Jembere v Millar (nee Olympios) & Anor (HC 6719 of 2014) [2015] ZWHHC 312 (31 March 2015)

1 HH 312-15 HC 6719/14 BRIAN JUSTICE JEMBERE versus NINETTE AGNE MILLAR (NEE OLYMPIOS) and MUHONDE ATTORNEYS HIGH COURT OF ZIMBABWE MATHONSI J HARARE, 25 March 2015 and 1 April 2015 Opposed Application L Uriri, for the applicant P Nyeperai, for the 1st respondent C F Nyamutanda, for the 2nd respondent MATHONSI J: The applicant, the first respondent and one Paris Olympios, a brother of the first respondent, are shareholders in a company known as H. E. R. (Pvt) Ltd which has authorised share capital of 2 000 shares divided into 2 000 ordinary shares of US$1-00 each. The applicant holds 1 000 shares constituting 50 percent of the issued shares. Paris Olympios holds 800 shares which constitute 40 percent of the issued shares while his sister, the first respondent, proudly holds 200 shares making up the remaining 10 percent of the issued shares in H. E. R (Pvt) Ltd (the company). It would appear that their relationship having deteriorated and having become unfriendly bed fellows, the parties set in motion the process of parting ways which has gone badly wrong forcing them to trace the route to this court in search of a solution. In her founding affidavit anchoring this application, the applicant insists that the second respondent is the duly appointed secretary of the company. He states that by notice dated 17 March 2014 signed by the second respondent in its capacity as Company Secretary, the first respondent offered him her 200 ordinary shares in the company. He duly accepted the offer and in due course paid the purchase price of $120 000-00 entitling him to take transfer of those shares. Although the company secretary acknowledged receipt of payment and undertook to effect transfer of the shares to the HH 312-15 HC 6719/14 applicant this has not occurred as the first respondent has refused to sign the agreement of sale, a mere formal record, the contract of sale having been perfected upon acceptance of the offer by himself. He therefore seeks an order directing the first respondent to sign all necessary documents to transfer the 200 ordinary shares to the applicant. The application has been opposed essentially by the first respondent as the second respondent states in the opposing affidavit of Tichaona John Muhonde that it has no interest in the matter and would therefore abide the decision of the court. In her opposing affidavit, deposed to by Paris Olympios by virtue of a special power of attorney given to him, the first respondent takes issue with the failure to cite the company and Paris Olympios in the application as both are interested parties, who however have not sought to been joined as parties. She also takes issue with what she views as a misjoinder of the second respondent as according to her, it resigned in May 2014. On the merits of the application the first respondent stated that the second respondent having resigned on 19 May 2014, it could not unilaterally extend its mandate and for that reason it had no authority to perform any act on behalf of the company. She stated that as a result of irreconcilable differences between the siblings on the one hand and the applicant on the other they decided to exit the company as a twosome to leave the applicant to his devices. In that regard she made an offer to sell her shares along with Olympios who also offered to sell his 40 per cent shareholding. The offer she refers to is one dated 10 March 2014 addressed to the company secretary which reads: “The Secretary H. E. R (Pvt) Ltd Dear Sir, I would like to inform you that I am now exercising my right to sell my 10% shares of H. E. R (Pvt) Ltd and offering them to the other shareholder Brian Jembere as first refusal at a price of USD 120 000. My conditions are that the 10% shares can only be sold in combination with my brothers (sic) Paris Olympios 40% shares as a package. Total amount for shares USD 600 000 any capital gains to Zimra or other expense will be incurred and finalised by the purchaser. Yours faithfully N. A. Millar P. Olympios.” HH 312-15 HC 6719/14 If this was an offer to sell the shares, it was indeed loaded with conditions as to be extremely difficult to comprehend. The shares would be sold as a package with those of her brother. She was not going to pay any capital gains for the sale which she wanted to be for the account of the purchaser. Any other expenses associated with the sale were also to be borne by the purchaser. It is significant to note that the above letter is not the offer which was sent to the applicant. It was addressed to the company secretary, who at the time was the second respondent. The offer made to the applicant was written by the second respondent on 17 March 2014. I shall