two co-sureties; but the principle is the same, whether the release applies to a co-surety, or to a joint debtor...

 

'(10) If by reason of the terms of an agreement between a joint wrongdoer and the plaintiff the former is exempt from liability for the damage suffered by the plaintiff or his liability therefor is limited to an agreed amount, so much of that portion of the damages which, but for the said agreement and the provisions of para. (c) of sub-sec. (6) or para. (b) of sub-sec. (7), could have been recovered from the said joint wrongdoer in terms of sub-sec. (6) or (7) or could have been apportioned to him in terms of sub-para. (ii) or (iii) of para. (a) of sub-sec. (8), as exceeds the amount, if any, for which he is liable in terms of the said agreement, shall not be recoverable by the plaintiff from any other joint wrongdoer.

 

Sub-sec. (10) talks of an agreement in terms of which the wrongdoer is exempt from liability. This seems prima facie to refer to an agreement prior to the event occasioning the damage. The same can be said of the agreement limiting liability to a specific amount. But I am not prepared to say that this is necessarily so. Certainly, in the case of Hoffman v Eagle Star Insurance Co. Ltd. and Others (unreported) delivered on 4th January, 1963, GALGUT, J., in his decision applied the subsection to an agreement releasing a joint wrongdoer, entered into after the collision giving rise to the claim. Be that as it may, it seems to me that an agreement limiting liability to a specified amount presupposes that the plaintiff, i.e. the creditor, does not accept or agree to accept the amount as being a complete discharge of the debt owing to him as a result of the delict but as a discharge of the joint wrongdoer with whom he has so contracted. On the other hand, the reference to 'a sum of money in full settlement of the plaintiffs claim' in sub-sec. (13) means, in my view, that the plaintiff agrees to accept the amount in discharge of the debt owing to him by anyone as a result of the delict. In so far then it would appear that the contention made by respondent's counsel is correct."[16]

 

[226]    The Supreme Court of Appeal in Picbel similarly held in the majority judgment:

 

"[44] The purpose of the ADA is to allow for the recovery of delictual damages by a plaintiff from any, some, or all of those responsible for the harm suffered by him or her and to allow for the adjustment of liability as between the joint wrongdoers after a claim has been finalised by one or more of them, either by judgment or agreement, and the resultant debt has been paid in full. That adjustment is done on the basis of each joint wrongdoer's 'responsibility for such damage' with regard to 'the degree in which that other joint wrongdoer was at fault in relation to the damage suffered by the plaintiff, and to the damages awarded'. Self-evidently, this system for the adjustment of liability can only function if the total claim is settled. What is not contemplated by it is the settlement by a joint wrongdoer of only his or her portion of the total liability. In such an event the right of recourse created by s 2(12) is not activated and s 2(13) will not come into effect to discharge every joint wrongdoer from liability towards the plaintiff."

 

[227]    My reading of the RSA is that it provided for a personal release of JCI from its share of the liability for the loss which Randgold had sustained and not for the extinction of the liability as a whole. I am therefore persuaded, having regard to the decisions in Prinsloo and Picbel that section 2(13) of the Apportionment Act was triggered: Section 2(13) will only be triggered where the amount paid to a joint wrongdoer constitutes a complete discharge of the whole obligation. Conversely it will not be triggered in circumstances where the amount paid constitutes a personal discharge of a joint wrongdoer's liability or otherwise stated, constitutes a settlement of its portion of the total liability.

 

[228]    I am not persuaded by the criticism levelled against Steyn that he misled the Randgold's board by not advising them that, in terms of the Apportionment of Damages Act by extending an indemnity to JCI Randgold would be losing its claim against Gold Fields. There have been various discussions (and to which reference have been made herein above) with the board of directors regarding this clause and the effect thereof. Randgold's legal team also played an important role during the drafting of the RSA.

 

[229]    Steyn is also accused of supressing the transcript of the crucial Randgold board meeting held of 18 June 2009 where he was mandated to conclude the agreements on behalf of Randgold. In this regard the applicants rely on the entire transcript only obtained on 18 April 2019 pursuant to a Rule 35(12) notice. The applicants claim that section 2(13) of the Apportionment of Damages Act was never discussed or considered by the Randgold board when it granted the mandate to settle to Steyn. This failure underscores (according to the applicants) the fact that Steyn was not independent because if he was, the settlement agreement with JCI would have been derailed. The applicants further claim that Steyn suppressed reference to section 2(13) of the Apportionment of Damages Act to serve the interest of Investec. They formulate their charge as follows:

 

“As mentioned, a key consideration which was not disclosed to the full Randgold board, or its shareholders, or the mediators was the fact that, if Randgold settled its claim against JCI, section 2(13) of the Apportionment of Damages Act would essentially result in Randgold's claim against GFO becoming nugatory. The section 2(13) defence should clearly have been disclosed to the mediators, Randgold's board of directors, and its shareholders. But it was not. (There was merely a mention of the consequence of the indemnity granted to JCI under the RSA, and thus of the ramifications of section 2(10) of the Apportionment of Damages Act.)

Thus if Randgold entered into a full and final settlement with JCI of claims in respect of which Gold Fields was a joint wrongdoer, and JCI paid the alleged settlement sum to Randgold in full, it would follow by operation of law that Gold Fields was discharged from any liability to Randgold”.

 

[230]    The applicants further submitted that the far-reaching implications of any settlement by Randgold with JCI for Randgold's pending claim against Gold Fields in terms of section 2(13) of the Apportionment of Damages Act, must have been known to Randgold's legal representatives particularly in light of the fact that subsection 2(13) is the only statutory provision in the Apportionment of Damages Act which regulates the position of joint wrongdoers.

 

[231]    With reference to what De Bruin states in his affidavit, the applicants submitted that there can be little doubt that, had the impact of section 2(13) of the Apportionment of Damages Act been mentioned to the full board and the shareholders, they would have approached the RSA quite differently. De Bruin states this in his affidavit:

 

"11.   It was at no stage explained to me (or as far as I know to the other Randgold directors) that:

…

11.3 the revised settlement agreement concluded between Randgold and JCI would have the effect of destroying Randgold's claim against Gold Fields by virtue of the operation of Section 2(13) of the Apportionment of Damages Act, 1956.

12.      Had the consequences of the aforesaid revised settlement agreement been properly explained to me, I would not have voted in favour of its conclusion."

 

[232]    Steyn disputes these allegations and maintains that, despite Randgold's granting an indemnity to JCI in terms of the offending agreements, Randgold still had a "residual claim" against Gold Fields hence the respondents' stance in respect of the interpretation of section 2(13).

 

[233]    Investec similarly disputes the applicants' claims and contend that the RSA was drafted with the full knowledge of the legal position. More in particular, Investec submitted with reference to clause 5.4 of the RSA that this clause provides expressly for a personal discharge as opposed to an extinction of liability in clause 5.4 of the RSA.

 

[234]    Having regard to the events that preceded the conclusion of the RSA, I am not persuaded that the issue of apportionment (and more in particular the applicants' reliance on section 2(13) of the Apportionment of Damages Act) was concealed and never considered. More in particular, I am not persuaded that Investec influenced the decision regarding the granting of the indemnity to JCI. Regard should only be had to the intense and protracted negotiations that preceded that ultimate adoption of the RSA and the inclusion therein of the indemnity provision. JCl's stance was clear, without some give and take (which included the inclusion of an indemnity clause) the settlement agreements would not have been concluded. I should also mention that the implications of section 2(13) will in all probability again be debated extensively in the pending Gold Fields action. Ultimately, how that court will interpret this section in the context of the Gold Fields action is for that court to decide.

 

Section 252 of the Companies Act

[235]    The statutory criteria for the applicability of section 252[17] of the Companies Act are the following:

 

(i)        the applicant must be a member of the company;

(ii)       there must have been a particular act or omission of the company that is prejudicial to that member or some part of the members of the company;

(iii)      the prejudice must be unfair;

(iv)     if those requirements are met the court can only grant a remedy if it considers it just and equitable to do so; and

(v)       the court enjoys a discretion as to the form of any remedy.

 

[236]    This court's jurisdiction only arises when the statutory criteria as set out in section 252 of the Companies Act have been met. The onus rests on the applicant to satisfy the court that a certain act (or omission) has been committed and that it has been committed in such a manner (or that the affairs of the company has been conducted in such a way), that it can be concluded that it is unfairly prejudicial, unjust or inequitable to a member or other members of the company.

 

[237]    Section 252 must be interpreted so as to advance the remedy rather than limit it.[18] The concept of unfair prejudice must be objectively considered with due regard to the peculiar circumstances of a case[19] and with reference to the effect of the challenged conduct.[20]

 

[238]    The decision in De Sousa and Another v Technology Corporate Management (Pty.) Ltd. and Others,[21] is a useful starting point in discussing the applicable legal principles:

 

"[34] Section 252 provides a member, or part of the members of a company, with the means of obtaining relief from unfairly prejudicial, unjust or inequitable acts or omissions of the company or conduct of its affairs. The emphasis is upon the unfairness of the conduct complained of. A member seeking relief must show that the conduct is 'unfairly prejudicial, unjust or inequitable' to that member or to some part of the members. The conduct must not only be prejudicial, but unfairly so. Fairness is thus the criterion by which a court must decide whether it has jurisdiction to grant relief.

[35]    The test of unfair prejudice is an objective one. Our courts have generally followed what is referred to as the 'reasonable bystander test'. This was articulated by Nourse J in Re RA Noble & Sons (Clothing) Ltd [1983] BCLC 273 at 290- 291:

 

''The test of unfairness must, I think, be an objective, not subjective, one. In other words, it is not necessary for the petitioner to show that the persons who have had de facto control of the company have acted as they did in the conscious knowledge that this was unfair to the petitioner or that they were acting in bad faith; the test ... is whether a reasonable bystander observing the consequences of their conduct, would regard it as having unfairly prejudiced the petitioner's interests."

 

[36]    Fairness is an elastic concept. What is fair or unfair will depend upon the context in which it is being used. In Re a Company (No 00709 of 1992), O'Neill and Another v Phillips and Others [1999] UKHL 24 ((1999] [1999] UKHL 24; 1 WLR 1092 (HL); [1999] 2 All ER 961) at 966h- 967e, Lord Hoffmann put it thus:

 

'Although fairness is a notion which can be applied to all kinds of activities, its content will depend on the context in which it is being used. Conduct which is perfectly fair between competing businessmen will not be fair between members of the family. In some sports it may require, at best, observance of the rules, in others (it's not cricket) it may be unfair in some circumstances to take advantage of them. All is said to be fair in love and war. So the context and background are very important."

