In the Supreme Court of Appeal of South Africa

MEDIA SUMMARY – JUDGMENT DELIVERED IN SUPREME COURT OF APPEAL

From: The Registrar, Supreme Court of Appeal

Date: 28 March 2006

Status: Immediate

Please note that the media summary is for the benefit of the media and does not form part of the judgment of the Supreme Court of Appeal

T R GARDNER & OTR MINING LTD v R H MARGO

The Supreme Court of Appeal today partially upheld the appeal of Tony Ricky Gardner and OTR Mining Ltd against a judgment of the Johannesburg High Court which had ordered Gardner to pay amounts of R6 537 259 and R4 384 296, plus interest, to Roger Hugh Margo, and had in addition held OTR Mining liable (with Gardner) for payment of the amount of R6 200 820 to Margo. According to the High Court, these amounts were owing to Margo by virtue of a contract (‘the mandate’) entered into on 26 February between Gardner and OTR, on the one hand, and one Jan Abraham Joubert, on the other. Joubert had subsequently ceded all his rights in terms of the contract to Margo and Margo had sued Gardner and OTR as cessionary.

Joubert and Gardner were the founding members of OTR, which was established in 1995 to undertake the management of alluvial and eluvial mining and the processing of minerals. In late 1996, OTR purchased all the assets of the Gazankulu Gold Mining Company (in liquidation) and set up base at a mine called Klein Letaba in Limpopo with the purpose of exploiting alluvial gold deposits in the that area. OTR was listed on the JSE in September 1997, with (amongst other directors) Gardner as managing director, Joubert as mining director and Margo as legal director. Joubert and Margo were the two major shareholders, together holding more than 34 % of OTR’s issued shares.

On 26 February 1998, the mandate was concluded, in terms of which Joubert instructed Gardner to sell 12853580 of Joubert’s ordinary shares in OTR in lots of approximately 4 million shares per month over a period of 3 months. Clause 2 of the mandate provided that the amount payable to Joubert will be ‘the consideration amount of 40c per share’ and, in clause 1, OTR guaranteed to Joubert the sum of R5 141 432 for the shares (ie 40c multiplied by the number of shares covered by the mandate). Joubert also retired from OTR, his official retirement date being reflected in the mandate as 31 August 1998.

In the Johannesburg High Court, Margo claimed that the express terms of the mandate, alternatively the terms implied by law, obliged Gardner to pay to Joubert the full proceeds of the sale of Joubert’s shares. According to an account rendered by Gardner to Margo, the former had sold 9 200 000 of Joubert’s shares over the period 31 March to 31 August 1998 for a total price of R10 274 277. Of these proceeds, Gardner had paid R3 634 275 to Joubert, being 40c per share, less an amount of R45 725 which Joubert allegedly owed to OTR. Of the balance of the proceeds, Gardner had paid R6 200 820 to OTR, the rest being paid to third parties (mainly as broker’s commission). In the account, Gardner tendered to return to Joubert the rest of the shares (3 653 580) which he stated he had not sold. Margo claimed from Gardner the balance of the proceeds of the shares accounted for and the full proceeds (calculated using the prevailing market price of the OTR shares at the time) of the remaining shares, which he claimed had been sold by Gardner. He also claimed from OTR that part of the proceeds of the shares which had been paid to it and, in addition, sought to enforce against OTR the guarantee which it had given to Joubert in terms of the mandate.

The written contract was silent about the fate of the proceeds of Joubert’s shares beyond 40c per share. Gardner and OTR argued that, in addition to the written part of the mandate, the parties had agreed orally that any amount received by Gardner for Joubert’s shares in excess of 40c per share would be paid to OTR, and that all amounts owing by Joubert to OTR would be deducted from the amount payable to him. The High Court interpreted the mandate to mean that, unless Gardner and OTR could prove the oral terms relied on by them, the mandate must ‘by necessary implication’ be interpreted to mean that any proceeds beyond 40c per share belonged to Joubert. The High Court held that, on the evidence, Gardner and OTR had not proved the oral term relied on by them and that Gardner, as Joubert’s agent, and OTR, to which the balance of the proceeds of the shares sold had been paid, were liable to Margo in respect therof.

The SCA disagreed with the High Court in this regard. Applying well-established principles of interpretation of contracts, the SCA considered the literal meaning of clause 2 of the mandate; the context in which it appeared in the mandate as a whole, including the nature and purpose of the contract; the circumstances prevailing at the time the mandate was concluded, and the subsequent conduct of the parties showing the way in which they had acted on the contract. This led the SCA to the conclusion that it was probable that, at that time, Joubert wanted to ‘bail out’ of OTR as quickly as possible, before the true sorry state of the company’s operations and its serious financial difficulties filtered through to the market, causing the share price to plummet. This being so, it was also probable that Joubert was willing to accept a fixed price of 40c per share that was less than the then prevailing market price. This was borne out by the amount of the guarantee given to Joubert by OTR. The SCA thus held that the true meaning of clause 2 was that Joubert was entitled to only 40c per share from the proceeds of the shares to be sold on his behalf by Gardner. As regards the oral terms relied on by Gardner and OTR, the SCA held that it had been established on a balance of probabilities that, as part of the mandate, the parties agreed that OTR would be entitled to payment of the proceeds of Joubert’s shares in excess of 40c per share and that amounts owing by Joubert to OTR would be deducted from the payment due to him from the sale of the shares. Therefore, in respect of the 9 200 000 shares covered by Gardner’s account, the SCA held that Joubert had, prior to the cession to Margo, been paid everything to which he was entitled. He had no rights which he could cede to Margo and the latter had no claim against either Gardner or OTR in connection with these shares.

As regards the balance of the shares (ie those not covered by Gardner’s account), however, the SCA agreed with the High Court that the evidence established that these shares (3 653 580 in all) had in fact been sold by Gardner. Gardner was thus liable to pay Margo the amount of 40c per share for these shares (R1 461 432 in total). The SCA also rejected the argument of Gardner and OTR that the guarantee given by the company to Joubert contravened s38 of the Companies Act, which section prohibits a company from giving financial assistance for or in connection with the purchase of its own shares. OTR was therefore, as a guarantor, liable to pay Margo the amount of R1 461 432 in the event of, and to the extent of, Gardner failing to do so.

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