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[2010] ZAGPPHC 596
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Le Bac Estates (Pty) Ltd v Veripath (Pty) Ltd (241/2004) [2010] ZAGPPHC 596 (17 March 2010)
IN
THE NORTH GAUTENG HIGH COURT, PRETORIA
(REPUBLIC
OF SOUTH AFRICA)
CASE NO: 241/2004
DATE: 17 MARCH
2010
IN THE MATTER
BETWEEN:
LE BAC ESTATES
(PTY)
LTD
...................................................................................................
PLAINITFF
(Previously
known as
LISTER
LEAVES KWEKERY (PTY) LTD)
vs
VERIPATH (PTY)
LTD
............................................................................................................
DEFENDANT
JUDGMENT
TOLMAY.
J:
BACKGROUND:
The plaintiff
instituted action against the defendant for outstanding remuneration
in the amount of R573 500-00 arising from consulting
services
allegedly provided to the defendant during the period January 2002 to
August 2003.
The defendant's
primary business is the auditing of laboratory accounts and to this
end it acts on behalf of various medical aid
schemes in assessing and
evaluating laboratory accounts submitted by various laboratories for
payment The defendant would review
the accounts to check that the
medical aid tariff has been applied correctly on such account and to
verify that the services on
such account have been coded correctly
and that the codes indicated on such account do not provide for
extraneous services not
in fact rendered. The plaintiff alleged that
it entered into an agreement with the defendant to render consultancy
services to
the plaintiff.
THE PLEADINGS:
On the pleadings the
following disputes arose between the parties:
The
defendant denied that it entered into a consultancy agreement of any
kind with the plaintiff and avered that any such agreement
was
entered into between Dr du Toit. in his personal capacity, and a
company called Veripath (2) (Pty) Limited. (“Veripath
2”)
which is a separate legal entity. Alternatively and in the event that
the court should find that the plaintiff did enter
into a consultancy
agreement with the defendant, the defendant avered that such
agreement terminated by reason of plaintiffs non-fulfillment
of its
obligations in terms thereof. The defendant brought two conditional
counterclaims against the plaintiff in respect of payments
allegedly
made to the plaintiff in the
bona
fide
but
mistaken belief that they were due to it after the termination of the
consultancy agreement.
The issues that were
to be determined on the pleadings were as follows:
1. The identity of
the true contracting parties to the consultancy agreement:
2. The terms of the
consultancy agreement concluded between the parties:
3. Whether each of
the parties performed their obligations in terms of the consultancy
agreement.
On 5 February 2010
the defendant launched an application for separation of issues which
plaintiff opposed. On 25 February 2010 the
defendant withdrew the
application.
THE EVIDENCE
The parties each led
one witness at the trial. Dr du Toit testified on behalf of the
plaintiff and Mr Christopher Adams testified
on behalf of the
defendant.
Dr du Toit was
involved in the medical industry with the verification of accounts of
medical aids. He was approached by Veripath
2 (Pty) Ltd. who was also
active in this industry to join forces rather than be in competition
with each other.
On 18 October 2000
Dr du Toit entered into an agreement (“the first agreement")
with ms M M du Raan and messrs C Adams.
R G McCulium. R M Trainer. P
Horn and D de Necker. In terms of this agreement Dr du Toit rendered
consultancy services to Veritpath
2 (Pty) Ltd (“Veripath”)
and was paid on an hourly basis. These services were rendered to
Veripath 2 for the period
1 October 2000 to May 2001.
Certain internal
problems arose in Veripath 2 which led to a meeting held on 17 May
2001, where certain proposals were made and
which led to an agreement
(“the second agreement”) which was concluded during May
2001. In terms of this agreement
Dr du Toit rendered consultancy
services through Lister Leaves (Pty) t/a Lister Consultants (“Lister
Leaves”) to Veripath
2. Lister Leaves' name changed to be Le
Bac Estates (Pty) Ltd before institution of action. The effective
date of the second agreement
was June 2001.
Dr du Toit testified
to the reasons for the second agreement being entered into between
Lister Leaves (and not himself in his personal
capacity) and the
defendant. Firstly he was concerned that he would be transgressing
the professional rules applicable to his profession
as an anatomical
pathologist if he should share income with entities who are not
registered pathologists. Secondly, channeling
the income earned
through Lister Leaves would be tax effective. The 40 hour minimum per
week, which was a term of the first agreement,
did not form part of
the second agreement. He stated that his workweek in any event
exceeded 40 hours.
During October 2001
the defendant purchased the business and assets of Veripath 2 for the
amount of R940 000-00. The contracts between
Veripath 2 and Medihelp
and Spectramed formed part of the business of Veripath 2 which was
sold to defendant. He also testified
that a sale of shares from
plaintiff to Dr du Toit took place on 2 October 2001. Negotiations
took place between the plaintiff
and defendant from September/October
2001 to January 2002.
