SCA Ruling: Ownership Requires Proof, Not Just Assertion

In the case of Haralambos Prokas N O and Others v Zoviflo (Pty) Ltd, the Supreme Court of Appeal ("SCA") had to determine whether Zoviflo (Pty) Limited ("Zoviflo") had established that it owned 80% of the issued shareholding in Prinia Investment Capital (Pty) Limited ("PIC"). The Johannesburg High Court found that it did. The issue of ownership of 80% of the shareholding in PIC allegedly arose from a Nominee Shareholders Agreement ("the NSA") read with a Joint Venture Agreement ("the JVA") which acccording to Mr Mepha (the alleged sole director of Zoviflo), were concluded between the Prinia Heritage Trust ("the Trust"), Zoviflo and ZJ Purchase Assist (Pty) Limited ("ZJ").

In determining the question of ownership of the shareholding, three issues arose:

1. Whether the NSA was enforceable independently of the conclusion and implementation of the JVA;
2. Whether, assuming that they were interdependent, a binding and enforceable JVA was nevertheless concluded and implemented, and ancillary thereto, whether the NSA was validly concluded; and
3. Whether the alleged conclusion of the NSA and JVA by Mr Mepha on behalf of Zoviflo was properly authorised.

There were dispute of facts concerning the conclusion of the JVA and the NSA.

Zoviflo's version

Zoviflo contended that the JVA and the NSA were duly concluded and are valid and legally binding. It further contended that these agreements, primarily the NSA, provide that Zoviflo is the de facto, true and beneficial owner of 80% of the shareholding in PIC. In support of its contentions, Zoviflo attached a copy of the JVA (which was signed on behalf of the Trust and ZJ) and a copy of the NSA (which was signed on behalf of the Trust) to its founding affidavit. Both the JVA and the NSA attached to Zoviflo's founding affidavit did not reflect a signature on behalf of Zoviflo. However, Mr Mepha alleged that the two agreements were signed on behalf of Zoviflo on 26 March 2020.

The Trust's version

The Trust, on the other hand, alleged that:

1. The total issued shareholding in PIC at all material times was wholly owned by the Trust. The shareholding was to be changed simply to accommodate the aspirations to be achieved in PIC implementing the joint venture.
2. The JVA attached to Zoviflo's founding affidavit, although signed by the Trust, was a working document in respect of a joint venture that was contemplated between Zoviflo, the Trust and ZJ. That "working document" was replaced with a revised JVA which was concluded and signed after May 2026.
3. The NSA was also drafted and signed sometime after March 2020 but before May 2020. The NSA provided that the Trust would continue to hold the shares in PIC, but Mr Georgiou or a company of his (Zoviflo) would be the beneficial owner of 80% of the shares. However, it was understood that the terms and conditions of the NSA needed to be concluded together with the JVA.
4. Later, on 6 October 2020, a resolution was passed by the Trust and ZJ to declare the revised JVA null and void, and this was accepted by Mr Georgiou.
5. Since no valid and binding JVA was concluded, Zoviflo was not entitled to ownership of 80% of the issued shareholding in PIC.
6. It never engaged nor heard of Mr Mepha at the time of concluding the JVA and the NSA. The Trust engaged with Mr Georgiou, who at the time represented Zoviflo.

The High Court's Findings

The High Court made the following findings:

1. The NSA and the JVA alleged to be concluded on 26 March 2020 were valid;
2. There is no merit to the argument that the first JVA was merely a working document. The JVA was reduced to writing and signed by the parties concerned;
3. The JVA and the NSA are separate free-standing agreements, which meant that the NSA stood independent from the JVA;
4. The enforceability of the terms of the NSA was unaffected by the absence of the JVA or the lack of implementation of the JVA; and
5. The contention that Mr Mepha was not authorised to have concluded the NSA and JVA was without merit.

The SCA's Findings

Before determining the issues in dispute, the SCA highlighted the following:

1. Mr Mepha was not a party to the original discussions that resulted in the conclusion of the JVA and the NSA. He did not disclose how and when he gained possession of the copies of the JVA and NSA signed on behalf of the Trust.
2. Where factual issues are disputed, the version of the Trust and the PIC should prevail in accordance with the trite principles established in Plascon-Evans Paints (Pty) Ltd v Van Riebeeck Paints. "Motion proceedings resolve disputes on common cause facts. Where the facts are not common cause, they cannot be resolved on probabilities".

