Michau v Maize Board (280/2002) [2003] ZASCA 79 (12 September 2003)

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[2003] ZASCA 79
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Michau v Maize Board (280/2002) [2003] ZASCA 79; 2003 (6) SA 459 (SCA); 66 SATC 288 (12 September 2003)

REPORTABLE
Case No 280/2002
In
the matter between:
PETRUS
WILLEM MICHAU Appellant
and
THE
MAIZE BOARD Respondent
_____________________________________________________________________
CORAM : HARMS, SCOTT
et
HEHER JJA
HEARD : 15 AUGUST 2003
DELIVERED : 12 SEPTEMBER 2003
Simulated contract – effect given to its true nature
J U D G M E N T
SCOTT
JA
/…
SCOTT JA
:
[1]
The appellant farms maize in the district of
Harrismith, Free State. On 27 July 1994 he entered into two written
agreements with
Rainbow Chicken Farms (Pty) Ltd (‘Rainbow’) which
carries on business as a breeder and producer of broiler chickens.
The one
was styled ‘Agreement of Lease Purchase and Sale’ and the
other, ‘Management Agreement’. In terms of the former, broadly
stated, the appellant was to hire a broiler site for the 1994 to 1995
season from Rainbow which in turn undertook to sell to the
appellant
at the beginning of each growing cycle its entire stock of day-old
chickens at the broiler site and to repurchase same
at a higher price
from the appellant at the end of each growing cycle. In terms of the
Management Agreement, Rainbow was appointed
by the appellant as the
latter’s manager to manage the broiler operation, to take proper
care of the chickens during their growing
cycle and to procure the
milling and processing of the maize which was to be provided by the
appellant for the feeding of the chickens.
It was not in dispute
that the object of Rainbow and the appellant in entering into the
agreements was to avoid the payment of certain
levies which would
have been payable to the respondent had the appellant simply sold
maize to Rainbow.
[2] During July and August 1994, and in circumstances
more fully set out below, the appellant delivered in accordance with
Rainbow’s
directions a crop of yellow maize of 2352,161 tons and
was paid a total of R917 342,79, being the equivalent of R390 per
ton. The
respondent subsequently instituted action against the
appellant in the Free State Provincial Division for payment of the
levies,
alleging that the agreements referred to above were simulated
and couched in terms aimed disguising the true nature of the
transaction
between the appellant and Rainbow which was the sale of
maize. The respondent’s claim was upheld in the Court
a quo
and the appellant now appeals with the leave of that Court.
[3] It is necessary at the outset to say something about
the levies and the circumstances in which they became payable. At
all times
material to the action there existed a Summer Grain Scheme
(‘the Scheme’) which was established in 1979 in terms of s
14(1)(a)
of the Marketing Act 59 of 1968 (‘the Act’). The Scheme
was administered by the respondent which is a control board
contemplated
in s 25 of the Act and established in terms of s 6 of
the Scheme. Although the Act has since been repealed the respondent
continues
to exist by virtue of the provisions of
s 27(2)
of the
Marketing of Agricultural Products Act 47 of 1996
. The appellant
planted, grew and harvested yellow maize on his farms in the
Harrismith district and was accordingly a ‘producer’
of summer
grain (maize) as defined in
s 1
of both the Act and the Scheme. As
previously mentioned, he produced and delivered a total of 2352,161
tons of yellow maize during
the months of July and August 1994. For
that season the respondent, acting in terms of s 23 and 24 of the
Scheme, imposed levies
totalling R156,31 per ton of yellow maize
produced and the Minister of Agriculture, acting in terms of s 46A of
the Act, imposed
a general levy of R0,08 per ton of yellow maize
produced. The levies were payable to the respondent on maize sold by
the producer
or ‘utilised by the producer thereof for a purpose
other than his own household consumption or farming operations’.
If, however,
the producer wished to sell his maize he was required by
the scheme, subject to certain exceptions, to sell it to the
respondent
at a price determined by the latter which also determined
the consumer price, ie the price at which it, in turn, would sell the
maize
to consumers. For the purpose of these transactions
cooperative societies acted as agents for the respondent and
purchased and sold
maize for and on behalf of the latter. In 1994
the purchase price of yellow maize was fixed at R330 per ton and the
consumer price
at R495 per ton. The difference accounted for the
levies plus certain additional expenses. If, however, a producer
sold maize to
someone other than the respondent or other than a
person dealing in the course of trade with maize, the levies would be
payable by
the producer to the respondent in the ordinary way.
Rainbow was not a person dealing in the course of trade with maize
and it follows
that if the Court
a quo
is held to have
correctly found that the yellow maize produced by the appellant
during the season in question was sold by the latter
to Rainbow, the
levies imposed would be payable by the appellant to the respondent in
the sum of R367 854,46 and the appeal must
fail. If, on the other
hand, it is held that the Court
a quo
ought to have found that
the maize produced by the appellant was utilised by him for his own
farming operations, the levies would
not be payable and the appeal
must succeed.
