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[2012] ZAGPJHC 30
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Livanos NO and Others v Oates and Others (16115/11) [2012] ZAGPJHC 30; 2013 (5) SA 165 (GSJ) (14 March 2012)
NOT REPORTABLE
SOUTH GAUTENG HIGH COURT,
JOHANNESBURG
CASE NO
:
16115/11
DATE:14/03/2012
In the matter between:
MARK
DEMETRIOS LIVANOS
N.O.
...........................................
First
Applicant
BERNADETTE
LIVANOS N.O.
..............................................
Second
Applicant
MARK
DEMETRIOS
LIVANOS.
.................................................
Third
Applicant
BERNADETTE
LIVANOS
........................................................
Fourth
Applicant
and
LESLIE
OATES
.......................................................................
First
Respondent
ARCHITECTURAL
HARDWARE CC
................................
Second
Respondent
THE
MASTER OF THE HIGH COURT
..................................
Third
Respondent
THE REGISTRAR OF COMPANIES
AND
CLOSE CORPORATIONS
..........................................
Fourth
Respondent
J U D G M E N T
WEPENER, J
:
[1] The applicants, the
executors of an estate, seek an order declaring that the estate of
the deceased has validly sold the deceased
estate’s 50%
membership interest in the second respondent to the third applicant
in terms of a sale agreement and additional
relief. The first
respondent filed a counter-application for a declaration that the
agreement of sale is unenforceable and for
its setting aside. The
first respondent also seeks to review the decision of the third
respondent’s consent to the sale.
[2] The first and second
applicant (Mark), is the son of the deceased. The second and fourth
applicant (Bernadette), is the wife
of the deceased. They brought
the application both in their personal capacities and as the duly
appointed executors of the estate
of the deceased. The first
respondent, Oates, has a 50% member’s interest in a close
corporation in which the deceased held
the other 50%. The second
respondent is the close corporation (the corporation), which owns a
business and the third respondent
is the Master of the High Court,
whilst the fourth respondent is the Registrar of Companies and Close
Corporations.
[3] The facts are largely common
cause, but where there are conflicts I will approach it on the basis
that Mark bears the
onus
in respect of the application brought by him and Oates bears the
onus
in respect of a counter-application, subject to the normal rules
governing disputes of fact in motion proceedings. See
Luster
Products Inc v Magic Style Sales CC
1997 (3) SA 13
(A) 21H. The normal rules are that the applicant will
be entitled to final relief on the undisputed facts together with the
facts
contained in the respondent’s affidavit and the
respondent will, in its counter-application, be subject to the same
rules
regarding the counter-application.
Plascon-Evans
Paints Ltd v Van Riebeeck Paints (Pty) Ltd
[1984] ZASCA 51
;
1984 (3) SA 623
(A).
[4] The factual disputes in the
main application are few. The parties are
ad
idem
regarding the
issue that falls to be determined. The disputes of fact relate to the
relationship between Mark and Oates and their
respective conduct
towards each other, all of which have no bearing on the
interpretation of the parties’ rights pursuant
to s 35 as read
with s 34(2) of the Close Corporations Act, 69 of 1984 (the “
Close
Corporations Act
&rdquo
;).
The applicant sets out the issues out as follows:
“
13.
The second applicant and me as the executors in the deceased estate
have sold the deceased’
s 50%
interest in the corporation to me
personally in terms of
section 35(b)(iii)
as read with
section 34(2)
of the
Close Corporations Act. Notwithstanding that
this sale has
become effective and is to be implemented in terms of
section
34(2)(c)
of the
Close Corporations Act, the
first respondent has
refused to co-operate in giving effect to the sale including the
signing of an amended founding statement
in order to enable lodgement
of the amended founding statement with the fourth respondent,
reflecting the transfer of the deceased’
s 50%
interest to me
and reflecting me as a 50% member in the corporation.
The first respondent contends that he as the remaining member of
the corporation is entitled to purchase the deceased’
s 50%
interest in the corporation at a fair market value, that he is
prepared to do so and that accordingly he is not obliged to consent
to or co-operate in giving effect to the sale by the deceased estate
of the deceased’
s 50%
interest to me.
