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[2015] ZAGPPHC 1102
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Reid and Others v Greyling and Another (A245/2013) [2015] ZAGPPHC 1102 (7 August 2015)
IN
THE HIGH COURT OF SOUTH AFRICA
(GAUTENG
DIVISION, PRETORIA)
CASE NUMBER: A254/13
DATE: 7 AUGUST
2016
In
the matter between:
MAGRIETA CAROLINA REID
1
st
APPELLANT
OLOF
ABRAHAM SERVAAS VON LANDSBERG(SNR)
2
nd
APPELLANT
OLOF ABRAHAM S
ERVAAS
VON LANDSBERG
(JNR) 3
rd
APELLANT
LEONARD
GREYLING
1
st
R
E
SPONDENT
CARL
GRELYING
2
nd
RESPONDENT
JUDGEMENT
TLHAPI J
INTRODUCTION
[1]This is an appeal against the whole
of the judgement of Ledwaba
J,
in terms of which he declared that the respondents had validly
cancelled a sale of shares agreement in terms of clause 13 thereof.
The agreement was concluded by the parties on the
3rd
and the 7
th
December 2009.
[2]The shares and loan accounts were
sold for R4 000 000.00 (four million rand). A deposit of R100 000.00
(one hundred thousand
rand) was payable into an interest bearing
account to be held in trust by the transferring attorneys for the
benefit of the plaintiffs
('respondents'). The said amount together
with the balance of the purchase
price
in the
amount
of
R3
900
000.00
(three million nine hundred thousand
rand)
was
payable to the defendant ('appellants') on the effective date of the
agreement (clause 2.1). The respondents were to deliver
guarantees
for the balance payable on the effective date to the appellants
within ninety days of the signing of the agreement (clause
2.3).
[3] It was common cause that the deposit
was duly paid to the appellants. It was further common cause that
correspondence between
the parties followed:
1. the respondents on 24 February
2010 cancelled the agreement in terms of clause 13;
2. the appellants refused to accept
such cancellation and on 1
O
March 201O made demand for the delivery of guarantees within
seven(?) days, failing which they would be entitled
to
cancel the agreement and retain the deposit; and, when there was no
delivery on 25 March 2010 gave notification of
their
cancellation of the agreement;
3. On 29 March 2010 the respondents notified the appellants that
their letter of 1
O
March 2010 did not comply with the provisions of the agreement,
therefore, the purported cancellation by the
appellants
was considered to have been a repudiation of the agreement,
which was accepted by the respondents.
[4] After the cancellation by the
respondents, Mr Greyling in his personal capacity engaged in other
negotiations with the appellants
to purchase the same immovable
property from the appellants and he gave Mr van der Westhuizen
instructions to prepare an agreement
for such purchase. This
transaction is not relevant to the present appeal.
BACKGROUND
[5] Mr Greyling senior ('Greyling') was
a manufacturer of drilling equipment and, as a past time, bought
farms for investment purposes.
Prior to this contract being
entered into, he had contacted an estate
agent with the view to purchasing a farm for purposes of investment
and development. He
was informed of a company which was selling the
farm it owned and its shares. He always did business with his sons
and gave them
support in their businesses. In this instance it was
decided to purchase either the farm or the shares of the company, and
that
registration be in the names of
his sons. He was duly authorised by them
to engage with the appellants and to conclude a contract to purchase
only the shares and
loa1 3ccount in the company Clifton Dunes
Investments 282 (Edms) Beperk.
[6]
The
respondents
issued summons
for
a declaratory
order
that they
had
on
24 February 2010 validly
cancelled
the
agreement
in terms
of
clause
13; alternatively, a
declaratory
order
that
the
respondents
had validly
cancelled
the
agreement
on 29 March 201
O;
and,
lastly for
payment
of the deposit
in the
amount
of
R100 000.00
plus
interest and
costs.
[7]
The
following
was
pleaded
in paragraph
9 of the
particulars
of claim:
"From the balance sheet of the
company it was evident that the company was at
risk to
pay
a
substantial amount of
income tax of
a
capital
nature
as
contemplated in terms of Schedule
8 to the
Income
Tax Act,
58
of
1962,
as
a
result
of
which
the
transaction was
in
he
bona fide
opinion of
the
Plaintiff's at
risk."
The
appellants
denied
that the
company was at risk
for the payment of a
substantial
income
tax
of a capital
nature
or that
the transaction
was
at risk.
[8]
In cross
examination
Greyling testified
that
he relied
on his attorney,
Mr van
der
Westhuizen
to
advise him on tax issues.
