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[2020] ZASCA 123
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Hattingh v Furman and Others NNO (388/2019) [2020] ZASCA 123 (5 October 2020)
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THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case no: 388/2019
In
the matter between:
CARL
FRANK
HATTINGH
APPELLANT
and
DARREL
FURMAN NO
FIRST RESPONDENT
GREGORY PAUL
WEINBREN NO
SECOND RESPONDENT
DEAN ADAM
WEINBREN NO
THIRD RESPONDENT
ROWAN FURMAN
NO
FOURTH RESPONDENT
Neutral
citation:
Hattingh
v Furman and Others NNO
(Case
no 388/2019)
[2020] ZASCA 123
(5 October 2020)
Coram:
PONNAN,
VAN DER MERWE, MOLEMELA and MBATHA JJA and LEDWABA AJA
Heard:
11
May 2020
Delivered:
This
judgment was handed down electronically by circulation to the
parties' representatives via email, publication on the Supreme
Court
of Appeal website and release to SAFLII. The date and time for
hand-down is deemed to be 10h00 on 5 October 2020
.
Summary:
Contract
– interpretation of - membership in a close corporation –
buy and sell agreement – whether conclusion
of addendum
amounting to ‘withdrawing from business’ – whether
addendum a simulated transaction.
ORDER
On
appeal from
:
Gauteng Division of the High Court, Johannesburg (Tsoka J, sitting as
court of first instance): judgment reported
sub
nom Furman and Others NNO v Hattingh
[2018]
ZAGPJHC 649
The
application for leave to appeal is dismissed with costs.
JUDGMENT
LEDWABA
AJA
[1]
This appeal concerns, principally, the validity and enforceability of
the Buy and Sell Agreement (BSA) entered between Milton
Lawrence
Weinbren (Weinbren) and the appellant, Carl Frank Hattingh
(Hattingh), in respect of the buying and selling of Weinbren’s
member’s interest in Air and Allied Technologies Close
Corporation (the CC), a close corporation incorporated in terms of
the company laws of the Republic of South Africa.
[1]
An allied issue is the validity and impact of the Addendum to the
Memorandum of Agreement (AMA) that was signed by Hattingh and
Weinbren, the latter in both his personal capacity as well as in his
representative capacity as member of the CC, on 29 August
2013 in
order to cancel the Memorandum of Agreement (MOA) or acquisition
agreement. It was in terms of the MOA that Hattingh purchased
twenty-five percent of the interest in the CC. For convenience sake,
the appellant will be referred to as the defendant or Hattingh.
The
first to fourth respondents, who are the duly appointed executors of
Weinbren’s deceased estate, will be referred to
as the
plaintiffs.
[2]
Weinbren died on 31 October 2016. After his death, Hattingh claimed
and thereafter received an amount of R15 829 833 from the
insurance
policy that he had taken on the life of Weinbren in terms of clause 4
of the BSA. In 2017 the plaintiffs, as executors
of the estate of
Weinbren, issued summons against Hattingh. Relying on the BSA, they
claimed the proceeds of the life insurance
on the basis that Hattingh
was obliged to pay the proceeds to them as consideration for the
interest of Weinbren. In terms of clause
5.2 of the BSA,
[2]
the premiums of each policy was payable by the policyholder.
[3]
The court a quo granted judgment in favour of the plaintiffs with
costs. Hattingh’s application for leave to appeal was
dismissed. Hattingh filed a special application for leave to appeal
in this court, together with an application for the condonation
of
the late filing thereof. This court referred the application for oral
argument in terms of
s 17(2)
(d)
of the
Superior Courts Act 10 of 2013
. The application for leave to
appeal and the merits of the case were argued together.
[4]
Before the high court, Hattingh’s defence was that the
plaintiffs were not entitled to the proceeds of his policy on the
life of Weinbren because the BSA was terminated on account of his
withdrawal from the business. The plaintiffs replicated and stated
that, notwithstanding the conclusion of the AMA, Hattingh in fact had
twenty five percent interest in the CC and the BSA was not
terminated
by the AMA; alternatively that Hattingh did not withdraw from the CC
and the BSA was not terminated; and, further alternatively,
that
Hattingh did not withdraw from the CC as contemplated in clause
13.1.3 of the BSA. Clause 13 provides as follows:
‘
Termination
and Cession
13.1 This Agreement
shall terminate on—
13.1.1 the written
agreement of both Parties, or
13.1.2 the
simultaneous death or disability of both Parties, or
13.1.3 one of the
Parties withdrawing from the Business.’
The
purported AMA was simulated and thus void.
[5]
In my view the termination of the BSA depends on whether the AMA is a
valid or simulated agreement. If the AMA is a legally
valid
agreement, it should be further determined whether it had the effect
of cancelling the BSA and, furthermore, whether Hattingh
withdrew
from the business. Considering the complexity of the issues and the
fact that there may be reasonable prospects of success,
condonation
and leave to appeal should be granted.
[6]
Weinbren was the founder of the CC in 1989. He held a hundred percent
of the interests in the CC. Hattingh was employed by the
CC from 2002
as a sales manager and was promoted to the position of general
manager in early 2008. Weinbren offered Hattingh twenty-five
percent
interest on certain terms and conditions. On 28 November 2008 the
parties signed the MOA recording the sale. The parties
also signed a
Members Association Agreement (MAA) and the BSA, which stipulated
that, on the death of either Weinbren or Hattingh,
the survivor would
be deemed to have purchased the interest of the other in the CC.
Hattingh’s twenty-five percent interest
in the CC was recorded
by the Companies and Intellectual Property Commission (CIPC) with
effect from 1 March 2009.
[7]
Hattingh’s interest was retransferred to Weinbren in September
2013, after the AMA was signed and the CK2 form and amended
founding
statements were filed. According to the CIPC records, Hattingh ceased
to be a member and Weinbren owned a hundred percent
of the interest
in the CC.
[8]
To paint a fuller picture it is necessary, at this stage, to mention
what the plaintiffs asserted as the reason for the signing
of the
AMA. Hattingh was married to Irma Blackburn (Blackburn) in community
of property. When she died on 27 August 2012, she had
a signed
will/testament. Therein Blackburn bequeathed her half-share in the
joint estate, which obviously included half the value
of Hattingh’s
twenty-five percent member’s interest in the CC, to her
children born from her previous marriage.
[9]
According to the plaintiffs’ assertions, Weinbren and Hattingh
were concerned that the heirs of Blackburn would own half
of
Hattingh’s interest in the CC. They therefore held several
meetings with Darryl Furman, their attorney, and Allen Narunsky,
their accountant, seeking advice on how to resolve Hattingh’s
predicament of having to share his interest with his late wife’s
children. Some correspondence was exchanged between Weinbren,
Hattingh and Furman on the issue. The plaintiffs in their particulars
of claim refer to Hattingh’s email dated 20 November 2012
[3]
and Weinbren’s email dated 26 February 2013
[4]
to support their assertions.
[10]
On 29 August 2013 Weinbren and Hattingh signed the AMA to immediately
cancel the MOA. The apparent basis of the cancellation
was that
Hattingh failed to pay the purchase price in accordance with clause 4
of the MOA. Hattingh signed all of the necessary
documentation to
give effect to the change and transfer his interest to Weinbren. The
CIPC made the relevant changes in its records
to record that Weinbren
owned a hundred percent of the interest in the CC.
