Maize Board v Hart (248/05) [2006] ZASCA 4; [2006] SCA 4 (RSA) (7 March 2006)

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[2006] ZASCA 4
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Maize Board v Hart (248/05) [2006] ZASCA 4; [2006] SCA 4 (RSA) (7 March 2006)

THE
SUPREME COURT OF APPEAL
OF
SOUTH AFRICA
Not reportable
CASE NO
: 248/05
In the matter between :
THE MAIZE BOARD
Appellant
and
TEMPLE ALBERT HART
Respondent
___________________________________________________________________
Before: STREICHER, BRAND &
JAFTA JJA
Heard: 16 FEBRUARY 2006
Delivered:
7 MARCH
2006
Summary: Contracts –
simulation – effect to be given to true agreement between parties
Neutral citation: This
judgment may be referred to as The Maize Board v Temple Albert Hart
[2006] SCA 4 (RSA)
___________________________________________________________________
J
U D G M E N T
___________________________________________________________________
STREICHER JA
STREICHER JA:
[1] The issue to be decided in this
appeal is whether two agreements respectively styled ‘Agreement of
Lease’ and ‘Management
Agreement’ entered into between Rainbow
Chicken Farms (Pty) Ltd (‘Rainbow’) and the respondent were what
they purported to
be or whether the true transaction was one of
purchase and sale. It is common cause between the parties that, if
the latter was the
case, certain levies were payable by the
respondent to the appellant in respect of maize produced on the land
which was ‘leased’
to Rainbow. In an action instituted by the
appellant against the respondent for the payment of such levies the
High Court in Bloemfontein
held that the transactions were not
simulated and dismissed the action but granted leave to the appellant
to appeal to this court.
[2] The respondent is a farmer who
farms on the farms Gryskop, Molen River and Quarriekop in the
district of Warden. Rainbow is a
breeder and producer of broiler
chickens. The appellant is the control board in terms of the Maize
Marketing Scheme (‘the Scheme’)
published by Proclamation R45 of
16 March 1979 in Government Gazette 6349 in terms of the now repealed
Marketing Act 59 of 1968 (‘the
Act’).
[3] In terms of ss 23 and 24 of the
Scheme a levy and special levy and in terms of s 46A of the Act
a general levy payable to
the appellant was imposed upon certain
producers of maize who sold the maize otherwise than to the appellant
or who utilized the
maize otherwise than for household consumption or
to feed their own animals. At the relevant time a single channel
system was used
in respect of the marketing of maize. A producer
could sell and deliver his maize to a co-operative acting as agent of
the appellant
and receive the nett producer price. The appellant
would then sell the maize into the domestic market at the consumer
price. Both
the producer price and the consumer price were set by the
appellant with the approval of the Minister of Agriculture before the
commencement
of a marketing season, the marketing season being the
period 1 May of a year until 30 April of the next year. For various
reasons
the gap between the producer price and the consumer price
widened considerably by the late 1980’s. This caused
dissatisfaction
manifested by threats by different individuals and
corporations that if the issue of the widening gap was not addressed,
they would
find ways and means to bypass the Scheme.
[4] Rainbow itself devised schemes
intended to avoid the obligation on the part of the farmer to pay the
maize levy. The object of
the schemes was to achieve a higher income
to the farmer and a lower expenditure on the part of Rainbow. In
terms of one of these
schemes Rainbow entered into two agreements
with farmers namely an agreement of lease, purchase and sale and a
management agreement.
In terms of the former agreement the farmer
concerned hired a broiler site from Rainbow who undertook to sell to
the farmer day-old
chickens and to repurchase them at the end of the
growing cycle. In terms of the latter agreement Rainbow undertook to
manage the
broiler operation on behalf of the farmer and to procure
the milling and processing of the maize which was to be provided by
the
farmer for the feeding of the chickens. This scheme was the
subject of the litigation in the case of
Michau v Maize Board
2003 (6) SA 459
(SCA). It was contended that Michau, the farmer who
had contracted with Rainbow, utilised the maize produced by him to
feed his own
animals and that no levies were consequently payable by
him. This court held, on the particular facts of that case, that the
true
nature of the transaction was one of purchase and sale of
Michau’s maize and that levies were payable by Michau to the
appellant.
