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[2016] ZAGPJHC 386
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Seevnarayan v Ramjathan (13710/2012) [2016] ZAGPJHC 386 (28 October 2016)
REPUBLIC
OF SOUTH AFRICA
IN
THE HIGH COURT OF SOUTH AFRICA
GAUTENG
LOCAL DIVISION, JOHANNESBURG
CASE
NO: 13710/2012
Not
reportable
Not
of interest to other judges
Revised.
28
October 2016
In
the matter between
SEEVNARAYAN
PRANCIP
PLAINTIFF
And
RAMJATHAN
GOVESH
DEFENDANT
JUDGMENT
VICTOR
J:
[1]
The plaintiff claims payment of the sum of R4 million in respect of a
loan which he advanced to the defendant. He also claims
interest at
the rate of 11% per annum calculated monthly in arrears from 20
February 2011. The defendant alleges that the transaction
was not a
loan but a simulated transaction to obtain the South African Reserve
Bank’s authorisation to send money out of
the country.
The
loan
[2]
On 7 March 2011 and at Durban the plaintiff and defendant concluded a
written agreement of loan. It was recorded that the defendant
needed
a loan. The defendant accepted the loan on the terms and
conditions set out in the written document and agreed that
the amount
of R4 million would be paid back into a bank account nominated by the
plaintiff one year after the effective date, being
21 February 2012.
The defendant was obliged to pay interest at the agreed rate which
was reflected in the loan agreement and interest
would accrue on the
sum of R4 million until such time as the loan was repaid.
[3]
The agreed rate meant prime rate plus 2%, see clause 1.11.1.
The prime rate was defined as the publically quoted basic
interest
rate of interest compounded monthly in arrears and calculated on a
365 day per annum at a rate published by the Standard
Bank of South
Africa as being its prime overdraft rate as set out by any
representative of that bank.
[4]
The defendant expressly renounced the benefits of exceptio non
numeratae pecuniae and non-causa debiti, revision of accounts
error
in calculus and he confirmed that he understood the meaning of the
exceptions and the effect of their renunciation, see clause
5. The
payment date meant a calendar year from the effective date and the
defendant would be entitled to repay the loan on any
date prior to 12
months from the effective date. A breach by the defendant of any
terms or conditions of the loan would constitute
an event of default,
see clause 8.1 and no amendment or consensual calculation of the loan
agreement or any provision or term thereof
or any agreement or
document issued or executed would be valid unless such was recorded
in a written document signed by both parties.
[5]
The plaintiff complied with his obligations and on 22 February 2011
paid the amount of R4 million into the defendant’s
bank
account. One year later being 21 February 2012 the plaintiff pleaded
that the defendant breached the agreement.
[6]
In the particulars of claim there was reference to a demand in terms
of the National Credit Act. All matters pertaining to the
National
Credit Act were finally abandoned as well as the unjust enrichment
claim which was pleaded as an alternative in the event
that the loan
was not enforceable in terms of the National Credit Act. By argument
stage it was evident that the defendant would
not pursue any
contravention of the National Credit Act.
[7]
The defendant admitted his signature to the loan agreement. He also
stated that he did not intend to conclude a loan agreement
or incur
any obligations or acquire any rights in respect of the purported
loan agreement. He pleaded that it was not intended
to be a genuine
loan agreement between the plaintiff and the defendant but was a
simulated transaction to facilitate the South
African Reserve Bank
clearance for the transfer of monies overseas. He pleaded that the
funds sent to the Montpellier Rugby Club
in France were on behalf of
the company that the plaintiff and defendant were previously
directors of, being One World Communications
Company (Pty) Ltd (One
World Communications). He pleaded further that the plaintiff did not
have a tax clearance certificate and
therefore would not be permitted
to remit funds overseas.
[8]
The defendant claimed that on 22 February 2011 the amount of R4
million was transferred from Espro (Pty) Ltd to the plaintiff’s
bank account and was then transferred into his bank account. He
forwarded this amount of R4 million from his bank account to pay
for
the obligations which had been incurred to the Montpellier Rugby Club
in France.