[11]
After Hattingh ceased to own any interest in the CC, he continued to
be an employee of the CC until resigning in December 2016.
[12]
The MOA records the sale of the sale of twenty-five percent of
Weinbren’s interest in the CC to Hattingh. The purchase
price,
subject to certain terms and conditions, was R3 750 000.
[5]
[13]
The MAA was signed on 28 November 2008. It records the member’s
interests of Weinbren and Hattingh as seventy-five percent
and twenty
five percent, respectively. It further notes how the business would
be governed, for example, how member’s interest
would be dealt with
in the future and the solutions if Hattingh ceased to hold an
interest in the CC.
[6]
[14]
The BSA was also signed on 27 November 2008. Clause 1.1 clearly
states that ‘[t]he parties are members in a close
corporation…’.
[7]
It further deals with the obligation for the purchase and sale of
each other’s member’s interests in the business,
in the
event of one of them dying or becoming disabled.
[8]
[15]
In terms of clause 5.1 of the BSA, the parties applied for life
insurance policies. The values of each policy depended on the
values
of each member’s interest in the CC. Weinbren insured the life
of Hattingh for about R3 750 000. Hattingh insured
the life of
Weinbren for R11 250 000. In terms of clause 5.2 of the BSA,
[9]
the premiums of each policy were payable by each policyholder. The
proceeds payable in the event of a successful claim escalated
annually.
[16]
Clause 13.1 and 13.2 of the BSA read as follows:
‘
13.
Termination and Cession
13.1 This Agreement
shall terminate on —
13.1.1 the written
agreement of both Parties, or
13.1.2 the
simultaneous death or disability of both Parties,
13.1.3 one of the
Parties withdrawing from the Business.
13.2 On the
termination of this Agreement, each Party shall have the option,
exercisable in writing within 90 (ninety) days of such
termination,
to claim outright cession of such policy from the owner of the
policy, subject to the following terms and conditions…’
[17]
In 2013 Weinbren and Hattingh signed the AMA, wherein the following
is recorded:
‘
WHEREAS
A The Purchaser has
failed to make payment of any of the Purchase Price to the Seller in
accordance with the provisions of clause
4 of the Agreement.
B The Seller and the
Purchaser wish to cancel the Agreement with immediate effect.
C The parties wish
to record their agreement of cancellation on the terms and conditions
set forth in this Addendum to the Agreement.
THE PARTIES AGREE AS
FOLLOWS:-
1.
CANCELLATION
The Parties hereby
agree to the cancellation of the Agreement with effect from the date
of signature of this Addendum.’
[18]
In 2013 the CC applied for the keyman policy on the life of Hattingh
for R8 000 000. The policy was owned by the CC. In the
questionnaire,
the keyperson insurance records that the persons are people on whom
the success and progress of the business depends;
persons who make
important decisions and contribute towards the profits of the
business. Importantly, on the question if Hattingh
was a co-owner of
the business, the answer is ‘No’.
[19]
The MOA, the MAA and the BSA were signed on the same day. In my view
the MOA is the foundation of both the MAA and the BSA.
Neither the
MAA nor the BSA can exist without the MOA. However, the MOA can
remain as a selfstanding agreement to transfer interest
in the CC
between members without the existence of the MAA and the BSA. The
cancellation of the MAA will therefore not have an
impact on the MOA
and the BSA. But the policy holders of the life policies applied for
in terms of the BSA would still remain owners
of those policies
unless cession had occurred.
[20] It should be
noted that clause 2 of the AMA was rectified by way of an amended
pleading. The corrected and amended version
reads as follows:
‘
2.
RISK
AND BENEFITS
The risk and
benefit in and to the 25% of the members’ interest in the Close
Corporation shall pass from the Seller to the
Purchaser on the
signature of this Addendum.’
[21]
In terms of s 29(3)
(a)
of the Close Corporations Act 69 of 1984 (the Act):
‘
The
membership of any person qualified therefor in terms of subsection
(2) shall commence on the date of the registration of a founding
statement of the corporation containing the particulars required by
section 12 in regard to such person and his or her member’s
interest.’
[10]
membership of a CC
commences on the date of registration of the founding statement
showing the full names, identity number, size
of member’s
interest and the contribution made. You cannot claim to have a
member’s interest in a CC unless same has
been registered. The
exception is in respect of certain legal representatives, such as
executors in respect of deceased members,
who may hold a member’s
interest only if the deceased held a member’s interest at the
time of his death. The said interest
should be registered at the CIPC
within ten (10) days. See s 29(2)
(c)
.
[22]
Plaintiffs submitted that South African law recognises the ability of
a registered member to hold the membership on behalf
of somebody
else, the latter being a beneficial interest holder. For this
proposition reliance was placed on
Nayager
.
[11]
In that matter the following appears at para 12:
‘
All
that the first applicant has, on his version, is a right as against
the second applicant to be reflected as a member of the
close
corporation and a right as against the close corporation in
liquidation to be reflected as its member. He is therefore in
the
position of a beneficial shareholder who is not reflected as such in
the share register of the company, who classically does
not qualify
to bring a winding-up application or pursue a remedy for oppression
under s 252 of the old Companies Act. By parity
of reasoning, a
beneficial shareholder and accordingly a person in the position of
the first applicant in relation to a member’s
interest has no
standing to apply under s 354 to set aside a winding-up order.’
(Citations omitted.)
[23]
The high court said ‘a beneficial shareholder has no standing
to apply to set aside a winding up order’. In para
7 Tuchten J
mentions the effect of failure to execute a form CK2 and to lodge it
with the CIPC. The plaintiff’s submission
that the law supports
a registered member to hold membership on behalf of another is
incorrect. The facts in the present matter
distinguish it from
Nayager’s
case.
[24]
An underhanded agreement to hold shares or member’s interest
contrary to what is in the records of the CIPC is not permissible.
That would amount to misleading the public about one’s member’s
interest in a CC. The power to bind the corporation
in terms of s 54
of the Act is on the registered member.
[25]
Importantly, the keyman policy is not mentioned in the BSA. It serves
a different purpose to the life policies mentioned in
the BSA. The
keyman policy is a form of business insurance that protects the
business from losses suffered as a result of the death
or disability
of an important member by closing the gap left by the services that
were rendered by such an employee.
[26]
If the keyperson dies the insurance would pay the proceeds to the CC,
which is the holder of the insurance. Crucially Hattingh’s
executors would not be entitled to claim the benefits of the policy
because the policy was issued to protect the services that
Hattingh
was rendering and had nothing to do with the BSA or the members’
interest.
[27]
When Hattingh dies the proceeds of the life policy purchased and
owned by Weinbren in terms of the BSA would be paid to the
estate of
Weinbren. Hattingh’s estate would not be entitled to such
proceeds because Hattingh is not a registered member
of the CC. There
is no membership interest to be purchased. The BSA is not applicable.
[28]
In the amended particulars of claim, the plaintiffs’ claim for
R15 829 833 is based on the BSA, the MAA and the MOA.
The plaintiffs
allege in para 17
[12]
that the
alleged twenty five percent interest held by Hattingh appears in
clause 5.2
[13]
of the last
will and testament of Weinbren, Hattingh’s email dated 20
November 2012
[14]
and
Weinbren’s email dated 26 February 2013.
[15]
It is interesting that the plaintiffs did not allege the existence of
the AMA. This was, for the first time, raised in the defendant’s
plea.