He cancelled the
agreement because
he was
going to pay a
lot
of tax.
He
could not tell what
he
had intended doing with the
shares
in the
future
and
he
conceded
that
the
basis for
the
determination
for
the payment of
capital gains tax
was
to
be found
in Schedule
8
to
the
Income
Tax Act,
8
of
1962.
[9]
Mr van der Westhuizen
testified
about the concern
Mr Greyling
had when the
balance sheets were
not forthcoming.
Unsigned and unaudited
balance sheets were
first
presented
in January
of 2010
and
a
demand
was
made for
signed
copies
and
when
these were presented they revealed unacceptable risks for his client.
[10]
In terms
of
clause
13 of
the
agreement
the
purchasers
{'the
respondents')
could
cancel
the
agreement
under
the
following
circumstances:
"
Sou dit blyk dat
die balansstate onaanvaarbare laste of onuitgekeerde winste
bevat of items wat die
transaksie op risiko p/aas, sal die Kopers geregtig wees
om
die ooreenkoms te
kanseleer en sal die bepalings
van klousule 2.
1
nie van toepassing
wees nie.
"
[11]
In
the court
C!
quo,
Ledwaba
J, relying on
Coopers and Lybrand and others v Bryant
[1995] ZASCA 64
;
1995 (3) SA 761
(AD)
found that there was
nothing repugnant or
inconsistent
in
Clause 13, that
same
was
inserted
at
the
instance
and
for
the
benefit
of the
plaintiff.
Therefore,
the
plaintiffs
had
a discretion
to
determine
what
constituted
unacceptable
risk
and that they had elected to cancel the agreement.
He
found
that
the
reasons
for
cancelling
the
contract
were
reasonable
in
the
circumstance
and that it
was
properly and legally cancelled
in
terms of clause 13.
This
appeal
called for
an
interpretation
of
clause
13.
APPROACH TO THE INTERPRETATION OF
CONTRACTS
[12]
Mr Shepstone for the
appellant submitted that the golden rule in
Coopers supra
was applicable to the interpretation of the clause. Mr de Beer
for the respondent disagreed. He submitted that the prevalent
approach
was that all relevant facts and the circumstances around
which the agreement came into being,
had
to
be
considered
as
was
adopted
in
Bothma-Batho
Transport
(Edms)
Bpk
v
S
Bothma
&
Seun
Transport
(Edms)
Bpk
2014 (2) SA 494
(SCA)
at
499
F-H
and 500 A, per Wallis
JA:
"Whilst the
starting
point
remains
the
words
of
the
document,
which
are
the only
relevant
medium
through
which
the
parties have
expressed
their contractual
intentions, the process of interpretation does not stop at
a
perceived
literal meaning of those
words, but considers them in the
light of all relevant
and
admissible context, including the
circumstances
in
which
the
document
came
into
being
...lnterpretation
is no longer
a
process
that occurs
in
stages
but
is
essentially
one
unitary
exercise.
Accordingly it
is
no
longer
helpful to refer to the earlier approach."
[13] In light of the discussions in
Bothma
supra,
the court should engage a unitary process in interpreting what
was contemplated by the parties in clause 13.This is to be deduced
from the words in the clause including all relevant circumstances
that led to the contract coming into being. The following aspects
were considered by Greyling on the advice of his attorney:
1. that it would be cheaper to buy the
shares in the company because that transaction would not attract
transfer costs;
2. that the disadvantage to purchasing
the farm was that if improved and sold shortly thereafter, that is,
at a later stage that
such transaction had the potential of
attracting capital gains tax which could prove to be costly for him;
3. Greyling heeded the advice to
examine the books of the company whose shares he intended purchasing
to determine if there were
any liabilities , what effect such
liabilities if existing would have on the shares he was acquiring
and whether such liabilities
if existing constituted the reason for
the sale. This in particular resulted in the following exchange of
correspondence between
the attorneys:
A letter from Mr van der Westhuizen of
23 November 2009 to the appellants stated:
"Ons bevestig dat
ans dringend
'n finansiete ondersoek moet doen ten
einde
vas
te stet
of
daar
enige
betetsets
is
dat
die
maatskappy
deur
ans
ktient
oorgeneem word. Ons
sat
dit
derhatwe waardeer
indien
u
.