 

[239]    See also: Graney Property Ltd v Mana/a and others where the following was stated:[22]

 

"[22] There is a substantial body of case law on the import of s 252 of the Companies Act 61 of 1973, which, in material respects, is the previous equivalent of s 163 of the Act. In my view there is a benefit to be derived from considering the jurisprudence developed over the years as to what constitutes oppressive or unfairly prejudicial conduct. To determine the meaning of the concept of 'oppressive' ins 163 it is apposite to refer to Aspek Pipe Co (Pty) Ltd and Another v Mauerbergerand Others1968 (1) SA 517 (C) which held (at 525H - 526E):

'I tum next to a consideration of what is meant by conduct which is oppressive, as that word is used in sec 111 bis or sec 210 of the English Act. Many definitions of the word in the context of the section have been laid down in decisions both of our Courts and in England and Scotland and as I feel that a proper appreciation of what was intended by the Legislature in affording relief to shareholders who complain that the affairs of a company are being conducted in a manner oppressive to them is basic to the issue which presently lies for decision by me, it is necessary to attempt to extract from such definitions a formulation of such intention. Oppressive conduct has been defined as unjust or harsh or tyrannical ... or burdensome, harsh and wrongful. . . or which involves at least an element of lack of probity or fair dealing . . . or a visible departure from the standards of fair dealing and a violation of the conditions of fair play on which every shareholder who entrusts his money to a company is entitled to rely. It will be readily appreciated that these various definitions represent widely divergent concepts of oppressive conduct. Conduct which is tyrannical is obviously notionally completely different from conduct which is a violation of the conditions of fair play.

…

"(T)yrannical" conduct represents a higher degree of oppression than conduct which is "harsh" or "unjust". The Shorter Oxford Dictionary defines "tyrannical" as "severely oppressive; despotically harsh or cruel. For reasons which I shall now set out I do not think it is necessary for an applicant to have to go to the lengths of establishing conduct of such a nature before he is entitled to relief under sec 111 bis."'

 

Brief discussion of the requirements of section 252 Introduction

[240]    A company is an association of persons for an economic purpose.[23] The terms of the association are contained in the articles of association and often also contained in collateral agreements between the shareholders (also referred to as "the company contract''). Consequently, how the affairs of a company is conducted is closely regulated by the rules to which the shareholders have agreed.[24]

 

[241]    Generally speaking, a company acts through its board of directors. Acts of a company may also include resolutions of the shareholders. The company contract

{memorandum and articles of association) of a company thus serves to ring-fence the rights and obligations of the shareholders and the company vis-a-vis one another and determines the powers of the board of directors (which would include acts of the managing director and, in certain circumstances, senior officers). The logical starting point of any enquiry under this section should therefore begin with a consideration of the legal rights of an applicant under the company contract.

 

The position of shareholders

[242]    When a person becomes a shareholder of a company, he/she enters the company contract. The effect of such contract is provided for by section 65(2) of the Companies Act (1973):

 

"The memorandum and articles shall bind the company and the members thereof to the same extent as if they respectively had been signed by each member, to observe all the provisions of the memorandum and of the articles, subject to the provisions of this Act."

 

[243]    The acts of the company and that of the shareholders in their private position must, however, be kept distinct from that of the company for purposes of section 252 of the Companies Act. The acts of the shareholders are not the acts of the company and does not form part of the conduct of its affairs.[25] The distinction is important as section 252 of the Companies Act only contemplate acts of the company and not acts or conduct of shareholders: There must have been a particular act or omission of the company that is prejudicial to that member or some part of the members of the company. (I will return to the issue who may be held liable under this section.)

 

[244]   The right of shareholders to vote is thus distinct from the rights of a company as a corporate entity. This is evident from the fact that shareholders are entitled to sell their shares and to vote in general meetings without regard to any other person's rights or position.[26] The act of the shareholder in voting will (generally) not fall within the ambit of section 252 of the Companies Act. Where a shareholder, by exercising his/her own private right to vote cause the company to act (or to not act) in a manner alleged to be unfairly prejudicial by some members that act - being an act of the company - will fall within the ambit of section 252 of the Companies Act:[27] Generally speaking, a company acts through its Board of Directors.[28]

 

[245]    The court in De Sousa[29] also points out that a member of a company will ordinarily not be entitled to complain of unfairness unless there has been some breach of the terms on which he agreed that the affairs of the company should be conducted. There will, however, be cases where the strict adherence (and reliance thereon) by the company on the terms of the memorandum and articles of association is nonetheless tempered by equitable considerations which may make it unfair for those conducting the affairs of the company to rely (as a shield against a complaint of unfair prejudice) upon their strict legal powers where an act results in unfairness to one or some member(s) of a company. Thus, although the principle of majority rule will normally apply with the result that members will not be able to complain, this principle does not as a matter of course protect a company from prejudicial conduct that may be labelled unfair. In this regard, the court in De Sousa (with reference to In Re a Company (No 00709 of 1992), O'Neill and Another v Phillips and Others) states that "unfairness may consist in a breach of the rules or in using the rules in a manner which equity would regard as contrary to good faith".[30]

 

“[37] What is evident from the above-quoted passage in O'Neill is that the notion of unfairness transcends the strict legal rights of the shareholders; there may be cases where it would be unfair for the majority to exercise or take advantage of their legal rights or powers under the articles of association or agreements between them."

 

"Unfair" prejudice Prejudice

[246]    In terms of section 252 of the Companies Act there must have been a particular act or omission of the company that is prejudicial, unjust or inequitable to that member or some part of the members of the company. If the conduct in question is not in fact prejudicial, unjust or inequitable, section 252 of the Companies Act will not find application. If prejudice is established, the prejudice so suffered must also be unfair. Whilst the two requirements are intertwined, they should not be confused as they constitute two separate requirements: Only once actual prejudice has been established will the enquiry shift to whether such actual prejudice was caused by unfair conduct.

 

[247]    Prejudice must objectively be established as a fact. The mere fact that a company for example does not make a decision that aligns with the expectations of a shareholder, does not, in itself, constitute prejudice as contemplated in the Companies Act. The court in Aspek Pipe[31] explains:

 

"Secondly, it is necessary to establish such lack of probity or fair dealing or violation of the conditions of fair play. It is essential not to confuse the rights which the majority shareholders undoubtedly have to manage the affairs of a company and to determine its policy with lack of probity and unfair dealing,'n the affairs of the company. Anyone who becomes a minority shareholder in a company does so with the obvious knowledge that where his point of view conflicts with that of the majority, the latter's will is likely to prevail. He invests his money in a company on that premise and cannot be heard to complain if the affairs of the company are not conducted as he desires. He is, however, entitled to complain if the majority voting power is being abused or unfairly used to his prejudice as a shareholder. The circumstances must warrant an inference that there has been, at least, an unfair abuse of powers and an impairment of confidence in the probity with which the company's affairs are being conducted, as distinguished from mere resentment on the part of the minority at being outvoted on some issue of domestic policy. (see Re Harmer, supra at pp. 699, 706). As stated by VAN DEN HEEVER, A.J.P. (as he then was) in Richter, N.O v Riverside Estates (Pty.) Ltd., 1946 OPD 209 at p. 227:

 

'It is trite law that privileged shareholders or directors of a company may not use their powers oppressively and in an unconscionable manner. That does not mean, on the other hand, that a person may become a shareholder on express terms of inequality and invoke a form of equitable relief in order radically to amend the legal relations between himself and the company."'

 

A similar view was expressed by the court in Harilal:

 

"[82] The powers envisaged by Section 163 are wide and flexible. Professor S.H.I. Cassim et al in Contemporary Company Law 2 ED (2012) at 771 - 2 make the point that:

'despite the wide ambit of section 163, it must be borne in mind that the conduct of the majority shareholders must be evaluated in light of the fundamental corporate law principle that, by becoming a shareholder, one undertakes to be bound by the decisions of the majority shareholders ... thus not all acts which prejudicially affect shareholders or directors, or which disregard their interest, will entitle them to relief - it must be shown that the conduct is not only prejudicial or disregardful but also that it is unfairly so."'

 

[248]    Prejudice in the context of section 252 thus contemplates more than a mere dissatisfaction and contemplates some detriment to one's financial interest as a shareholder.[32] A shareholder will normally be required to show that the value of its shareholding in a company has been seriously diminished or at least seriously jeopardised by reason of unfair, unjust or inequitable conduct on the part of those who have de jure or de facto control of the company.[33] The court in De Sousa explains:

 

“[43] Conduct which adversely affects or is detrimental to the financial interests of a member is justiciable under the section. Thus relief may be claimed where it can be shown that the value of a member's shareholding in a company has been seriously diminished or jeopardised by reason of unfair, unjust or inequitable conduct on the part of those who have control of the company. In Re Elgindata above [39] (at 984) Warner J observed:

'A petitioner under the section will generally succeed if he can show . . . that the value of his shareholding in the company has been seriously diminished or at least seriously jeopardised by reason of a course of conduct on the part of those persons who have had de facto control of the company, which has been unfair [to him].'

 

Warner J continued at 1004g:

 

'By its very nature the misapplication of a company's assets by those in control of its affairs for their own benefit or for the benefit of their family and friends, is unfairly prejudicial to the interests of minority shareholders."'

 

Unfairness

[249]   Once actual prejudice has been established, the enquiry will shift to unfairness, in other words whether the established prejudice was caused by unfair conduct.

 

[250]   By its very nature fairness is an elastic concept and thus difficult to define. What is fair or unfair will depend upon the context in which it is being used. The court in O'Neill v Phillips[34] explains:

 

"Although fairness is a notion which can be applied to all kinds of activities, its content will depend upon the context in which is it being used. Conduct which is perfectly fair between competing businessmen may not be fair between members of a family…. All is said to be fair in love and war. So the context and background are very important"

 

[251]    In Donaldson[35] the court confirmed that a construction should be given to the words "unfairly prejudicial, unjust or inequitable", that will advance the remedy rather than limit it.[36] The word "unfair' qualifies the word "prejudicial" only.[37]

 

[252]    To restate: Unless there has been some form of breach of the terms of the company contract, a shareholder will normally not be entitled to complain of any unfairness. Equity considerations may however well demand that it may be unfair in some cases to rely on a strict compliance with the legal powers conferred upon a company by the terms of the company contract.

 

[253]    Although "fairness" is a wide concept, it does not free the court from the technical consideration of legal rights and does not entitle a court to do what appears to be just and equitable[38] simply because of what an individual judge happens to think is fair. The concept of fairness must be applied judicially and the content which it is given by the courts and must be based on rational principles.[39]

 

Legitimate expectation

[254]    Equitable considerations also require a court in evaluating unfair prejudice, to consider that there may be legitimate expectations arising from the relationship of the members inter se to participate in the running of the company.[40] An example would be where a minority member may be held to have a legitimate expectation to be involved in management although no such right exists under the articles of association. But, as the court in Da Sousa explains, this will usually be the case in smaller companie's where the company is run more along the lines of a partnership:

 

"[47] The right of a shareholder to manage the affairs of a company is usually derived from the articles of association or agreements between the shareholders, but the relationship between a company's members may give rise to a legitimate expectation to participate in the company's management. This usually occurs in the case of a small domestic company or what is termed a 'quasi-partnership' company ...

[48] The following statement in O'Neill above {36] (at 970d- f) is relevant to the question of legitimate expectations of a shareholder:

 

'In Re Saul D Harrison & Sons plc [1995] 1 BCLC 14 at 19, I used the term legitimate expectation, borrowed from public law, as a label for the correlative right to which a relationship between company members may give rise in a case when, on equitable principles, it would be regarded as unfair for a majority to exercise a power conferred upon them by the articles to the prejudice of another member. I gave as an example the standard case in which shareholders have entered into association upon the understanding that each of them who has ventured his capital will also participate in the management of the company. In such a case, it will usually be considered unjust, inequitable or unfair for a majority to use their voting power to exclude a member from participation in the management without giving him the opportunity to remove his capital upon reasonable terms. The aggrieved member could be said to have had a legitimate expectation that he would be able to participate in the management or withdraw from the company."'