Background
[9]
There is a significant history to the relationship between the
plaintiff and defendant which is relevant to assessing whether
the
loan was a simulated transaction. In 2009 the plaintiff’s
father instructed an IT company in India to design a
computer app in
the form of a communication system. The plaintiff and defendant
through One World Communications would distribute
this communication
app within South Africa. The app involved cell phone
communication at very low cost. The intention was
to distribute this
product in South Africa then in France.
[10]
The communication app failed. It was the defendant’s duty to
see to the proper design and functioning of the communication
app
since he had the necessary IT skills and knowledge. A lot of money
was spent by the plaintiff’s father who paid through
one of the
companies to get the product to work but it failed. In order to
gain this market in France, the plaintiff and
defendant through One
World Communications undertook a sponsorship of the Montpellier Rugby
Club which was in need of financial
assistance. They believed that
through this club and all its fans, members and University students
the communication app would
be a major success. However, the app
ultimately failed. It was quite clear that the plaintiff’s
father who was the
real financier through the various family trusts
and companies became concerned about the sponsorship because the
communication
app could not operate and he suggested very strongly to
the plaintiff and defendant that the sponsorship should not be
entertained
as the app would not be ready in time for the launch of
the sponsorship programme. However, the plaintiff and defendant
went
ahead with the sponsorship project. The plaintiff’s
father was also concerned that three months of sponsorship at
€100 000.00
per month commencing from January 2011 would
simply not be financially feasible having regard to the major
difficulties getting
the communication app to work.
[11]
Be that as it may, in January 2011 the plaintiff and defendant
requested the plaintiff’s father to come all the way to
France
to try and promote the idea of this sponsorship but the plaintiff’s
father was clearly against the project.
During the course of
trying to launch the company in France contact had been made with
Ernest and Young in France. The plaintiff’s
father already
unhappy with the project was further upset with the input from Ernest
and Young and therefore on 15 January 2011
a meeting was held with
Ernest and Young in Durban in order to facilitate the funding of the
launch in France. The upshot of that
further meeting was that Ms
Beukes of Ernst and Young was ultimately called in to advise. She
suggested that because the plaintiff
and defendant were in a hurry to
get the money to France, because they had committed themselves to the
sponsorship, that they each
obtain the permission of the South
African Reserve Bank to send the money abroad. During the course of
those negotiations the plaintiff
and defendant were advised to set up
trusts in Mauritius in order to make the operation completely
separate from the South African
operation of One World
Communications. Those trusts were duly set up.
[12]
Matters were delayed and the date for paying over the sponsorship was
close therefore there was increasing urgency to get the
money to
France. Ms Beukes advised that the easiest way to get the money
to France was for the plaintiff and defendant to
each use their
Reserve Bank allowance of R4 million per annum and send that to
France. She was not told of the fact initially
that the
defendant did not have the money, but eventually it was clear to her
that the defendant would have to loan the money from
the plaintiff so
as to get the money to France and get the project off the ground.
[13]
The defendant’s case is that the entire loan transaction was
simulated to ensure the speedy transfer to funds to France.
Simulated
Transaction
[14]
It is necessary to analyse very carefully this alleged simulated
transaction. The law on simulated transactions has been dealt
with in
Roshcon (Pty) Ltd v Anchor Auto Builders CC & others
2014
(4) SA 319
(SCA) and the
Commissioner South African Revenue
Services v Bosch & Another
2015 (2) SA 174.
The dictum
in
Roshcon
is that each case must be a based on a fact
sensitive analysis. Shongwe JA referred in his judgment to the
fact that for
a Court to declare a transaction a simulation it does
not have to look at any particular legislation but has to look at the
facts
of each particular case.
[15]
Innes JA stated in
Zandberg v Van Zyl
1910 AD 302
that the
test which must be applied when considering an agreement which may or
may not be said to be a simulation is: ‘
The
inquiry, therefore, is in each case one of fact, for the right
solution of which no general rule can be laid down. Perezius
(
Ad.
Cod., 4.22.2)
remarks
that these simulations may be detected by considering the facts
leading up to the contract, and by taking account of any
unusual
provision embodied in it.’