[29]
Hattingh’s defence in the plea is that the BSA was terminated
in terms of clause 13.1.3 on 29 August 2013 when the defendant
withdrew from the business of the CC.
[30]
Plaintiffs filed a replication to Hattingh’s plea and alleged
that, notwithstanding the purported conclusion of AMA,
Hattingh held
twenty five percent membership interest in the CC. They further
stated that Hattingh contravened the provisions of
s 13(1)
of the
Administration of Estates Act 66 of 1965
.
[16]
The purported AMA was a simulated agreement and therefore void.
[31]
Allen Narunsky, the plaintiffs’ witness, testified that he is a
chartered accountant and has been the accounting officer
of the CC
from 2008 to 2016. He mentioned the circumstances that gave rise to
the execution of the AMA. He confirmed that after
the AMA was signed
Hattingh continued to be the general manager of the CC.
[32]
Regarding the email of Hattingh dated 20 November 2012, Narunsky said
he was just an accounting officer and could not confirm
or deny if
Hattingh had paid for the member’s interest. Weinbren was the
person who could confirm the same. In about 2010/2011,
the CC traded
at a loss of R5 500 000. The purchase consideration of members’
interest was to be adjusted to R1. Narunsky
stated that Weinbren and
Hattingh wanted to conceal from the executors of Blackburn that
Hattingh had a member’s interest
in the CC. After Weinbren and
Hattingh signed the AMA, the financial statements of the CC for each
succeeding year were signed
by Weinbren only.
[33]
Narunsky further stated that Weinbren and Hattingh discussed that
after the estate of Blackburn was finalised, Hattingh would
be able
to claim back the twenty-five percent member’s interest at any
stage and Weinbren would transfer the member’s
interest back to
him. He did not account to Hattingh regarding the finances of the CC
because he was not a member of the CC at
that stage. Prior to the
death of Weinbren, Hattingh did not request the member’s
interest to be transferred back to him.
[34]
He confirmed that after the AMA was signed, Weinbren took additional
keyman insurance for them to be on par with their life
policies.
Weinbren and the CC held policies on the life of Hattingh to the
total value of approximately R15 million. Hattingh had
a policy on
Weinbren’s life for the value of approximately R15 million. The
BSA is silent on the keyman policy. The CC is
entitled to the
proceeds of the keyman policy. The proceeds are not connected to the
interest that Hattingh had in the CC and if
he were to die his estate
would not have a claim to the said proceeds.
[35]
Rowan Jared Furman testified that the email dated 22 November 2012
(not 20 November, as recorded in the particulars of claim)
states
that Hattingh purchased twenty-five percent member’s interest.
In my view the letter does not assist with the issue
of whether
Hattingh did pay for the twenty-five percent member’s interest
in terms of the acquisition agreement. Furthermore,
the amount in the
letter differs from the amount in the MOA.
[36]
In the heads of argument, plaintiffs submitted that the BSA does not
require the member’s interest in the business to
be registered
and does not state that the transfer of member’s interest in
terms of the Act terminates a member’s interest.
I disagree.
The CC is regulated by the Act, so that the CK2 document cannot
merely be ignored. Clause 3.1 of the BSA states that
the relevant and
appropriate documents and forms should be signed. This is what is
required by the Act.
[37]
Plaintiffs further submitted that despite the signing of AMA and the
recordal of Weinbren as having a hundred percent member’s
interest, Hattingh in fact remained a member and did not withdraw
from the business of the CC. The BSA explicitly states that it
may be
terminated by one of the parties withdrawing from the business. In
the agreement ‘party’ or ‘parties’
is defined
as ‘a member, or the members of the close corporation, as the
case may be’. ‘Business’ is defined
as ‘Air
and Allied Technologies CC, a Close Corporation duly incorporated in
accordance with the laws of the Republic of
South Africa, with
registration number CK 1989/01123923’. Accordingly, properly
interpreted, clause 13.1.3 means that if
one of the members withdraws
from the CC, he has at the same time withdrawn from ‘the
business’, whether or not remaining
on its records as an
employee. In my view, when membership terminates by law, the BSA will
also terminate. One of the important
factors to determine whether
membership has been terminated is the amended founding statement and
the records of the CIPC.
[38]
The trial court said the BSA was never cancelled, despite the fact
that its very existence depended upon the acquisition agreement.
The
defendant’s contention that the BSA was terminated in terms of
Clause 13.1.3 is incorrect because Hattingh never withdrew
as a
member of the CC. In my view, the trial court misconstrued withdrawal
as a member and withdrawal as an employee.
[39]
In terms of clause 12.2
[17]
of
the BSA, should a provision of the BSA conflict with a provision of
the MAA, or any other agreement between the parties or with
the Act
in relation to their respective interest, the provisions of the MAA
shall prevail. The plaintiffs’ submission that
the interest in
the business need not be registered is not correct because clause 4.2
of the MAA states that the member’s
interest shall be
registered.
[40]
Plaintiffs’ further argument was that the AMA is a simulated
agreement because Hattingh used the AMA to hide his member’s
interest in Weinbren’s name for his benefit. The purpose was to
avoid disclosure of members’ interest to the executors
of
Blackburn. There is evidence that Weinbren was also worried and
concerned that the heirs of Blackburn would have an interest
in the
CC. Weinbren was involved in the construction of the AMA.
[41]
The allegation that the member’s interest would revert to
Hattingh when Blackburn’s estate had been finalised should
be
scrutinised properly. When summons was issued, Blackburn’s
estate had not yet been finalised. This implies that Hattingh
could
not claim back the twenty-five percent members’ interest. The
consequences of the AMA is that Weinbren would be registered
as
owning a hundred percent of the members’ interest in the CC.
[42]
It is important to mention that Hattingh was employed as a sales
manager in 2002 and promoted to the position of general manager
in
2008. That did not make him a member nor did it give him a member’s
interest in the CC. Membership or members’ interest
was
acquired in terms of the MOA when the member’s interest was
registered at the CIPC.
[43]
If membership in the CC is terminated, it does not follow that
Hattingh can never continue to be a general manager or an employee
and he should therefore leave the CC. He can still be the general
manager without having a member’s interest in the CC. There
is
a distinction between being an employee of a CC only; and being an
employee who has a member’s interest in a CC. In my
view
withdrawal in clause 13.1.3 refers to withdrawing or disposing of the
member’s interest that one had in the CC.
[44]
Weinbren and Hattingh could have sought to prevent the heirs of
Blackburn to have a member’s interest in the CC. But
their
purpose and motive could only materialise after the estate of
Blackburn had been finalised. The deceased’s estate has
not yet
been finalised and the executors can still claim what is due to the
heirs, including the member’s interest owned
by Hattingh at the
time when Blackburn died. The AMA would not affect what the heirs are
entitled to because it was signed after
Blackburn’s death.
[45]
The other crucial issue to be considered is the effect of AMA between
the Weinbren and Hattingh. It is common cause that after
signing, the
member’s interest of Hattingh was transferred to Weinbren in
terms of the agreement. The parties took further
steps to change the
registration of members’ interest at the CIPC. It should be
determined if the AMA has an impact on the
validity of the BSA or
whether the BSA could still be enforced between the parties if they
intentionally agreed that Weinbren would
have a hundred percent of
the member’s interest in the CC. In my view the BSA is
applicable if one of the registered members
of the CC dies or becomes
disabled. If there is no member’s interest to be purchased, the
BSA would have no meaning.