return to that one. The first respondent tried hard to link the offer of her 10 per cent shares to that of Olympios’ 40 per cent shares to the extent of importing the conditions contained in the latter’s offer of the same date including the payment of $17 352-27 owed to Olympios into her own offer to sell. She argued that to the extent that the applicant had not made an offer to purchase Olympios’ 40 per cent shares, it was not open to him to try and purchase her 10 per cent shares especially as the second respondent had “advised (her) that they had forwarded copies of Annexures 17 and 18 to the applicant and the applicant was aware at all material times” that both of them were intent on exiting the company. The first respondent insisted that she could not sign the sale agreement prepared by the second respondent because it was unacceptable as the shares were being offered as a block. Payment of the purchase price to the second was meaningless given that at the time it received payment it had ceased to be company secretary on account of resignation. In fact the second respondent could not transact anything on behalf of the company following its resignation. The second respondent’s conduct was not only unlawful but also in breach of the company’s Articles of Association relating to the sale of shares given that the articles require the directors to act as the agents for purposes of any sale of shares, and the second respondent not having been so appointed as agent could not transact the sale of the shares. She added that even if it was open to the applicant to accept the offer in part, and the second respondent was authorised to act as it did, the offer was accepted out of time. Mr Nyeperai for the first respondent submitted in limine that the non-joinder of the company and Olympios renders the application fatally defective and that it should fail for that reason alone. This is because both of them are interested parties who should have participated in these proceedings. In my view the issues that have been placed before me involve the determination of whether there was a valid sale of 200 shares in the company by the first respondent to the applicant as to entitle the latter to transfer of those shares. This HH 312-15 HC 6719/14 involves a subjective inquiry involving only two parties given that ordinarily a shareholder of full legal capacity would be entitled to dispose of his or her shares in a company without recourse to a relative and indeed the company itself as long as the disposal of the shares would be done in accordance with the company’s governing rules, the articles of association. In light of that, the interest of both the company and Olympios in the current dispute pales. In short, the non-joinder of the company and Olympios cannot possibly be fatal to the application given that the issues before me are capable of determination without reference to them. I agree with Mr Uriri for the applicant that for a party to be joined in proceedings that party must have a real and substantial interest in the issue to be determined. While H. E. R (Pvt) Ltd is a private company, as submitted by Mr Nyeperai, which has restrictions in the transfer of its shares in terms of s 33 of the Companies Act [Chapter 24:03], there is no magic really in that restriction. It simply means that members of the company cannot dispose of their shares except as provided for in the articles of association. In fact the articles of association are the contract between the members on how they should conduct themselves and relate with each other; Commissioner of Inland Revenue v Southern Life Association 1986 (1) SA 717; Green Acre & Ors v Falkirk Co Ltd & Ors 1953 (4) SA 289. As stated in Tsvangirai v Mugabe & Anor 2005 (1) ZLR 378 (H) 405 B – C there appears to be two classes of parties that may or may not be joined, that is necessary and convenient parties as well as substantive and nominal parties. In my view the company would have been a nominal party as its interest in the dispute in non-existent. Happily Mr Nyeperai abandoned his objection to the non-joinder of Olympios and the registrar of deeds. In my view that abandonment was properly made. I conclude therefore that the point taken in limine is without merit and it is accordingly dismissed. On the merits of the matter, it turns on whether there was a valid offer made for the sale of 200 shares which was met with an unequivocal acceptance as to give rise to a contract of purchase and sale enforceable at law. The involvement of the second respondent and the lawfulness of its actions is therefore fundamental in the resolution of the dispute. The sale of shares is governed by Articles 5 (b) which provides: “(i) Any member of the Company wishing to sell all his shares to