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[2014] ZASCA 40
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Roshcon (Pty) Limited v Anchor Auto Body Builders CC and Others (49/13) [2014] ZASCA 40; [2014] 2 All SA 654 (SCA); 2014 (4) SA 319 (SCA) (31 March 2014)
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THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case
no: 49/13
In
the matter between:
ROSHCON
(PTY)
LIMITED
....................................................................................
Appellant
and
ANCHOR
AUTO BODY BUILDERS CC
................................
First
Respondent
FIRSTRAND
BANK
LIMITED
................................................................
Second
Respondent
THEODOR
WILHELM VAN DEN HEEVER NO
...................................
Third
Respondent
MPOYANA
LAZARUS
LEDWABA
.........................................................
Fourth
Respondent
NISSAN
DIESEL (SOUTH AFRICA)
(PROPRIETARY)
LIMITED
......................................................................
Fifth
Respondent
CMH
COMMERCIAL
WESTMEAD
......................................................
Sixth Respondent
UNITRANS
SUPPLY CHAIN SOLUTIONS
(PROPRIETARY)
LIMITED T/A
UNITRANS
SUGAR AND AGRICULTURE
.......................................
Seventh
Respondent
Neutral
citation:
Roshcon (Pty) Ltd v Anchor
Auto Body Builders CC
(49/13)
[2014]
ZASCA 40
(31 March 2014)
Coram:
Maya, Shongwe, Wallis, Petse, Saldulker
JJA
Heard:
12 March 2014
Delivered:
31 March 2014
Summary:
Ownership – movable property –
supplier and floor plan agreements reserving ownership to finance
house as security over
the trucks before they were fully paid for by
purchaser – whether a simulated or disguised transaction
– test
to be applied – each case to be decided on its own
merits.
ORDER
On
appeal from:
North Gauteng High Court,
Pretoria (Louw J sitting as court of first instance):
The
appeal is dismissed with costs including costs of two counsel.
JUDGMENT
Shongwe
JA (Maya, Wallis, Petse and Saldulker JJA concurring)
[1]
This appeal in a nutshell revolves around the question who is the
lawful and true owner of five Nissan trucks (the trucks).
These were
three 9 ton trucks and two 14 ton trucks. The appellant, Roshcon
(Pty) Ltd (Roshcon) claimed to be the true owner of
all the trucks.
It was in possession of two of the 9 ton trucks when litigation
started and the second respondent, Firstrand Bank
Limited (trading as
Wesbank), was in possession of the third. When the application for a
declaration of rights commenced in the
North Gauteng High Court,
there were seven respondents. But the
lis
was eventually limited to Roshcon, Wesbank and Unitrans. Wesbank
filed a counter-application for an order directing Roshcon to
deliver
to it the two trucks in its possession. The application was dismissed
with costs and the counter-application was granted
with costs. This
appeal is with leave of the court a quo.
[2]
It is instructive to mention, without elaborating, the parties
involved in this matter – the appellant, Roshcon is in
the
business of infrastructure development, civil and electrical
infrastructure, and waste beneficiation throughout Sub-Saharan
Africa. The first respondent, Anchor Auto Body Builders CC (Anchor),
is in the business of repair and construction of truck sub-frames
and
load bodies. The second respondent is Firstrand Bank, trading as
Wesbank (Wesbank). The third and fourth respondents are cited
in
their official capacities as the provisional liquidators of Toit’s
Commercial (Pty) Limited (in liquidation) (Toit’s).
The fifth
respondent, Nissan Diesel (SA) (Pty) Limited (Nissan Diesel) is a
supplier of motor vehicles and in particular supplied
the five trucks
which form the subject of this appeal. The sixth respondent is CMH
Commercial Westmead, a Nissan Diesel franchise
dealership (CMH). The
seventh respondent is Unitrans Supply Chain Solutions (Pty) Limited
(Unitrans).
[3]
The facts are largely common cause. Roshcon was granted a contract in
early September 2008, which required it to purchase five
trucks which
were to be fitted with specialized cranes to modify the trucks to
suit the particular project. Roshcon ordered the
five trucks from
Toit’s. Toit’s in turn ordered the trucks from Nissan
Diesel. This transaction was financed by Wesbank.
Nissan Diesel
supplied the vehicles under a ‘supplier agreement’ it had
concluded with Wesbank in terms of which it
sold and Wesbank
purchased and paid for the vehicles that authorised Nissan dealers,
such as Toit’s, wanted for their customers.
Toit’s had a
separate ‘floor plan agreement’ with Wesbank in terms of
which Wesbank provided finance to Toit’s
for the acquisition of
motor vehicles. The vehicles purchased by Wesbank from Nissan Diesel
would be delivered directly to Toit’s
or to such person as
Toit’s may from time to time direct.