[16]
In
CSIRS v NWK
2011 (2) SA 67
(SCA
)
para 55 Lewis JA defined the test as follows: ‘
In
my view the test to determine simulation cannot simply be whether
there is an intention to give effect to a contract in accordance
with
its terms. Invariably where parties’ structure a transaction to
achieve an objective other than the one ostensibly achieved
they will
intend to give effect to the transaction on the terms agreed. The
test should thus go further, and require an examination
of the
commercial sense of the transaction: of its real substance and
purpose. If the purpose of the transaction is only to achieve
an
object that allows the evasion of tax, or of a peremptory law, then
it will be regarded as simulated. And the mere fact that
parties do
perform in terms of the contract does not show that it is not
simulated: the charade of performance is generally meant
to give
credence to their simulation.’
[17]
Reference was also made by the parties to the case of
Dadoo Ltd
and others v Krugersdorp Municipal Council
1920 AD 530
at 548
where Innes J reasoned that: ‘
Parties
may generally arrange their transactions so as to remain outside its
provisions. Such a procedure is in the nature of things
perfectly
legitimate. There is nothing in the authorities, as I
understand them to forbid it, nor can rendered illegitimate
by the
mere fact that the parties intend to avoid the operation of law and
selected a course of convenience in its result as another
which would
have brought them within it. An attempted evasion, however, may
proceed along other lines. The transaction contemplated
may in
truth be within the provisions of the statute that the parties may
call it a name or cloak it in a guise calculated to escape
these
provisions. Such a transaction would be
in
fraudem legis
and the
Court would strip off its form and disclose its real nature.’
[18]
In
Roschcon
Wallis JA concurred with the judgment but
elaborated further on the test referred to in
NWK
(supra).
He states as follows at paragraph 34: ‘
The
problem dealt with in NWK was the contention that irrespective of the
unreality of most of the elements of the arrangement under
scrutiny
provided the parties intent to take all the steps provided for in the
contractual documents, in other words, to jump through
the
contractual hoops as a matter of form, the Court could not find that
the transaction was simulated.’
[19]
Wallis JA also referred to NWK where Lewis JA dealing with substance
over form of the transaction stated as follows: ‘
If
the purpose of the transaction is only to achieve an object that
allows the evasion of tax, or of a peremptory law, then it will
be
regarded as simulated. And the mere fact that parties do perform in
terms of the contract does not show that it is not simulated:
the
charade of performance is generally meant to give credence to their
simulation.’
[20]
Wallis JA held found that the position remains that the Court
examines the transaction as a whole including all surrounding
circumstances, all unusual features of the transaction and the manner
in which the parties intend to implement it before determining
in any
particular case whether a transaction is simulated.
[21]
In this case therefore, it is necessary that the matter be approached
in a fact sensitive manner. The evidence presented by
the plaintiff
was that of the plaintiff himself and his father. The defendant
testified and did not call any additional witnesses.
It was clear to
me that the defendant in cross-examination had great difficulty
identifying the real agreement that was disguised
by the contract of
loan. The defendant on several occasions testified that the loan
agreement was not between the parties reflected
on the face of the
contract and that he was to be a surety. He testified to this after
the plaintiff and his father had completed
their testimony.
[22]
The defendant in cross-examination stated that he intended to agree
to the terms of the contract in his capacity as a director
of One
World Communications but not in his personal capacity. The defendant
accepted that the only issue was that of identity of
the parties to
the contract and the contract had to be amended to reflect the true
agreement but no rectification was sought. In
cross-examination he
was adamant that One World Communications should be substituted for
his name as the borrower of Espro Capital
(Pty) Ltd and One World
Communications should be substituted as a debtor.
[23]
This trial was preceded by an opposed application which was
ultimately referred to trial. The defendant’s case was clear
in
the preceding opposed application that he was a conduit for the money
that had to be sent to the Montpellier Rugby Club, that
the South
African Reserve Bank allowed his money to go through in order to
accommodate the transfer of funds from the plaintiff’s
father
and the plaintiff himself because the plaintiff’s record with
the Revenue Services had certain difficulties.