The central issue in this application is the interpretation of
section 35
as read with
section 34(2)
of the
Close Corporations Act.
The
applicants contend that upon a proper interpretation of these
sections, the sale by the deceased estate of the deceased’
s
50%
interest in the corporation to me is effective and that the
first respondent must co-operate in giving effect thereto.
The first respondent contends
that upon a proper interpretation of
section 35
read with
section
34(2)
of the
Close Corporations Act he
is entitled to purchase the
deceased’
s 50%
interest at a fair market value (which, the
first respondent contends has been valued by his professional valuer
in the sum of
R10,7 million) and accordingly need not accede to the
sale by the deceased estate to me of the deceased’
s 50%
interest.
”
The response by Oates is:
“
This
is a fair summary of the respective positions taken up by the
parties. The issue is indeed the interpretation of
section 35
read
with
section 34(2)
of this Act. In addition however the validity of
the Master’s consent is in issue in the counter-application.
”
[5] Although there was an
earlier agreement of sale of the 50% member’s interest by the
executors to Mark, it was later substituted
with an amended agreement
and nothing turns on that issue and I am not called upon to decide
anything in relation thereto.
[6]
Sections 34
and
35
of the
Close Corporations Act read
as follows:
“
34.
Disposal of interest of insolvent member.
–
(1) Notwithstanding any provision to the contrary in any association
agreement or other agreement between members, a trustee
of the
insolvent estate of a member of a corporation may, in the discharge
of his or her duties, sell that member’s interest
–
to the corporation, if there are one or more members other than
the insolvent member;
to the members of the corporation other than the insolvent
member, in proportion to their member’s interest or as they
may
otherwise agree upon; or
subject to the provisions of
subsection (2
),
to any other person who qualifies for membership of a corporation in
terms of
section 29
.
(2) If the corporation
concerned has one or more members other than the insolvent, the
following provisions shall apply to a sale
in terms of
subsection
(1)(c
) of the insolvent
member’s interest:
The trustee shall deliver to the corporation a written statement
giving particulars of the name and address of the proposed
purchaser,
the purchase price and the time and manner of payment
thereof;
for a period of 28 days after the receipt by the corporation of
the written statement the corporation or the members, in such
proportions as they may agree upon, shall have the right,
exercisable by written notice to the trustee, to be substituted as
purchasers of the whole, and not a part only, of the insolvent
member’s interest at the price and on the terms set out in
the
trustee’s written statement; and
if the insolvent member’s interest is not purchased in
terms of paragraph (b), the sale referred to in the trustee’s
written statement shall become effective and be implemented.
35. Disposal of interest of
deceased member.
–
Subject to any other arrangement in an association agreement, an
executor of the estate of a member of a corporation who
is deceased
shall, in the performance of his or her duties -
cause the deceased member’s interest in the corporation to
be transferred to a person who qualifies for membership of a
corporation in terms of
section 29
and is entitled thereto as
legatee or heir or under a redistribution agreement, if the
remaining member or members of the corporation
(if any) consent to
the transfer of the member’s interest to such person; or
if any consent referred to in paragraph (a) is not given within
28 days after it was requested by the executor, sell the deceased
member’s interest –
to the corporation, if there is any other member or members than
the deceased member;
to any other remaining member or members of the corporation in
proportion to the interests of those members in the corporation
or
as they may otherwise agree upon; or
to any other person who
qualifies for membership of a corporation in terms of
section
29
, in which case the
provisions of
subsection (2
)
of
section 34
shall mutatis mutandis apply in respect of any such sale.
”
[7] It is common cause that
there existed no association agreement between Oates and the deceased
that regulated the relationship
between them. The result is that the
executors were free to apply the provisions of
s 35
unfettered by
provisions of an association agreement.
S 35
of the
Close
Corporations Act regulates
the disposal by an executor of an interest
of a deceased member in a close corporation.