[4]
Clause 6.1 of the ‘supplier agreement’ reads as follows:
‘
6.1
It is recorded that it is the express purpose of this agreement to
ensure that ownership in and to the vehicles shall pass to
and remain
vested in Wesbank until such time as payment has been received
therefore from the relevant authorised dealer.’
Whereas Clause 8.1
of the ‘floor plan agreement’ reads as follows:
‘
8.1
The sale of the goods is made on the suspensive condition that, until
payment of the selling price be made by the Dealer in
full in terms
of the relevant invoice with interest thereon as shall from time to
time be stipulated by the Bank and all other
amounts, if any, due in
terms of or in connection with the agreement, the ownership in the
goods shall not pass to the Dealer but
shall be and remain with the
Bank, and nothing herein contained nor any act or omission of the
Bank shall be deemed to vest ownership
in the goods in the Dealer
until such payment shall have been made’.
[5]
The five trucks were delivered to Anchor on Toit’s’
instructions to have modifications undertaken to the sub-frames
and
load bodies to enable cranes to be fitted to the trucks. On 19
November 2008 two trucks were delivered to Roshcon having
been
modified. The other three trucks would be delivered on 21 November
2008. A handover sheet for the two trucks was signed by
the
representatives of Roshcon and Anchor. On 21 November 2008, Roshcon
took delivery of the remaining three trucks, though it
did not
physically remove them, but only signed the handover sheet. There was
apparently a technical misunderstanding which required
the trucks to
be modified further, in that the outrigger supports for the cranes
would not fit in the trucks as modified, so that
they would require
further modification. This resulted in a further delay in the payment
process by Roshcon to Toit’s. On
28 November 2008 the
documentation constituting proof of delivery, was handed over to
Roshcon and Roshcon effected payment for
all five trucks to Toit’s.
However, Anchor was not prepared to release the three trucks because
Toit’s had not paid
for the modifications. Then Roshcon paid
for the work done by Anchor, but by then Toit’s had gone into
liquidation, and Anchor
refused to release the trucks on the
instructions of Wesbank, which claimed ownership of the trucks as
Toit’s had not yet
paid for them.
[6]
The matter was now in the hands of the attorneys who exchanged
letters and emails. On 22 December 2009 Anchor released the three
trucks to Wesbank. Wesbank then sold the two 14 ton trucks to
Unitrans.
[7]
Roshcon contended that the supplier agreement and the floor plan
agreement were a disguise or simulation. It alleged that the
floor
plan agreement was a loan against the security of the trucks without
Wesbank having to take possession thereof, thereby securing
an
advantage which the law would otherwise not allow. Wesbank contended
that the onus of proving a simulated agreement rested on
Roshcon and
that Roshcon has failed to discharge such onus. Wesbank regarded this
transaction as a simple arm’s length agreement
between a
manufacturer which wished to sell its products and a bank which
wanted to make money by financing transactions of this
nature. Toit’s
on the other hand, a reputable dealer that was in the business of
selling vehicles, including Nissan trucks,
wanted to sell vehicles to
its customers, but required finance. Wesbank further contended that
this procedure is employed by most
financial institutions in South
Africa today in effecting asset based finance with the proviso to
reserve ownership as security
to protect itself.
[8]
Roshcon pleaded in the alternative that Wesbank was estopped from
claiming ownership of the trucks. Wesbank contended that Roshcon
failed to discharge the onus as it never made any representation to
Roshcon that Toit’s was the owner of the trucks or was
entitled
to dispose of them. Roshcon contended that by conduct Wesbank
represented to it that Toit’s had had the authority
to transfer
ownership. In claiming ownership Roshcon contended that it acquired
ownership when it took delivery of the trucks and
paid Toit’s
in full for the five trucks. It contended that ownership claimed by
Wesbank is based on simulated agreements
contained in the supplier
agreement and the floor plan agreement which are ineffectual. Roshcon
further contended that the reservation
of ownership in the floor plan
agreement concealed a loan agreement secured by a pledge without
possession, but purporting to be
a sale agreement.
[9]
The court a quo found:
‘
In
my view there were sound reasons for the parties to structure their
transactions in the way they did, and the agreements make
commercial
sense. A dealer needs vehicles to sell but doesn’t have the
money to pay for the vehicles. He will be able to
pay for the
vehicles when he sells them but needs finance in the interim. The
financial institution (bank) agrees to provide the
finance but
requires security. Security in the form of a pledge is impractical
because, for it to be effective, the bank has to
be in possession of
the vehicles. But the dealer needs to be in possession in order to
offer the vehicle for sale to its customers.
The supplier agreement
and the floor plan agreement provide the bank with the security which
it requires and enables the dealer
to offer the vehicle for sale to
its customers. Should the dealer dispose of a vehicle without first
paying the bank, the bank
will be entitled to vindicate the vehicle
from whoever is in possession thereof.’