[46]
The estate of Blackburn was not a party to the AMA and should not be
prejudiced. In my view the estate of Weinbren is not entitled
to the
same rights to claim as Blackburn’s estate, because Weinbren
willingly signed the agreement. The fact that Blackburn’s
estate can still claim half the value of Hattingh’s member’s
interest as at the time before she died does not give
the plaintiffs
the right to nullify what Hattingh and Weinbren intentionally agreed
upon.
[47]
Weinbren and Hattingh could have intended something that was not
achievable. Blackburn’s executors can still claim half
of
Hattingh’s member’s interest. Weinbren and Hattingh
intended to cancel the MOA and registered the change accordingly,
in
my view. If the agreement is a simulation as plaintiffs allege, the
plaintiffs should have applied for it to be so declared
and it should
be kept in mind that the
ex
turpi causa non oritur actio
and
the
in
pari delicto
maxims are still part of our law. The parties cannot seek assistance
from the court for an unlawful transaction they have performed.
[48]
It is unfortunate that the trial court objected to Darryl Furman
giving evidence after he had taken oath. Mr Furman is an officer
of
the court and I think his evidence could have assisted the trial
court in determining exactly what the status of AMA was. The
trial
court held that the BSA was not terminated in terms of clause 13.1.3,
without having the benefit of the evidence of Darryl
Furman so that
it could examine the transaction as a whole, including the
surrounding circumstances and the manner in which it
would ultimately
be implemented.
[49]
The termination of the MOA does not obligate the parties to cancel
the life insurance policies that they own. The life insurance
policy
remains valid but clause 4 of the BSA will not be enforceable.
Weinbren’s estate owns the policy on the life of Hattingh
and
the CC of which Weinbren has a hundred percent member’s
interest owns the keyman policy. If Weinbren’s estate continues
to pay for the life policies purchased in terms of the BSA and the
keyperson policy, it will benefit financially when Hattingh
dies. The
parties did not exercise the option to cede in terms of clause
13.2
[18]
of the BSA.
[50]
The Plaintiffs alleged that the AMA is illegal, contrary to public
policy and a simulated agreement. Weinbren and Hattingh
could have
intended to deceive Blackburn’s estate about the member’s
interest that Hattingh had in the CC. It is important
to mention that
Weinbren benefited from the AMA because his membership interest was
increased. Now the Plaintiffs want to renege
on the agreement and to
benefit in terms of the BSA. In
Roshcon
,
[19]
this court said the following (para 37):
‘
The
notion that
NWK
[20]
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
the
transaction is simulated.’ (Citations omitted.)
[51]
In para 14 of the
Roshcon
case the court further quoted from
Dadoo
,
[21]
where Innes CJ reasoned that:
‘
[P]arties
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.’
[52] Also, in
Commissioner of Customs and Excise v Randles Brothers & Hudson
Ltd
1941 AD 369
at 395-396, 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.’
[53]
In my view there is nothing unusual about the transferring back of
Hattingh’s member’s interest and changing the
registration of interest at the CIPC especially because this happened
after the death of Blackburn. The transaction that was implemented,
has not been reversed. Plaintiffs now want to benefit again from the
transaction which had an impact on the BSA. Plaintiffs cannot
raise
simulation as their defence.
[54]
The law should give effect to the real transaction between the
parties. Weinbren and Hattingh, between themselves intended
that
Weinbren should own hundred percent member’s interest and that
was implemented. The fact that it was not claimed back
and the record
of the CIPC still reflect Weinbren as the sole owner of member’s
interest should not benefit Weinbren who
was a party to the
agreement.
[55]
The AMA is a genuine agreement and that is what the parties intended.
The plaintiffs, in my view, did not prove that there
was simulation
and that the AMA contract, accordingly, is void.
[56]
In conclusion plaintiffs still own a hundred percent member’s
interest on the CC on behalf of the deceased. The BSA policies
regulated the purchasing of existing and registered members’
interest. Weinbren and Hattingh intended to cancel the MOA.
The BSA
cannot be enforced against a party who is not a member of the CC.
Hattingh is still the holder of the policy on Weinbren’s
life
and Weinbren’s estate is still the holder of the policy on
Hattingh’s life.
[57] I would make
following order:
1. Condonation for
the late filing of the special application for leave to appeal is
granted.
2. Leave to appeal
is granted.
3. The appeal is
upheld with costs.
4. The order of the
High Court is set aside and replaced with the following:
‘
The
plaintiffs’ claim is dismissed with costs, including the costs
of two counsel’
_________________
A
P Ledwaba
Acting
Judge of Appeal
PONNAN
JA (MBATHA JA concurring)
[58]
This is an application for leave to appeal and, if granted, the
determination of the appeal itself. The two judges who considered
the
application referred it for oral argument in terms of the provisions
of
s
17(2)(d)
of
the
Superior
Courts Act 10 of 2013
.
Ledwaba AJA is inclined to g
rant
the application and allow the appeal. I do not agree with my learned
colleague.
[59]
Different considerations come into play when considering an
application for leave to appeal as compared to adjudicating the
appeal itself. As to the former, it is for an applicant to convince
the court that there are reasonable prospects of success on
appeal.
Success in an application for leave to appeal does not necessarily
lead to success in the appeal. Because the success of
the application
for leave to appeal depends,
inter
alia
,
on the prospects of eventual success of the appeal itself, at the
hearing of the matter, the argument on the application addressed
the
merits of the appeal.
[22]
[60]
The application arises for consideration against the following
backdrop: On 28 November 2008 Mr Milton Weinbren, the sole member
of
Air and Allied Technologies CC (A & AT), sold to the applicant,
Mr Carl Frank Hattingh, a 25% interest in A & AT. The
ultimate
intention was that Mr Hattingh would in due course acquire a 45%
interest in A & AT. Simultaneously with the conclusion
of the
Memorandum of Agreement (the MOA) recording the sale, the parties
concluded two further agreements - a Members’ Association
Agreement (the MAA) and a Buy-and-Sell Agreement (the BSA).
[61]
Mr Weinbren committed suicide on 31 October 2016. The executors in
his estate, who are the present respondents, instituted
proceedings
against Mr Hattingh in terms of the BSA, which provided that on the
death of either Mr Weinbren or Mr Hattingh, the
survivor would be
deemed to have purchased the member’s interest of the other in
A & AT. The purchase was to be funded
from the proceeds of life
insurance policies that each would procure on the life of the other.
In terms of clause 6.1 of the BSA,
the purchase price of the deceased
party’s interest in A & AT would be the greater of the net
proceeds of such policy
or a valuation of the member’s interest
of such party.
[23]
Clause 6.2 provided
that:
‘
The Buyer
shall, on receipt of the policy proceeds . . . pay the full amount
thereof to the Seller in reduction of the purchase
price . . .’
[62]
Mr Hattingh had taken out a policy in accordance with the aforesaid
provisions. The premiums on the policy were paid by A &
AT and
debited to his loan account. After Mr Weinbren’s death, Mr
Hattingh claimed on the policy and received the amount
of R
15 829 833. The executors alleged that he was obliged to
pay those monies to them. Mr Hattingh pleaded in answer
to the
executors’ claim that:
‘
the [BSA] was
terminated in terms of clause 13.1.3 on or about 29 August 2013 on
the occasion of [him] withdrawing from the business
of [A & AT],
and in consequence of the conclusion of the Addendum to the [MOA]
(the Addendum).’
