Brady v D & R Rarming CC and Another (A5008/2022; 8323/2020) [2022] ZAGPJHC 678 (12 September 2022)

80 Reportability
Contract Law

Brief Summary

Contract — Sale of member's interest — Dispute over inclusion of profit share and deductions — Appellant claimed entitlement to full purchase price for 50% member's interest in Close Corporation, while respondent sought to deduct amounts withdrawn by appellant from Corporation's bank account — Court a quo erred in ordering appellant to pay respondent a sum that was part of the purchase price, rather than affirming respondent's liability to pay the full agreed amount — Appeal upheld, confirming respondent's obligation to honor the contract as per the agreed terms.

Comprehensive Summary

Summary of Judgment


Introduction


The proceedings were an appeal in the Gauteng Local Division, Johannesburg, against the whole of a judgment and order of the court a quo (Mahomed AJ) delivered on 19 October 2021. The appeal was heard by Twala J (with Francis and Mahalelo JJ concurring) and judgment was delivered on 12 September 2022.


The parties were Richard John Brady (the appellant) and D & R Rarming CC (the first respondent, referred to in the judgment as “the Corporation”), together with Derek John Wasley (the second respondent). The appeal concerned a dispute arising from an agreement for the sale of Brady’s 50% member’s interest in the Corporation to Wasley.


The procedural history was driven by the following sequence: Wasley launched an application to liquidate the Corporation in March 2020; Brady sought to intervene and oppose that liquidation and brought a counter-application seeking enforcement of the sale agreement and payment of the purchase price for his member’s interest. Wasley later withdrew the liquidation application and tendered its costs, but the counter-application proceeded. The court a quo dismissed Brady’s counter-application and made an order which, on its face, required Brady to pay Wasley an amount that corresponded with Wasley’s tendered “balance” after deductions. Brady appealed against that decision and order. The respondents did not participate in the appeal, and Wasley delivered a notice to abide.


The general subject-matter of the dispute was whether Wasley was obliged to pay the full agreed purchase price for Brady’s member’s interest, or whether Wasley could reduce that amount by deducting sums that Brady had withdrawn from the Corporation’s bank account (withdrawals Brady alleged were amounts owed to him by the Corporation).


Material Facts


It was common cause that Brady and Wasley each held 50% members’ interests in the Corporation, a close corporation registered under the Close Corporations Act 69 of 1984, which conducted an avocado farming and sales business.


In July 2019, Wasley offered to buy Brady’s 50% member’s interest for R1 million. Brady accepted an offer reflecting an amount of R1 174 659.92, which (on the facts accepted by the court) included 50% of the value of certain assets and farming implements of the Corporation. The effective date of the sale was agreed as 1 October 2019.


Before the Corporation’s cash book was closed on 30 July 2019, the Corporation owed Brady amounts in respect of loan claims, agreed shortfall drawings, management fees, and Brady’s share of the 2019 crop profit. To settle what Brady asserted was owed to him by the Corporation, Brady withdrew the outstanding amounts from the Corporation’s bank account. The judgment records that Brady did not dispute making the withdrawals, but maintained they were amounts to which he was entitled.


By the first week of October 2019, Wasley had not paid the purchase price and indicated he was awaiting bank loan approval. On 1 December 2019, Brady drafted a further written agreement recording the sale of the 50% member’s interest at the same purchase price of R1 174 659.92. Wasley still did not pay.


On 2 March 2020, Wasley informed Brady by email that he could not obtain the bank loan and offered to pay R300 000, which Brady refused. On 16 March 2020, Brady was served with Wasley’s application to liquidate the Corporation.


The liquidation application prompted Brady’s intervention application and counter-application seeking payment of the agreed purchase price. In responding, Wasley accepted the recorded terms of the agreement and accepted that he was liable to pay R1 174 659.92. However, Wasley contended that Brady had made withdrawals from the Corporation’s bank account which were not part of the agreement between Brady and Wasley, and he sought to deduct those amounts from the purchase price, tendering payment only of R548 718.75 as the “balance” after deduction.


