Wednesday 1 November 2017

South Africa: unfair prejudice claims and beneficial shareholders

The Supreme Court of Appeal gave judgment last week in Smyth v Investec Bank Ltd (674/2016) [2017] ZASCA 147. A summary is available here (pdf). At issue was whether those owning shares beneficially through a nominee were able to seek relief under section 252 of the Companies Act 61 of 1973 (the unfair prejudice remedy).

Referring to section 103 (who are members of a company) of the Act, and authorities from other jurisdictions, the court unanimously held that the beneficial shareholders were unable to bring a claim under section 252: relief was available only to those whose names appeared in the register of members. The court also rejected the argument that the beneficial shareholders could, on the grounds that they had a direct and substantial interest in the section 252 proceedings, be joined as co-applicants.  Petse JA, delivering the judgment of the court, stated (para. [55]):
It was a simple matter for the appellants, if they wished to avail themselves of the remedy provided for in s 252 of the Act in their own names, to terminate the nomination of their respective nominees so as to procure the entry of their names in the register of ... members. Instead, they obdurately elected ‘to saddle what has proven to be an unruly horse’ by seeking to invoke the s 252 remedy in their own names as beneficial owners. They were ill-advised in doing so. As I see it, for as long as the nominees’ names remained in the register of members, the beneficial owners lacked a legal interest in the subject-matter of the litigation". 

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