And
I agree with this conclusion.
[10]
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. Both Roshcon and Wesbank referred to
Zandberg
v Van Zyl
1910 AD 302
, at 309, in respect of the test to be
applied when considering an agreement which may or may not be said to
be a simulation. Innes
J in
Zandberg
said:
‘
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
: of
its real substance and purpose’.
In
CSARS v NWK
2011 (2) SA 67
(SCA) para 55 Lewis JA postulated
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
….’
[11]
There is a plethora of cases dealing with transactions capable of
being, regarded as simulated and also containing reservation
of
ownership clauses, such as
Commissioner
for Inland Revenue v Conhage (Pty) Ltd (formerly Tycon (Pty) Ltd)
1999 (4) SA 1149
(SCA);
Bank Windhoek
Bpk v Rajie
1994 (1) SA 115
(A);
Nedcor
Bank Ltd v ABSA Bank Ltd
1998 (2) SA
830
(W);
Vasco Dry Cleaners v Twycross
1979 (1) SA 603
(A). On the view that I take that it all depends on
the facts of each case – it will not be necessary to compare
and contrast
all these cases. Some of them have facts which are
distinguishable from the present case.
[12]
It is appropriate at this stage to deal with the
Nedcor
case, supra, in which Cloete J relied on the minority judgment of
Nienaber JA in
Bank Windhoek Bpk v Rajie
at 145C-D to conclude that the floor plan agreement was a simulated
transaction that did not have the effect in law of transferring
ownership in the vehicle. I am of the view that the facts in
Rajie
are distinguishable from the
Nedcor
case and consequently from the facts of the present case.
In
Rajie
the motor dealer Hoosain, wished
to donate a vehicle (which he already owned) to his wife. What then
happened was the dealer sold
the vehicle to the bank which in turn
sold it back to the dealer for the same price, plus finance charges,
in terms of an instalment
sale agreement. In the present case Toit’s
did not own the trucks when they were financed by Wesbank. Wesbank
instead paid
Nissan Diesel for the trucks and implemented the
transaction between itself and Toit’s in terms of the floor
plan agreement
which reserved ownership to itself as security. The
facts in the present case seem to be on all fours with the facts in
Nedcor.
In as far as Cloete J considered the floor plan agreement in
Nedcor
–
and perhaps all floor plan agreements which reserve ownership for
purposes of security – as simulated I consider
that decision,
with due respect, to be clearly wrong.
[13]
Turning to the facts of this case – Toit’s approached
Nissan Diesel, as per their agreement, ordering the five
trucks –
Nissan Diesel referred the order to Wesbank to vet and approve the
transaction. In terms of the supplier agreement
which existed between
Nissan Diesel and Wesbank, Wesbank paid for the vehicles and invoiced
Toit’s – it stipulated,
inter alia
, that ownership
of the trucks is reserved to it. This procedure was followed in
compliance with the provisions of the supplier
agreement and the
floor plan agreement. In terms of clause 5.1 of the floor plan
agreement:
‘
Goods
purchased by the Bank from a Supplier, other than the Bank, shall be
delivered by the Supplier direct to the Dealer who hereby
agrees to
accept delivery thereof, as agent for and in the name of the Bank, or
shall be delivered to such person as the Dealer
may from time to time
direct as the agent of the Dealer and the Dealer or such person shall
accept delivery of the goods and hold
them, subject to the terms and
provisions of this agreement.’
Delivery
to Anchor on behalf of Toit’s in consultation with Roshcon was
in my view proper delivery which made Wesbank the
owner of the
trucks. Toit’s handed over all the necessary documents to
Roshcon – but could not in law hand over or
transfer ownership
to Roshcon. At some stage Roshcon became aware that Toit’s had
not yet paid for the trucks and therefore
took the risk in paying
Toit’s the full amount. That in itself should have raised a red
flag to Roshcon regarding the question
of ownership.
[14]
I agree with the court a quo that parties may arrange their affairs
to avoid statutory prohibitions, provided their arrangement
does not
result in a simulated transaction and is consequently in
fraudem
legis
. See
Dadoo and others v Krugersdorp Municipal Council
1920 AD 530
at 548 where Innes CJ reasoned that –
‘…
parties
may genuinely 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 it be rendered illegitimate
by the mere
fact that parties intend to avoid the operation of the law, and the
selected course is as convenient 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 statue, but the parties may call it
by a name or cloak it in a guise,
calculated to escape these
provisions. Such a transaction would be in
fraudem
legis
; the court would strip off its
form and disclose its real nature, and the law would operate.’
Also
in
Commission of Customs and Excise v Randles, Brothers &
Hudson Ltd
1941 AD 369
at 395-396 where Watermeyer JA said:
‘
A
transaction devised for that purpose, if the parties honestly intend
it to have effect according to its tenor, is interpreted
by the
Courts according to its tenor, and then the only question is whether,
so interpreted, it falls within or without the prohibition
or tax.