[5] In terms of another scheme the
farmer leased his land on which he cultivated maize to Rainbow and at
the same time concluded a
management agreement with Rainbow in terms
of which it was agreed that the farmer would manage the farming
activities on the leased
land on behalf of Rainbow. This scheme was
the subject of the litigation in
Maize Board v Jackson
2005
(6) SA 592
(SCA). In this case it was contended that Rainbow was the
producer of the maize and that it was utilising the maize so produced
to
feed its own animals. Again this court held that, on the
particular facts of the case, the true nature of the transaction was
one
of purchase and sale and that levies were payable by Jackson to
the appellant.
[6] In the present case the
respondent and Rainbow entered into an ‘agreement of lease’ and a
‘management agreement’ similar
to the agreements between Jackson
and Rainbow. As in the case of
Jackson
the respondent
contended that the maize delivered by him to Rainbow was produced by
Rainbow on lands leased by it and that Rainbow
was utilising the
maize so produced to feed its own animals. It does not follow that
the transactions, having been found to be simulated
in
Jackson
,
were also simulated in the case of the respondent. In each case one
has to determine what the true agreement between the parties
was. In
the words of Hefer JA in
ERf 3183/1 Ladysmith (Pty) Ltd v
Commissioner for Inland Revenue
[1996] ZASCA 35
;
1996 (3) SA 942
(A) at 953C-D:
‘The real question is, however, whether they actually intended that
each agreement would
inter partes
have effect according to its
tenor. If not, effect must be given to what the transaction really
is.’ That is so because ‘the law
regards the substance rather
than the form of things’.
1
[7] If the true agreement between
Rainbow and the respondent was one of lease and management i.e. if
they actually intended that each
agreement would have effect
according to its tenor, the fact that their object was to avoid the
payment of the maize levies cannot
serve to make their agreements
anything different from what they intended them to be. There was no
legal impediment against the conclusion
of such a lease and
management agreement and the parties were free to arrange their
affairs so as to remain outside the provisions
of the Scheme.
2
[8] The true intention of the parties
to the agreements must be ascertained from all the relevant
circumstances, including the manner
in which the agreements were
implemented.
3
I shall, therefore, proceed to examine the agreements and the manner
in which they were implemented.
[9] The respondent signed the
agreements on 26 October 1994 and Rainbow did so on 28 December 1994.
(For ease of reference I shall
refer to the agreements as the
agreement of lease and the management agreement although the very
issue to be decided is whether or
not they actually constituted
agreements of lease and management.) The agreements were
interdependent. Cancellation of the one resulted
in the cancellation
of the other.
[10] In terms of the agreement of
lease the respondent leased to Rainbow the land defined as ‘the
property more fully described
and depicted in Schedule II’ to the
agreement. However, the only document annexed to the agreement of
lease is a document which
is not identified as Schedule II and which
contains sketches made and signed by the respondent.
[11] In terms of the management
agreement Rainbow appointed the respondent as manager to manage the
farming operations on the land
on Rainbow’s behalf. As in the case
of the agreement of lease the land is defined as the property
described and depicted in Schedule
II. However, the management
agreement only has a Schedule I annexed to it.
[12] The respondent thought and the
matter was presented and argued on the basis that the sketches
referred to constituted the Schedule
II referred to in both the
agreement of lease and the management agreement and that Schedule I,
annexed to the management agreement,
also constituted Schedule I
referred to in the agreement of lease. According to the inscriptions
on the sketches they depict the
‘Lands Planted for Rainbow’ on
the farms Gryskop, Molen River and Quarriekop in the district of
Warden. The lands depicted comprise
143,10 ha , 76,9 ha and
56 ha in the case of Gryskop, Molen River and Quarriekop
respectively i.e. 276 ha in
total. However, according to the
respondent the inscription ‘Lands Planted for Rainbow’ was wrong
and should have read ‘Lands
intended for Rainbow’ as the planting
only started in November i.e. after the agreements had been signed by
the respondent and
after the sketches had come into being.