On 28 September 2021, Wasley withdrew the liquidation application (with a tender of costs), but Brady persisted with the counter-application. The court a quo dismissed the counter-application and issued an order which (as formulated) reflected that Brady must pay Wasley the sum of R548 718.75, with each party to pay its own costs. The appeal court noted that the court a quo’s reasoning (as expressed in its judgment) indicated that it considered the “balance outstanding” to be payable by Wasley, but that the error manifested in the terms of the order.


The appeal court further recorded that it was accepted (including by the court a quo) that the amounts withdrawn by Brady from the Corporation’s bank account were due and payable to Brady.


Legal Issues


The central legal questions were whether the agreement for the sale of Brady’s member’s interest (concluded on 1 December 2019) included any entitlement for Brady to share in the 2019 crop profit and other amounts the Corporation owed him, and, if those were not included in the purchase price, whether Wasley was nevertheless entitled to reduce his indebtedness to Brady by deducting the amounts Brady had withdrawn from the Corporation’s bank account.


A further issue concerned the competence of Wasley’s attempted deduction in circumstances where the Corporation is a separate legal entity, and where (as recorded by the appeal court) neither the Corporation nor Wasley had advanced a counterclaim or pleaded set-off against Brady’s claim for payment of the purchase price.


In addition, the appeal concerned an error in the formulation of the order made by the court a quo, which (as written) compelled the wrong party to make payment.


These issues primarily involved the application of legal principles to facts (contract enforcement; whether unilateral deduction was permissible; the implications of separate legal personality; and procedural requirements for set-off/counterclaims), together with a discretionary component regarding costs.


Court’s Reasoning


The appeal court held that the order of the court a quo reflected an error in that it effectively reversed the identity of the party obliged to pay. Brady, as the claimant in the counter-application, could not coherently be ordered to pay Wasley an amount which Wasley had tendered as the “balance” of the purchase price. The appeal court regarded the error as occurring in the order itself, noting that the court a quo’s judgment had stated that the balance was payable by Wasley.


On the merits, the appeal court emphasised the principle of privity and sanctity of contract (pacta sunt servanda), citing Supreme Court of Appeal and Constitutional Court authority for the proposition that contracts freely and voluntarily concluded should be enforced unless vitiated by fraud or rendered unenforceable by public policy considerations. On the facts before it, the appeal court considered it decisive that the purchase price for Brady’s 50% member’s interest was R1 174 659.92, and that Wasley had accepted in his answering affidavit that he was liable to pay that amount in terms of the agreement.


The appeal court addressed Wasley’s attempt to reduce the purchase price by deducting amounts Brady had withdrawn from the Corporation’s bank account. It reasoned that the 2019 profit share and other sums owed to Brady by the Corporation were not part of the agreed purchase price for the member’s interest. However, it also held that this did not assist Wasley’s deduction argument because (on the findings accepted in the record, including the court a quo’s acceptance) the amounts Brady withdrew were due and payable to him by the Corporation. The court therefore concluded that Brady’s withdrawals had no bearing on the agreed purchase price for the member’s interest.


The appeal court went further and held that, even on the hypothetical assumption that Brady had not been entitled to the withdrawals, it would still not have been open to Wasley to deduct those amounts from the purchase price. The court treated this as flowing from the principle that the Corporation is a separate entity from Wasley: any claim for repayment of money withdrawn from the Corporation’s account would lie with the Corporation, not Wasley personally. The judgment also relied on the procedural point that neither the Corporation nor Wasley had advanced a counterclaim, and Wasley had not pleaded a set-off against Brady’s claim. In those circumstances, the attempted deduction was treated as not legally competent in the litigation posture before the court.


In evaluating the broader context, the appeal court regarded Wasley’s liquidation application (later withdrawn) as an attempt to “scuttle” the sale agreement and to obtain the member’s interest at a lesser amount than agreed. While Wasley did not oppose the appeal and filed a notice to abide, the appeal court considered that his earlier conduct justified censure.


On costs, the appeal court reiterated that costs generally follow the result, while recognising that costs remain discretionary. It held that there was no basis to depart from the ordinary rule and that Wasley’s conduct warranted a punitive costs order. The court characterised the steps taken to reduce the contractually agreed purchase price, including the liquidation proceedings, as an abuse of process justifying an attorney-and-client costs scale.


Outcome and Relief


The appeal was upheld.