 

In Re Astec:

 

"... its introduction in that context would ... in all probability prove to be a recipe for chaos. If the market in a company's shares is to have any credibility members of the public dealing in that market must ... be entitled to proceed on the footing that the constitution of the company is as it appears in the company's public documents, unaffected by any extraneous equitable considerations and constraints".[41]

 

[255]    Because Randgold is a listed company, Investec submitted that no equitable considerations arising from a legitimate expectation can be relied on and points out that none has been raised by the applicants: I agree: The doctrine of legitimate expectation in the context of a large listed company such as Randgold can go no further than an expectation that the board of a company will act in accordance with its fiduciary duties and that the affairs of the company will be conducted in accordance with its articles of association and within the prescripts of the Company Act. In the context of this case, any unfairness can therefore only lie in circumstances where the directors have acted in a manner that falls outside the contract between the shareholders and the company. This means that they must have acted in breach of their fiduciary duties by exercising the powers vested in them for some illegitimate or ulterior purpose. Even where a commercially unreasonable decision is taken, such conduct will not necessarily fall within the purview of section 252 of the Companies Act unless there is some wilfulness of impropriety in the conduct of the companies' affairs.[42] Also a finding that the conduct of a company was not in accordance with the articles of association does not necessarily mean that it was unfair as contemplated by section 252 of the Companies Act. This is in keeping with the general principle that a court will normally be very reluctant to accept that managerial decisions amount to unfairly prejudicial conduct.[43]

 

The business judgment rule

[256]    There was some debate over the existence of the business judgment rule (although now largely codified in the new Companies Act).[44] This rule (whether it is called the business judgment rule or something else) merely means that, although section 252 should be given a beneficial construction, this does not entitle a court to assume the management of companies: Courts are generally reluctant to intervene in the internal domestic affairs of a company and will be hesitant to enquire into the commercial wisdom of a particular business decision or transaction. This was confirmed in Investors Mutual Funds Limited v Empisal (South Africa) Limited:[45]

 

"In other words the Legislature has entrusted the power to dispose of the company's undertaking to the majority of members. It is a well-known principle that the Court will not normally intervene in the internal domestic affairs of a company and will not enquire into the commercial wisdom of a particular transaction which is left to the decision of the shareholders. The Court will intervene only if it can be shown that the minority shareholders are being unfairly prejudiced by the transaction."

 

[257]    The court in Visser Sitrus[46] similarly held the following:

 

"[64] It is not necessary in this case to attempt to state with precision the parameters for judicial intervention under s 163 [under the new Companies Act] . However, and as in England, a South African court should in my opinion take the principle of majority rule and the binding nature of the company's constitution as its starting point. In Sammel and Others v President Brand Gold Mining Co Ltd 1969 (3) SA 629 (A) Trollip JA said that the 'principle of the supremacy of the majority is essential to the proper functioning of companies' (at 678H; see also Louw and Others v Ne/ 2011 (2) SA 172 (SCA) ([2010] ZASCA 161) at 185 para 22; Graney Property Ltd supra para 32). Where matters are left by the constitution to the judgment of the general meeting or the directors, and the shareholders or directors, as the case may be, have exercised the power within the parameters of any express or implied limitations, a court should be wary of substituting its own business judgment for that of the persons entrusted with that decision by the corporate constitution.

 

[65] Framing the proposition specifically with reference to board decisions, the circumstances of a case would, I think, have to be exceptional before one could find that a board decision, taken in accordance with the standard set by s 76, has caused a shareholder prejudice which can properly be described as 'unfair' within the meaning of s 163."

 

The court goes on to state that:

 

"[74] Section 76(4) makes clear that the duty imposed by s 76(3)(b) to act in the best interests of the company is not an objective one, in the sense of entitling a court, if a board decision is challenged, to determine what is objectively speaking in the best interests of the company. What is required is that the directors, having taken reasonably diligent steps to become informed, should subjectively have believed that their decision was in the best interests of the company and this belief must have had 'a rational basis'. The subjective test accords with the conventional approach to directors' duties, which (in relation to share transfers) was stated thus by Lord Greene MR in Re Smith & Fawcett Ltd supra:

 

'The principles to be applied in cases where the articles of association of a company confer a discretion on directors with regard to the acceptance of transfers of shares are, for present purposes, free from doubt. They must exercise their discretion bona fide in what they consider- not what a court may consider- to be in the interests of the company, and not for any collateral purpose. They must have regard to those considerations, and those considerations only, which the articles upon their true construction permit them to take into consideration. In construing the relevant provisions in the articles, it is to be borne in mind that one of the normal rights of a shareholder is the right to deal freely with his property and to transfer it to whomsoever he pleases. When it is said, as it has been said more than once, that regard must be had to this last consideration, it means, I apprehend, nothing more than this: that the shareholder has such a prima facie right, and that right is not to be cut down by uncertain language or doubtful implications. The right, if it is to be cut down, must be cut down with satisfactory clarity. It certainly does not mean that articles, if appropriately framed, cannot be allowed to cut down the right of transfer to any extent which the articles on the true construction permit..."

 

[258]    The court in Da Sousa similarly held that, although section 252 should be granted a "beneficial construction", a court will, nonetheless be slow to interfere with the management of a company:

 

"[49]...In judging the conduct of the majority, regard must be had to the principle that by becoming a shareholder in a company a person undertakes by his contract to be bound by the decisions of the majority of shareholders if those decisions are arrived at in accordance with the law, even where they adversely affect his rights as a shareholder or prejudice his interests ...

[51] Where there is disagreement about whether a particular managerial decision is commercially sound, not only will the courts not intervene, but there can also be no unfairness to the applicant where, or simply because, those in control of the company's affairs take a different view from his on the matter. Even a commercially unreasonable approach to the making of profits will not justify intervention in the absence of any suggestion of wilful mismanagement or of any impropriety in the conduct of the company's affairs."

 

[259]    Disagreements regarding whether a particular managerial decision is commercially sound also does not necessarily lead to a conclusion of unfairness to a shareholder nor does it afford a shareholder a remedy simply because he/she is outvoted on a particular issue, or he/she is continually outvoted.[47]

 

The fiduciary duties of a director

[260]   The relationship of a director to the company is fiduciary in character. A director is bound to exercise the powers and discretions conferred upon him/ her bona fide in the interests and for the benefit of the company as a whole. A court is entitled to consider objectively all the relevant facts and circumstances whether the purpose for the decision of the board of directors was bona fide to serve the interests of the company as a whole or whether the purpose for the decision was improper or collateral. Where it concludes that it was improper, the decision will be struck down. In the case of multiple purposes for reaching a particular decision, the court will, on an objective analysis, enquire into the substantial or primary purpose for the decision. Where a decision is held to have been an improper one, it does not matter that the directors' bona fide thought it was in the interests of the company.[48] The court in Aspek Pipe[49] explains that, although motive may be irrelevant, it may well be relevant in considering whether or not the conduct complained about reveals a lack of probity and unfair dealing:

 

"Thirdly the motive underlying the conduct will generally not be relevant to the inquiry. The result rather than the motive is the material thing and it is not the motive for the conduct but the conduct itself to which the Court must look and the effect which it has on other members of the company ... However, in considering whether the conduct complained of reveals a lack of probity and fair dealing and is unfair, motive may not be without its relevance. "

 

[261]   Although the search is for the subjective intention of the directors, it is a search which must be conducted objectively and it is for a court to decide whether to accept or discount the assertions the directors make about their motives and purposes.[50] See for example Levin v Felt & Tweeds Ltd[51] where it was alleged that a proposed scheme of reconstruction was not in the interests of the company as there were better ways of raising money. The court held that:

 

"The next contention advanced on behalf of the appellant was that the scheme was not a bona fide scheme in the interests of the company. It was submitted that the proposed reduction of capital was a scheme devised solely in the interests of the preference shareholders and was not a bona fide scheme in the interests of the company as a whole or of the ordinary shareholders whose rights would be seriously jeopardized in the event of the proposed scheme taking effect. In making this submission counsel for the appellant stated that he was not attacking the bona fides of the directors. It is clear from the papers before us that those directors of the company who are in favour of the scheme genuinely believe that it is in the interests of the company, its object being to enable the company to obtain further working capital. To hold that the scheme was devised solely in the interests of the preference shareholders would be tantamount to saying that the directors were not bona fide in proposing the scheme... What then is meant by suggesting that the scheme itself (apart from its authors) is not bona fide? Counsel for the appellant correctly admitted that a court is not concerned with the commercial wisdom of the scheme, yet in order to prove that it was not bona fide he endeavoured to show that there were other and better ways of raising additional capital... In the absence of any allegation that the directors acted ma/a tides this amounts to asking the court to usurp the function of the directors and to consider what is best for the company from the business point of view. This is not the function of a Court of law. In Poole v National Bank of China Ltd., 1907 AC. 229 at p. 236, LORD LOREBURN, L.C., said: 'It is no part of the business of a Court of justice to determine the wisdom of a course adopted by a company in the management of its own affairs.' See also Caldwell & Co. Ltd v Caldwell, 53 Sc. L.R. 251 at p. 253, where LORD SHAW in the House of the Lords approved of the following remarks made by LORD SKERRINGTON: 'I cannot find any trace in the statute of a suggestion that the Court ought to review the opinion of the company and its directors in regard to a question which primarily at least is domestic and commercial.' In these circumstances it seems to me that the contention that the proposed scheme is not bona fide is untenable". (emphasis added)"

 

[262} The conclusion to be drawn from the above is that a decision by a bo rd genuinely considered to have been in the best interests of that company, even if prejudicial in effect, cannot be said to be unfairly prejudicial to minorities.[52] In Visser Sitrus[53] the court summarised these principles as follows:

 

"[56] Where the impugned conduct is unlawful, and the conduct has a consequence that is prejudicial to the applicant, the prejudice to or disregard of the interests of the applicant is likely to be, perhaps invariably will be, 'unfair' within the meaning of s 163. That section, like its forerunner, is thus available as a remedy for unlawful corporate conduct. There might be other remedies buts 163(2) provides the court with a wide array of equitable options, some of which would not otherwise be available.

[57]    Matters become more difficult where the conduct complained of is lawful, ie within the powers of the relevant organ of the company (the general meeting or the board as the case may be) or within the power of the relevant official. Such cases potentially bring the invocation of the unfair-prejudice remedy into conflict with other principles of company Jaw, such as majority rule and that the constitutional documents of the company are the compact between shareholders and the company by which they are all bound. (own emphasis)

[58]    The exercise of corporate powers is often subject to express or implied qualifications. In the case of directors, for example, it has always been the position under our Jaw that they occupy a fiduciary position and must thus exercise any power conferred on them in what they bona fide consider to be the best interests of the company, for the purpose for which the power was conferred, and within any limits which may be imposed for the exercise of the power. There are other duties flowing from the fiduciary character of the office and there is, besides, a duty to act with care, skill and diligence. With the coming into force of the 2008 Companies Act the duties of directors have been codified at a fairly high level by s 76.