In
other words, he denied that the BSA was still in existence as at 31
October 2016, the date of Mr Weinbren’s death. Although
somewhat confusing, the executors’ replication to Mr Hattingh’s
plea, was to the effect that, notwithstanding the execution
of these
documents, Mr Hattingh did not ‘as contemplated in terms of
clause 13.1.3 of the BSA in fact withdraw from A &
AT’ and
in the circumstances the BSA was not terminated.
[63]
What has bedevilled the case is the fact that on 27 August 2012 Mr
Hattingh’s wife, Ms Urma Blackburn, died. As they
had been
married in community of property, they accordingly had a joint
interest in Mr Hattingh’
s 25%
member’s interest in A &
AT. The replication thus contended that the conclusion of the
Addendum was contrary to Mr Hattingh’s
obligations in terms of
s 11(1)(
a)
of
the
Administration of Estates Act 66 of 1965
and hence void,
alternatively that it was concluded for the simulated purpose of
avoiding an accounting in the estate of the Late
Ms Blackburn and was
thus invalid.
[64]
The conclusion of the various agreements, including the Addendum were
all common cause. Accordingly, the real issue in the
case, in my
view, was whether the conclusion and implementation of the Addendum
amounted to Mr Hattingh ‘withdrawing from
the Business’
within the meaning of that expression, thereby bringing about the
termination of the BSA. Instead, the focus
at the trial was on
whether the Addendum was a simulated transaction. But, the question
of the illegality in terms of the
Administration of Estates Act or
simulation could only arise if the factual position was that the
execution and implementation of the Addendum amounted to Mr Hattingh
withdrawing from the business.
[65]
At no stage during the trial was any attempt made to address the
meaning of the expression ‘withdrawing from the business’.
Nor is it addressed in the judgment of the court below. However, a
proper understanding of the meaning of this expression in accordance
with the ordinary principles of contractual interpretation is
essential to the outcome of the appeal.
[66]
Clause 13.1 of the BSA provides that:
‘
This
Agreement shall terminate on:
13.1.1 the written
agreement of both Parties; or
13.1.2 the
simultaneous death or disability of both Parties,
13.1.3 one of the
Parties withdrawing from the Business.’
The
first two instances are fairly straightforward. In the first (clause
13.1.1), the parties will have decided, for whatever reason,
not to
go ahead with the BSA. In the second (clause 13.1.2), there will be
no point in the continuation of the agreement. The third
(clause
13.1.3), which occupies our attention in this appeal, is less
straightforward. It does not refer to one of the parties
disposing of
their interest in the business. Nor does it refer to one of them
disposing of their interest in A & AT. It refers
to them
withdrawing from the business. It may well be that if Mr Hattingh
took up a better job opportunity elsewhere, he may perhaps,
as well,
have had to dispose of his interest in A & AT. But, that is a far
cry from saying that his disposal of that interest,
without more,
amounts to him withdrawing from the business.
[67]
Although the BSA defines ‘Business’ as A & AT, that
is far from helpful. The Shorter Oxford English Dictionary
(6ed,
2007) provides a number of different meanings for the word
‘withdraw’. All of the relevant meanings convey the
notion of drawing back or departing from a place or position. The
following examples are apposite:
‘
Draw back or
remove (a thing) from its place or position . . .
Remove oneself from
a place or position . . .
Remove oneself or
retire from a society or community, from public life, etc; abandoned
participation (in an enterprise etc).’
It
thus seems that this is the most natural sense in which to understand
the expression ‘withdrawing from the business’.
[68]
Whether a person has indeed withdrawn would have to be assessed by
having regard to all of the facts in the matter. If, for
example, a
person had retired or resigned their job and gone to work elsewhere,
it would be appropriate to say that they had withdrawn
from the
business. But, the mere disposal of an interest in
a
company
or close corporation may not necessarily constitute a withdrawal from
the business of that company or close corporation.
Contextually, such
an approach makes sense. Mr Hattingh was brought into the business as
a general manager when Mr Weinbren was
contemplating emigrating to
Australia, where all of his children had settled. To attract a
competent manager to run the business,
he offered Mr Hattingh an
incentive in the form of an interest in A & AT, hence the
conclusion of the MOA, under which Mr Hattingh
initially acquired the
25% interest. The parties took out insurance policies in order to
fund that acquisition and the premiums
were debited to their loan
accounts.
[69]
Nothing changed after the conclusion of the Addendum. Mr Hattingh’s
work and work-related duties remained unchanged.
Nor was there any
change in his relationship to Mr Weinbren or A & AT. On 8 August
2013, and at the very time when the conclusion
of the Addendum was
under discussion, Mr Weinbren addressed a memorandum to Mr Hattingh,
the introductory paragraph of which stated:
‘
It has been
agreed between us that it is now time for me to hand over completely,
the operation of the company to you. This is the
right time for this
change as the staff need one leader whose personality becomes the
credo of the organization. I have been at
it for 45 years. I think I
have earned the right to hand over the reins completely. . .
From hence forward, I will not be
involved in any way with the daily
running of the organisation, but only as a “consultant”
on technical issues when
needed.’
The
memorandum went on to state:
‘
Your
Position in the Organisation
You will take full
charge and responsibility for A & AT as of immediate effect,
which will include Macro and Micro Management.
The whole ambit of
operation will be left to you and your management team.
. . .
Outstanding
Matters
Some outstanding
matters that need to form subject of our meeting is the tie up with
Gert and Arno, and BEE requirements . . .
Further
Insurance.
We need to consider
cross insurance increases in the short term’
[70]
According to the evidence, Mr Hattingh continued thereafter to run
the business as best he could, subject to Mr Weinbren’s
continued participation. Importantly, there was never any suggestion
that the BSA had fallen by the wayside or that the insurance
policies
were being maintained for the private advantage of Messrs Weinbren
and Hattingh.
[71]
Indeed, there are several examples of this. First, one of the items
referred to in Mr Weinbren’s memorandum of 8 August
2013 was
the need to tie-up agreements with Mr Gert Fourie and Mr Arno van
Wyk. To this end draft agreements were prepared on 15
August 2013.
Those agreements reflect Messrs Weinbren and Hattingh ‘as the
owners of 75% and 25% respectively of the member’s
interest in
[A & AT]’. Clause 6 thereof headed ‘Recordal and
Acknowledgment’, provided:
‘
6.1 Carl and
Milton hereby record the existence of a Member’s Association
Agreement concluded between them in relation to
the corporation,
during November 2008. Arno hereby acknowledges the existence of such
Agreement and that he is fully aware of the
terms and conditions
therein contained.
6.2 Carl and Milton
hereby record the existence of a Buy/Sell Agreement on occluded
between them in relation to their members’
interest in the
Corporation, which Buy/Sell Agreement was concluded during November
2008. Arno hereby acknowledges the existence
of such Agreement and is
fully aware of the terms and conditions therein contained’.
[72]
Second, in an application dated 14 August 2015 to Standard Bank for
credit facilities on behalf of A & AT it is recorded
that:
‘
Milton
Weinbren (Sole Member looking after the Sales and Admin) . . .
Carl Hattingh
(General and Technical Manager and Project Management) . . . is the
general manager of the company dealing with all
aspects of the
corporation . . .
Milton Weinbren and
Carl Hattingh . . . are involved in the day-to-day running of
the business . . .