A
disguised transaction in the sense in which the words are used above
is something different. In essence it is a dishonest transaction:
dishonest, in as much as the parties to it do not really intend it to
have,
inter
partes
,
the legal effect which its terms convey to the outside world. The
purpose of the disguise is to deceive by concealing what is
the real
agreement or transaction between the parties. The parties wish to
hide the fact that their real agreement or transaction
falls within
the prohibition or is subject to the tax, and so they dress it up in
a guise which conveys the impression that it
is outside of the
prohibition or not subject to the tax. Such a transaction is said to
be
in
fraudem legis
,
and is interpreted by the Courts in accordance with what is found to
be the real agreement or transaction between the parties
….’
[15]
The fundamental issue therefore is whether the parties actually
intended that the agreement that they had entered into should
have
effect in accordance with its terms. Wesbank, Nissan Diesel and
Toit’s did not have a secret understanding between them,
nor
has Roshcon shown anything of that nature. In determining whether a
transaction is simulated, a crucial and often decisive
question is
whether the parties to the contract intended to give effect to it
according to its tenor (see
Michau v
Maize Board
2003 (6) SA 459
(SCA) para
4). It is said that one of the most common forms of tax avoidance is
where the parties to a contract attempt to disguise
its true nature
in order to qualify for a tax benefit that would not be available if
the true contract between them were revealed.
Our courts require no
statutory powers to ignore pretence of this kind, and the law will
always give effect to the real transaction
between the parties. (See
Zandberg
(supra) at 309).
[16]
On 3 March 2009 Toit’s was placed under provisional
liquidation. It failed to pay the purchase price of the trucks to
Wesbank. Therefore it never became the owner of the trucks nor was it
able to pass ownership thereof to Roshcon. I am of the view
that
Roshcon failed to discharge the onus of proving that the agreement is
simulated or disguised. The ownership reserved to Wesbank
in the
floor plan agreement is good in law in the circumstances of this
case. On this aspect the appeal must fail.
[17]
I now turn to the question of estoppel. Roshcon pleaded in the
alternative that in the event that this court finds that Wesbank
became or remained the owner of the trucks after delivery to Toit’s
(or its agent), then Wesbank should be estopped from
asserting
ownership in respect of the two trucks in possession of Roshcon as
well as the three trucks already in the possession
of Wesbank. The
correct position is that the estoppel principle will apply only to
the three trucks, two of which were already
in Roshcon’s
possession and the one in Wesbank’s possession. The other two
trucks had already been sold by Wesbank
to Unitrans who in turn sold
them to CMH Commercial. It is not in dispute that the onus is on
Roshcon to prove estoppel –
B&B
Hardware Distributors (Pty) Ltd v Administrator Cape
1989 (1) SA 957
(A) at 964D.
[18]
It is trite that the requirements of proving estoppel are, (a)
representation by the owner, by conduct or otherwise, that the
person
who disposed of his property was the owner or was entitled to dispose
of it, (b) the representation must have been made
negligently in the
circumstances; (c) the representation must have been relied upon by
the person raising the estoppel, and (d)
such person’s reliance
upon the representation must be the cause of his detriment. (See
Oriental Products (Pty) Ltd v Pegma 178 Investments Trading CC and
Others
2011 (2) SA 508
(SCA) para 19 and
Oakland Nominees Ltd
v Gelria Mining & Investment Co Ltd
1976 (1) SA 441
(A) at
452 D-G). In
Electrolux (Pty) Ltd v Khota
1961 (4) SA 244
(W)
at 247B-E Trollip J warned that:
‘
To
give rise to the representation of
dominium
or
jus
disponendi
,
the owner's conduct must be not only the entrusting of possession to
the possessor but also the entrusting of it with the
indicia
of the
dominium
or
jus
disponendi
.
Such
indicia
may be the documents of title and/or of authority to dispose of the
articles …’.
[19]
In the present case Wesbank could not have made any representation to
Roshcon because the trucks were delivered to Anchor,
through the
request of Roshcon. Anchor was to effect certain modifications to the
trucks. At that stage Roshcon was not even aware
of the involvement
of Wesbank. Toit’s was well aware of the floor plan agreement
and the fact that ownership had been reserved
in favour of Wesbank –
therefore the
indicia
of the
dominium
was absent. The facts in
Quenty’s
Motors (Pty) Ltd v Standard Credit Corporation Ltd
[1994] ZASCA 41
;
1994
(3) SA 188
(A) are distinguishable from this case.