persons other than those mentioned in para 5 (a) (herein after referred to as ‘the seller’) shall give notice in writing (herein after referred to as ‘the transfer notice’) to the company at its registered office that he desires to sell the said shares. Such notice shall specify whether he offers for sale his entire shareholding or alternatively what proportion of his shares he wishes to sell, and the sum he fixes as the fair market value thereof, and HH 312-15 HC 6719/14 shall constitute the Directors of the Company the seller’s agent for the sale of the shares at the price so fixed. The directors shall forthwith cause notice of the proposed sale to be given to all other members of the company, such notice to be given in the same manner as notices calling a general meeting of the company. For a period of sixty (60) days after the date of the transfer notice, other members of the company shall have the exclusive option to purchase the shares at the price fixed in the transfer notice pro rata to their respective shareholdings. If any shares remain unsold after the foresaid period of sixty (60) days, then any member of the company shall have the option to purchase such shares for a period commencing on the sixty first day and terminating on the one hundred and twentieth day after the date of the transfer notice. For a period of six (6) months after the conclusion of the aforegoing two periods, the seller may sell the said shares, or what remains of them to any other person willing to buy the same at the price fixed in the transfer notice. A transfer of the shares pursuant to a sale in terms of the aforegoing provisions of this paragraph shall be registered and recognised by the Directors upon application made for the transfer in the customary form, notwithstanding anything contained elsewhere in these articles.” (ii) (iii) (iv) (v) I have stated that there are three members of the company, the applicant, the first respondent and Olympios. In terms of the company’s Form CR 14 the three members are also the current directors with the second respondent popping up as a company secretary. That scenario subsisted at the time the process of selling the first respondent’s shares was rolled out. Therefore when the first respondent wrote to the company secretary on 10 March 2014 she was giving a transfer notice in terms of article 5 (b) (1) and was also triggering the process of constituting the directors as agents for the sale of the shares at a price fixed. Remarkably all the three directors were players in the whole process which perhaps explains the reason why the second respondent had to bear the cross. There can be no doubt that when the second respondent despatched the notice of 17 March 2014 it was acting on the instructions and on behalf of the directors all of whom were heavily conflicted. The second respondent wrote: “H. E. R (PRIVATE LIMITED NOTICE IS HEREBY GIVEN IN TERMS OF CLAUSE 5 (B) (i) OF THE ARTICLES OF ASSOCIATION OF H. E. R (PVT) LTD DTAED 20TH NOVEMBER 1958 OF THE DESIRE TO SELL THE ENTIRE ISSUED 200 SHARES REPRESENTING 10% EQUITY HELD BY NINETTE AGNE MILLAR (nee OLYMPIOS) IN THE COMPANY EFFECTIVE 17TH MARCH 2014. HH 312-15 HC 6719/14 PREAMBLE Whereas Ninette Agne, Millar (nee Olympios) is a member of the company, a shareholder in the company owning 200 issued shares representing 10% equity therein; AND whereas the said articles of association provide in Clause 5 (b) (i) that a shareholder intending to sell shares shall give notice in writing to the company of the desire to sell the shares; AND whereas Ninette Agne Millar (nee Olympios) now desires to sell the entire 200 issued shares (10%) in the company; AND whereas Ninette Agne Millar (nee Olympios) has given written notice of her desire to sell the said 10% equity to the company in a letter dated in a letter dated 12th March 2014 in compliance with the said clause 5 (b) (i); TRANSFER NOTICE Now therefore, in terms of Clause 5 (b) (i) the Board of Directors, duly represented by the Secretary, hereby issues a notice to the other members of the company BRIAN JUSTICE JEMBERE and PARIS OLYMPIOS to the effect that 200 issued shares (10% equity) in the company owned by Ninette Agne Millar (nee Olympios) are available for sale and purchase for the sum of US$120 000-00 as the fair market value thereof, hereby fixed as the purchase price. FURTHER NOW THEREFORE, in terms of Clause 5 (b) (ii) of the said articles of association, the said Brian Justice Jembere and Paris Olympios are called upon to exercise the exclusive option to purchase the said 200 issued shares at the fixed price pro rata to their respective shareholdings. FURTHER NOW THEREFORE, for the avoidance of doubt, the said Brian Justice Jembere and Paris Olympios have sixty (60) days from 