[59]    If the directors exercise a power conferred on them by the company's constitution (now styled the Memorandum of Incorporation), and in so doing meet the standard imposed by s 76, they act lawfully. Can a shareholder who is prejudiced by the decision then complain that the decision is 'unfairly' prejudicial to him? ...

[61]    ... The principles of majority rule and the binding nature of the company's constitution remain applicable ...., 'keeping promises and honouring agreements is probably the most important element of commercial fairness' ... The English courts have thus been cautious in extending the remedy beyond cases of illegality.

[62]    The teamed authors of Gower & Davies say that the only clear category which has emerged in England of unfair conduct which is not also illegal (though the jurisdiction is not in law limited to this category) is the case of 'legitimate expectation' or 'equitable consideration' arising from an informal arrangement or understanding among shareholders not contained in the company's constitution ... This might be an arrangement or understanding regarding participation in management or concerning dividend policy or remuneration. The arrangement or understanding must be proved as a fact. This makes it difficult to establish a legitimate expectation in cases other than those involving small private companies. The starling point remains the company's articles of association. In the absence of 'something more', there is no legitimate expectation that the general meeting and the board will not exercise whatever powers they are given by the articles of association ...

[64] It is not necessary in this case to attempt to state with precision the parameters for judicial intervention under s 163. However, and as in England, a South African court should in my opinion take the principle of majority rule and the binding nature of the company's constitution as its starting point. In Sammel and Others v President Brand Gold Mining Co Ltd 1969 (3) SA 629 (A) Trollip JA said that the 'principle of the supremacy of the majority is essential to the proper functioning of companies' (at 678H; see also Louw and Others v Ne/ 2011 (2) SA 172 (SCA) ([2010) ZASCA 161) at 185 para 22; Graney Property Ltd supra para 32). Where matters are left by the constitution to the judgment of the general meeting or the directors, and the shareholders or directors, as the case may be, have exercised the power within the parameters of any express or implied limitations, a court should be wary of substituting its own business judgment for that of the persons entrusted with that decision by the corporate constitution.

[65] Framing the proposition specifically with reference to board decisions, the circumstances of a case would, I think, have to be exceptional before one could find that a board decision, taken in accordance with the standard set by s 76, has caused a shareholder prejudice which can properly be described 6s 'unfair' within the meaning of s 163. [This conforms with what was stated in Hawkes v Cuddy as set out above].

[66] I can see that the court might more readily intervene in the case of conduct of shareholders because they are not subject to the same fiduciary constraints as directors, and minority shareholders thus do not have the same safeguards. (Despite scattered statements in case law to the effect that shareholders must vote in what they bona fide consider to be the best interests of the company, shareholders may generally consult their own interests. They are not subject to the fiduciary duties of directors)....Furthermore, it is at the level of shareholders that one finds the informal arrangements or understandings, the breach of which has typically been regarded as 'unfair' though not unlawful (even though the shareholders in question might, in the respects complained of, have acted through their control of the board). This was the quasi­ partnership setting of cases such as Louw v Nel supra and Bayly and Others v Knowles 2010 (4) SA 548 (SCA), though in both cases the unfair-prejudice claims failed, and in McMillan NO v Pott and Others 2011 (1) SA 511 (WCC), where the claim succeeded. Indeed, this is the standard setting for unfair­ prejudice cases. In Graney Property Ltd supra, where a s 163 claim succeeded, the company was a small special-purpose vehicle. The majority shareholders had refused, at the instance of a minority shareholder, to allow independent directors to be appointed in the face of abuse of power and the pursuing of self-interest by the majority's former board nominees.

[67] The leading English cases were likewise decided in relation to small quasi-partnership companies...The reported judgments reflect a dearth of successful claims in respect of lawful shareholder decisions of widely held companies, and I was not referred to any case in which a decision taken by independent directors in accordance with their fiduciary duties gave rise to unfair-prejudice relief."

 

[263]   Regarding a court's roll in considering the conduct of a company, the court in Visser Sitrus confirmed that, as in the field of administrative law where the principle of rationality applies, courts do not substitute their own opinions as to what is appropriate for the opinion of those in whom the power is vested (ie, the directors who manage the business in terms of the articles of association), as long as the opinion of the board, viewed objectively, is rational.

 

[264]   In summary therefore: A decision of the board of directors would only be irrational if "...no reasonable director could possibly have concluded that a particular course of action was in the interests of the company .. .''[54] Further, a court will only interfere with such a decision if it is irrational and not in accordance with fiduciary duties in the sense that it was not genuinely taken in what the directors considered were the best interests of the company.

 

Just and equitable

 

[265]    Once a court makes the finding that there was oppressive or unfairly prejudicial conduct within the meaning of section 252(1), the court is vested "with very wide powers to make an order that it considers just and equitable in the circumstances. It may make such order as it deems fit for bringing an end to the matters complained of.’[55] It is for the applicant to show that affording it relief would be just and equitable. The court in Lauw and Others v Nel[56] summarizes the principles:

 

"The combined effect of ss (1) and (3) is to empower the court to make such order as it thinks fit for the giving of relief, if it is satisfied that the affairs of the company are being conducted in a manner that is unfairly prejudicial to the interests of a dissident minority. The conduct of the minority may thus become material in at least the following two obvious ways. First, it may render the conduct of the majority, even though prejudicial to the minority, not unfair. Second, even though the conduct of the majority may be both prejudicial and unfair, the conduct of the minority may nevertheless affect the relief that a court thinks fit to grant under ss (3).An applicant for relief under s 252 cannot content himself or herself with a number of vague and rather general a/legations, but must establish the following: that the particular act or omission has been committed, or that the affairs of the company are being conducted in the manner alleged, and that such act or omission or conduct of the company's affairs is unfairly prejudicial, unjust or inequitable to him or some part of the members of the company; the nature of the relief that must be granted to bring to an end the matters complained of; and that it is just and equitable that such relief be granted. Thus, the court's jurisdiction to make an order does not arise until the specified statutory criteria have been satisfied."

 

Evaluation of the facts

[266]    Before drawing conclusions from the facts, it is necessary to briefly return to the relief sought by the applicants in their Notice of Motion. The applicants seek a declaration that the conclusion on 20 January 2010 of the RSA (which agreement was ratified by a simple majority of the shareholders of Randgold on 28 May 2010) and the LSA on 22 January 2010 (the conclusion and ratification of which they contend was a condition precedent to the coming into effect of the RSA) constitute or involve an act or omission which is unfairly prejudicial, unjust or inequitable within the meaning of section 252(1), as read with section 252(3), of the Companies Act. In addition to the declaratory order, the applicants seek a buy-out order which is to be considered in another forum in the event the application is decided in favour of the applicants.

 

[267]    The relief so claimed is thus against Investec and not against Randgold (except for a costs order in the event of opposition) and is premised on the allegation that Randgold, under the de facto and/or de jure control and influence of Investec concluded the two agreements to the unfair prejudice of the applicants.

 

Can Investec factually be held accountable for the acts of the Randgold board?

[268]    The relief sought against Investec hinges, in my view, largely on the applicants' ability to demonstrate (taking into account the Plascon Evans rule referred to earlier in the judgment) that Randgold's board concluded the two agreements whilf;t being under the influence of Investec. Interlinked with deciding this question is the allegation that Nurek, Gray and Lampbrecht, had a clear conflict of interest in circumstances where Randgold enjoyed a substantial claim against JCI. To this end, Nurek, Gray and Lamprecht at the instance of Investec, orchestrated the events that led to the conclusion of the settlement agreements. Following the resignation of Nurek and Gray from the Randgold board (on 9 and 11 July 2008 respectively), Investec built up shareholding in Randgold and, by virtue of a voting pact, Investec with Gray, cemented its control over Randgold's board.

 

[269]    Should the applicants fail in (factually) proving this, that would be the end of the matter and it would, in my view, be unnecessary for the court to consider whether the conclusion of the two agreements constitutes an act which is unfairly prejudicial, unjust or inequitable in terms of section 252 of the Companies Act.

 

[270]    The questions before court must be considered objectively having regard to the facts of the matter. The facts pertaining to this matter span over many years and are set out in great detail in the papers. The respondents, in particular, have painstakingly and in great detail summarised the events that led to the conclusion of the LSA, the RSA and the ILA. I have indicated earlier on in my judgment that I intend to merely gloss over the facts and highlight only some important events leading up to the conclusion of the settlement agreements. Ultimately, and despite the fact that the applicants have taken issue with a plethora of issues, this court is required to exercise a discretion, whether, objectively viewed, the applicants have persuaded this court that it is entitled to the relief sought. I have indicated early on in my judgment that the applicants face a momentous challenge in doing so: Firstly, the applicants brought the dispute by way of application whereas this is eminently a matter that should have been brought by way of action in light of the fundamental and material disputes of fact that exist on the papers. The applicants will have to stand and fall by their decision. Secondly, the deponent to the founding affidavit states early on in his affidavit that, generally speaking, the facts upon which this application is based are not within his personal knowledge and was gathered from various documents and affidavits.

 

[271]    One of the difficulties faced by this court in deciding this matter is the fact that the case initially mounted by the applicants have somewhat morphed into something different as more and more papers were filed: For example, in the founding affidavit, Nurek and Gray were pushed to the forefront as the primary culprits asserting the financial agenda of Investec. Hardly any mention is made of Steyn. Only in the replying affidavit was Steyn targeted and became tarnished (even though he did not have any ties with Investec) as the person who facilitated and pursued Investee's agenda. This attack can be dismissed out of hand: This contention completely loses sight of the fact that Steyn was but one of the directors on the Randgold board. None of the other directors are accused of asserting Investee's agenda to the detriment of the minority shareholders: There is also no suggestion on the papers that Kovarsky, De Bruin (later replaced by Scholes) and Madumise were compromised directors. Also, Nurek and Gray (the two directors allegedly beholden to Investec) have resigned as directors of Randgold some 18 months before the two settlement agreements (which constitute the basis of the oppression complained of) were concluded.

 

[272]    It is the conduct of the company (and not of shareholders per se) that forms the substratum for the relief sought in section 252 (acting through its board). Acts of shareholders which cause the company to act or not to act in a certain way may in certain circumstances be actionable under this section, but it is not the act of the shareholder in voting that will find application but rather the result of the act of voting if it produces action or inaction by the company. So, in other words, it remains the conduct of the company that is actionable under section 252 of the Companies Act.

 

[273]    In the present matter, a third party (Investec), is being held liable for the conduct of the Randgold board as contemplated by section 252 of the Companies Act. Although the remedy is primarily available against the company (company conduct) and in certain circumstances against the majority shareholder(s), a third party may be held liable in terms of the Companies Act, but only in circumstances where it (in this case Investec) can be held liable for the conduct of the company which led to the alleged unfair prejudice. If the third party cannot as a matter of fact be held responsible for the conduct of the company, such third party cannot be held liable.