[13] The rent payable by Rainbow was
to be the amount reflected in Schedule I per ha of the land upon
which feed crops were grown.
But in terms of Schedule I the rent was
payable in respect of 150 ha situated on Gryskop while there were
only 143,10 ha available
on Gryskop.
[14] The agreement of lease provided
that the rent was payable to the respondent within 14 days of the
effective date or the date
of signature of the agreement whichever
was the later. The effective date is defined as the date referred to
in Schedule I. However,
no effective date is to be found in Schedule
I and according to the schedule the rent is payable after planting
but not later than
20 December 1994. In the event the rent was
included in payments made by Rainbow to the respondent on 13 and 14
December 1994 i.e.
the rent was paid even before the agreements had
been signed by Rainbow.
[15] In the preamble to the agreement
of lease it is stated that the respondent is the owner of the land
being leased. The statement
is not correct as the respondent’s
father was the owner of the land.
[16] Both the agreement of lease and
the management agreement were to commence and terminate on the dates
reflected in Schedule I.
(In the case of the agreement of lease the
commencement date was to be the effective date which, by definition,
was the date ‘referred
to in Schedule I’.) However, no
commencement date or termination date is to be found in Schedule I.
[17] In terms of the management
agreement Rainbow undertook to, at its own expense, supply such seed,
fertilizer, herbicide and insecticide
as were necessary for the
farming operations in the quantities and the values reflected in
Schedule I and the respondent was obliged
to apply herbicide and
insecticide upon Rainbow’s directions. However, Rainbow never gave
any instructions regarding the application
of herbicide and
insecticide to the respondent and never supplied any of the items
referred to, to the respondent. Instead of doing
so Rainbow paid an
amount that it had budgeted for these items to the respondent and the
respondent acquired and used the fertiliser
and other items that were
in his view required.
[18] The management agreement also
provided that the respondent would strictly adhere to and conduct the
farming operations according
to the instructions given by Rainbow
from time to time and that the respondent would under no
circumstances deviate from such instructions
without Rainbow’s
consent first had and obtained. However, Rainbow never gave any
instructions to the respondent as to how to conduct
the farming
operations.
[19] In terms of the management
agreement the respondent was entitled to and was in fact paid an
initial amount of R131 250 and a
subsequent amount equal to 0.94 of
the market price of maize in respect of the maize produced by the
respondent in excess of 333
(150 x 2.22) ton. It follows that the
respondent in effect received R131 250 in respect of 333 tons of
maize which equates to R394.14
per ton. It so happens that according
to documents admitted by the court a quo as evidence on the basis
that they were found in the
possession of Verus Farming and
Investments (Pty) Ltd (‘Verus’) the ‘world price’ of maize as
at 13 November 1994 was R394,8
per ton. (Verus had been contracted by
Rainbow to administer its maize contracts and the litigation is being
funded and conducted
on behalf of the respondent by Rainbow.) It is
thus clear that the parties in effect agreed that the respondent
would be paid for
the first 333 tons of maize, an amount equivalent
to the ‘world price’ of maize at the time the agreement was
entered into and
for the maize produced in excess of 333 tons 0.94 of
the market price of maize.
[20] According to Schedule I the
amount of R131 250 is made up as follows:
Per Hectare
Basic remuneration R 30,00
Rent R 30,00
Fixed costs R290,00
Preparatory costs R 87,00
Cultivation costs R 58,00
Harvesting costs R145,00
Direct costs R525,00
Seed R 90,00
Fertiliser R174,00
Insecticide R 26,10
Pesticide R 26,10
Herbicide R 78,30
Insurance R 65,25
Unspecified R 65,25 _______
R875,00
R875/ha x 150 ha = R131 250
[21] Rainbow paid the amount of
R131 250 to the respondent in two instalments on 13 and 14
December 1994 i.e before the agreements
were signed by it while,
apart from the rent, only the fixed costs and the basic remuneration
were payable and then only in three
tranches, as follows:
A down payment of R150 per ha 14 days
after signing of the agreements, 60% of the balance in mid-April and
the balance in mid-June.