The order of the court a quo was set aside and replaced with an order directing that Wasley must pay Brady R1 174 659.92 for Brady’s 50% member’s interest in the Corporation, whereupon Brady was directed to resign as a member and deliver a signed CK2 form.


Wasley was directed to pay interest at 10% per annum on the amount of R1 174 659.92 from 1 October 2019 to date of payment.


Wasley was ordered to pay Brady’s costs of the counter-application on the scale as between attorney and client, and also the costs associated with the application for leave to appeal and the appeal, likewise on the attorney-and-client scale.


Cases Cited


Mohabed’s Leisure Holdings (Pty) Ltd v Southern Sun Hotel Interests (Pty) Ltd (183/17) [2017] ZASCA 176 (1 December 2017).


Wells v South African Alumenite Company 1927 AD 69.


Beadica 231 CC and Others v Trustees for the Time Being of Oregon Trust and Others CCT 109/19 [2020] ZACC 13.


Legislation Cited


Close Corporations Act 69 of 1984.


Rules of Court Cited


No rules of court were cited in the judgment.


Held


The court held that the agreement of sale for Brady’s 50% member’s interest fixed the purchase price at R1 174 659.92 and that Wasley, having accepted liability under the agreement, was bound to pay that amount.


The court held that amounts withdrawn by Brady from the Corporation’s bank account (which were accepted as due and payable to him) did not affect the purchase price and could not be deducted by Wasley to reduce his indebtedness. Even if Brady had not been entitled to the withdrawals, any claim for repayment would have vested in the Corporation (as a separate entity), and Wasley could not unilaterally deduct such amounts in the absence of a pleaded set-off or counterclaim.


The court held that the court a quo’s order contained an error in that it effectively reversed the payer and payee, and that the appropriate relief was to substitute an order enforcing payment of the full purchase price with interest and directing transfer steps, together with punitive costs against Wasley.


LEGAL PRINCIPLES


The judgment applied the principle of pacta sunt servanda (the privity and sanctity of contract), emphasising that contracts freely and voluntarily concluded should be enforced and that parties are generally held to their bargain unless recognised grounds justify departure.


The judgment applied the principle that a close corporation has separate legal personality distinct from its members. On that basis, claims arising from alleged improper withdrawals from the corporation’s bank account would vest in the corporation, not in an individual member in his personal capacity, absent a proper legal basis.


The judgment reflected that a party cannot, within motion proceedings of this nature, competently reduce an admitted contractual debt by unilateral deduction where set-off is not pleaded and no counterclaim is advanced by the entity purportedly entitled to the alleged repayment.


The judgment reaffirmed that costs are discretionary but ordinarily follow the result, and that punitive costs on an attorney-and-client scale may be justified where the court concludes that a litigant’s conduct amounts to an abuse of court process or warrants censure.

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[2022] ZAGPJHC 678
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Brady v D & R Rarming CC and Another (A5008/2022; 8323/2020) [2022] ZAGPJHC 678 (12 September 2022)

SAFLII
Note:
Certain
personal/private details of parties or witnesses have been
redacted from this document in compliance with the law
and
SAFLII
Policy
IN
THE HIGH COURT OF SOUTH AFRICA
GAUTENG
LOCAL DIVISION, JOHANNESBURG
APPEAL
CASE NO: A5008/2022
CASE
NO: 8323/2020
REPORTABLE:
NO
OF
INTEREST TO OTHER JUDGES: NO
REVISED.
12
September 2022
In
the matter between:
BRADY,
RICHARD JOHN