S 35(a)
provides that
an executor is first to seek a transfer of a deceased member’s
interest to the legatee or heir and that such
transfer can only be
effected if the remaining members of the corporation consent to the
transfer. It is common cause that Bernadette
is the sole heir of the
deceased’
s 50%
member’s interest and that the executors
requested Oates, as the remaining member, to consent to the transfer
of the deceased
member’s interest to Bernadette as the heir.
It is further common cause that Oates declined to consent to the
transfer of
the member’s interest to Bernadette as heir.
[8] Oates, having not given the
requisite consent within 28 days in terms of
s 35(a)
, the executors
were entitled to proceed to sell the deceased member’s interest
in terms of
s 35(b)
of the
Close Corporations Act.
[9
] The executors sold the
member’s interest to Mark for the sum of R16 million (as per a
substituted agreement). On 18 June
2009 Oates, as remaining member of
the close corporation, was requested by the executors to consent to
the transfer of the deceased’
s 50%
member’s interest in
the close corporation to Mark. The executors, on behalf of the
estate, addressed a letter to the close
corporation enclosing a copy
of the sale agreement of the member’s interest from the
deceased estate to Mark. The request
was made in terms of
s 35
as
read with
s 34(2)
of the
Close Corporations Act. Oates
did not
consent to the transfer within 28 days as provided for in
s 34(2)
of
the
Close Corporations Act. Pursuant
to
s 35(b)(iii)
this would be a
proposed sale as envisaged in that subsection. A failure to transfer
deceased member’s interest pursuant
to
s 35(a)
results in the
executor’s obligation to act pursuant to
s 35(b).
Section 35
uses the word “
shall
”
and it was argued that the provisions of
s 35(b)
are consequently
mandatory. It can only be mandatory if one reads the subsections of
s 35(b)
disjunctively i.e. as “
or
”
and not only as “
or
”
between subsections (ii) and (iii) because an executor can never be
compelled, in the absence of obtaining a transfer pursuant
to
s
35(a)
, to sell such interest to the corporation or any of its
members, as provided for in
s 35(b)(i)
as none of them may wish to
purchase it. “
Moreover,
the executors simply may not be able to sell the interest:
construing the language literally, this would mean that the
Legislature intends that he is to be in breach of the Act. This
cannot have been intended. It is accordingly submitted that,
notwithstanding the use of the word ‘shall’ and the
grammatical effect of the usage in the section as a whole, s 35
should be construed on the basis that the provisions of para (a) are
mandatory but those of para (b) are permissive
.”
See Meskin: Henochsberg on The
Close Corporations Act Com-80
.
Indeed, conceptually, the executors cannot unilaterally impose a sale
on anyone in any of the categories contained in
s 35(b).
There is no
provision in the
Close Corporations Act as
to a basis upon which an
executor would be obliged to sell the member’s interest to the
corporation or the remaining members
in terms of sub-sections (i) or
(ii).
[10] The section does not oblige
the executor to sell the member’s interest to the corporation
or the remaining members.
The intention of the legislature is clearly
that in the event of
s 35(a)
not being applicable, that the executors
can dispose of the member’s interest in one of the three
manners provided for in
s 35(b).
[11] Oates had the opportunity
to acquire the member’s interest when he first received the
letter but he failed to do so
within the time period prescribed.
[12] The executors were
therefore free to employ the options contained in
s 35(b)
and, in
particular, the option contained in
s 35(b)(iii).
Having entered
into a sale with a person who qualifies, i.e. Mark, the executors
also had to comply with the provisions of
s 34(2).
At this stage the
corporation or the remaining member is entitled, in terms of
section
34(2)(b)
, to exercise what is effectively a pre-emptive right within
28 days of receipt of the applicable written statement to be
substituted
as purchaser for the member’s interest at the price
and on the terms set out in the written statement and that if they
fail
to do so, then the sale to Mark will become effective and be
implemented. However, Oates recorded that he wished to purchase the
member’s interest at an agreed price failing which a mechanism
should be agreed to determine the value of the member’s
interest. Mr Gautschi, appearing for Oates, argued that an objective
market value must be determined. For this proposition Mr
Gautschi
referred to
s 36
of the
Close Corporations Act, which
requires a
court to determine a value of a member’s interest in the case
of a dispute between members.