The direct costs purported to be no more
than a budgeted figure.
[22] Rainbow undertook, in the event
of a total crop failure, to pay the respondent’s fixed costs
expended to the date of the crop
failure, determined by Rainbow in
accordance with the estimated operating costs as reflected in
Schedule I. However, according to
Schedule I such costs formed part
of the amount of R131 250 that was paid in December and
according to the respondent the amount
so paid was not refundable to
Rainbow in the case of a crop failure. Rainbow also undertook to
insure the crop of feed on the land
against the risk of hail damage
and the parties agreed that in the event of the feed being damaged or
destroyed by hail the proceeds
of such insurance would be for the
benefit of Rainbow. However, in the event the respondent effected the
insurance and ceded the
policy to Rainbow. According to Schedule I an
amount that had been budgeted in respect of insurance formed part of
the sum of R131 250
that was paid to the respondent in December.
[23] The respondent together with
other farmers met with a representative of Verus on a regular basis
and monthly progress reports
on the crop were furnished to him. The
representative of Verus also visited the farm and inspected the crop
‘to make sure that
the money was spent where it was meant to have
been spent and to see the progress of the crop’. After the
abolition of levies in
1997 the respondent as well as other farmers
continued to conclude the same agreements of lease and management
with Verus.
[24] The court a quo held that it
made practical sense for the full amount in respect of the fixed
costs to be paid at an early stage
and that there was nothing
sinister about the payment of the rent and management fee in December
rather than April or June. In this
regard it expressed agreement with
the statement by Hugo J in the court of first instance in the
Jackson
matter that the parties were ‘not prisoners of their agreement’.
The court a quo also referred to the advantages of the agreements
to
the respondent, namely that he would not bear the risk of drought or
other disasters as Rainbow had to pay ‘all the production
costs,
including the preparation of the land, seed, fertilizer, insecticide
and pesticide’. In addition, said the court a quo:
‘The defendant
was paid a rental and management fee. If the crop failed, it was
Rainbow’s crop that failed. The defendant would
still receive his
rental in terms of the lease agreement and his remuneration in terms
of the management agreement.’ These advantages,
in the opinion of
the court a quo, outweighed the fact that no levies were payable if
Rainbow were to feed its own maize to its chickens.
In the light of
these considerations coupled with the fact that, after the abolition
of levies, the respondent and many other farmers
continued to farm on
the same contractual basis, the court a quo concluded that ‘the
(appellant) failed to establish, on a balance
of probabilities, that
the (respondent’s) intention was anything different from what is
contained in the management and lease agreements
or that the
management agreement and the lease agreement were simulated
transactions’.
[25] For the reasons that follow I am
of the view that the transactions were simulated and that the court a
quo erred in finding that
they were not.
[26] According to Schedule I payment
of the management fee and the rent had to be made on the basis of
150 ha having been planted
with maize. However, in terms of
Schedule II 276 ha were planted for Rainbow or if the respondent
is to be believed, 276 ha
were intended to be planted for
Rainbow. Furthermore, once again if the respondent is to be believed,
planting had not yet started
on 26 October when the agreements were
signed by the respondent because the rains were late. According to
him planting only started
in the first or second week of November.
The number of hectares planted with maize could, therefore, not have
been known when the
agreement was signed by the respondent,
consequently the 150 ha, on the basis of which the rent and
management fee was allegedly
calculated, could have been nothing
other than a fictitious figure.
[27] The respondent leased 276 ha
to Rainbow and undertook to manage that 276 ha on behalf of
Rainbow but rent was according
to Schedule 1 only payable on 150 ha
which still had to be planted, yet, no arrangement was made in
respect of the remaining
126 ha. If only 150 ha were to be
planted or had been planted as is suggested by the fact that the rent
and management
fee were to be calculated on the basis of 150 ha
having been planted with maize there was no point in letting 276 ha
to
the respondent. It is, therefore, unlikely that the parties
seriously intended a lease and management contract in respect of
276 ha
as the parties purported to do in the agreement of lease.