[24]
A further witness was called on behalf of the plaintiff, Ms Chanel
Beukes, a senior tax manager at Ernest and Young Advisory
Services.
The defendant made it very clear in cross-examination that Ms Beukes
was not in collusion with the simulated transaction
and that she
really knew nothing about it. The defendant claimed that on 24
May 2012 she requested a copy of a loan between
the defendant and One
World Communications. However, it was clear both to the
plaintiff and the defendant that Ms Beukes
only knew about a loan
agreement that was involved between the plaintiff and the defendant
and not between the defendant and One
World Communications.
[25]
Neither the plaintiff nor the defence called Mr Padyachee who drafted
the loan agreement. A further factor is that up until
the time that
the relationship between the plaintiff and the defendant soured there
was no suggestion that this loan agreement
was a simulated
transaction. The defendant believed that the project in France
would generate a lot of revenue to the extent
of R500 000.00 a
month profit and that he could easily repay the sum of R4 million in
the time available that is that one
year agreement.
[26]
The defendant criticised the evidence of the plaintiff on several
grounds, namely, that the attorney, Mr Padyachee, who drafted
the
agreement was not called. However, this particular criticism
also applies to the defendant. It was for the defendant
to
provide sufficient and persuasive evidence to demonstrate that the
loan agreement was a simulated transaction. So therefore,
the
inference that I am to draw is not against the plaintiff for not
calling Mr Padyachee, but against the defendant since he pleaded
that
the loan agreement was a simulated transaction. It is unlikely that
an attorney would have drafted a loan agreement with the
amount of
detail that I have referred to for the purposes of a simulated
transaction and to merely make the defendant a conduit
for the
transfer of monies to the Montpellier Club.
[27]
I am also mindful of the undisputed fact that the plaintiff’s
father had several financial interests abroad and that
from time to
time used his overseas investments, all legal, to pay their
liabilities abroad. His funds seemed to remain in those
overseas
countries. It was both the evidence of the plaintiff and the
plaintiff’s father that if indeed the defendant
was not to be
involved in the financing of this project, the plaintiff and the
plaintiff’s father could easily have sent
the money to the
Montpellier Rugby Club from one of their overseas companies. In
fact, the evidence seems to suggest that
both the plaintiff’s
father and the various family members still had the necessary Reserve
Bank allowances for that year
and they could have easily sent the
money to France without using the defendant as a conduit.
[28]
The defendant’s conduct, has to be assessed in the
circumstances. He signed the loan agreement. He had time to peruse
the loan agreement for a few days before he signed it. He had
contact with Ms Beukes and nowhere did he say to her that he
was not
prepared to sign the loan agreement because it was not a genuine loan
and there were many other opportunities for him to
raise the fact
that he was not liable to the plaintiff for this money. By the
time the defendant testified he had a multiplicity
of versions.
[29]
On behalf of the defendant, the plaintiff’s evidence was
criticised, in particular the omission in the annual financial
statements of reference to the R4 million loan. In this regard it is
clear and unequivocal that the money initially came from the
plaintiff’s own trust fund. The plaintiff loaned an
amount of R8 million from the Trust in respect of which he was
a
beneficiary. That money was then paid to the plaintiff and he
advanced the R4 million to the defendant. It is undisputed
that the
that the annual financial statement for the trust for the year ended
February 2011 reflected loans receivable from the
defendant as being
R4 million and therefore the plaintiff was criticised as to why he,
the plaintiff, was claiming the money and
not the PST Trust where the
loan to the defendant was reflected. The submission on behalf of the
defendant was that the loan in
the annual financial statement should
have been that the Trust advanced to the plaintiff himself an amount
of R8 million and the
minute should have recorded that from that R8
million he loaned the defendant R4 million. This submission was
not conclusive
or indicative that the loan of the money to the
defendant was a simulated transaction.
[30]
The plaintiff was invited to bring his own return to the Receiver to
demonstrate that he had reflected the loan to the defendant.
The documents were never forthcoming. However, the analysis
that I have to do is a fact sensitive one and it seems to me
that I
cannot lose sight of the fact that there is a written loan
agreement. If the liability was to be only that of the
plaintiff then it is clear to me that there were sufficient avenues
for him to get the amount of R4 million to France without the
need of
using the defendant as a conduit.