17th March 2014 to exercise the said exclusive option failing which they shall have, an additional sixty (60) days to do so in terms of Clause 5 (b) (i) and (ii) of the said articles of association. FURTHER NOW THEREFORE, in the event of the said Brian Justice Jembere and Paris Olympios failing to exercise their said right within the said combined period of one hundred and twenty (120) days, then the said Ninette Agne Millar (nee Olympios) shall be entitled to sell to any other willing and able buyer after the expiration of the said one hundred and twenty (120) days.” (The underlining is mine) I emphasise that the second respondent was acting on behalf of the Board of Directors in giving notice to the members in terms of clause 5 (b) (i) of the articles. It was indeed prudent to rope in the secretary to do so because not only is it the function of the secretary to discharge such duties on behalf of the board, it would not have been feasible for a three member board of directors to discharge the agency function themselves. One of them was selling the shares while the other two were entitled to notice to purchase. I am aware of the submission made on behalf of the first respondent that the second respondent could not carry out that function because it resigned with effect from 19 May HH 312-15 HC 6719/14 2014. I shall deal fully with the issue of the alleged resignation later in the judgment, but for now let it suffice to state that the second respondent had not resigned at the time they gave the notice. That the parties clothed the second respondent with authority to act in that capacity is pretty obvious from their conduct. When the time came for the first respondent to give a transfer notice in terms of the company rules, she addressed it to the second respondent. When the latter issued the notice on behalf of the directors, they all responded to it, the first respondent did not challenge the notice while Olympios responded to it by letter dated 1 June 2014 again addressed to the second respondent stating; “Dear Sir In accordance with the articles of association of the company in reference to the purchase of 10% shares of H. E. R (Pvt) Ltd held by Ninette A. Millar, I would like to inform you that I do not wish to participate in the purchase of the said shares of which the offer expires on 31 July 2014.” The first respondent also wrote a similar letter in respect of Olympios’ 40 per cent shares of which no notice had been given by the directors, an exercise not helpful at all. In fact even when the first respondent started questioning the validity of the sale of their shares; there was never a doubt that the second respondent was acting as company secretary. As late as 29 July 2014 her legal practitioners wrote to the second respondent placing that fact on record, to wit: “First and foremost we place on record our understanding that you are in fact the secretary of the company and at all material times you have acted in this capacity.” It is common cause that the applicant had an option to purchase the 200 shares that had become available in terms of the company rules. It is that option which was communicated to him and indeed Olympios by the second respondent on behalf of the board of directors by notice of 17 March 2014. On options, the learned author R. H Christe, Business Law in Zimbabwe ed 2, Juta & Co Ltd at p 37 said: “The nature of an option, despite some confusing dicta in earlier cases which need not be considered here, is clear. It is an offer to enter into the main contract together with a concluded subsidiary contract (the contract of option) binding the offeror to keep that offer open for a certain period (Venter v Birchholt and 3 Others1972 (1) SA 276 (A 283-4). It thus achieves for sure what, as appears from the previous paragraph, can probably (but not quite certainly) be achieved by a unilateral declaration that an offer is irrevocable.... An option to buy, if exercised by the buyer, obliges the seller to sell, but a right of pre-emption or first refusal entitles the holder to the first opportunity of buying if the seller decides to sell. Closely linked as it is to the main contract, an option contract nevertheless stands on its own two feet, so if it is broken---- the option holder may claim an interdict or HH 312-15 HC 6719/14 damages without first deciding whether to exercise his option, as the breach has deprived him of the opportunity of making his decision. If he decides to exercise his option he may claim specific performance of the main contract. An option for a fixed period may be exercised at any time within that period, but not after it has expired unless it can be shown that the giver of the option has waived the time limit: Laws v Rutherfurd 1924 AD 261 264.” The learned