[28] If the parties to the agreements
seriously intended a lease –
one would have expected them to take
care as to the formulation of the duration of the lease. However, as
stated above, neither
a commencement date nor a termination date can
be found in the agreement;
one would have expected Rainbow to make sure that the
lessor was the owner of the land.
[29] Likewise, if the parties
seriously intended to perform the agreements according to their
tenor, the date upon which the rent
was payable in terms of the
agreements should have been of some importance to them. However, in
terms of the agreement of lease the
rent was payable to the
respondent within 14 days of the effective date or the date of
signature whichever was the later, yet, they
omitted to state what
the effective date was. In addition, the management agreement
stipulated a different time for the payment of
rent.
[30] The agreements were not
implemented according to their tenor. Payments were not made in
accordance with the provisions of the
agreements, obligations were
not performed in terms of the agreements and instructions and
directions were never given as envisaged
in the agreements. It is
true that the parties to the agreements were not prisoners of the
agreements but on the other hand in the
light of the fact that they
acted as if the agreements did not exist, without any explanation as
to how it came about and why the
agreements were not implemented, the
inference has to be drawn that the agreements were not intended to be
performed according to
their tenor but were nothing more than an
attempt to mislead. More so is that the case where there was a
considerable amount to be
gained by doing so.
[31] Not having intended an agreement
of lease and a management contract Rainbow and the respondent must
have intended a sale. Rainbow
paid the amount of R131 250, an amount
equivalent to the ‘world price’ of maize, to the respondent in
respect of 333 tons of
maize which still had to be produced and stood
to lose that amount in the event of a crop failure. Such a
transaction is known as
an emptio spei.
4
In respect of maize produced in excess of 333 tons Rainbow undertook
to pay 0.94 of the market price of maize. Such a transaction
is known
as an emptio rei speratae.
5
As the assumption of the risk of a crop failure is consistent with a
sale the court a quo erred in relying on such assumption in
support
of its finding that the lease and management contracts were what they
purported to be.
[32] I have not lost sight of the
fact that the respondent and Verus are, notwithstanding the abolition
of levies, still contracting
on the same basis. According to the
respondent nothing has changed. If nothing has changed the agreements
are still being implemented
as agreements of sale. As such they may
still be considered to be to the advantage of the respondent and
Verus and that is probably
the reason why the parties are still
contracting on the same basis.
[33] The respondent submitted that
the fact that monthly progress reports were furnished to Verus and
that a representative of Verus
visited the farm and inspected the
crop indicated that the agreement of lease and the management
agreement were intended to be what
they purported to be. However,
these actions are in my view equally consistent with an agreement of
purchase and sale. Rainbow clearly
had an interest in the crop, more
so in the light of the fact that it bore the risk of a crop failure.
[34] During argument before
us the appellant applied for an amendment
to its particulars of claim so as to allege that on a proper
interpretation of the lease
and the management agreements read with
the Scheme and the Act the respondent was the producer of the maize
delivered to Rainbow.
Having found that the transactions were
simulated and that the respondent and not Rainbow was the producer of
the maize it is not
necessary to deal with the application.
[35] The parties are agreed as to the
terms of the order that should in the circumstances be made.
[36] In the result the following
order is made:
The appeal is upheld with costs, which costs shall
include the costs of two counsel.
The order of the court a quo is set
aside and the following order is substituted therefor:
‘
1 Judgment is granted in favour of
the plaintiff for the payment of R25 877,70 together with interest
thereon at 15,5% per annum from
the dates when the levies ought to
have been paid to date of payment.
2 The defendant is ordered to pay the costs of the
action including the costs of two counsel and Professor Hammes and Mr
Smith are
declared to have been necessary witnesses.
______________
STREICHER JA
BRAND JA)
JAFTA JA) CONCUR
1
See
Dadoo Ltd v Krugersdorp
Municipal Council
1920 AD 530
at 547
.
2
See
Erf
3183/1 Ladysmith (Pty) Ltd
at 951A-C
).
3
See
Michau
at 464D-E.
4
See LAWSA, First Reissue Vol 24 para 15.
5
Op cit para 14.