Quenty’s
dealt with goods sold on consignment and I endorse the findings of
the court a quo in this regard. The requirement of negligence
is also
absent as Toit’s was contractually barred from disposing of the
trucks without first paying for them. Wesbank could
not reasonably
have suspected that Toit’s may be wound up or that it may
breach the floor plan agreement. Wesbank and Toit’s
had been
doing business together for 10 years and therefore an element of
trust and professionalism existed between them. Clearly
Roshcon could
not have relied upon any representation by Wesbank. The undisputed
evidence shows that Roshcon relied on the representation
made by
Toit’s. For these reasons the defence of estoppel must fail. It
is not necessary to deal with the last requirement.
[20]
The appellant’s case throughout was that it became the owner of
the trucks upon delivery and handing over to Toit’s.
The
evidence clearly shows that ownership was indeed reserved to Wesbank
in both the supplier and floor plan agreements. Wesbank
could not
have transferred ownership to Roshcon expressly or by conduct. On a
conspectus of all the evidence Roshcon failed to
prove that the floor
plan agreement and the supplier agreement are a simulation or
disguise. Nor did Roshcon prove that Wesbank
is estopped from
claiming the three trucks. The result is the appeal is dismissed.
[21]
The following order is made:
The
appeal is dismissed with costs including costs of two counsel.
J
B Z SHONGWE
JUDGE
OF APPEAL
Wallis
JA (Maya, Shongwe, Petse and Saldulker JJA concurring)
[22]
I
have read the judgment of Shongwe JA with which I agree. I add
something of my own merely because it appeared from the submissions
made to us that there may be a misconception regarding the proper
approach to simulated transactions. In Roshcon’s heads
of
argument it was submitted that in
South
African Revenue Services v NWK Limited
,
[1]
this court developed or clarified the test laid down in previous
judgments of this court and thereby took our law in that regard
in a
new direction.
[23]
The
foundation of our law in regard to simulated transactions is the
classic statement by Innes J in
Zandberg
v Van Zyl
[2]
that:
‘
Now,
as a general rule, the parties to a contract express themselves in
language calculated without subterfuge or concealment to
embody the
agreement at which they have arrived. They intend the contract to be
exactly what it purports; and the shape which it
assumes is what they
meant it should have. Not infrequently, however (either to secure
some advantage which otherwise the law would
not give, or to escape
some disability which otherwise the law would impose), the parties to
a transaction endeavour to conceal
its real character. They call it
by a name, or give it a shape, intended not to express but to
disguise its true nature. And when
a Court is asked to decide any
rights under such an agreement, it can only do so by giving effect to
what the transaction really
is: not what in form it purports to be.
The maxim then applies
plus valet quod
agitur quam quod simulate concipitur
.
But the words of the rule indicate its limitations. The Court must be
satisfied that there is a real intention, definitely ascertainable,
which differs from the simulated intention. For if the parties in
fact mean that a contract shall have effect in accordance with
its
tenor, the circumstances that the same object might have been
attained in another way will not necessarily make the arrangement
other than it purports to be. The inquiry, therefore, is in each case
one of fact, for the right solution of which no general rule
can be
laid down.’
[24]
In
Zandberg
v Van Zyl
a woman who owed £50 to her son-in-law purported, some 18
months after incurring the debt, to sell a wagon to him in exchange
for her discharge from the debt. However, she retained the use and
possession of the wagon at all times and it was agreed between
her
and her son-in-law that she could repurchase the wagon at any time
for £50. When her son-in-law wished to use the wagon
for his
own purposes he was permitted to do so, but always accompanied by one
of Mrs van Zyl’s other sons, and on the basis
that the wagon
would be returned to her immediately he had finished his business
with it. The court held, having regard to all
the circumstances, that
the parties intended to dress up what was in reality a pledge as a
sale. The case is but one of a number
in which our courts have held
that the device of a sale has been used by a creditor, frequently one
who is in a close personal
relationship with the debtor, to seek to
secure the benefits of a pledgee, without depriving the debtor of the
use of the goods
that are the subject of the transaction.
[3]
[25]
There
is a common feature to many of these cases in that prior to the
transaction in question the goods that were the subject matter
of the
purported sale were in the possession of the debtor and remained in
their possession after the sale. In other words they
were cases where
it was contended that delivery had occurred by way of
constitutum
possessorium
.
That is a form of delivery that is always carefully scrutinised by
courts because it affords scope for third parties dealing with
the
possessor of the goods to be deceived into thinking that the
possessor is also the owner thereof.
[4]
In each case the court was not satisfied that the debtor had truly
intended after the purported sale to hold the goods on behalf
of the
purchaser. That was the foundation in all but one of these cases
[5]
for the decision that the sale was a simulated transaction.
[26]
On
the other hand the law permits people to arrange their contractual or
business affairs so as to obtain a benefit for themselves
that a
different arrangement would not permit or so as to avoid a
prohibition that the law imposes. That principle was laid down
in
Dadoo
Ltd and others v Krugersdorp Municipal Council
,
[6]
where Innes CJ said:
‘…
parties
may genuinely arrange their transactions so as to remain outside [a
statute’s] provisions. Such a procedure is, in
the nature of
things, perfectly legitimate.’
