Case name:
Stand 242 Hendrik Potgieter Road Ruimsig (Pty) LTD v Gobel (SCA) (Unreported case, no 246/10,1-6-2011)

Area of law:
Section 228 of the Companies Act 61 of 1973, Sections 112 and 115 of the Companies Act 71 of 2008, and the Turquand rule

Brief facts/summary: 
The first appellant had purchased from the seventh respondent (Bubesi) immovable property that constituted Bubesi’s sole asset. The directors of Bubesi had declared to the appellant that the asset was not the whole or greater part of Bubesi’s assets and that the sale had been approved by the shareholders. Both submissions were in fact incorrect.
For various reasons, Bubesi did not perform in terms of the contract. The appellants then applied for an interdict preventing Bubesi from dealing with the property on the basis of non-compliance with section 228 of the old Companies Act.
The appellants relied on the Turquand rule to protect their claim. The Turquand rule protects a third party that has contracted with a company in good faith in circumstances where there has not been compliance with the company’s internal procedures but where the third party assumes that there has been such compliance.                             
The SCA, in this case, ended years of uncertainty and ruled that the Turquand rule had no application in the context of section 228 and that the agreement concluded by the first appellant and Bubesi was invalid.      

Importance/value: 
This case has confirmed that the Turquand rule may not be relied on as a defence for non-compliance with section 228 of the old Companies Act or sections 112 and 115 of the new Companies Act. The legislators intention was to protect the interest of shareholders in a company that hand over control of a company to a director and not to a third party contracting with the company.
Third parties to transactions that fall within the ambit of these sections must take extra care to ensure that the company’s internal procedures have been fully complied with. They should also bear in mind that the new act has imposed new obligations.

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