First issue before the SCA: was whether the NSA was independent of the conclusion of the JVA?

The SCA determined this issue first since the issue of the validity of the JVA only arises if the NSA is not enforceable as a separate agreement. The SCA dealt with this issue on the assumption that both agreements are valid and binding. This was done on the basis of convenience. However, the court also expressed conclusions regarding the existence and the validity of the NSA, which provided additional basis for the appeal to succeed.

This issue was determined by considering the interpretation of the two agreements, particularly looking at the text, context, and purpose of the agreements. The SCA concluded that the two agreements are interdependent for inter alia the following reasons:

1. Wording of the agreements: The JVA expressly required the simultaneous conclusion of the NSA.
2. Purpose and context of the agreements: "Although the separate JVA and NSA documents sought to address different aspects, they relate to the same prospective purpose, namely shareholding in and establishing the corporate structure which was to acquire and develop [a] Portfolio. If it was not for the JVA, having as its purpose to build up [a] Portfolio, there would be no reason and purpose for the NSA to be concluded". Furthermore, "if there is no valid JVA then the common underlying assumption on the basis of which the parties contracted with each other fell away. Consensus on all the terms of their agreement would be lacking, and the NSA could not be enforced separately"

Second issue before the SCA: was a valid and binding JVA and NSA concluded?

Both the NSA and the JVA do not reflect the date on which Mr Mepha signed them, although he contended that he signed them on 26 March 2020. If this were true, it would mean that the agreements contain all the necessary signatures required for a conclusion of valid agreements. However, Mr Mepha's version is not probable in light of the Trust's evidence, which must prevail:

1. Even if the court applied the principle of caveat subscriptor (let the signer beware) and find that the "working document" is binding on the Trust since the document was signed on the Trust's behalf, the signed "working document" merely contains an offer, being the terms on which the Trust would be prepared to contract with Zoviflo and ZJ. Such offer could be revoked at any stage prior to acceptance by the revocation being conveyed to the offeree, in this instance Mr Georgiou representing himself and Zoviflo.
2. This offer was revoked when the Trust made it clear to Mr Georgiou that the Trust was not happy with its terms. This was also expressed in an email dated 30 March 2020. In the same email, the Trust requested that the NSA referred to in the JVA be drafted by a lawyer.
3. Upon receipt of the email, Mr Georgiou did not contend that the offer had been accepted by Mr Mepha or that the NSA had previously been prepared and signed by Mr Mepha. Rather, Mr Georgiou entertained the Trust's objections to the offer and sent the revised JVA on 12 May 2020, which varied the terms of the offer.
4. Since the NSA still had to be drafted on 30 March 2020, it could not have been signed by Mr Mepha on 26 March 2020, as he contends. In respect of the "working document", not only was it revoked and not open for acceptance, but there was a counteroffer contained in the revised JVA. This revised JVA, although subsequently signed by the Trust and ZJ, was never signed by Zoviflo. It, therefore, remained incomplete and unenforceable.
5. Additionally, whatever offers to conclude any JVA and NSA that might have still existed were finally revoked by a resolution that was adopted by the Trust and ZJ that the joint venture would not be proceeded with. When the resolution was communicated to Mr Georgiou, he conceded that the agreement was null and void and that nothing had come of it.

Mr Mepha's version that the JVA and NSA was signed by him on 26 March 2020 was therefore rejected. The SCA found that Zoviflo failed to establish that there was a valid NSA or JVA which could be enforced. Consequently, the issue of Mr Mepha's authority to sign the agreements on behalf of Zoviflo fell away.

Alternative argument by Zoviflo

Zoviflo argued, in the alternative, that Zoviflo already owned the 80% shares in PIC prior to any of the agreements being signed and that the NSA recognised that the shareholding was owned by Zoviflo. The SCA rejected that argument and held that Zoviflo did not provide any factual basis for its contention that it had already become the owner of the 80% shares before the NSA was purportedly concluded. The SCA held that "[t]he acknowledgement in the NSA that Zoviflo was the de facto and beneficial owner is insufficient to discharge the onus of establishing ownership. Ownership is a conclusion of law and is not established by a mere assertion but by pleadings the facts to establish ownership."

Conclusion

The SCA concluded that Zoviflo failed to establish that a valid JVA and NSA were concluded between the parties, and the appeal was upheld. The High Court's order was replaced with an order dismissing the application with costs, including the costs of two counsel.

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