[27]
These two principles are but two sides of
the same coin, as is apparent from the fact that in both
Zandberg
v Van Zyl
and
Dadoo
Innes CJ relied on the principle
embodied in the maxim
plus valet quod
agitur quam quod simulate concipitur
(the
real intention carries more weight than a fraudulent pretence).
Whether a particular transaction is a simulated transaction
is
therefore a question of its genuineness. If it is genuine the court
will give effect to it and, if not, the court will give
effect to the
underlying transaction that it conceals. And whether it is genuine
will depend on a consideration of all the facts
and circumstances
surrounding the transaction.
[28]
These
principles were considered and applied in
Commissioner
of Customs and Excise v Randles, Brothers & Hudson Ltd
.
[7]
The difference of views between the majority and the minority in that
case turned on a difference of opinion between the judges
as to the
genuineness of the disputed transactions. The respondent had
previously imported cloth under rebate of duty and delivered
it to
cut, make and trim manufacturers to be made up into goods that it
thereafter sold. Under amended regulations this could no
longer be
done without incurring a liability to pay customs duty, but it was
legitimate for an importer to import cloth under rebate
of duty and
sell it directly from bond to a manufacturer. The respondent
accordingly made arrangements with five manufacturers
to import cloth
and sell it to them at cost. The cloth would then be made into
garments, which the respondent undertook to purchase
from the
manufacturers at cost plus the manufacturers’ cut, make and
trim charges. The Commissioner for Customs alleged that
the
transactions were not genuine and the respondent disputed this.
[29]
The dispute came to this court after a
lengthy trial at the end of which the trial judge held that the
respondent’s officials
had honestly arranged the company’s
affairs in a way that fell within the amended regulations and so as
to avoid payment
of the duty. They had done so after careful
discussion with the Commissioner’s staff and after being
advised that provided
the transactions they concluded with the
manufacturers were genuine they would have the desired effect of
avoiding the imposition
of duty. It was in the light of that advice
that the respondent entered into the impugned agreements with the
manufacturers. The
majority held that ownership of the cloth passed
from the respondent to the manufacturers when the cloth was delivered
to the latter
as reflected in the documents when they were released
from bond. They were strongly impressed by the point that there was
no purpose
in the parties entering into a simulated transaction when
only a genuine sale by the importer to the manufacturers would have
the
effect of avoiding the duty. A simulated transaction would not
only attract liability for the duty, but also liability for penalties
and criminal sanctions. There was accordingly no incentive for them
to engage in deceit or simulation.
[30]
It
is against that background that the well-known passages in the
judgment of Watermeyer JA must be read. Having cited both
Zandberg
v Van Zyl
and
Dadoo
he
said:
[8]
‘
I
wish to draw particular attention to the words “a real
intention, definitely ascertainable, which differs from the simulated
intention”, because they indicate clearly what the learned
Judge meant by a “disguised” transaction. A transaction
is not necessarily a disguised one because it is devised for the
purpose of evading the prohibition in the Act or avoiding liability
for the tax imposed by it. A transaction devised for that purpose, if
the parties honestly intend it to have effect according to
its tenor,
is interpreted by the Courts according to its tenor, and then the
only question is whether, so interpreted, it falls
within or without
the prohibition or tax.
A disguised
transaction in the sense in which the words are used above is
something different. In essence it is a dishonest transaction:
dishonest, in as much as the parties to it do not really intend it to
have,
inter partes
, the legal effect which its terms convey to
the outside world. The purpose of the disguise is to deceive by
concealing what is
the real agreement or transaction between the
parties. The parties wish to hide the fact that their real agreement
or transaction
falls within the prohibition or is subject to the tax,
and so they dress it up in a guise which conveys the impression that
it
is outside of the prohibition or not subject to the tax. Such a
transaction is said to be
in fraudem legis
, and is interpreted
by the Courts in accordance with what is found to be the real
agreement or transaction between the parties.
Of
course, before the Court can find that a transaction is
in
fraudem legis
in the above sense, it must be satisfied that there is some
unexpressed agreement or tacit understanding between the parties. If
this were not so, it could not find that the ostensible, agreement is
a pretence. The blurring of this distinction between an honest
transaction devised to avoid the provisions of a statute and a
transaction falling within the prohibitory or taxing provisions
of a
statute but disguised to make it appear as if it does not, gives rise
to much of the confusion which sometimes appears to
accompany
attempts to apply the maxim quoted above.’