author went on at p 146 to state: “A right of pre-emption or first refusal differs from an option by giving the holder the right to buy in priority to other prospective buyers if and when the seller decides to sell”. Perhaps the most apt of the descriptions of an option found in decided cases is one given by Davis AJA in Hersch v Nel 1948(3) SA 686 (AD) at 695 where he said: “An option has been analysed into an offer to sell, together with an agreement to keep that offer open for a certain time – Boyd v Nel 1922 AD 414 at p 421 and numerous other cases. But perhaps a better way is to look at it simply as an agreement between the giver and holder of the option by which the giver has bound himself to sell a certain thing to the holder at a certain price if the holder shall require him to do so within the time fixed by the option by this agreement the giver grants and the holder acquires a right to buy”. See also Conradie v Rossouw 1919 AD 279; Owsianick v African Consolidated Theatres (Pty) Ltd 1967(3) SA 301(A) 316: Mr Uriri for the applicant submitted that the offer for shares made by the second respondent on behalf of the board of the company was made in clear terms with the merx adequately described, the purchase price was set out and not the subject of negotiation and the time limit within which the option was to be exercised were clearly spelt out giving an aggregate of 120 days. I agree. Upon acceptance of that offer, a binding contract between the parties would result. Indeed in order to be effective in creating a contract, an acceptance must be so clear and unequivocal as to leave no reasonable doubt in the mind of the offeror that his offer has been accepted. See Selected Mines and Marketing (Rhodesia) Ltd v Trees Asbestos Mining Co Ltd 1952 S R 57. In casu, the applicant paid into the second respondent’s trust account the entire purchase price of $120 000-00 by 17 July 2014 when the last instalment of $90 000-00 was paid, the first of $30 000-00 having been paid on 29 May 2014. There can be little doubt of HH 312-15 HC 6719/14 the unequivocal nature of the acceptance which would ordinarily create a fully-fledged binding contract of sale between the parties. Mr Nyeperai argued on behalf of the first respondent that such payment was meaningless given that the second respondent had resigned as secretary with effect from 19 May 2014. The respondent’s resignation calls for further consideration. By letter dated 20 May 2014 the second respondent advised the directors of its “resignation from the positons of Secretary and Attorneys” to the company with effect from 19 May 2014. They concluded after giving reasons for that course of action by craving the acceptance of the resignation. There is no evidence of such acceptance. Quite to the contrary there is evidence in the form of a letter the second respondent penned on 22 May 2014 suggesting that instead of accepting the resignation, the directors persuaded the second respondent to stay and complete the task of selling the shares. That letter addressed to the directors reads in pertinent part thus: “RESIGNATIN AS SECRETARIES AND RENUNCIATION OF AGENCY AS ATTORNEYS TO H. E. R. (PVT) LTD (“THE COMPANY”) 1. We refer to the above matter and our letter of resignation dated 20th instant, which was served upon yourselves on the 21st instant. 2. We have considered the representations made by the Directors and Shareholders vis-à-vis our dual role as attorneys and secretaries for the company. Accordingly we are pleased to advise you of our new position as follows – (a) We will continue acting as secretaries and attorneys of the company until the conclusion and execution of the sale of the shares transaction by and among the present shareholders in line with the share Transfer Notice due to expire on 31st May 2014. (b) For the avoidance of doubt, our mandate will expire on the same date as the expiration of the initial 60 days of the transfer notice expire, more specifically, the 31st day of May 2014. More specifically, our mandate will include the following – - Finalisation and execution of the sale of shares Agreements. - Trust Funds management of he proceeds of the said sale of shares to be received into our Trust Account …..”