He testified to the
conclusion of an oral agreement (“the third agreement”)
between Lister Leaves and defendant with
him as its designee, against
the payment of R57 000-00 per month (VAT included). He rendered
consultancy services to plaintiff
via Lister Leaves from January 2002
to August 2003. Invoices were rendered by Lister Leaves to plaintiff
and payments were received
by Lister Leaves from plaintiff as was
indicated in amended schedule A annexed to plaintiff particulars of
claim.
All the payments,
but one was made by defendant to plaintiff According to his testimony
the outstanding invoices are due. owing
and payable.
The third agreement
(between Lister Leaves and defendant) was terminated on 14 August
2003 per letter by Dr du Toit.
He testified that
the payment which was made during March 2002 by Veripath 2. was
indeed payment for outstanding invoices owing
by Veripath 2 to the
plaintiff.
Mr Christopher Adams
then testified on behalf of the defendant. He conceded during his
testimony that the consultancy agreement
would not automatically
terminate, if the minimum hours worked by Dr du Toit fell below 40
hours per week. He also conceded that,
other than showing that Dr du
Toit had other business interests at the same time as his involvement
with the defendant, it could
not be shown that Dr du Toit in fact
worked less than 40 hours per week.
This evidence
disposed of the conditional counterclaim brought by defendant, the
defendant’s alternative defence based on
the breach by Dr du
Toit of his obligations to the defendant to work a minimum of 40
hours per week, as well as the alleged consequent
termination of the
consultancy agreement.
Mr Adams also
conceded to the fact that there had been a consultancy agreement with
the plaintiff. That disposed of the defence
that the consultancy
agreement was with Veripath 2 and not defendant.
Mr
Adams agreed that Lister Leaves delivered invoices for consulting
services rendered during the period from January 2002 to August
2003.
He also testified to the fact that the other directors also invoiced
the defendant through companies, because that was more
tax effective
Mr Adams testified that although Veripath 2 made the payment to
plaintiff in March 2002 such payment was intended
to discharge
defendant's indebtedness to plaintiff. Aside from the payment of
March 2002. which payment was made by Veripath 2
and not the
defendant (and which was therefore excluded from the payments
acknowledged by the plaintiff by way of amendment brought
during the
trial), the parties are
ad
idem
as
to which months during the period claimed for were paid and which
months were not paid.
As a result of the
aforesaid it became unnecessary for me to determine:
1. The terms of the
third agreement concluded between the parties:
2. Whether each of
the parties performed their respective obligations in terms of the
third agreement: and
3 The quantum of the
plaintiff s claim, baring the issue of the March 2002 payment.
ISSUES IN
DISPUTE
The only issues
remaining in dispute between the parties are:
1. Whether the
contracting party to the third agreement with the defendant was the
plaintiff or Dr du Toit in his personal capacity:
and
2. Whether the March
2002 payment, albeit made by Veripath 2, was intended to discharge
the defendant's indebtedness in respect
of the consultation services
rendered for the month of March 2002.
APPLICABLE
LEGAL PRINCIPLES
The plaintiff bears
the onus to prove on a balance of probabilities that it and not Dr du
Toit was the contracting party to the
third agreement.
Defendant in
argument raised the defence that any purported agreement between the
plaintiff and the defendant was a simulated agreement
and alleged
that the real agreement was one concluded between the defendant and
Dr du Toit in person.
It must be noted
right from the outset that the defence alleging a simulated contract
was not raised in the pleadings. Defendant
argued that it was not
necessary to raise it in the pleadings. It was argued on behalf of
the defendant that, as it was denied
on the pleadings that plaintiff
and defendant entered into an agreement, that allegation sufficed to
allow the defendant to raise
the defence of a simulated agreement.
On my understanding
of the law it would seem that it is necessary to plead a simulated
agreement, but in the light of my conclusion
it is not necessary for
me to deal with this aspect.
It
is trite law that substance rather than form determines the nature of
a transaction
(plus
valet quad agitur quam quod simulate concipitur).
A
simulated transaction is essentially a dishonest transaction, in that
the parties to the transaction do not intend it to have
among them
the legal effects it purports to convey. See in this regard
S
v de Jager
1965 (2) SA 616
(A) on 627 - 628, Skjelbreds Rederi A/S
and Others v Jartless (Pty) Ltd
1982 (2) SA 710
on 732 G - 733 G.
In
order to determine whether an agreement is indeed a simulated
agreement one needs to look at the true nature of the agreement
and
the facts of the case. See
Zandberg
v Van Zyl
1910 AD 302
at 309
where
the following was stated:
“
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 endeavor 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 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 quod simulate concipitur.
