Ndebele and Another v Industrial Development Corporation of South Africa and Others (GJ) (unreported case no 21687/2021, 25-7-2023) (Strydom J)It is trite that the old Latin phrase – pacta sunt servanda, which means ‘agreements must be kept’ – was and still is the cornerstone of the law of contract. In the case of Ndebele, which was handed down on 25 July 2023, the Johannesburg Local Division of the High Court had to determine whether the provisions of a call option in terms of a shareholders’ agreement were contrary to public policy and ubuntu, alternatively, impossible to perform and, therefore, unenforceable. In this article we deal with how the High Court specifically dealt with the issue pertaining to ubuntu.
The Industrial Development Corporation of South Africa (IDC) loaned and advanced the sum of R 57 million to Odiweb (Pty) Ltd (Odiweb) for the acquisition of immovable properties to be used in the establishment of a solar power electricity generating plant in the Northern Cape. Odiweb was established as a special purpose vehicle for purposes of the project whose issued share capital was 100% held by Emvelo Holdings (Pty) Ltd (Emvelo). Mr Ndebele held 100% of Emvelo’s issued share capital, 49,17% of which was sold to the IDC for a nominal amount of R 59. As security for the shareholder loan, Emvelo pledged 50,83% of its shares in Odiweb to the IDC in terms of a cession and pledge agreement.
In broad context, the contractual arrangement between the parties and Odiweb provided that the IDC shareholder’s loan to Odiweb had to be repaid by 1 April 2015, otherwise, the IDC could exercise the IDC call option for a call option price of R 51. Upon the exercise of the IDC call option, the IDC would become 100% shareholder of Odiweb.
On 2 April 2015, the IDC exercised its first call option to acquire Emvelo’s 50,83% shares in Odiweb the latter having failed to repay the shareholder loan. However, following the initiation of arbitration proceedings between the IDC and Emvelo, the first exercise of the IDC call option was subsequently abandoned by the IDC. This was done in order to give Odiweb more time to pay back the shareholder loan.
On 6 March 2017, the IDC exercised its second call option, with the shareholder loan remaining unpaid. Ndebele and Emvelo challenged the validity and legality of the IDC’s exercise of the second call option in which they sought various declaratory orders, including a declaration that the terms of the IDC call option and the IDC call option price were contrary to public policy and against ubuntu; alternatively, impossible to perform and, therefore, unenforceable.
On the concept of ubuntu, the court relied on what was explained in the judgment handed down by the Constitutional Court (CC) in the case of Beadica 231 CC and Others v Trustees, Oregon Trust and Others 2020 (5) SA 247 (CC) in which it was said:
‘[Ubuntu] emphasises the communal nature of society and “carries in it the ideas of humaneness, social justice and fairness” and envelopes “the key values of group solidarity, compassion, respect, human dignity, conformity to basic norms and collective unity.”’
The CC went on to hold that: ‘(i) the law of contract dictates that agreements concluded by parties should be upheld and that this is necessary in order to ensure that the law of contract is predictable, so that parties may regulate their conduct accordingly; (ii) it is only where a contract is so unreasonable and so unfair so as to be against public policy that a contract can be overturned; and (iii) the subjective view of judges on the unfairness or unreasonableness of a contractual term is irrelevant; it is only whether a contract (or a term of a contract) goes against public policy (the general norms of society) that a court should refuse to enforce it.’
In casu, it was stated that where the court is dealing with an individual businessman, such as Mr Ndebele seeking to make money for himself or his entity, does not require that the concept of ubuntu should come to their assistance.
Furthermore, the court emphasised the implementation of commercial contractual terms had nothing to do with the communal nature of society, which carries in it the ideas of humanness, social justice, and fairness. It stated that group solidarity does not enter the fray and as a result, compassion cannot be called on where a party’s sole aim is to make money. In order to achieve this goal, the court stated that one must freely and voluntarily enter into commercial contracts.
By not accommodating Mr Ndebele and Emvelo, either by allowing Emvelo to remain a shareholder in Odiweb or paying fair value for its shares in Odiweb, the court held that the concept of respect, human dignity, conformity to norms, and collective unity were not compromised. The court found that the use of ubuntu as a line of defence to avoid the consequences of the shareholder’s agreement should fail. The application was dismissed with costs, including the costs of two counsel.
Mongezi Mpahlwa BCom (Law) LLB (UWC) is a legal practitioner and Kgabi Moeng BA LLB (Wits) is a candidate legal practitioner. Both legal practitioners work at Cliffe Dekker Hofmeyr in Johannesburg. Mr Mpahlwa was involved in the above matter.
This article was first published in De Rebus in 2023 (Oct) DR 40.