APPELLANT
(Identity Number:
[....])
And
D
& R RARMING CC

FIRST RESPONDENT
(Registration
Number: CK2001/048957/23)
WASLEY,
DEREK JOHN

SECOND RESPONDENT
(Identity
Number: [....])
JUDGMENT
Delivered:
This judgment was prepared and authored by
the Judge whose name is reflected and is handed down electronically
by circulation to
Parties / their legal representatives by email and
by uploading it to the electronic file of this matter on Case Lines.
The date
of the judgment is deemed to be the 12
th
September 2022
TWALA
J with (FRANCIS et MAHALELO JJ concurring)
[1]
Central to this appeal is the question whether the agreement of sale
of the member’s
interest concluded between the parties on the
1
st
of December 2019 included the sharing of the 2019
profit of the crop and other amounts owing to the appellant by the
first respondent.
If not, whether the second respondent was entitled
to reduce his indebtedness to the appellant by deducting the amounts
withdrawn
by the appellant from the first respondent’s bank
account against the agreed purchase price of the member’s
interest
in terms of the agreement.
[2]
This is an appeal against the whole of the judgment and order per
Mahomed AJ handed
down on the 19
th
of October 2021
dismissing the appellant’s counter application and ordering the
appellant to pay the second respondent a
sum of R548 718.75 in
respect of the 50% member’s interest in the first respondent.
It was ordered further that each
party pays its own costs.
[3]
It is noteworthy that both the first and second respondents are not
participating
in this appeal and the second respondent has
specifically filed a notice to abide by the decision of this Court.
Furthermore, it
is convenient to refer to the appellant as Brady, the
first respondent as the Corporation and the second respondent as
Wasley.
[4]
The foundational facts to this case are in essence common cause and
has been succinctly
stated in the judgment appealed against. They are
briefly as follows: Bradly and Wasley held 50% members’
interest each in
the first respondent,
(“the Corporation”),
which is duly registered as a Close Corporation in terms of the
Close Corporation Act, 69 of 1984. It farms and sells avocados
locally
and internationally.
[5]
In July 2019 Wasley offered to buy Brady’s 50% member’s
interest in the
Corporation for the sum of R1 million. Brady
testified that this came as a surprise since the relationship between
himself and
Wasley was good at the time. He however accepted Wasley’s
offer in terms of which Wasley was to pay him a sum of R1 174 659.92

which included 50% of the value of some assets and farming implements
of the Corporation. It is further common cause that, before
the
Corporation’s cash book was closed on the 30
th
of
July 2019, it owed Brady certain moneys in respect of loan claims,
agreed shortfall drawings, management fees and his share
in the 2019
crop profit. To settle all the amounts owed to him by the
Corporation, Brady withdrew all the outstanding amounts from
the
Corporation’s bank account. The effective date of the sale of
the member’s interest was agreed to be the 1
st
of
October 2019.
[6]
By the first week of October 2019 Wasley had not yet paid the agreed
purchase price
in the sum of R1 174 659.92 and when Brady
enquired about the payment, Wasley said he was awaiting approval of
his loan
from the bank. On the 1
st
of December 2019 Brady
drafted another agreement of the sale of the 50% member’s
interest with the same amount of R1 174 659.92
as the
purchase price. Considerable time went by and Wasley failed to make
the payment as agreed. On the 2
nd
of March 2020 Wasley
sent an e-mail to Brady that he was unable to buy his 50% member’s
interest in the Corporation for he
did not qualify for the bank loan.
He offered to pay Brady only R300 000 which Brady refused to
accept. On the 16
th
of March 2020 Brady was served with an
application to liquidate the Corporation launched by Wasley.
[7]
It is the liquidation application that galvanised Brady to launch an
application to
intervene and oppose the liquidation proceedings and
launch a counter application against the Corporation and Wasley for
the purchase
of his 50% member’s interest in the Corporation in
the sum of R1 174 659.92. In his answering affidavit to the
application to intervene, Wasley conceded that Brady has a
substantial interest in the liquidation of the Corporation since he
held 50% member’s interest. Wasley therefore did not per se
oppose the application to intervene by Brady but raised issues
on the
counter application. Furthermore, Wasley accepted that the terms of
agreement between himself and Brady as recorded by Brady
were correct
and accepted that he was liable to pay Brady the sum of R1 174
659.92 as per the agreement.
[8]
However, Wasley contended that Brady made certain withdrawals from
the Corporation’s
bank account which were not part of the
agreement between the parties. He therefore tendered payment of the
sum of R548 718.75
to Brady as the balance of the purchase price
of his 50% member’s interest in the Corporation after deducting
what was withdrawn
by Brady from the Corporation’s bank
account. On the 28
th
of September 2021 Wasley withdrew the
application to liquidate the Corporation and tendered the costs for
the application. However,
Brady persisted with his counter
application and for the relief sought therein. That is the
application which served for determination
before the Court
a quo
.
[9]
The first cause of complaint by the appellant is that, when making
the order, the
Court
a quo
mixed up and confused the
appellant, who is the applicant in the counter application, and the
second respondent, who was the applicant
in the main application
which was no longer before the Court
a quo
for determination
since it had been withdrawn.
[10]
It is apparent that the Court
a quo
committed an error in
identifying the parties to the counter application when it made the
order. It is the appellant who is the
applicant in the counter
application who is claiming payment of the agreed purchase price of
his 50% member’s interest in
the Corporation. He could
therefore not be ordered to pay the second respondent a sum of
R548 718.75 which is the same amount
tendered by Wasley to pay
to Brady as a balance of the purchase price for his member’s
interest. This error occurred only
on the order since the Court
a
quo
stated it clearly in paragraph 59 of its judgment that the
total amount of R543 718.75 being the balance outstanding for
the
50% member’s interest in the corporation is to be paid by
Wasley.
[11]
It is a trite principle of our law that the privity and sanctity of a
contract should prevail
and the Courts have been enjoyed in a number
of decisions to hold parties to honour their contracts in which they
entered freely
and voluntarily. Parties should only be allowed to
deviate from their agreements if it can be demonstrated that the
contract is
tainted with fraud or a particular clause in the
agreement is unreasonable and or so prejudicial to a party that it is
against
public policy.
[12]
In
Mohabed’s Leisure Holdings (Pty) Ltd v Southern Sun Hotel
Interests (Pty) Ltd (183/17)
[2017] ZASCA 176
(1 December 2017)
the
Supreme Court of Appeal reaffirmed the principle of the privity and
sanctity of the contract and stated the following:

paragraph 23
The privity and sanctity of contract entails that contractual
obligations must be honoured when the parties have entered
into the
contractual agreement freely and voluntarily. The notion of the
privity and sanctity of contracts goes hand in hand with
the freedom
to contract, taking into considerations the requirements of a valid
contract, freedom to contract denotes that parties
are free to enter
into contracts and decide on the terms of the contract.

[13]
The Court continued and quoted with approval a paragraph in
Wells
v South African Alumenite Company
1927 AD 69
at 73
wherein the
Court held as follows:

If there is one
thing which, more than another, public policy requires, it is that
men of full age and competent understanding shall
have the utmost
liberty of contracting, and that their contracts, when entered into
freely and voluntarily, shall be held sacred
and enforced by the
courts of justice.”
[14]
Recently the Constitutional Court in
Beadica 231 and Others v
Trustees for the Time Being of Oregon Trust and Others CCT 109/19
[2020] ZACC 13
also had an opportunity to emphasize the principle
of
pacta sunt servanda
and stated the following:

paragraph 84
Moreover,
contractual relations are the bedrock of economic activity and our
economic development is dependent, to a large extent,
on the
willingness of parties to enter into contractual relationships. If
parties are confident that contracts that they enter
into will be
upheld, then they will be incentivised to contract with other parties
for their mutual gain. Without this confidence,
the very motivation
for social coordination is diminished. It is indeed crucial to
economic development that individuals should
be able to trust that
all contracting parties will be bound by obligations willingly
assumed.
Paragraph
85 The fulfilment of many of the rights promises made by our
Constitution depends on sound and continued economic development
of
our country. Certainty in contractual relations fosters a fertile
environment for the advancement of constitutional rights.
The
protection of the sanctity of contracts is thus essential to the
achievement of the constitutional vision of our society. Indeed,
our
constitutional project will be imperilled if courts denude the
principle of pacta sunt servanda.”
[15]
The thread that runs through the above authorities is that the
sanctity of contracts should be
protected in order to advance
constitutional rights. Since it is undisputed that the purchase price
of Brady’s 50% member’s
interest in the Corporation is
the sum of R1 174 659.92 in terms of the agreement between
the parties and that Wasley
in his answering affidavit accepted his
liability and indebtedness to Brady in that amount, Wasley is bound
to honour the terms
of the agreement and should therefore pay the sum
of R1 174 659.92 to Brady.
[16]
In his attempt to reduce his indebtedness to Brady in the sum of R
1 174 659.92, Wasley
deducted certain amounts which Brady
withdrew from the Corporation’s bank account as moneys owed to
him by the Corporation
on the basis that this was not part of the
agreement between them. Bradly does not dispute that he withdrew
certain amounts of
money from the Corporation’s bank account
but testified that it is money that he was entitled to and as it was
owed to him
by the Corporation for services rendered, loan claims,
agreed shortfall of the drawings and his share of the profit of the
crop
for the year 2019.
[17]
It is correct that the profit share for the 2019 crop and the other
moneys owed to Brady by the
Corporation were not part of the agreed
purchase price of the 50% member’s interest payable to Brady.
It is further not in
dispute and in fact was accepted by the Court
a
quo
in paragraph 19 of its judgment that the amounts withdrawn by
Brady from the Corporation’s bank account and the total value