But
the word of the rule indicates 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. Perezius.Ad
Cod
4.22.2
remarks that these simulations, may be detected by considering the
fact leading up to the contract, and by taking account
of any unusual
provision embodied in it."
It
must be taken into account that parties are free to arrange their
affairs as they deem it fit and the mere fact that an agreement
is
structured in a way that benefits the parties does not in my view
make an agreement a simulated agreement. See
Erf
3183/1 Ladysmith (Pty) ltd v Commissioner for Inland Revenue
[1996] ZASCA 35
;
1996 (3)
SA 942
(SCA)
In
the light of what was already stated a factual analysis is necessary
to determine whether one is in specific circumstance dealing
with a
simulated transaction. The factual analysis is thus to ascertain the
actual intention of the contracting parties See
Commissioner
of Customs and Excise v Randles, Brother & Hudson Ltd
1941
AD 369
,
where
the following was stated at 395 - 5
“
(a)
transaction is not necessarily a disguised one because it is devised
for the purpose of evaluating 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 Court 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, inasmuch 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."
See
also
Long Oak
Limited v Edwards (Pty) Ltd
1994 (3) SA 370
(SE)
If the aforesaid
principles are applied to the facts in this case, the following
becomes clear. The defendant wanted Dr du Toit’s
services and
would only enter into an agreement if it could secure his service.
There was no one else at Lister Leaves who could
perform the services
rendered to the defendant. Dr du Toit used the vehicle of Lister
Leaves for two reasons. The one was that
he was concerned that he
could transgress the professional rules of his profession by sharing
income with non registered pathologists
and secondly it would be more
tax effective if Lister Leaves entered into the agreement. The other
directors and shareholder also
made use of companies who invoiced the
defendant. It is common cause that Lister Leaves invoiced the
defendant, that Lister Leaves
was paid by defendant and that Lister
leaves paid VAT on the payments of the defendant. It is also common
cause that Dr du Toit
was rendering the services.
On
a factual analysis of the facts in this case it is clear that the
parties structured the agreement between them to make it tax
effective. The way in which it was structured also addressed Dr du
Toit's concerns regarding his professional rules. There was
nothing
untoward or fraudulent about this transaction. Consequently the facts
can be distinguished from the matter of
Long
Oak Ltd,
supra.
In
this instance, there was nothing dishonest about the transaction and
it cannot be said that the purpose of the structuring of
the
agreement was to disguise or deceive by concealing what the real
agreement between the parties was. The shareholders entered
into an
agreement which was structured to accommodate their specific
interests The parties acted within their rights to structure
the
agreement in a way that was tax effective. The agreement can
consequently not be regarded as fraudulent or dishonest.
In the premises I
cannot find that the agreement between the parties was a simulated
agreement which is invalid. Consequently the
defence must fail.
The only outstanding
issue is the March 2002 payment made by Veripath 2, and which
defendant alleges was done on behalf of defendant
by Veripath 2. The
plaintiff alleged that this payment was made by Veripath 2 for
outstanding payments of Veripath 2. Both versions
are probable and as
the plaintiff carries the onus, I must decide in this regard for the
defendant.
The costs should
follow the outcome of the case and defendant should also be liable
for the costs of the separation application.
Consequently I make
the following order:
1. Defendant is
ordered to pay to the plaintiff the amount of R459 000-00.
2. Interest at a
rate of 15,5% per annum from date of service of summons to date of
payment.
3. Defendant is
ordered to pay the costs which will include the costs of the
separation application.
R G TOLMAY
JUDGE OF THE HIGH
COURT
LE BAC ESTATES
(PTY) LTD (previously known as LISTER LEAVES)
Vs
VERIPATH (PTY)
LTD
CASE NO: 241/2004
JUDGE: TOLMAY
ATTORNEYS FOR
PLAINTIFF:
LE GRANGE
ATTORNEYS
555 WALKER
STREET
MUCKLENEUK
PRETORIA
REF: MNR LE
GRANGE 145/03L
TEL: 012 - 344
2611
ADV : P M VAN
RYNEVELD
ATTORNEYS FOR
DEFENDANT:
MORRIS LAZER INC
C/O FRIEDLAND
HART & PARTNERS
SUITE 103, BLOCK
4
MONUMENT OFFICE
PARK
79 STEENBOK
AVENUE
MONUMENT PARK
REF: T VAN
STRAATEN
TEL: 012 -424
0200
ADV: A L
ROELOFFZE
DATE OF HEARING:
25 FEBRUARY 2010
DATE OF JUDGMENT:
17 MARCH 2010