[31]
The evidence is clear that round about the time of this loan the
relationship between the plaintiff’s father and the
defendant
was very strained. A lot of money had been put into this
communication app to no avail. It was clear therefore
the plaintiff’s
father had washed his hands of this project and that he thought it a
complete waste of money. There
were also many occasions in
which the defendant could have raised the question of the loan but
did not do so. He did not
do so in his discussions with Ms
Beukes and he certainly did not do so at a very heated meeting which
took place in Durban when
the Montpellier project and the App had
failed. At that meeting nowhere does he demand clarification of the
fact that it was not
a loan and that he was a conduit. At that very
same meeting in Durban the plaintiff’s father made both the
plaintiff and
the defendant forfeit their shareholding in One World
Communications and the defendant happily agreed to that and did not
raise
the question of the loan even at stage. It was only much
later.
[32]
Therefore, the starting point is that I have to look at the true
nature of the transaction. I also have to look at the financial
circumstances regarding the transaction. Nowhere do I find any
commercial reason or any unusual feature that the plaintiff would
have used the defendant as a conduit. I have to examine the
transaction as a whole, see NWK supra, and to look at any unusual
features of the transaction and the manner in which the parties
intended to implement them before deciding whether this loan was
a
simulated transaction.
[33]
A difficulty for the defendant was that he suddenly produced an
unsigned suretyship agreement after the plaintiff and his father
had
testified. In this unsigned suretyship agreement he stated that he
intended to sign as surety for proportionate share for the
loan from
Espro Capital to One World Communications of which he was a
shareholder and director. This added further confusion
as to
exactly what the defendant’s case was.
[34]
The suretyship agreement was raised by the defendant at a very late
stage of the trial after the plaintiff and his father had
given
evidence. The import of this suretyship agreement was that the
defendant would then be a surety and not a debtor or receiver
of the
loan. It is a document consisting of some 8/9 pages and it certainly
was not signed, but the defendant alleges that it was
generated at
the time and that this was corroborative of his submission that the
loan was advanced to One World Communications
and not to him. It
therefore made it very difficult to ascertain what the true intention
or the simulated transaction was.
[35]
It is very difficult to ascertain from the defendant’s evidence
that One World Communications and Espro would be parties
to a
contract. Nothing of this is to be found in the trusts that were set
up in Mauritius and in the documentation presented to
Ms Beukes of
Ernest and Young. It was only when the defendant was finally
sidelined after the complete collapse of the various
projects that he
then asserted that the loan was to One World Communications. This is
where the evidence of Mr Kovasian Padyachee
was critical and the
defendant, in my view, was the party who should have called Mr
Padyachee because by this time the only credence
that could be given
to the defendant’s evidence was that Mr Padyachee was party to
this simulated transaction and generated
a false loan agreement for
the parties. It would seem to me that the defendant’s
evidence that Espro was a party to
the contract was something that
was tailored to suit the various documents utilised during the trial.
[36]
The defendant conducted himself in a manner and testified in a manner
which was contradictory to his version in the opposed
application, in
his plea and the number of written statements that were inconsistent
with his version. The defendant was silent
and acquiesced until the
demand for repayment was made. In
McWilliams v First Consolidated
Holdings (Pty) Ltd
1982 (2) SA 1
(A), Miller JA stated the
following at page 10 E - H: ‘
But
in general where according to ordinary commercial practice and human
expectation firm repudiation of such an assertion would
be the norm
if it was not accepted as correct. Such party’s silence
and inaction, unless satisfactorily explained may
be taken to
constituting an admission by him of the truth of the assertion or at
least will be an important factor telling against
him in the
assessment of the probabilities and in the final determination of the
dispute.
Reference
was also made to
Tattersall
and Another v Nedcor Bank Ltd
[1995] ZASCA 30
;
1995 (3) SA 222
(A)
,
Nestadt JA at 231.
[37]
In my view, the various letters written by Ms Beukes that the
plaintiff and defendant individually would be applying for exchange
control approval in respect of the R4 million per calendar year
permitted for private individuals was undisputed, and furthermore
there was silence and acquiescence on the part of the defendant.