[4] The agreements referred to in para 1 above were so
structured that the appellant, who farmed in the Free State, played
no role
in the raising of the chickens which was done at Rainbow’s
broiler site in Kwazulu-Natal. Every aspect of the operation was
handled
by Rainbow. Indeed, the appellant conceded in evidence that
all he had to do was produce the maize. But this, coupled with an
obvious
intention to avoid the levies, would not be sufficient in the
absence of anything else to justify the respondent’s claim that the
agreements were simulated and that the true nature of the contractual
relationship between the appellant and Rainbow was one of sale.
It
has long since been established in cases such as
Zandberg v Van
Zyl
1910 AD 302
,
Dadoo Ltd and Others v Krugersdorp Municipal
Council
1920 AD 530
,
Commissioner of Customs and Excise v
Randles Brothers & Hudson Ltd
1941 AD 369
and more recently
affirmed in
Erf 3183/1
Ladysmith (Pty) Ltd and Another v
Commissioner of Inland Revenue
[1996] ZASCA 35
;
1996 (3) SA 942
(A) that parties
are free to arrange their affairs so as to remain outside the
provisions of a particular statute. Merely because
those provisions
would not have been avoided had the parties structured their
transaction in a different and perhaps more convenient
way does not
render the transaction objectionable. What they may not do is
conceal the true nature of their transaction or in the
words of Innes
JA in
Zandberg
’s case,
supra
, at 309, ‘call it by a
name, or give it a shape, intended not to express but to disguise its
true nature.’ In such event a court
will strip off its ostensible
form and give effect to what the transaction really is. But, while
the principle is easy enough to
state in the abstract, its
application in practice may sometimes give rise to considerable
difficulty. Each case will depend upon
its own facts. A Court will
seek to ascertain the true intention of the parties from all the
relevant circumstances, including the
manner in which the contract is
implemented. The onus is upon the party who alleges that the
transaction is simulated.
[5] It becomes necessary, therefore, to examine in
greater detail the agreements referred to in para 1 above and the
manner in which
they were implemented. By agreement between the
parties a number of documents were tendered in evidence ‘as if they
[had] been
produced in Court pursuant to a notice given by the
plaintiff in terms of Rule 35 (10).’ These included a set of
accounts in similar
form in respect of each of seven 49-day broiler
cycles which had been drawn up by Rainbow. Each set purported to
give the number
of one day-old chickens purchased by the appellant
from Rainbow, their purchase price, the maize used to feed them, the
price at
which they were repurchased by Rainbow at the end of the
49-day period and the appellant’s profit. The maize stated to have
been
used in the course of the cycles totalled the figure of 2352,161
tons previously mentioned. The first of the 49-day cycles was said
to have commenced on 10 September 1994 and the seventh to have
commenced on 16 January 1995. The Agreement of Lease Purchase and
Sale made no provision for Rainbow to pay for the maize to be used in
the feed for the chickens. But it did require the appellant
to pay
the purchase price of the day-old chickens within fourteen days of
the end of each cycle. Rainbow was similarly required
to pay the
purchase price of the chickens at the end of each cycle within the
same 14-day period. In the event, this did not occur.
The maize
produced by the appellant during July and August 1994 was delivered
to the Sentraal-Oos (Koöperatief) Bpk (SOK) of
which he was a
member. In terms of an arrangement between Rainbow and SOK the
latter periodically sent to Rainbow a schedule setting
forth the
quantity of maize delivered to SOK by each of the farmers with whom
Rainbow had entered into similar agreements. The schedule
also
indicated whether the cheque in payment of the maize was to be sent
to the farmer or to SOK. If the farmer was not indebted
to SOK the
cheque was sent directly to him. If, on the other hand, the farmer
was indebted to SOK, whether by reason of a production
loan or
otherwise, the cheque was sent to SOK which first deducted what it
was owed before handing over the balance to the farmer.
It appears
that the appellant was indebted in an amount of some R2,2 million to
SOK which enjoyed a lien over his maize. Three
cheques were sent to
SOK in payment of the appellant’s crop of 2352,161 tons of maize.
They were dated respectively 28 July 1994,
15 August 1994 and 2
September 1994. Their total value was R846 777,96 which worked out
at precisely R360 per ton. The cheques
were drawn on an account in
the name of the appellant at the Durban branch of a national bank.
It appears, however, both from the
documents emanating from Rainbow
and the evidence of the appellant himself that this account was
opened and financed by Rainbow.
The maize was delivered on the
instructions of Rainbow to various concerns for milling.
Subsequently and by cheque dated 24 October
1994, the appellant was
paid a further sum of R70 564,83. The cheque was drawn on the same
account as before but was payable to
the appellant and not to SOK.
This amount represents precisely R30 per ton in relation to the
appellant’s crop of 2352,161 tons.
The appellant received no
further payment as income or profit from having concluded the
agreements with Rainbow.
[6] What is immediately apparent from the aforegoing is
that the sum paid to the appellant, whether directly or indirectly
amounted
to precisely R390 per ton for his maize. This was R60 per
ton more than he would have received had he sold the maize to the
respondent.