for the items were due and payable to Brady. The irresistible
conclusion is therefore, that the withdrawal of money from the
Corporation’s
bank account by Brady to settle the indebtedness
of the Corporation has no bearing on the agreed purchase price of
Brady’s
member’s interest as it was found by the Court
a
quo
as money due and payable to Brady.
[18]
Even if it were to be accepted for a moment that Brady was not
entitled to the money that he
withdrew from the Corporation’s
bank account, it is not open to Wasley to deduct same from the agreed
purchase price of Brady’s
member’s interest in the
Corporation. It is the Corporation that would be entitled to claim
that money from Brady for the
Corporation is a separate entity from
Wasley. The Corporation is cited in these proceedings but it chose
not to participate nor
even to file a counter-claim against Brady’s
claim. Furthermore, Wasley also did not lodge a counter claim nor did
he plead
any set off against Brady’s claim. It is therefore not
competent of Wasley to reduce his indebtedness to Brady by deducting

the money that was withdrawn by Brady from the Corporation’s
bank account. The inescapable conclusion is that Brady was entitled

to refuse the tender by Wasley to pay him R543 718.75 instead of
the full purchase price in the sum of R1 174 659.92.
[19]
It is clear from the record that an agreement for the sale of the
member’s interest was
concluded between the parties on the 1
st
of December 2019 and that Wasley failed to honour his part of the
agreement. It is apparent that Wasley’s launching of the

liquidation proceedings in March 2020 was an attempt to scuttle the
agreement in order to purchase the 50% member’s interest
at a
lesser amount than was agreed upon. Wasley ended up withdrawing the
liquidation application because it was frivolous. Wasley’s

opposition to Brady’s claim is meritless since the money
withdrawn by Brady from the Corporation belonged to the Corporation

and it is the Corporation that is entitled to challenge Brady’s
claim and not Wasley.
[20]
It has not been demonstrated why this Court should deviate from the
normal principle that the
costs for an action should follow the
results. However, the issue of costs is in the discretion of the
Court. Although Wasley did
not oppose this appeal and filed a notice
to abide by the decision of this Court, it is apparent that he was
not genuine in his
defence of Brady’s action. He agreed to pay
the purchase price as agreed upon but attempted to reduce that
purchase price
by other means including the launching of the
liquidation proceedings. This is tantamount to the abuse of the Court
process and
the Court would not countenance such a behaviour by a
litigant. Such conduct deserves to be censored with an adverse costs
order.
[21]
In the circumstances, the following order is made:
1.
The appeal is upheld
2.
The order of the Court
a quo
is set aside and replaced with
the following order:
2.1
The second respondent is ordered to pay the appellant the amount of
R1 174 659.92,
for the appellant’s 50% members
interest in the first respondent, on receipt of which the appellant
is directed to resign
as a member and deliver up a signed CK2 form,
2.2
the second respondent is directed to pay interest on the amount of
R1 174 659.92
at the rate of 10% per annum from the 1
st
of October 2019 to date of payment;
2.3
The second respondent is directed to pay the appellant’s costs
of the counter application
on the scale as between attorney and
client; and
2.4
The second respondent is directed to pay the costs associated with
the application for leave
to appeal and the appeal on the scale as
between attorney and client.
TWALA
M L
JUDGE
OF THE HIGH COURT OF SOUTH AFRICA
GAUTENG
LOCAL DIVISION
Date
of Hearing:

24
th
August 2022
Date
of Judgment:

12
th
September 2022
For
the Appellant:

Advocate PL Carstensen SC
Advocate AB Berkowitz
Instructed
by:

Hutcheon Attorneys
Tel: 011 454 3221
kevin@hutcheon.co.za
For
the First and Second
Respondent:

No Appearance