 

[274]    Having perused the papers and in light of the brief exposition of the facts, I am unable to conclude that, factually, Investec was either de jure or de facto in control of the Randgold board at the time of the conclusion (or immediately prior to) of the settlement agreements or that Investec was responsible for or influenced the decision of the Randgold board (which are not accused of being beholden to Investec) to conclude the two offending agreements. I am also not persuaded that the conclusion of the settlement agreements was influenced as a result of a shareholder's pact between Gray and Investec. Lastly, even if it is assumed in favour of the applicants that there was prejudice to the applicants as a result of the conclusion of the settlement agreements, the facts do not support a conclusion that Investec has caused it. This is, in my view the end of the matter.

 

[275]    To restate: At the time of the conclusion of the settlement agreements, Investec was a minority shareholder and had long since seized to have any representation on the Randgold board. Moreover, both JCI and Randgold were throughout the process advised by their independent legal advisors and it can hardly be said (although, in fairness to the applicants, this is not even suggested by the applicants) that Randgold's legal team was influenced by Investec in any way. Also, as will be pointed out later in the judgment, the respective legal teams, in thrashing out the terms of the settlement agreements, did not see eye to eye regarding important issues most notably the facts that would underpin any litigation against JCI. Lastly, the settlement agreements were regarded as "fair and reasonable" by three independent and highly regarded mediators over whom Investec had no influence.

 

[276]    On the facts therefore, it cannot be concluded that Investec exerted influence over the Randgold board to take decisions which would favour Investec to the detriment of minority shareholders.

 

Assuming that section 252 applies

[277]    leaving aside for the moment the fact that the applicants were unable to persuade the court that Investec was either de facto or de jure in control of the Randgold board at the time of the conclusion of the settlement agreements.

 

No prejudice has been demonstrated by the applicants

[278]    In claiming the relief provided for in section 252 of the Companies Act, the applicants in this matter bear the onus (and the added burden of overcoming Plascon­ Evans) of establishing that the conclusion of the settlement agreements was as a matter of fact prejudicial to their financial interests as shareholders in Randgold. In doing so, the applicants will at least have to show that each of the four settled claims (they rely on) would in fact have succeeded had litigation been pursued. Only once prejudice has been established, will the fairness or unfairness thereof be considered.

 

[279]    Having regard to the papers that were filed in this matter, the various legal opinions and the forensic reports, it is not possible to predict firstly, whether any of the claims would have been successful and secondly, whether Randgold would ultimately (even if litigation was successful) have been successful in recovering the amounts claimed had it taken the litigation route. It is certainly not possible to come to this conclusion on the basis of the speculations of the deponent to the founding affidavit who has no personal knowledge of any of the material underlying facts. Not even Randgold's own independent legal team was able to do so.

 

[280]    Before I turn to the specific claims that have been settled, I have, in considering whether "unfair prejudice" has been established by the applicants, broadly considered the following issues.

 

The settlement agreements were concluded after protracted negotiations

[281]    Ultimately, the facts show that the two settlement agreements were concluded after protracted and intensive negotiations. It did not happen overnight. In fact, the Kebble empire started to crumble in 2005 and five years later, only after extensive investigations and weighing up of different alternatives, were the settlement agreements concluded. This process was, on all accounts, complex and Randgold experienced considerable pushback from JCl's legal team and forensic investigators in attempts to, inter alia, establish a common indebtedness.

 

[282]    Some of the main options that were considered was the liquidation of JCI (which was later widely accepted not to be a viable option particularly in light of the disputed indebtedness) and a possible merger. The merger option remained a viable and an alive option for quite some time but ultimately appeared not to be viable at all. Ultimately, the settlement option was considered by all (save for the applicants in this application) to be the best option. This option was not accepted in a vacuum but was taken after years of negotiation and after the input of numerous independent forensic investigation reports were received by the boards of Randgold and JCI. It is also significant to note that the actual negotiation process which culminated in the settling of the disputes was initially (and remained so for a long time) not even the preferred option.

 

[283]    As repeatedly pointed out, not even the forensic investigators (even after exhaustive investigations) were able to find common ground most notably about the existence of a common indebtedness between the parties. In fact, if regard is had to the forensic reports filed on behalf of JCI, it is clear that almost every single legal basis and most of the facts upon which Randgold could possibly have litigated against JCI were disputed.

 

[284]    Both boards were assisted and legally advised every step of the way by their respective legal teams. Although both JCI and Randgold constantly sought legal advice from their respective legal teams, two (of the many) legal opinions stand out: The first is the legal opinion of Bham SC on behalf of JCI in which he advised Randgold "that unravelling the facts in this matter will not only be incredibly difficult but will also be very time consuming and costly. However, there is also a possibility that the true facts may never emerge". The second is the legal opinions received in respect of the viability of proceeding against Investec: United Kingdom. Lastly, highly skilled mediators were appointed to attempt to mediate a resolution of the disputes between JCI and Randgold and to steer the process in the event that the disputes were not resolved. The role of the mediators was also extensive and it cannot be ignored that, ultimately, the three mediators endorsed the conclusion of the settlement agreements.

 

Business decisions taken by the Randgold board

[285]    In this matter the Randgold board exercised its corporate powers in pursuing a resolution of the disputes between itself and JCI, a process which, as already pointed out, took almost 5 years to come to completion. Regard must be had to the principle that directors occupy a fiduciary position and that directors should act in accordance with what is considered "to be the best interests of the company, for the purpose for which the power was conferred, and within any limits which may be imposed for the exercise of the power. There are other duties flowing from the fiduciary character of the office and there is, besides, a duty to act with care, skill and diligence."[57] Interlinked is the well-established principle that shareholders can only in exceptional circumstances complain that decisions by the board (with which they do not agree as in this matter) can be regarded as "unfairly prejudiciaf' to them.

 

[286]    Where the directors have exercised their powers with diligence and with due regard to the constrains of the Memorandum of Incorporation and for a proper purpose and in the best interests of the company, a court will exercise constraint in interfering with business decisions taken by a board. A court does not have the licence to impose its own opinions on the board about what it thinks is fair, particularly in circumstances where a board takes decisions after protracted negotiations and after having obtained advice not only from its own legal team but from three highly experienced independent mediators. A measure of deference must therefore be given to the decisions of a board as the governing entity of a company having special expertise to take decisions in the interests of the company. No exceptional circumstances, for the reasons already stated, exist in this matter that warrant interference by this court.

 

[287]   In the present matter the conclusion by the Randgold board of the settlement agreements is a matter to which the business judgment rule applies. Whether or not to engage in litigation is a matter which eminently falls within the discretion of the directors. This includes the decision whether to commence or continue with litigation or to settle a legal dispute, particularly where there are complex commercial considerations at play. Where decisions are made regarding litigation which go beyond purely commercial matters, its judgment is likely to be also materially influenced by the views of the company's legal advisors who are best qualified to provide such advice.

 

[288]    In this matter, as already pointed out, the ultimate decision to settle came about after years of negotiations and the weighing up of different options. The entire process was guided to a large extent by the input by lawyers, financial forensic teams and three highly skilled mediators. And ultimately the decision was ratified by the majority shareholders. In these circumstances, it is difficult for a court to find, in the absence of persuasive evidence, that the decision, even though it resulted in the abandoning of various substantial legal claims against various parties, was not in the best interest of Randgold and without a rational basis. In this regard the court in Visser Sitrus[58] applied the rationality criterion usually applied in the context of the exercise of public power to decisions taken by directors of companies:

 

"[76] The rationality criterion as laid down in s 76 is an objective one but its threshold is quite different from, and more easily met than, a determination as to whether the decision was objectively in the best interests of the company. In the context of the legality principle applicable to the exercise of public power, Chaska/son P said the following in Pharmaceutical Manufacturers Association of SA and Another: In re Ex parte President of the Republic of South Africa and Others 2000 (2) SA 674 (CC) (2000 (3) BCLR 241; [2000] ZACC 1) (para 90):

'. . . The setting of this standard [rationality] does not mean that the Courts can or should substitute their own opinions as to what is appropriate for the opinions of those in whom the power has been vested. As long as the purpose sought to be achieved by the exercise of public power is within the authority of the functionary, and as long as the functionary's decision, viewed objectively, is rational, a Court cannot interfere with the decision simply because it disagrees with it or considers that the power was exercised inappropriately. A decision that is objectively irrational is likely to be made only rarely but, if this does occur, a Court has the power to intervene and set aside the irrational decision….'

[77] Again in the context of the exercise of public power, the requirement of rationality has been held to concern the relationship between the decision and purpose for which the power was given. Was the decision or the means employed rationally related to the purpose for which the power was given? ...

[78] These principles relating to rationality in the exercise of public power can, I think, be applied with appropriate modifications to the rationality requirement for the proper exercise by directors of their powers."

 

[289]    The court also accepts that settlements is not an exact science and that parties may legitimately and reasonably differ over whether a settlement ought to be concluded by the company and if so on what terms.[59] In this regard Investec submitted, and I am in agreement with the submission, that as long as the directors have applied their minds to the matter and have decided that the settlement agreements are in the best interests of the company, their decision cannot be impugned except in circumstances where it can be concluded on the evidence that there was bad faith and/or that the decision was taken for an improper or collateral purpose. That some or even all the shareholders may take a different view, is legally irrelevant. In this regard Investec submitted that no evidence was placed before the court to support the notion that the Randgold board acted in bad faith and for an improper or collateral purpose in concluding the settlement agreements. On the contrary, so it submitted, the board of directors took a responsible and carefully considered approach to what would best serve Randgold's interests having regard to legal advice.

 

[290]    In this broad context, it can hardly be concluded that the Randgold board acted irrational in settling highly complex litigation and that such a decision was not in accordance with their fiduciary duties to the company in the sense that it was not genuinely taken in what the directors considered to be in the best interests of the company. The applicants may not agree with the decision but that does not mean that the decisions regarding the conclusion of the settlement agreements constitute "prejudice" as contemplated in the Companies Act.

 

[291]    Against this background, I will briefly refer to the four claims that were settled and which form the basis of the conduct complained of in this application.

 

The claims against JCI The applicants' criticism

[291]    In the introduction it was pointed out that the claim instituted against JCI was eventually settled and that this is criticised by the applicants, inter alia, on the basis that it had the effect of rendering the claims meaningless. The applicants claim that the proffered claims would have been open to easy determination on a bare modicum of evidence had the litigation been proceeded with as contemplated.

 

[292]    Steyn disagrees with this assessment and submitted that this contention is wholly "misleading and simply untrue". In brief he explains with reference to the various JCI defences that were raised against Randgold's proposed action. One of the many challenges which confronted Randgold in its efforts to hold JCI liable under the various claims, related to its inability to sustain the fundamental factual premise which underpinned the greater portion of their claim. Whilst it was able to establish that Kebble (assisted by a Mr Buitendag, Mr Poole, Mr Roger and others) caused the assets of Randgold or of its wholly owned subsidiary holdings to be sold, it did not follow axiomatically that such thefts fell to be attributed to JCI (or any of the subsidiaries). Steyn further explained that, in many instances, the funds were ultimately channelled to parties other than JCI and its subsidiaries, where they were used, at least on the face of it, for the benefit of such other entities. Randgold, in pursuing its case against JCI, thus faced insurmountable evidentiary difficulties. He also explained that Randgold would have faced difficulties in, inter alia, establishing the paper trail linking to the movement and sale of its (Randgold's) assets (as many of these documents were either forged or untraceable) and to establish how these funds were distributed through a variety of conduits and their dissipation amongst a host of beneficiaries. To establish this, expert forensic evidence would have been needed and would have taken many months to lead. The six-volume report filed by KPMG on behalf of JCI underscores how difficult this task would have been. In this report KPMG dealt with and sought to discredit each of the claims which Randgold proffered against JCI in its statement of claim.