[31]
The minority judgment of De Wet CJ does not
in any way qualify these principles. Instead it focussed on a number
of features of
the evidence and the underlying transactions that were
unusual. For example, it was entirely up to the respondent to
determine
how much cloth was imported and what garments should be
made. The manufacturers were not at any immediate financial risk
because
they did not have to pay for the cloth until they had
delivered and were entitled to be paid for the garments. Furthermore
the
evidence on behalf of the manufacturers was equivocal in regard
to their intention to become owners of the cloth. De Wet CJ’s
conclusion was that they had no genuine intention to purchase the
cloth but simply fell in with the arrangements made by the respondent
in order to obtain the cut, make and trim work, which was the staple
of their businesses.
[32]
Nothing
said subsequently in any of the judgments of this court dealing with
simulated transactions
[9]
alters
those original principles in any way or purports to do so. However,
in a number of them dealing with income tax, the courts
have been
called upon to apply these principles in a different context. The
earlier cases dealt with cases of agreements being
dressed up in a
particular form where the underlying intention of the parties was
inconsistent with that form. In the income tax
cases a different
problem arises.
[33]
In
the income tax cases, the parties seek to take advantage of the
complexities of income tax legislation in order to obtain a reduction
in their overall liability for income tax. There are various
mechanisms for doing this, but they all involve taking
straightforward
commercial transactions and adding complex additional
elements designed solely for the purpose of claiming increased or
additional
deductions from taxable income, or allowances provided for
in the legislation. The feature of those that have been treated as
simulated
transactions by the courts is that the additional elements
add nothing of value to the underlying transaction and are very often
self-cancelling. Thus in
Erf
1383/1
Hefer
JA said that ‘there is a distinct air of unreality about the
agreements’.
[10]
In
Relier
Harms
JA referred to the ‘unusual and unreal aspects’ of the
transactions.
[11]
The analysis
by Lewis JA of the transactions in
NWK
[12]
clearly demonstrated that a range of unrealistic and self-cancelling
features had been added to a straightforward loan. They served
no
commercial purpose, were based on no realistic valuation of the
different elements of the transaction and were included solely
to
disguise the nature of the loan and inflate the deductions that NWK
could make against its taxable income. In those circumstances
the
courts stripped away the unrealistic elements in order to disclose
the true underlying transaction.
[13]
[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
intended 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. That is what Lewis JA
was dealing with, in para
55 of her judgment, when she said:
‘
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.’
[35]
It
appears that in some circles this, and particularly the statement
that ‘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’, has been understood
to
condemn as simulated transactions any and all contractual
arrangements that enable the parties to avoid tax or the operation
of
some law seen as adverse to their interests.
[14]
But that fails to read this sentence in the context of both the
particular paragraph in the judgment and the entire discussion
of
simulated transactions that precedes it. If it meant that whole
categories of transactions were to be condemned without more,
merely
because they were motivated by a desire to avoid tax or the operation
of some law, that would be contrary to what Innes
J said in
Zandberg
v Van Zyl
in the concluding sentence of the passage quoted above, namely that:
‘
The
inquiry, therefore, is in each case one of fact, for the right
solution of which no general rule can be laid down.’
That
was manifestly not Lewis JA’s intention.
[36]
The
problem with general statements of this type is apparent from those
by Cloete J in
Nedcor
Bank Ltd v Absa Bank Ltd
,
[15]
about floor plan agreements being simulated transactions. My
colleague rightly holds those statements to be incorrect, based as
they are, not on a consideration of a particular agreement in its own
commercial context, but on generalisations about the nature
of such
agreements. For the avoidance of doubt, for so long as our law does
not recognise a pledge of movables without delivery
of the item
pledged to the pledgee and its continued possession thereafter by the
pledgee, commercial arrangements directed at
finance houses securing
their interests by taking ownership of the property that is the
subject of a financing agreement, serve
an entirely legitimate
commercial purpose. Lewis JA recognised that in her acceptance that
the transactions described in
S
v Friedman Motors (Pty) Ltd
[16]
and
Conhage
,
[17]
served legitimate commercial purposes.
[18]
[37]
For
those reasons the notion that
NWK
transforms
our law in relation to simulated transactions, or requires more of a
court faced with a contention that a transaction
is simulated than a
careful analysis of all matters surrounding the transaction,
including its commercial purpose, if any, is incorrect.
The position
remains that the court examines the transaction as a whole, including
all surrounding circumstances, any 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.
[19]
[38]
In the present case, the reason for Wesbank
and Nissan Diesel concluding the supplier agreement was to provide
Wesbank with the
security of being the owner of the vehicles, before
providing finance to motor dealers. The agreement said so explicitly
and had
a clear commercial purpose namely the provision of
appropriate security for a financial transaction, in the form of
ownership of
the
merx
.
Obtaining security in that way is no different from any commercial
seller stipulating that ownership of the goods sold will not
pass
until the full purchase price is paid (
pactum
reservati domini
). That is the
foundation for hire purchase contracts and financial leases.