When a copy of the loan agreement was requested repeatedly
by Ms
Beukes, starting 14 February 2011 again the defendant acquiesced and
did not raise the question of the loan being a simulation
but was
quite happy to sign the loan agreement.
[38]
On 2 March 2011 it is clear from the evidence that
Mr Padyachee
sent an email to the plaintiff and the defendant attaching the loan
agreement and informing them that they were drafting
notes for
attention. Again, the defendant acquiesced and did not demand
an explanation from Mr Padyachee, certainly in any
email exchange as
to why he was now required to sign a loan when there was no such loan
intended.
[39]
Again, the defendant’s acquiescence and silence can be
ascertained from an email dated 25 April 2011 when Ms Edu sent
an
email to the defendant, this is from Mauritius, in which she said:
‘
The
business plan of One World Holdings, (that is the holding company in
Mauritius), mentions a shareholders loan of South African
R12 million
but the trusts each only hold $100 at that stage. Please
confirm when the money will be invested in the trusts
which will in
turn loan this money to OWC Holdings. Please also confirm the
source of these funds.’
[40]
On the 27
th
, that is two days later, of April 2011 the
plaintiff replied to the email that was copied to the defendant in
which he said:
‘
The
R12 million you referred to is the total amount we intend to invest
in the company. Both Kavesh (defendant) and I had
invested a
total of
R8 million thus far.’
[41]
It is important that the defendant did not correct the facts in the
letter. If the plaintiff was fabricating his reference
to words ‘we
intend investing’ should have been corrected by the defendant.
The letter regarding the R12 million
is also illustrative of
the plaintiff’s understanding that he and the defendant were
investing money and that because they
were business partners and that
he was happy to lend the money to the defendant.
[42]
On 24 May 2011, Beukes sent an email that was copied to the defendant
in which she said:
‘
We
also need to agree on the treatment of the R4 million that went
straight from Kavesh’s account, (that is the defendant’s
account) to France, on behalf of his trust.’
[43]
Again nowhere does the defendant question Those facts and it is only
at the end of May 2011 when it was clear that the project
would not
get off the ground that suddenly there is a flurry where he then
instructs Mr Padyachee to write a letter to Beukes about
the signed
loan agreement between himself and One World and saying that an
amendment is required to record the extent of the loan.
Again,
there were silence from the defendant and Mr Padyachee is not called.
[44]
The plaintiff referred to the various probabilities. It is
quite clear that the plaintiff’s father came to a stage
where
he would not advance anymore money. The plaintiff and defendant
doggedly went ahead with the project and to me it was
quite clear
that the defendant would have to borrow money if he wished to
continue. I find that it was clear that the plaintiff,
being his
business partner and friend at that stage, was quite happy to lend
him the money.
[45]
I therefore find that the facts in this case are inconsistent with a
simulated loan. They are more consistent and it is more
probable that
both the plaintiff and defendant and especially the defendant thought
that the project in France would be hugely
successful, even to the
extent that the defendant was prepared to register a trust in
Mauritius so that the project could be completely
offshore. He was
convinced that he would be able to repay the loan in a very short
time and therefore was happy to sign a loan
agreement in terms of
which he would have to repay the money within a year. There are
further aspects of the defendant’s
evidence which I found
unsatisfactory. As his cross-examination proceeded and
progressed he tailored his evidence to be consistent
with
documentation adverse to his version which was put to him and in
particular the loan accounts. I find that the defendant was
an
unsatisfactory witness whose testimony became increasingly false as
the case proceeded. His silence and inaction is significant
in
undermining his version. In preparing for trial he would have been
advised of the importance of the suretyship agreement.
The
order that I would make is therefore the following:
The
defendant is ordered to pay to the plaintiff the sum of
R4
million.
Interest
at the rate of 11% per annum compounded monthly in arrears from 20
February 2011 until date of payment.
The
defendant is ordered to pay the costs of suit.
_________________________
M
VICTOR
JUDGE
OF THE SOUTH GAUTENG
HIGH
COURT, JOHANNESBURG