 

[293]    I have repeatedly referred to the corporate disarray in which JCI found itself in after the end of the Kebble era. It is in this context that Randgold submitted that it faced significant evidentiary challenges in proving Kebble's alleged defalcations as some of the potential witnesses who were privy to what actually transpired during the Kebble era were, in the main, persons of dubious moral integrity and doubtful credibility. It was further submitted that there were doubts whether these potential witnesses would in any event be willing to testify for fear of incriminating themselves. Another complicated factor in pursuing the claim was the fact that it was well-known that Kebble conducted the affairs of Randgold and JCI with no regard to principle of separate corporate identity. For example, cash generated by sales from Randgold shares was indiscriminately used to fund the expenses and obligations of different companies within the JCI and Randgold groups as well as for several other purposes unrelated to the legitimate business expenses of either JCI or Randgold or any of their subsidiaries. Apart from the fact that Randgold would have had to pledge considerable resources and finances in order to proceed with litigation with immense evidentiary hurdles, JCl's exposure to Investec and other creditors and the virtual collapse of its ability to engage in its ordinary day to day activities and the costs of defending itself, rendered the prospects of litigation, whether in the form of arbitration or otherwise, unattractive.

 

[294]    Also, despite a suggestion from the applicants that there existed a "common indebtedness" between Randgold and JCI, this is not borne out by the facts. The issue of common indebtedness was never resolved notwithstanding numerous attempts by the different legal teams and forensic investigators to reconcile the inter-company loans in an attempt to establish the existence of a "...common cause indebtedness ...". That a common indebtedness could not be established is underscored by the mediators' recommendation that an overall settlement is preferable to litigation. Even when Randgold considered liquidating JCI in the event that the merger did not take place and the matter was not being capable of settlement, it was advised that this was not a feasible option as there existed a bona fide dispute about the indebtedness due by JCI to Randgold.

 

[295]    The applicants contended that the settlement agreements which resulted in the withdrawal or abandonment of, inter alia, the claim against JCI in which Randgold sought an amount of approximately R21 billion was settled in return for assets worth only R648 466 004 (which is about 3% of the claim). Investec does not take issue with the 3% proposition (in respect of the claim of approximately R21 billion) but submitted that this claim is based on the uncertain eventuality that Randgold would eventually after protracted litigation have been successful in its claim for R21 billion against JCI. This court cannot speculate on what the outcome of litigation would have been but what can safely be concluded is that JCI, even if Randgold was successful in every material aspect of the litigation, would not have been able to satisfy the claims.

 

[296]    What Investec points out in the papers is that, in terms of the settlement, Randgold became entitled to the delivery of 6 051 632 Gold Fields Limited shares and 1 555 710 220 JCI shares by way of a new allotment thereof. This yielded a total settlement value of R 914 594 853 (in respect of Gold Fields shares at a price of R100.54 per share as of 2 July 2010 namely the date on which Randgold received the Gold Fields shares - R608 431 081 and in respect of the new JCI shares at a price 19.68 cents per JCI share - R306 163 771.) The total NAV of JCI as at 31 December 2009 amounted to some R1244226 000. The actual settlement value of R914 594 853 received by Randgold accordingly represented 73.5% of JCl's NAV, the latter representing the maximum sum which Randgold could have hoped to recover from JCI in respect of its approximately R21 billion claim at the time.

 

[297]    Ultimately, the test is not whether the court agrees with the decision that was taken to settle the matter. The question is whether the decision that was taken by the Randgold board and ratified by the majority of shareholders (even excluding Investee's and Gray's shareholding) amounted to a proper exercise of their powers as directors duly taking into account the particular circumstances that confronted the directors in doing so. I am persuaded that the decision was rational and not prejudicial to the shareholders.

 

The claim against Gray

[298]    The applicants were not only critical of the appointment of Gray as CEO to the boards of both JCI and Randgold, but also of the settlement reached with Gray. In this regard Gray's brokerage firm T-Sec (of which Gray was the Chief Executive) are accused of having facilitated the thefts from Randgold at the request of the Kebbles. By appointing Gray to both boards, Investec (so the applicants argued) engineered a massive conflict of interest by controlling the "thief' (JCI) and the "victim" (Randgold) in collaboration with someone who was "the thiefs sidekick" (Gray). The applicants further point out that the controlling position occupied by Gray was also in itself particularly problematic in that, in addition to Randgold's claims against JCI and Western Areas/GFO, the thefts led to claims against Gray and T-Sec ("the Gray claim" and the "T-Sec claim", respectively).

 

[299]    The Gray claim involved an action against Gray himself for transferring R80m in funds from Randgold to a wholly owned subsidiary of JCI ("CMMS') in July 2006, without Randgold's authorisation at a time when he was CEO of both Randgold and JCI. The applicants further allege that during 2002, Gray at the request of the Kebbles and on their behalf, assumed control of the takeover of a stock broking business which, on completion of such takeover, was renamed Tlotlisa Securities (Pty) Ltd (''T-Sec'). Gray was installed by the Kebbles as the new CEO of T-Sec. According to the forensic reports produced after August 2005 at the instance of both Randgold and JCI, T-Sec brokered the bulk of the shares "stolen" from Randgold. This was done at the instruction of Kebble whereafter T-Sec deposited the proceeds of such sales into accounts controlled by JCI, WAL, the Kebbles and Investec. In July 2006, T-Sec, on Gray's instructions, sold 3 000 000 WAL shares owned by Randgold. A few days later Gray, without being authorised by Randgold's board of directors, authorised T-Sec to transfer R80 million being part of the proceeds of the sale of the WAL shares from Randgold's scrip lending account to the scrip lending account of CMMS.

 

[300]    In August 2008, shortly after Gray had resigned as CEO of Randgold, Randgold issued summons against T-Sec and Gray, jointly and severally, in the sum of R648 083 359,06 for the wrongful depositing of proceeds from the sale of Randgold's shares into accounts other than that of Randgold Resources (Holdings) Limited, and also against Gray in his personal capacity, in the sum of RB0 million, for the unauthorised transfer of the said sum of R80 million.

 

[301]   The joint and several claim against T-Sec and Gray in the sum of R648 083 359,06 was settled by Randgold in an amount of R14 million which was paid by T-Sec, while the claim of RB0 million against Gray personally was withdrawn unconditionally by Randgold as part of the RSA.

 

[302]    The applicants claim that the claims against Gray were withdrawn in the circumstances where he was the former CEO of T-Sec which had already impliedly admitted liability by paying R14 million in settlement. Moreover, the applicants submitted that the prospects of obtaining judgment against Gray was high.

 

[303]    Gray denied that there was any merit in the claim of R80 million instituted by Randgold against Gray. Gray also disputed the allegations against him and in a lengthy affidavit explained his role and duties as CEO of T-Sec. He states in his affidavit that the Kebbles did not maintain and operate stock broking accounts only with T-Sec and that T-Sec was the only stock broking firm of those which did business with the Kebbles that fully and openly participated in the forensic audit. He denies that he was involved in the implementation of the Kebbles' stock broking transactions as that was attended to by the relevant functionaries at T-Sec. He further states that he did monitor the cash flow relating to these transactions. He further explains that upon his appointment as CEO of T-Sec, he procured the appointment of KPMG as an internal auditor of T-Sec to ensure that the relevant checks and balances from a corporate governance point of view were in place and irregular trading activities were detected. Internal audits also paid special attention to accounts that contributed substantially to T-Sec's revenue which included various accounts involving the Kebbles and companies associated with them. According to Gray this was regularly done and to the best of his knowledge no material irregularities were ever identified by the internal auditors. He resigned as chief executive officer of T-Sec during the middle of 2005. When this claim was instituted against Gray in his personal capacity his position at Randgold became untenable and he subsequently resigned as CEO of Randgold.

 

[304]    The applicants insisted that Gray was fully aware of the transaction and that he was in regular contact with Kebble. They further insist that Gray was in a financial position to pay the RB0 million even if this had to be done in instalments.

 

[305]    Randgold deals with the allegations against Gray in their papers arguing that ultimately no credible or admissible evidence has been raised which established that there was any prospect of recovering an amount from Gray. Similar to the other matters, Randgold held the view that the applicants did not succeed, in motion proceedings, to persuade the court that Randgold would have been successful in proceedings against Gray and thus submitted that the applicants have failed to prove prejudice as a result of the settlement. It is further submitted that Randgold had little option but to settle its action against Gray as the RSA would not otherwise have been concluded.

 

[306]    Steyn addresses the reasons for withdrawing the action against Gray as follows:

 

“452. On this score I point out that the Revised Settlement Agreement would not have been agreed to by JCI had Randgold not agreed to indemnify JCI's directors from liability, which indemnity for all intents and purposes required Randgold to forego its actions against Gray. It was at the time felt by Randgold's board that Randgold's interests were better served by the conclusion of the Litigation Settlement Agreement (which resulted in the reduction by Investec of its raising fee, the release of the assets held by Investec as security for the obligations of JCI to it, the ability of JCI to now deal with those assets and the culmination thereof in the receipt by Randgold of a very substantial distribution), as opposed to pursuing Gray to the bitter end in circumstances where it was not even certain that Randgold would sustain its cause of action against him or that if it did, a meaningful and significant sum of money fell to be recovered from him. The decision to abandon the claim against Gray stemmed from the release which JCI sought in respect of itself and its directors, both former and current. It was plain that absent Randgold agreeing to that, a settlement would not have eventuated and in this regard Randgold was confronted with a stark choice. It could either have declined to grant the release (which would have catapulted Randgold into litigation against JCI, which litigation it wished to avoid) or, it could have granted the release in order to secure an overall settlement of the matter. Randgold chose the latter route for its board of directors unanimously concluded that that route served the best interests of Randgold and its shareholders".

 

[307]    Randgold, in addition submitted that there was little prospect of securing a significant recovery against the directors and office bearers of JCI, including Gray, provided that liability by them to Randgold was established which was strongly disputed at the time.

 

[308]    Although Randgold had also settled the Rensburg Sheppards action, the applicants do not rely in their application on the settlement of this claim. I therefore do not intend to dwell on this claim despite the fact that the applicants do refer to this claim in their heads of argument.

 

The Investec SA and Investec UK actions

[309]    The applicants claim that the claims against Investec SA and Investec UK were withdrawn unconditionally and for no compensation whatsoever and without the prior knowledge and consent of Randgold's shareholders.