. Coming hot on the heels of the resignation letter penned two days earlier and marked specifically for the attention of the three directors, it is clear that instead of accepting the resignation the directors petitioned the second respondent to stay on and gave it a specific mandate to conclude the sale. If I entertained any doubt as to the correctness of that HH 312-15 HC 6719/14 conclusion such dissipates completely when one has regard to the fact that none of the three directors disputed the contents of that letter. If indeed the second respondent was arrogating to itself the right to resign and un-resign as the first respondent would now self-savingly want us to believe, then surely she would have objected to that letter. For one thing the first respondent still recognised their position as such on 29 July 2014 long after payment had been effected. I conclude therefore that when the second respondent accepted payment from the applicant for the shares, it was acting in terms of a mandate given by the directors of the company and was entitled to superintend the sale of the shares. The acceptance of the payment constituted the consummation of the sale agreement between the parties. As the authorities show, the holder of an option who has exercised it on time is entitled to claim specific performance. While it is true that resignation is a unilateral act which takes effect upon being communicated and does not depend upon its acceptance for its validity, that legal position does not obtain in the present case. See Jakazi & Anor v The Anglican Church of the Province of Central Africa S-10-13 (as yet unreported); Riva v NSSA 2002 (1) ZLR 412 (H) 414 A-B; Muzengi v Standard Bank Zimbabwe & Anor 2022(1) ZLR 334(S) 340A. This is because the resignation was rescinded at the instance of the directors as the papers show. My attention has also been drawn to the provisions of s 187(4) and (5) of the Act requiring the submission of returns of any change in the secretary of the company which should be submitted within one month after such change is notified to the company. Section 12 of the Act provides for the presumption of regularity, that is to say that any person dealing with a company is entitled to assume that every person, including the company secretary, described in the register of directors and secretaries has been duly appointed and has authority to act as such. The company is estopped from denying their truth fullness. It is common cause that the company’s Form CR 14 still contained the name of the second respondent as secretary when the transaction occurred and that no notice of resignation was given to the registrar. Therefore the provisions of s 12 set in meaning that the second respondent was entitled to act both by operation of law and by the mandate given to it by the parties. I therefore find no merit in Mr Nyeperai’s submission that the absence of directors’ resolution reinstating the second respondent rendered the acceptance of the purchase price a nullity. HH 312-15 HC 6719/14 It has also been submitted that the acceptance of the offer was made after it had expired. I do not think the submission is a serious one. In fact it is based on the erroneous view that the offer was made by the first respondent in the letter to the company secretary dated 10 March 2014. I have stated that it is not the offer that was made to the applicant. It was only a notice to the company in terms of Article 5(b)(1). The offer was made by the second respondent with full authority of the board. It gave the applicant 120 days to accept which he did with several more days to spare. The argument that the first respondent’s offer of the shares could only be accepted together with the offer of his 40 percent shareholding by Olympios is also spectacularly without merit. In the first place, apart from its obvious kindergarten nature, business transactions not being tied to family connections, there is nothing to show that such condition was communicated to the applicant. The applicant responded to the notice given to members on 17 March 2014 by the second respondent. It was for the first respondent to timeously object to that notice as not being in compliance with her own terms, an objection which only came on 29 July 2014 after acceptance and payment had already been effected giving rise to a binding contract. It is an objection which would have no merit at all as there is nothing in Article 5(b) of the company’s rules entitling a seller of shares to attach such conditions to the sale. seeks. I am therefore satisfied that the applicant has made a good case for the relief that he In the result IT IS ORDERED THAT: 1. The 1st respondent be and is hereby directed to sign all necessary documents with the 2nd respondent to transfer 200 ordinary shares in her name to the applicant Brian Justice Jembere within seven (7) days of the date of this order. 2. In the event of her failure or refusal to do so, the Sheriff of the High Court be and is hereby authorised and directed to sign such documents to give effect to paragraph 1 above. 3. The first respondent shall bear the costs of suit on an ordinary scale. Atherstone & Cook, Applicant’s Legal Practitioners Costa & Madzonga, 1st Respondent’s Legal Practitioners Muhonde Attorneys, 2nd Respondent’s Legal Practitioners