It was R105 per ton less than Rainbow would have had to
pay had it purchased the maize from the respondent. But more
significantly,
the payment of R70 564,83 made directly to the
appellant, and which resulted in the appellant in effect receiving
precisely R390
per ton for his maize, was made before 1 November 1994
which, according to Rainbow’s accounts, would have been the day on
which
the first of the seven 49-day cycles was completed. Had the
true intention been to give effect to the contracts according to
their
tenor the amount to which the appellant would ultimately have
become entitled would not have been known at that stage. The reason
is that the income or profit accruing to the appellant from each
cycle was dependent on several factors which would only have become
known once the cycle had been completed. It is true that the
payments to SOK and the appellant were reflected as ‘drawings’
in
the accounts, but that these should have constituted the precise
amount to which the appellant would ultimately become entitled
under
the agreements could hardly have been coincidental.
[7] The Agreement of Lease Purchase and Sale did not
specify the exact price at which the day-old chickens would be
purchased by the
appellant or at which the broiler chickens at the
end of each cycle would be purchased by Rainbow. Instead, it
recorded that in
both instances the price was to be agreed between
Rainbow and the appellant but in the case of the day-old chickens it
was to be
‘no less than 95c (plus VAT at 14%) and … no more than
100c (plus VAT at 14%)’ and in the case of the broiler chickens ‘no
less than R4,95 (plus VAT at 14%) and … no more than R5,30 (plus
VAT at 14%)’. An examination of the accounts in respect of
each
broiler cycle reveals that in each case the purchase price of the
day-old chickens is given as 93c. This, of course, is lower
than the
minimum specified in the contract. But of far greater significance
is the fact that in respect of each cycle the price
of the broiler
chickens is given in rands to the seventh decimal place or, in other
words, cents to the fifth decimal place. The
price, moreover, varies
from cycle to cycle, albeit in some cases only by a few decimal
points of a cent. The inference that these
figures were arrived at
by working backwards so as to arrive at a predetermined result is
overwhelming, particularly when it is borne
in mind that amount to
which the appellant was ultimately entitled was paid in October 1994
and before the completion of the first
cycle. If this were not
enough, the accounts relating to three of the cycles contain minor
arithmetic errors which if corrected
would result in the amount paid
to the appellant (being the equivalent of R390 per ton of maize
supplied) having to be altered.
[8] What emerges, thus far, is first that the provisions
of the Agreement of Lease Purchase and Sale with regard to payment
were wholly
disregarded. The payments by Rainbow to the appellants
were related to the delivery of maize, not to the purchase price of
chickens.
Second, the payments by Rainbow were made via a bank
account opened by Rainbow in the name of the appellant. Why the
payments should
have been laundered in this way was never explained.
Counsel for the respondent submitted that the object was to create
the impression
that the appellant was paying for the release of his
own maize. No other inference was suggested in argument. Third, the
accounts
prepared by Rainbow for each cycle were clearly drawn up so
as to arrive at a predetermined total amount, ie R917 342,79. That
amount
was paid to the appellant before the figure would have been
known had it been based on the sale of chickens. In the result, the
inference is inescapable that the accounts for each cycle were
prepared to create the impression that the appellant derived his
income from the sale of chickens whereas in truth he derived his
income from the sale of his maize to Rainbow.
[9] On behalf of the appellant it was pointed out that
the accounts made provision for the payment of VAT which would not
have been
payable had Rainbow purchased maize from the appellant to
feed its chickens as the transaction would have been zero-rated for
VAT
purposes. However, this is hardly decisive as the payment of VAT
would not be inconsistent with an intention to disguise the true
nature of the agreement.
[10] The appellant, not surprisingly, denied in evidence
that the contract was simulated and that a price for his maize had
been determined
in advance. He conceded, however, that he had no
idea of the price of day-old chickens or poultry and that, although
in terms of
his agreement with Rainbow the price at which the
chickens were sold would be decisive as to whether there was a profit
or not, the
price of chickens was of no importance to him at the
time. He said he simply placed his faith in Rainbow to give him an
added value
on his maize. What is clear is that the appellant’s
evidence was wholly inconsistent with that of a person who had
genuinely entered
into an agreement to farm chickens. His sole
concern was what return he would receive on his maize. As previously
indicated, Rainbow’s
accounts were drawn up so as to arrive at an
obviously predetermined return of R390 per ton. This strongly
suggests that R390 was
an agreed amount. But if not, the inference
is overwhelming that in such event the appellant would simply have
left it to Rainbow
to determine the figure which he subsequently
accepted, the only limitation being that it would be more than the
R330 per ton determined
by the respondent.
[11] In the result I am satisfied that the respondent
discharged the burden of establishing that the true nature of the
transaction
between the appellant and Rainbow was the purchase by the
latter of the former’s maize.
[12] The appeal is dismissed with costs, such costs to
include the costs of two counsel.
D G SCOTT
JUDGE OF APPEAL
CONCUR
:
HARMS JA
HEHER JA