Similarly the floor plan agreement concluded with Toit’s
was
designed to ensure that, until Toit’s discharged its
obligations to Wesbank in respect of a particular vehicle, Wesbank’s
security remained intact. The contention that these are simulated
transactions ignores the commercial legitimacy of a finance house
seeking security for the financing transactions that they conclude.
[39]
For these further reasons I concur in the
judgment of Shongwe JA.
M
J D WALLIS JA
JUDGE
OF APPEAL
Appearances
For
the Appellant: P Beltramo SC (with him T D Prinsloo)
Instructed
by:
Bowman
Gilfillan, Pretoria
Lovius
Block, Bloemfontein
For
the Respondent: A Gautschi SC (with him C van der Spuy)
Instructed
by:
Lanham-Love
Attorneys, Pretoria
McIntyre
& van der Post, Bloemfontein
[1]
South
African Revenue Services v NWK Limited
2011
(2) SA 67 (SCA).
[2]
Zandberg
v Van Zyl
1910
AD 302
at 309.
[3]
See, for example,
Hofmeyr
v Gous
(1893)
10 SC 115
;
Goldinger’s
Trustee v Whitelaw & Son
1917
AD 66
;
McAdams
v Fiander’s Trustee & Bell NO
1919
AD 207
;
Vasco
Dry Cleaners v Twycross
1979
(1) SA 603
(A) and
Bank
Windhoek Bpk v Rajie en ‘n ander
1994
(1) SA 115
(A). There are also cases in which money-lending
transactions have been disguised as sales in order to avoid the
application
of statutes governing money-lending and rates of
interest.
Lawson
& Kirk v South African Discount and Acceptance Corporation (Pty)
Ltd
1938
CPD 273
;
R
v Port Shepstone Investments (Pty) Ltd and Another
1950
(4) SA 629
(A) at 632;
S
v Friedman Motors (Pty) Ltd and Another
1972
(1) SA 76
(T) at 79D-E.
[4]
Goldinger’s
Trustee v Whitelaw & Son
at
74 and
Bank
Windhoek Bpk v Rajie en ‘n ander
at
145C-D.
[5]
The exception is
McAdams
v Fiander’s Trustee & Bell NO, supra,
fn
3 where the court held there was no intention to buy or sell.
.
[6]
Dadoo
Ltd and others v Krugersdorp Municipal Council
1920
AD 530
at 548.
[7]
Commissioner
of Customs and Excise v Randles, Brothers & Hudson Ltd.
1941 AD 369.
[8]
At 395-6.
[9]
Du
Plessis v Joubert
1968 (1) SA 585
(A);
Vasco
Dry Cleaners v Twycross
1979
(1) SA 603
(A);
Skjelbreds
Rederi A/S and Others v Hartless (Pty) Ltd
1982 (2) SA 710
(A);
Hippo
Quarries (Tvl) (Pty) Ltd v Eardley
[1991] ZASCA 174
;
1992 (1) SA 867
(A);
Bank
Windhoek Bpk v Rajie en ‘n ander
1994
(1) SA 115
(A);
Erf
3183/1 Ladysmith (Pty) Ltd and Another v Commissioner for Inland
Revenue
[1996] ZASCA 35
;
1996
(3) SA 942
(A);
Relier
(Pty) Ltd v Commissioner for Inland Revenue
(1997) 60 SATC 1
;
Commissioner
for Inland Revenue v Conhage (Pty) Ltd (formerly Tycon (Pty) Ltd)
1999 (4) SA 1149
(SCA);
MacKay
v Fey NO and Another
2006 (3) SA 182 (SCA).
[10]
At 954D.
[11]
At 123.
[12]
Paras 56 to 90.
[13]
Kilburn
v Estate Kilburn
1931
AD 501
at 507.
[14]
Trevor Emslie SC ‘Simulated transactions – A new
approach?’ (2011) 60
The
Taxpayer
2
at 5-6; Eddie Broomberg SC ‘
NWK
and
Finders
Hall
’
(2011) 60
The
Taxpayer i187 at 197-8;
C
J Pretorius ‘Simulated agreements and commercial purpose –
Commissioner for the South African Revenue Service v
NWK Ltd’
(2012) 75
THRHR
688
at 696; Andrew Hutchinson and Dale Hutchinson ‘Simulated
transactions and the
fraus
legis
doctrine’
(2014) 131
SALJ
69.
[15]
Nedcor
Bank Ltd v Absa Bank Ltd
1998
(2) SA 830
(W) at 836H-838G.
[16]
Footnote
1 supra a
t
80G-H.
[17]
Footnote 9 supra.
[18]
NWK
paras
53 and 54.
[19]
This accords with the conclusion of Davis J in
Bosch
and Another v Commissioner, South African Revenue Services
2013
(5) SA 130
(WCC) paras 78 to 92.