Succession planning
is well catered for . . . Carl is still young and can buy Mr
Weinbren’s shares should be decide to retire,
they have a [BSA]
in place, including key man insurance for staff members. Decision
making is taken by the relevant team leaders
in department depending
on the nature of the decision to be made, however, Milton Weinbren
and Carl Hattingh have a final say in
strategic decisions.
[73]
Third, when Mr Weinbren took out a further ‘Key
person/Employment replacement’ insurance policy on Mr
Hattingh’s
life, the latter completed a questionnaire dated 18
November 2013, in which he described himself as the ‘General
manager’
of A & AT. And, in response to the question,
whether the lives of all key persons were insured, he replied: ‘M.L.
Weinbren
- owner, insured through buy and sell’.
[74]
Fourth, in 2016 when serious financial problems were emerging with
the business and a rift developed between them, Mr Hattingh
addressed
several lengthy emails to Mr Weinbren expressing his frustration at
the way in which the business was being conducted
and setting out his
views as to what needed to be done to rescue A & AT financially.
In one of those emails dated 20 September
2016 Mr Hattingh suggested
various cost-cutting measures. He alluded to the need to ‘restructure
the company’ and stated
‘I have offered to leave and I am
prepared to take a voluntary retrenchment in order to reduce the
company overheads further’.
After posing a string of
questions, he added:
‘
I need these
questions answered as you do not answer emails . . .
So we stagnate and
stall while we wait for some form of response that generally does not
materialise. Repeated requests are made
and yet still no clear
direction. I can’t approve new orders as I don’t know
what your capability is in paying these
suppliers . . .
The fact that you
appear unconcerned and with the lack of action and financial input it
appears that you may be preparing to leave
the country and the
company in the state that it is.’
When
that email went unanswered, Mr Hattingh despatched a further email to
Mr Weinbren on 31 October 2016, the very day that he
took his life,
imploring the latter to furnish answers to the questions raised.
[75]
It is so that the Addendum recorded in paragraph 1 that they had
agreed to the cancellation of the MOA and in paragraph 2 that:
‘the
risk and benefit in and to the 25% of the members’ interest in
the Close Corporation shall pass from the Seller
to the Purchaser on
the signature of this Addendum’. Moreover, pursuant to the
addendum, A & AT’s accountant, Mr
Allen Nuransky, completed
and lodged with the Companies and Intellectual Property Commission
the requisite documentation to reflect
the transfer of Mr Hattingh’s
interest in A & AT to Mr Weinbren. That change was also reflected
in the 2013 and 2014
annual financial statements.
[76]
But, the Addendum was directed at something entirely different. It
was an endeavour to protect Mr Hattingh’s interest
in A &
AT from the executors of his late wife’s estate. And, when one
has regard to all of the evidence it is difficult
to see why the mere
transfer of a 25% member’s interest in A & AT should amount
to withdrawing from the business.
[77]
Overall it is difficult to comprehend on what basis Mr Hattingh can
contend that he withdrew from the business as a result
of the
execution of the Addendum. Given the examples that I have alluded to,
which are by no means exhaustive, he was actively
involved in the
business right up until Mr Weinbren’s death. It follows that Mr
Hattingh’s foundational hypothesis,
namely to equate the
disposal of his interest with a withdrawal from the business, is
logically fallacious. Plainly, therefore,
his contention that he
withdrew from the business as contemplated by clause 3.3.1 of the
BSA, falls to be rejected. This conclusion
renders it unnecessary to
consider the further points raised in the appeal.
[78]
It follows that as the envisaged appeal lacks prospects of success,
the application for leave to appeal must fail.
[79]
In the result the application for leave to appeal is dismissed with
costs.
_________________
V
M Ponnan
Judge
of Appeal
VAN
DER MERWE JA (MOLEMELA and MBATHA JJA concurring)
[80]
I have had the benefit of reading the judgments prepared by Ponnan JA
and Ledwaba AJA respectively. I agree that the application
for
condonation should be granted. Save for this, I find myself in
respectful disagreement with the reasoning and conclusion of
Ledwaba
AJA. I agree with Ponnan JA that the application for leave to appeal
falls to be dismissed. However, I reach this conclusion
by a somewhat
different route, hence this judgment.
[81]
I do not intend to repeat the facts of the matter and shall refer
only to those facts that are necessary for a proper understanding
of
this judgment. I adopt the nomenclature used by Ponnan JA. The
respondents’ claim for payment of the proceeds of the policy
on
the life of Mr Weinbren, was based on the provisions of the BSA. The
central issue is whether the BSA was terminated in terms
of clause
13.1.3 thereof. That clause provided for the termination of the BSA
on ‘one of the Parties withdrawing from the
Business.’
[82]
I am prepared to accept that the applicant’s interpretation of
clause 13.1.3 is correct. I therefore accept, without
deciding, that
the phrase ‘withdrawing from the Business’ means ceasing
to be a member of A & AT. It follows that
had the Addendum been a
genuine agreement, Mr Hattingh would have withdrawn from A & AT
and the respondents’ claim had
to fail. If, however, it had
been a simulated transaction, as the respondents contended and the
trial court held, the application
for leave to appeal would have no
prospect of success. I therefore turn to consider whether there is a
reasonable prospect of a
finding on appeal that the trial court erred
in this regard.
[83]
The law in respect of simulated or disguised transactions is clear.
The
locus classicus
on the subject is the judgment of Innes JA
in
Zandberg v Van Zyl
1910 AD 302
, where he said at 309:
‘
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.’
[84]
In the majority judgment in
Commissioner of Customs and Excise v
Randles, Brothers & Hudson, Limited
1941 AD 369
at 395-396
Watermeyer JA explained that a transaction is not necessarily a
disguised one because it is devised for the purpose
of evading a
statutory prohibition or liability and proceeded to say:
‘
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.
’
[85]
These principles have been affirmed in many judgments of this court.
See, for instance,
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) at 732G-733E;
Erf
3183/1 Ladysmith (Pty) Ltd and Another v Commissioner for Inland
Revenue
[1996] ZASCA 35
;
1996
(3) SA 942
(A) at 952C-953D;
Michau
v Maize Board
2003
(6) SA 459
(SCA) para 4 and
Commissioner
for the South African Revenue Service v NWK Ltd
[2010]
ZASCA 168
;
2011
(2) SA 67
(SCA) paras 42-51. In essence, the law disregards
simulation and gives effect to what the transaction really is.
[86]
In the nature of things direct evidence of such simulation is seldom
available. Whether or not the parties to an agreement
actually
intended that their agreement would
inter
partes
have effect according to its tenor, is ordinarily determined on an
analysis of the features of the transaction in question in all
the
relevant circumstances. In this matter, as I shall show, the position
is quite different.
[87]
Mr Hattingh was married to Ms Blackburn in community of property.
Therefore, when she passed away on 27 August 2012, an undivided
half
share of Mr Hattingh’s member’s interest in A & AT
fell within her deceased estate. She had bequeathed her
estate to her
children of a previous marriage. It is common cause that Mr Weinbren
and Mr Hattingh were intent on preventing the
estate of Ms Blackburn
from laying any claim to Mr Hattingh’s member’s interest.
[88]
Mr Allan Narunsky is a chartered accountant and during the relevant
period he was the accounting officer of A & AT. He
testified that
various meetings were held to address this problem. The meetings were
attended by Mr Narunsky, Mr Weinbren, Mr Hattingh
and the first
respondent (as Mr Weinbren’s attorney).These meetings led to
the conclusion and execution of the Addendum.