 

[310]    The papers in respect of the Investec SA and UK claims are voluminous and set out in fair detail what these complex claims entail. The Investec UK claim was in essence a mirror image of the Investec SA action and arose from the same set of facts and circumstances.

 

[311]    At the bare minimum, it is the applicant's contention that Randgold had, at the very least, reasonable prospects of success in the actions and an "absolute certainty of recovering its judgment claims from Investec and/or Investec UK, if successful". It is further claimed in the founding affidavit that:

 

"Had the SA Case and the UK Case against Investec and Investec UK instituted in South Africa and England respectively, proceeded and succeeded, Randgold would have had a substantial asset in the form of being able to recoup 22.2% of the Randgold Resources shares stolen from it or its subsidiary".

…

"I point out that Randgold had, at very least, reasonable prospects of success in the aforesaid actions and an absolute certainty of recovering its judgment claims from Investec and/or Investec UK, if successful."

…

"Had Randgold been successful in its action against Investec UK and Investec in the case issued out of the Chancery Division of the High Court of Justice... Randgold would have been entitled to the return of its 5 460 000 Randgold Resources shares or their value as at the date of such return."

 

[312]    These claims have no merit and ignore the lengthy and detailed legal opinions (in respect of the UK actions) sought by Randgold and Investec, precisely because the potential success in the litigation was not that clear-cut as is being made out by the applicants in their papers. (i) The opinion received from Phillips QC, who was briefed by the London solicitors representing Investec and who was an eminent Queens Counsel practising at the London Bar (dated 13 June 2011) concluded that the Investec UK action "faced formidable obstacles of both fact and law from the very outset and that it cannot be said to have had any reasonable prospects of success". (ii) A further legal opinion was obtained from Driscoll QC also an eminent Queens Counsel practising at the London Bar, briefed by the London solicitors representing Randgold who pointed out that, although the matter was arguable, "...it presented evidential challenges which might not be easily overcome and that the prospects of ultimate success in the matter could not be assured, albeit that they were not so remote as to be entirely discounted ...". (iii) Another legal opinion sought by Randgold from Farber SC concluded that "... the exception in the action which had been instituted against Investec ... might successfully be resisted but that if this was achieved, and the matter proceeded to trial, the prospect of sustaining it was weak, albeit not necessarily hopeless ... " and "... that it was not a case which might be enthusiastically pursued, at least not until some of the other matters had been prosecuted to finality, and then only if it became essential to do so ... ". (iv) In a further legal opinion by Pretorius SC he likewise expressed the opinion that he did not believe that a cause of action was capable of being sustained against Investec SA and Investec UK. Pretorius SC had at his disposal the KPMG Forensic report. In light of this report he expressed the view that " ...nothing in the report which indicates that [Investec UK] can be held liable for the losses which [Randgold] suffered through the implementation of the transaction ... ". (Although action was instituted.)

 

[313]   I am not persuaded that the applicants have been prejudiced in the settling of the aforementioned litigation particularly in light of the three separate legal opinions obtained from highly experienced counsel who obviously had studied the facts and merits of the various actions in detail before rendering their respective legal opinions.

 

[314]   Similar considerations were taken into account in settling the litigation against Investec SA. The applicants essentially claim, similarly to what has been claimed in respect of the Investec UK claim, that Randgold had at least reasonable prospects of success against Investec SA (and Investec UK) as well as an absolute certainty of recovering its judgment claims from both Investec UK and SA.

 

[315]   Regarding the Investec SA claim, the court was referred to some of the procedural steps that have been taken in the litigation including the fact that an exception was filed at one stage by Investec on the grounds that the particulars of claim did not disclose a cause of action alternatively contained matter that was vague and embarrassing. In it answering affidavit, Randgold submitted that the notice raised ".. very substantial matters which went to the root of the cause of action which had been asserted against Investec and struck at its very edifice..." Steyn explains that he was advised by Randgold's legal advisors that "... the ability to demonstrate the existence of a duty of care on a balance on probability was fundamental to success in the action and that the facts said to be foundational thereto might well fall far short of what was required to establish the existence of that duty, postulating of course that all the pivotal facts were established to begin with.." It was then that Randgold " ... consciously resolved to take no further steps in the action unless compelled to do so ..."

 

[316]    The applicants, in their replying affidavit, are critical of Randgold's decision and allege that Investec must have been satisfied that the amended pages that were delivered in respect of the particulars of claim took care of the objections that were raised. The applicants rely in this regard on a letter that was written by Randgold's senior counsel (Faber SC) in which he advised as follows:

 

"Please find attached hereto the final version of the Investec Particulars of Claim which we have worked up with Gerald.

Whilst a cause of action has been formulated on paper, the claim is somewhat tenuous and we caution that the sustainability thereof is questionable. That said, Gerald is of the considered view that the magnitude of the claim may be the justification for the issue thereof on the understanding that the claim may need to be reviewed at the stage of discovery with the attendant consequences were the claim to be withdrawn..."

 

[317]    I have already referred to the legal opinion of Pretorius, SC. Suffice to point out that he expressed the view that he did not believe that a cause of action was capable of being sustained against Investec SA (and Investec UK). Actions were nonetheless instituted against Investec SA and Investec UK as the view was held that the mere issue of a summons might place some leverage on Investec and give rise to some form of payment and a reduction in Investee's raising fee. Litigation between Randgold and Investec was stayed by agreement pending the outcome of settlement negotiations between the parties.

 

[318]    Randgold in the meantime gave Investec notice of its intention to amend its Particulars of Claim in response to Investee's notice to remove causes of complaint and notice of exception. Investec did not lodge an objection to the proposed amendments based on the advice of its counsel that, although the proposed amendments failed to address the substantial issues raised in the notice to remove causes of complaint and exception, Investec should address that failure by lodging an exception proper once the proposed amendments were effected rather than by objecting to the proposed amendments. The exception was served in December 2008 followed by Randgold serving the amended pages of its particulars of claim. Investec is adamant that had the settlement discussions not led to a settlement of the litigation, the exception would have been set down for hearing. Furthermore, that there has always been an intention to institute action against Investec SA and UK (contrary to what the applicants claim) is clear from the extensive investigations that were made prior to the institution of the claims. Ultimately the litigation against both Investec SA and Investec UK was settled.

 

[319]   I have perused the papers in respect of the allegations made by the applicants regarding Randgold's decision to settle the disputes. Ultimately the decision by Randgold not to proceed with the litigation was rational and taken after extensive legal advice was obtained from its legal team. And, to restate, the decision to settle or not to settle, these decisions not only fell within the purview of Randgold's board, but was taken as part of hard fought settlement negotiations.

 

The Gold Fields action

[321]    The applicants contended that the legal claim against Gold Fields was rendered nugatory as a result of the indemnity granted to JCI in terms of the settlement. I have already dealt with the indemnity issue in detail and will suffice only with a few remarks regarding this claim.

 

[322]    The action instituted against Gold Fields is exceedingly complex and it falls beyond the scope of this judgment to delve into the details of the litigation. Suffice to point out that the particulars of claim in the action by Randgold against Gold Fields raise five claims, each with its own set of permutations proffered in the alternative. Each of these are based on the allegation that there was a conspiracy between JCI and WAL, through those who acted as their respective controlling mind(s), to steal the shares of Randgold, alternatively of Randgold Holdings, to dispose of them and to use the proceeds derived therefrom to fund WAL. Gold Fields entered an appearance to defend the action. Gold Fields launched motion proceedings in which it sought an order that Holdings provide security for cots in the action of R5 million. It is instructive to note what Gold Fields stated in their founding affidavit in support of the application for security for costs because it echoes some of the difficulties Randgold would have faced in each of the legal claims that was eventually settled:

 

" ... This matter will require the traversal of events which cover a period of more than a decade and involve one of the largest failures in South African history. At the centre of this failure, and the alleged mastermind behind the events relied upon by the plaintiff, is the now deceased Brett Kebble. I would conservatively estimate that this matter, when it finally comes to trial, will require testimony of no less than fifty factual and expert witnesses. The documents which will need to be extracted will undoubtedly run to millions of pages. The duration of the trial will be several months, if not longer. The costs will undoubtedly aggregate to many millions of Rands ...

The complexity of the matter and the importance thereof to the defendant justifies and requires the employment of at least three counsel, including senior counsel. The defendant has, in fact, currently retained two senior counsel and a junior counsel in the action...".

 

[323]    Despite the fact that the Gold Fields action is addressed at length in the papers, what really is at issue in this application is the allegation that the extension of the indemnity to JCI rendered Randgold's claim against Gold Fields nugatory. I have already expressed my views on this issue. For the applicants to succeed in showing that they have been prejudiced/ oppressed (within the contemplation of section 252 of the Companies Act) by the provision of the indemnity clause, they will have to prove that the Gold Fields action would have succeeded and in what amount and what the extent of the recovery from Golds Fields would be as this is the prejudice on which they rely.

 

[324]    The Gold Fields action has been allocated to the commercial court and is still pending. Should Randgold succeed in that action it will probably be able to recover damages in a substantial amount. This court cannot, in light of the pending nature of the litigation, be expected to speculate regarding the eventual outcome of the Gold Fields action.

 

PWC matter

[325]    The PWC matter was settled by way of a payment by it of R150 million to Randgold. The majority of the shareholders voted in favour of the settlement. As in the other matters, Randgold's board was of the view that the matter was complex and that the litigation process between Randgold and PWC would have endured a lengthy period of time. A settlement was also regarded as preferable due the fact that litigation is by its very nature uncertain and Randgold's board was not guaranteed a successful outcome in the litigation. As a result of the payment of the settlement amount, the net asset value of Randgold effectively doubled.

 

[326]    In conclusion, I will briefly, for the sake of completeness, gloss over some of the other issues raised on the papers.

 

The Investec Loan account - the "ILA"

[327]    Investec is accused of impropriety in that it had abused the precarious financial position that JCI found itself in during and shortly after the end of the Kebble era by not only securing for itself an extra ordinate raising fee but also to reserve for itself the right to reconstitute the boards of JCI and Randgold with the result that Investec effectively took control of both boards. I have already in the introduction to this judgment referred to the circumstances that gave rise to the extension of further financial assistance to the beleaguered JCI and which was regulated by the conclusion of the ILA. A further criticism levelled against Investec was its insistence to appoint Nurek and Gray to both boards. It is claimed that this is indicative of the fact that Investec sought to control both boards in its (Investee's) interest and was essentially motivated out of concern for its own potential exposure to JCI and/or Western Areas potential default or liquidation. The applicants further contended that Randgold was financially disadvantaged by the conclusion of the ILA and that it would have been preferable if JCI had been wound-up as at August 2006.

 

[328]    Starting with the last submission. It is apparent from the papers that Randgold, after extensive consideration would not have been able to prove its claim against JCl in liquidation at the time. The option of liquidation was exhaustively considered throughout the process leading up to the conclusion of the settlement agreements and was found not to be a viable option.

 

[329]    Regarding the raising fee: Investec explains that it considered that a raising fee was appropriate in the context of the proposed transaction which it regarded as being an investment banking transaction with greater financial risk than a credit transaction, warranting a commensurately high return. The ILA was signed on behalf of JCI on 25 August 2005 and on behalf of Investec on 31 August 2005. The terms of the ILA were widely published, including on SENS and in a variety of financial publications.