[13]
Section 36
has no
application to a sale of the member’s interest from a
deceased’s estate and if the legislature wished a fair
value to
be placed on the price on the member’s interest pursuant to
ss
34
and
35
of the
Close Corporations Act, it
could so have stated in
these sections. The maxim
inclusio unius, est exclusio alterius
is applicable and the provisions referred to in
s 36
have no
application to
ss 34
and
35
. In my view,
ss 34(2)
and
35
are clear
and there is no warrant to read in to it the requirement of fair
value as argued by Mr Gautschi. The power conferred
upon a court in
terms of
s 36(2)
is limited to where the court makes an order in
terms of
s 36
of the
Close Corporations Act and
provided the grounds
for such relief are present. There is no reason to transpose that
power into
s 35
, the latter which is clear in its content and
meaning. The price which Oates or the corporation had to match in
order to be substituted
as purchasers was that which was contained in
the written statement referred to in
s 34.
Oates failed to exercise
his pre-emptive right in terms of
s 35(b)(iii)
as read with
s 34(2)
of the
Close Corporations Act to
match the offer, and the sale to
Mark became effective. It cannot be doubted that a person, like Mark,
may wish to purchase his
father’s member’s interest for
reasons of his own, and as he says, even at a premium. It was common
cause that, if
the interpretation contended for by the applicants is
upheld, there was compliance with the sections.
[14] Having come to this
conclusion, the values obtained by the respondent in order to justify
what he regards as a fair value
for the member’s interest, take
the matter no further.
[15] Oates, for a number of
reasons set forth in his affidavit, does not wish Mark to be his
co-member in the corporation. This
he could have prevented but he
failed to exercise the options available to him pursuant to the
provisions of
ss 34
and
35
of the
Close Corporations Act.
[16
] Pursuant to
s 49
of the
Administration of Estates Act 66 of 1965
, the Master of the High
Court is required to sanction a sale of any property in an estate to
an executor of that estate. The reason
seems obvious: The Master is
to ensure that the executors do not act to the detriment of the
estate in order to enrich themselves.
It is the executor’s duty
to obtain the best price for the estate. The Master did so give her
consent. The counter-application
is aimed at setting aside the
decision of the Master’s consent to the sale. The argument is
that the Master had to also
take into account the interests of third
parties, such as Oates, in deciding whether to consent to the sale.
If it could be said
that this argument is correct (which I do not
accept as correct), Mark offered R16 million and Oates wanted to
offer an amount
in excess of R 5 million less. The interests of the
estate are paramount and it is the Master’s duty to see that
its interests
are best served. The Master is to guard against any
potential conflict between the estate and the executor. See
Meyerowitz Administration
of Estates and Estates Duty (2007 ed) p
13-11. Where a sale is concluded with the knowledge and consent of
the heir, as in the
case in this matter, there should be no obstacle
to the sale. Meyerowitz at p 13-11 and
Ex
Parte van Niekerk
1918
(CPD 108). Oates’ interests are not of such a nature that they
should form part of the facts to be considered by the
Master as those
interests are removed from the interests of the estate. Indeed,
Oates’ offer would be prejudicial to the
estate. The lesser
offer by Oates will not serve the interests of the estate and it
would in my view, be contrary to the interests
of the deceased estate
if an executor is to be compelled to dispose of the deceased’s
member’s interest at a price
lower than the price offered by
Mark. There is consequently no basis to review the decision of the
Master.
[17] Mr Gautschi argued that
because the Master stated:
“
Since
there was no objection lodged with the Master by the first
respondent, I therefore consented to the sale,
”
it was a concession that the
rights of Oates had to be considered. I do not agree. That statement
by the Master must be seen in
the light of paragraph 1 of the report
which states:
“
The
first respondent’s notice of counter-application, with
annexures, were received by me on 24 May 2011 and same corresponds
with my records insofar as it relates thereto.
”
Clearly, the Master reacted to
the documents served upon her after she had taken the decision and
she only became aware of the counter-application
when the documents
were so served. The statement is factually correct and it is not, in
my view, a concession that she should
have had regard to the
interests of Oates when considering the interests of the estate when
approving the sale in terms of
s 49
of the
Administration of Estates
Act.