Importantly, Mr
Narunsky testified that even though Mr Hattingh’
s 25
per cent
member’s interest had been transferred to Mr Weinbren, ‘Mr
Hattingh would always be able to call back his
25 percent at whatever
stage he requested. It would merely be (that) Milton couldn’t
deal with those shares because they
really belonged to Carl as and
when he needed them or wanted them.’
[89]
The trial court accepted the evidence of Mr Narunsky. There is no
basis for interference with this finding. On the contrary,
Mr
Narunsky’s evidence was strongly supported by the
probabilities.
[90]
It will be recalled that the apparent reason for the Addendum was the
failure of Mr Hattingh to pay the purchase price in respect
of the 25
per cent member’s interest. This was recorded in the Addendum
in the following terms:
‘
WHEREAS
A. The Purchaser has
failed to make payment of any of the Purchase Price to the Seller in
accordance with the provisions of clause
4 of the Agreement.
B. The Seller and
the Purchaser wish to cancel the Agreement with immediate effect.’
[91]
But it was not true that Mr Hattingh had failed to make payment in
terms of the MOA. In terms of clause 4 of the MOA the purchase
price
of R3 750 000 was payable by Mr Hattingh to Mr Weinbren ‘from
the proceeds of the dividends’ declared by
A & AT from time
to time over a period of five years from 1 March 2009. Clause 6.5
thereof, however, provided:
‘
It is
specifically recorded herein that in the event that dividends, for
any reason whatsoever, are not declared by the Close Corporation
from
time to time, which dividends are to be paid by the Purchaser to the
Seller in settlement of the purchase price in accordance
with clause
4 above, this shall not be deemed to be a breach by the Purchaser of
this agreement.’
[92]
In addition, both Mr Narunsky and Mr Hattingh testified that because
of significant historical losses suffered by A & AT,
Mr Weinbren
and Mr Hattingh agreed during 2010 that Mr Hattingh had acquired the
25 per cent member’s interest for the nominal
sum of R1.
Although the non-variation clause in the MOA may have rendered this
agreement unenforceable, it strongly indicated the
absence of any
intention to cancel the MOA. The matter of non-payment was put beyond
doubt by Mr Weinbren’s last will, which
provided in this
regard:
‘
It is hereby
recorded that
CARL
FRANK HATTINGH
has made payment to me for 25% (TWENTY-FIVE PERCENTUM) of my members’
interest in Air and Allied technologies CC. Although
CARL
FRANK HATTINGH
may not yet have been registered as a member of Air and Allied
Technologies CC on my passing, he shall be entitled to registration
thereof without any charge therefor.’
[93]
The first point on the probabilities, therefore, is that what the
Addendum conveyed to have been the very reason for its existence,
was
a pretence. Second, as Ponnan JA clearly demonstrated, nothing had
changed in respect of Mr Hattingh’s involvement in
A & AT.
The position was quite the contrary; at the time of the Addendum it
was envisaged that Mr Hattingh would take ‘full
charge and
responsibility’ in respect of A & AT. Finally, there is the
overwhelming improbability that Mr Hattingh would
relinquish his 25
per cent member’s interest for no
quid
pro quo
,
only to prevent a claim to half of it.
[94]
In these circumstances the real purpose and effect of the Addendum
was not to divest Mr Hattingh of his member’s interest.
It was
to hide it from Ms Blackburn’s executor and heirs by having Mr
Weinbren hold it for Mr Hattingh until the coast had
cleared, as it
were. That the parties performed in terms of the Addendum is of no
moment: the charade of performance was meant
to give credence to
their simulation (see
CSARS
v NWK supra
para
55). And the re-transfer thereof would be a mere formality. In sum,
Mr Weinbren and Mr Hattingh did not intend the legal effect
that the
Addendum conveyed to the outside world to operate
inter
partes
.
As between them, 25 per cent of the members’ interest belonged
to Mr Hattingh.
[95]
Even on Mr Hattingh’s interpretation of clause 13.1.3 of the
BSA, therefore, he did not withdraw from A & AT. It
follows that
the BSA remained extant and that the application for leave to appeal
should be dismissed.
[96]
For these reasons I would grant the application for condonation,
direct the applicant to pay the costs of the application for
condonation and dismiss the application for leave to appeal with
costs.
_______________________
C
H G Van Der Merwe
Judge
of Appeal
APPEARANCES
For
appellant: M R Hellens SC (with him D Vetten)
Instructed
by: Kasimov & Associates, Illovo
Hill
Mccardy & Herbst, Bloemfontein
For
respondents: A G Sawma SC
Instructed
by: Edelstein Farber Grobler Inc, Illovo
Matsepes
Inc, Bloemfontein
[1]
Registration number
CK1989/01123923.
[2]
Clause 5.2 provides that: ‘The
premium payable in respect of each respective Policy included in
this Agreement shall be
borne and paid by the Policyholders.’
[3]
The email reads as follows:
‘
Hi
Alan/Rozana
That
is not the issue, the issue is that the shares are paid for as per
the handwritten [agreement] Milton and Alan did a few
years ago. I
need this made official on a letterhead that needs to be signed by
Milton, myself and Alan. This has been going
in circles for a
while.’
[4]
‘
Hi Darryl
Am
I correct in thinking that if Allen’s valuation is correct,
and Carl’s shares are worth R3,5 million round figures,
valued
with the same formula as at the time of the sale of the shares, and
they accept the valuation, Carl will have to fund
R1,75 million to
put in the estate? In fact he would have to fund R3,5 million of
which half would be his plus half of whatever
other assets would
belong to Urma and Carl? If Urma has minimal assets, then Carl, and
down the line, I will have to bear the
brunt? But in fact on paper,
Carl has never paid for his share, putting aside any private
agreement we may have. So in effect
Carl would owe what his shares
are worth, and this would be the actual, legal position? So in fact,
Carl’s shares are then
protected? Or do I become another
creditor in the estate? As another point, if Allen brought in the
terrible year we had in 2010
because of the lack of business in the
market, or product being an absolute grudge purchase, the shares
could be valued at less.
This would make Carl’s exposure less.
Please do not discuss this with Carl till I am back as I just want
clarification
in my own mind. I don’t want another outburst as
I had today.
Milton.’
[5]
Clause 4 reads as follows in
relevant part:
‘
4 THE PURCHASE PRICE
…
4 2 Payment of the purchase
price shall be payable as follows:
4.2.1 Upon the Effective date
hereof the Purchaser shall purchase the purchasing members interest
which percentage members interest
shall be equivalent to R3 750 000
(three million seven hundred and fifty thousand rand) and which
shall be payable by the Purchaser
to the Seller from the proceeds of
the dividends declared by the Close Corporation from time to time,
over a period of 5 years
from the Effective date hereof. It is
furthermore recorded that the purchase price shall be subject to an
increase of 8% (eight
percent) per annum on the nett balance of the
price. For avoidance of doubt this shall mean a capital increase of
8% (eight percent)
per annum calculated annually in arrears on the
purchase price less dividends paid to date.’
[6]
Clause 10.2 states:
‘
It is recorded herein
that Hattingh is employed by the Corporation and shall be entitled
to receive a gross salary in the sum
of R100000,00 (one hundred
thousand rand) per month. It is agreed between the members that in
the event that Hattingh ceases
to hold a members interest as
contemplated in clauses 15 and 16 (save for clause 16 1 3) but
continues to be employed by the
Corporation, Hattingh’s gross
salary aforesaid shall be reasonably negotiated and determined by
the remaining members.’