..batanstate
van die maatskappy
kan
verskaf Ons bevestig
dat die
Direkteur
van
Clifton Dunes
geen
beswaar
het dat ans
'n ITC navraag
op hul/e name doen nie"
The appellants attorney Mr Erasmus
responded on 1 December 2009:
"Ek
wil
voorstel
dat
u
'n
voorwaarde
in
die
kontrak
voeg dat
die koop onderhewig
is
aan lewering
van balanstate
wat aantoon
dat daar geen eise
teen
die
maatskappy
is
nie.
Dan
kan
koper
solank
teken
en
die deposito by u Trust
inbetaal"
The agreement was concluded hereafter.
[14] In the disclosures requested in the
pre-trial conference for particulars pertaining to the alleged
unacceptable risks in the
balance sheet, the respondents were asked
to identify the items and the amount in the balance sheets and on
what basis 'in fact
and /or in law the company was at risk to pay a
substantial amount of income tax of a capital nature.'
[15] Except for items 2.5 and 2.6 in the
particulars provided, the late rendition of unsigned
I
signed; unaudited
I
audited balance sheets and, the difference in them did not
address the purpose for which clause 13 was introduced."Reasonable
apprehension"
"2.5 The Plaintiffs had
reasonable
apprehension
that no proper
accounting records were kept by the company,
which
could place
the company and its directors at
risk;
"Capital Gains Tax"
2.
6 The company
was
at risk to pay
substantial tax of
a
capital nature if the property
was to be sold
at a future date.
11
[16] According to Mr van der Westhuizen
the agreement was cancelled after the balance sheets had been
referred by him to an auditor.
Therefore according to his evidence,
and as I see it, an interpretation of, or, an examination of specific
items in the company's
books of account and balance sheets were _ C1
source from whic:h the _ inferences of such risk were made. An
apprehension should
be based on facts. Absent that exercise it would
be difficult for the court to determine that the conduct of the
respondents in
cancelling the agreement was reasonable. Mr Greyling
admitted that he had no understanding of accounting procedures, and
that he
relied solely on Mr van der Westhuizen to give a proper
explanation of the seriousness of the risk involved. It had
already
been communicated before the agreement was concluded that the
balance sheets were required
"
ten einde
vas te stet
of daar enige beletsels
is...
11
As I see it, it was difficult for Mr van der Westhuizen
in his testimony to point out such risks in the balance sheets.
[17] In considering such concerns, the
starting point should have been be that Mr Greyling was advised not
to purchase the immovable
property in the company because of the
transfer costs he would have had to pay. He opted to purchase the
shares. It is the intention
for which the shares were acquired by the
respondents that would create the risk to paying capital gains tax in
the future. The
risk is not something that one can speculate about.
According to Mr Greyling, it was intended to purchase the shares as
an investment.
It would depend upon how long the shares were going to
be retained by the respondents and whether at their disposal the
shares
were considered to be of a capital nature or as ordinary
revenue.
[18] It was argued by Mr Shepstone that
if the concern was that the respondents would be exposed to paying
capital gains tax should
the company sell the immovable property in
the future, as opposed to them selling·the shares then the
risk '., was a contingent
or prospective risk which was not present
at all when the agreement was concluded and which prospective risk
did not impact upon
the transaction which was concluded by the
parties. I am in agreement with this view.
What was disclosed in the balance sheet
was the base cost of the immovable property when it was acquired by
the company. There was
no suggestion that there was something
untoward in such base cost which would have affected the transaction
[19] Whichever way one looks at it, the
respondents had to prove on a balance of probabilities that their
concerns were based on
what was contemplated by the parties when the
transaction was concluded and in such a manner as to give meaning and
understanding
to the wording in clause 13. The respondents did not
have a discretion without a proper basis to cancel the agreement
without illustrating
why
they
bona fide
believed
the transaction was at risk and in respect of which items in the
balance sheets. The appeal should therefore succeed for
these
reasons.
[20] In
the result
the
following order is
given
1.
The
appeal is
upheld
with costs.
2.
The judgment
and order of the
court
a
quo
is set aside and replaced by
the
following
order:
2.1 The Plaintiff's claim is
dismissed with costs.
TLHAPI V
V
(JUDGE
OF
THE
HIGH
COURT)
I
agree,
KHUMALO
N
V
(JUDGE
OF
THE
HIGH
COURT)
I
agree,
(ACTING JUDGE OF THE HIGH COURT)
MATTER HEARD ON
: 12 NOVEMBER 2014
JUDGMENT RESERVED
: 12 NOVEMBER 2014
ATTORNEYS FOR THE APPELLANTS :
PULE INCORPORATED
ATTORNEYS FOR THE RESPONDENTS :
JASPER VAN DER WESTHUIZEN
&
BODENSTEIN INC