[18
] Mr Gautschi argued that the
sale to Mark was not be
bona
fide
. The
onus
of successfully questioning the
bona
fides
of the sale is
on the first respondent. See Meyerowitz at p 13-11 and the cases
there cited. If this test is stated too high,
it is still the
applicant’s version (together with the admitted facts) that
must be considered. The argument was based on
speculative averments
by Oates in his affidavit, all of which were denied by Mark. The
speculation and argument are effectively
countered by a number of
facts. Firstly, insofar as the facts are disputed, reliance is to be
be placed on the applicants’
version. Thus the disputes as to
the value of the member’s interest must be determined on Mark’s
version as he is
the respondent in the counter-application. That
version shows that the price offered by him is justified. Secondly,
the sale to
Mark was an open and transparent process and the sole
heir approved of it. Thirdly, payment of the R16 million will be
reflected
in the liquidation and distribution account. Fourthly,
estate duty will have to be paid on the full purchase price.
Fifthly,
the Master will have control over the sale and speculation
to the contrary is premature. The speculation regarding Mark’s
ability to pay can also not affect the sale. The ability to pay comes
into play at the time when payment must be made.
[19] In the circumstances, the
attack on the sale to Mark as not being
bona
fide
, fails and the
Master’s decision consequently does not fall to be reviewed and
set aside on the basis suggested by Oates.
[20] If I am wrong in this view,
s 49
of the
Administration of Estates Act allows
for the Master or
the court to consent to a sale from an estate to an executor thereof.
Mr Gautschi argued that I should refer
the matter back to the Master
in the event of my reviewing the Master’s decision. I do not
agree. Insofar as there may
be a technical defect regarding the time
periods allowed by the Master and in the event of her decision being
reviewable for that
reason, it is clear that all of the facts are
before me and there is nothing that is contained in the affidavits of
Oates to indicate
that he did not place his case fully before the
court or that there may be additional information to be placed before
the Master
who would then be in a better position to exercise a
discretion.
[20] Insofar as it may be
necessary, I consent to and confirm the sale of the 50% member’s
interest of the deceased to Mark.
[21] I consequently grant the
following order:
1. Declaring that the deceased
estate of Dimitrios Constantin Livanos (“
the
deceased
”) with
Master’s reference number 3251/09, as represented by the first
and second applicants, has validly sold the deceased
estate’
s
50%
member’s interest in the second respondent to the third
applicant in terms of the sale agreement annexed as “
MDL22
”
to the founding affidavit (“
the
sale
).
2. Directing the first and
second respondents to take such steps as are necessary to give effect
to the implementation of the sale
with effect from 26 February 2011,
including the signature of the amended founding statement annexed
hereto as “
NOM1
”
and lodging in the prescribed form an amended founding statement,
with the fourth respondent in terms of
s 15(1)
of the
Close
Corporations Act, 69 of 1984
, failing which, authorising the Sheriff
or Deputy Sheriff to take such steps as are necessary to give effect
to the implementation
of the sale, including the signature of the
amended founding statement and any further documents.
3. Directing the fourth respondent to register the amended founding
statement upon payment of the prescribed fee and upon lodging
of the
amended founding statement in the prescribed form.
4. Directing the first
respondent to pay the costs of the application, including the costs
of two counsel.
5. The counter-application is
dismissed with costs, including the costs of two counsel.
_____________________________
W L WEPENER
JUDGE OF THE SOUTH GAUTENG
HIGH COURT, JOHANNESBURG
COUNSEL FOR THE APPLICANTS: ADV
A SUBEL SC
WITH B GILBERT
INSTRUCTED BY: ALLAN LEVIN
AND ASSOCIATES
COUNSEL FOR THE RESPONDENT: ADV
A GAUTSCHI SC
WITH P STRATHERN
INSTRUCTED BY : YAMMIN
HAMMOND ATTORNEYS
DATE OF HEARING: 1 MARCH 2012
DATE
OF JUDGMENT: 14 MARCH 2012