[7]
The full clause provides: ‘The
parties are members in a close corporation carrying on business
under the name and style
of Air and Allied Technologies CC
(registration number CK 1989/01123923)’.
[8]
‘
1.3 On the death or
disability of one of the Parties
1.3.1 The Business will continue
in the manner and under the name mentioned in this Agreement, and
1.3.2 The sale of the deceased
or disabled Party’s Interest in the Business shall be
implemented as provided for in this
Agreement.’
[9]
‘
5 Life Policies
5.1 The Parties hereby agree to
apply for a Life Insurance Policy on the life of the other Party no
later than 21 (twenty one)
days from date of signature of this
Agreement, as contemplated in the introduction to this Agreement.
5.2 The premium payable in
respect of each respective Policy included in this Agreement shall
be borne and paid by the Policyholders.’
[10]
Section 12 of the Act regulates
the founding provision and provides as follows:
‘
Any person qualified for
membership in terms of section 29 … shall draw up a founding
statement in the prescribed form
in one of the official languages of
the Republic, which shall be signed by or on behalf of every person
who is to become a member
of the corporation upon its registration
and which shall, subject to the provisions of this Act, contain the
following particulars:
(a)
The
full name of the corporation: Provided that a literal translation of
that name into any one other official language of the
Republic, or a
shortened form of that name or such translation thereof, may in
addition be given;
(b)
the
principal business to be carried on by the corporation;
(c)
(i)
a postal address for the corporation; and
(ii) the address (not being the
number of a post office box) of the office of the corporation
referred to in section 25 (1);
(d)
the
full name of each member, his or her identity number or, if he or
she has no such number, the date of his or her birth, and
his or her
residential address;
(e)
the
size, expressed as a percentage, of each member’s interest in
the corporation;
(f)
particulars
of the contribution of each member to the corporation in accordance
with section 24 (1), including—
(i) any amounts of money; and
(ii) a description, and
statement of the fair value, of any property (whether corporeal or
incorporeal) or any service referred
to in section 24(1);
(g)
(i)
the name and postal address of a qualified person who or firm which
has consented in writing to his or her or its appointment
as
accounting officer of the corporation; and
(ii) the date of the end of the
financial year of the corporation.’
[11]
Nayager and Another v Venter
NO and Others, In re: Vorster NO v Erf 603 Benoni CC
[2017] ZAGPPHC 729.
[12]
‘
As at 31 October 2016:-
17.1 The deceased held 75% of
the members’ interest in A&AT.
17.2 The defendant held 25% of
the members’ interest in A&AT, as appears from
inter
alia
:-
17.2.1 clause 5.2 of the last
will and testament of the deceased, a copy of which is annexed
hereto marked “POC5”;
17.2.2 the email dated 20
November 2012 from the defendant a copy of which is annexed hereto
marked “POC6”; and
17.2.3 the email from the
deceased dated 26 February 2013, a copy of which is annexed hereto
marked “POC7”.’
[13]
‘
It is hereby recorded
that CARL FRANK HATTINGH has made payment to me for 25% (twenty five
percentum) of my members interest in
Air and Allied Technologies CC.
Although CARL FRANK HATTINGH may not yet have been registered as a
member of Air and Allied Technologies
CC on my passing, he shall be
entitled to registration thereof without any charge therefor. I
hereby bequeath a further 9% (nine
percentum) of my members interest
in Air and Allied Technologies CC to CARL FRANK HATTINGH.’
[14]
‘
Hi Alan/Rozana
That
is not the issue, the issue is that the shares are paid for as per
the handwritten [agreement] Milton and Alan did a few
years ago. I
need this made official on a letterhead that needs to be signed by
Milton, myself and Alan. This has been going
in circles for a
while.’
[15]
‘
Hi Darryl
Am
I correct in thinking that if Allen’s valuation is correct,
and Carl’s shares are worth R3,5 million round figures,
valued
with the same formula as at the time of the sale of the shares, and
they accept the valuation carl will have to fund R1,75
million to
put in the estate? In fact he would have to fund R3,5 million of
which half would be his plus half of whatever other
assets would
belong to Urma and Carl? If Urma has minimal assets, then Carl, and
down the line, I will have to bear the brunt?
But in fact on paper,
Carl has never paid for his share, putting aside any private
agreement we may have. So in effect Carl would
owe what his shares
are worth, and this would be the actual, legal position? So in fact,
Carl’s shares are then protected?
Or do I become another
creditor in the estate? As another point, if Allen brought in the
terrible year we had in 2010 because
of the lack of business in the
market, or product being an absolute grudge purchase, the shares
could be valued at less. This
would make Carl’s exposure less.
Please do not discuss this with Carl till I am back as I just want
clarification in my
own mind. I don’t want another outburst as
I had today.
Milton.’
[16]
Section 13(1) provides:
‘
No
person shall liquidate or distribute the estate of any deceased
person, except under letters of executorship granted or signed
and
sealed under this Act, or under an endorsement made under section
fifteen, or in pursuance of a direction by a Master.’
[17]
Clause 12.2 states as follows:
‘
If any of the provisions
of this Agreement conflict/s with the provisions of the Members
Association Agreement or any other agreement
between the Parties or
with the
Close Corporations Act, in
relation to their respective
Interest, then the provisions of the Members Association Agreement
shall prevail. Any Party shall
be entitled at any time to require
the other (who shall then be obliged) to co-operate in doing
whatever may be necessary to
amend any such agreements or this
Agreement for the time being so as to conform with the provisions of
the Members Association
Agreement and incorporate therein the
appropriate provisions.’
[18]
‘
13.2 On the termination
of this Agreement, each Party shall have the option, exercisable in
writing within 90 (ninety) days of
such termination, to claim
outright cession of such policy from the owner of the policy,
subject to the following terms and conditions-
13.2.1
the Parties shall sign the necessary cession forms and shall submit
the cession documentation to the Insurer within 30
(thirty) days of
notification of termination, for registration with effect from the
date upon which this Agreement is terminated,
13.2.2
the purchase price in respect of the Policies shall be an amount
equal to the surrender value of the Policy on the life
of each Party
as determined by the Insurer as at the date of termination of this
Agreement net of any taxes payable thereon,
and
13.2.3
payment shall be in cash against cession, as set out in this clause,
of all the owner’s right, title and interest
in and to the
Policies.’
[19]
Roshcon
(Pty) Ltd v Anchor Auto Body Builders CC and Others
[2014]
ZASCA 40; 2014 (4) SA 319 (SCA).
[20]
Commissioner for the South
African Revenue Service v NWK Ltd
[2010]
ZASCA 168; 2011 (2) SA 67 (SCA).
[21]
Dadoo and others v
Krugersdorp Municipal Council
1920 AD 530
at 548.
[22]
Body Corporate of Marine
Sands v Extra Dimensions 121 (Pty) Ltd
[2019] ZASCA 161
;
2020 (2) SA 61
(SCA) paras 1 and 2.
[23]
Clause 6.1 of the BSA provided:
‘The purchase price of the deceased . . . Party’s
interest shall be the greater of:-
6.1 The net proceeds (after
providing for the payment of any taxes, duties, levies and/or
interest) of the Life Insurance Policy/ies
. . .
6.2 the valuation of a
Party’s members interest and loan account in the close
corporation . . .’