 

[330]    There is nothing in the papers to suggest that, apart from applicants' say-so, that the raising fee provided for in the ILA was not commercially justifiable and in conformity with market norms having regard to the circumstances in which the ILA was concluded. It is certainly not for this court, in the absence of something more than a mere say-so, to question the business decision that was made in the circumstances described hereinabove. No other bank was willing to do business with the highly compromised Kebble empire and it is accepted that Investec was in the circumstances entitled to require a raising fee commensurate with the considerable business risk it potentially faced at the time. Ultimately, the issue regarding the raising fee was settled for a substantial lesser amount.

 

The reconstitution of the boards

[331]    The applicants submitted that the reconstitution of the boards created a conflict between the Randgold and JCI boards. As a result of the appointment of Nurek and Gray (and initially Lampbrecht) to the two boards, Investec was able to orchestrate the settlement negotiations and the conclusion of the two agreements on terms favourable to it. The criticism against the reconstitution of the boards goes further to suggest that there was an unholy pact between Investec and Allan Gray and that this pact had the result that they could orchestrate the outcome of the settlement process so as to avoid steps being taken to prevent Randgold from suing JCI.

 

[332]    Before I deal further with the criticisms: I have pointed out earlier in the judgment that it was necessary at the time for the boards to be reconstituted because the market perception was that all the companies that formed part of the Kebble empire were treated as one entity with no regard to any principles of corporate governance. At the time it was necessary to reconstitute the Kebble-controlled boards with individuals with competence and experience to restore observance to acceptable levels of corporate governance. It was also crucial for the survival of the implicated companies to be managed in the best possible way by ensuring that the advances under the ILA were dealt with properly and the companies were re-listed. The respondents submitted that, at the time, when Investec insisted on the reconstitution of the boards as a condition, JCl's possible exposure to Randgold and vice versa had not been discussed nor was it foreseen by Investec at the time, that years down the line a settlement agreement would be concluded settling possible claims by Randgold against JCI.

 

[333]    It is not borne out by the papers that Investec had acquired the right to "maintain" reconstituting the boards after the initial reconstitution of the boards. It is so that, before the ILA could be implemented, several conditions precedent had to be fulfilled, one of which was that Gray agreed to support the ILA and would recommend to its clients to vote in favour of the resolution which required the appointment of directors to the reconstituted boards. Although the condition initially read "appoint and maintain", the clause was subsequently amended to delete the word "maintain".

 

[334]    Lastly, although it may appear that Investec had some influence when the boards have been reconstituted for the first time, this perceived influence completely disappeared in due course. To recap: Blersch and Dale were appointed to the Randgold board on 14 August 2006 and as pointed out, the board became dysfunctional as a result of differences in opinion. Steyn was appointed to the board of Randgold on 13 December 2006, which appointment held the consequence that the directors common to Randgold and JCI no longer formed the majority of the directors on Randgold's board. De Bruin was appointed to the board of Randgold on 1 April 2007 and Kovarsky on 5 December 2007. The "profile" of the Randgold board changed fundamentally with the resignation of Nurek and Gray from Randgold's board during July 2008 with the result that Randgold's board then came to be comprised of Kovarsky, Steyn, Madumise and De Bruin. After De Bruin's resignation, Scholes was appointed to the Randgold board on 19 February 2010.

 

[335]    There is also a suggestion that Investec was involved in the management of Randgold and JCI which is gleaned from the fact that certain of the regular board meetings took place at Investee's own premises and that two of Investee's employees were involved in some of JCl's projects. I am not persuaded that anything turns on this. Investec explains that it was no more than a convenience for the benefit of all parties that certain meetings were held at its premises. Regarding the involvement in some of JCl's projects, Investec states that this was not extraordinary in light of the fact that JCI was heavily indebted to Investec.

 

(336)      Considering the above there is, in my view, no merit in the contention that Investec, allegedly with Nurek in its camp and/or with Gray as part of an unholy pact, had any influence in the eventual conclusion of the settlement agreements which, inter alia, gave rise to the settlement of various litigation. Both Nurek and Gray resigned long before the conclusion of the settlement agreements which were concluded at a time when the Randgold and JCI boards had long since ceased to resemble each other and were entirely independent of any influence or control by Investec.

 

Investee's shareholding and alleged collusion with Grey

(337)      In the latter part of 2005, Investec had 728 769 shares representing 0.97% of Randgold's issued share capital. At the time when the shareholders ratified the RSA, Investec had 24% of Randgold's issued share capital.

 

(338)      The applicants alleged that there was a voting "pacf' between Investec and Gray when they eventually voted, together with the majority shareholders, in favour of the conclusion of the settlement agreements. Both Investec and Gray deny the so­ called voting pact. They explain why they voted as they did. Apart from the fact that Investec and Gray deny the so-called voting pact, at the time when the shareholders voted, Investec, did not have sufficient shareholding to cast a majority vote at general meetings. The majority of Randgold's shareholders (even discounting Investec and Gray) approved of the RSA.

 

Conflict between the Randgold and JCI boards

[339]    The applicants take the point throughout these proceedings that the boards were not genuinely independent particularly because some of the directors (Nurek and Gray) were common to both boards. Although the boards initially had common directors, the boards ceased to have common directors in July 2008. Steyn is also accused of not being truly independent of the influence of Investec (although this is denied by Steyn) and that there were financial incentives for Steyn to settle the disputes with JCI and others.

 

[340]    I have already referred to the change in the dynamics on the board of Randgold from mid-2008 when Nurek and Gray resigned from the Randgold board. I have also already concluded that, as from that point onwards, it cannot be cogently argued that Investec had a connection with any of the Randgold directors and consequently had the power to make any director do its bidding.

 

[341]    Also, before Nurek and Gray resigned from both boards, the shareholders of Randgold, with knowledge of the fact that Nurek and Gray were also directors of JCI, at a general meeting on 9 March 2007 resolved to retain Nurek and Gray on its board of directors. In light of the complete transparency regarding the (dual) position of Nurek and Gray, I am not persuaded that there was a patent conflict of interest between the directors as alleged by the applicants. Also, when Gray's position as being potentially legally exposed to Randgold came to light, the Randgold board took a resolution calling upon him (and Nurek) to resign from the Randgold board.

 

Nurek

[342]    The applicants were also highly critical of the appointment of Nurek and accused him of having been beholden to Investec and having been under the influence of Investec to act at Investee's behest. Nurek denies these allegations responding as follows:

 

"24. I was appointed as a Director of Randgold on 7 October 2005 and of JCI on 12 September 2005.

25.     Neither Koseff nor any other representative of Investec ever sought to instruct me, direct me, request me to or suggest to me that I should act in a particular way as a Director of Randgold, JCI and WAL at any stage throughout the period of my directorship of these companies.

26.     Unequivocally and incontestably, Investec had no influence over me as a

Director of those companies.

27.     I was neither expected nor requested to carry out my duties other than in what I perceived to be the best interests of each of these companies.

28.     To the best of my knowledge, during the period of my Directorship Investee's shareholding in Randgold and JCI was negligible if anything. Any vote which Investec was able to cast on the re-appointment or removal of Directors on the Randgold and JCI Boards would have been of little consequence, if any.

29.     Thus, when the majority of shareholders of Randgold at the Annual General Meeting held on 9 March 2007 voted in favour of my continued appointment as a Director of Randgold, Investec did not to the best of my knowledge vote and consequently had no voice in this decision.

30.     Also, when I resigned as a Director of Randgold and JCI with effect from July 2008, I neither consulted nor sought Investee's permission to do so.

31.     To the best of my knowledge, Investec also had no influence over Gray and Lamprecht nor did it ever seek to instruct or direct either of them with regard to the performance by them of their duties as Directors of Randgold and JCI. I certainly never had any reason to think otherwise."

 

[343]    There is no suggestion in the papers that, after his resignation, he continued to have any involvement in any aspect of Randgold's or JCl's business or affairs nor is there any suggestion that Nurek had breached any of the fiduciary duties which he owed Randgold as the chairman of the board of directors.

 

[344]    The applicants also accused Nurek of being under a legal duty towards Investec by virtue of his full-time employment by Investec. This allegation implies that Nurek did not honour his fiduciary duties towards Randgold's board. Nurek responded to these criticisms and stated that he was never asked to protect the interest of Investec in taking up a position as a director of Randgold. What this allegation omits to take into account is the fact that the affairs of Randgold were controlled by its board of directors who, on more than one occasion, outvoted Nurek on matters of significance.

 

[345]    Although it is accepted that a conflict of interest may well exist where a person is a director of two independent companies, particularly where the two companies have an acrimonious history, I am in agreement with the submission that a conflict of interest is not per se proscribed under company law. What is, however, required in such circumstance is a full disclosure on the part of the director concerned in order to rid himself of the taunt of possible conflict. In this matter, the evidence does show that there was full disclosure of Nurek's dual directorship. As already referred to, when shareholders were asked to consider the retention of the "conflicted directors" at the 9 March 2007 general meeting, they opted to retain them and not Blersch and Dale with full knowledge of the facts around the conflict issue.

 

[346]    But ultimately, what is of crucial importance is the fact that by the time the settlement agreements have been concluded, Nurek could no longer (excepting for the moment that he would have wanted to influence the outcome of the settlement agreements) take decisions that could have influenced the outcome of the settlement agreements.

 

Conclusion

[347]    Firstly, the applicants have not factually succeeded in persuading this court that the impugned agreements foundational to the oppression complained of were concluded by virtue of Investee's control of Randgold's board of directors and for no purpose other than to promote Investee's interests or that these agreements were the result of an "unholy pact" with Gray that resulted in the conclusion of the settlement agreements in January 2010. Secondly, in as far as section 252 finds application, I am not persuaded that the applicants have proven that the decisions taken by the board and which led to the settlement agreements constitute "unfair prejudice" as contemplated by this section. In the event the application is dismissed.

 

Costs

[348]   Costs should follow the result. Because it was conveyed to the court that Investec is paying for Randgold's costs, no order is made in respect of Randgold's costs.

 

Order

 

"The application is dismissed with costs, including the costs of three counsel where so employed."

 

 

JUDGE A C BASSON

JUDGE OF THE HIGH COURT

 

 

Delivered: This judgment was prepared and authored by the Judge whose name is reflected and is handed down electronically by circulation to the Parties/their legal representatives by email and by uploading it to the electronic file of this matter on Caselines. The date for hand-down is deemed to be 2 September 2021.

 

 

Case number                             : 19269/2011

 

Matter heard on                          : 18/06/2020 - 26/06/2020 (Virtual hearing)

 

Appearances

 

For the Applicant                         : Adv C Loxton SC

Adv P Farlam SC

Adv A Price

 

Instructed by                              : Korbers Attorneys

 

For the 1^st Respondent              : Adv AP Rubens SC

Adv J Blau SC

 

Instructed by                              : Werksmans Attorneys

 

For the 2nd Respondent            : Adv G Farber SC

Adv N Konstantinides SC

 

Instructed by                              : Van Hulsteyns Attorneys

 

Date of the judgment                 : 2 September 2021

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