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[1992] ZASCA 174
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Lewis v Oneanate (Pty) Ltd and Another (344/91) [1992] ZASCA 174; 1992 (4) SA 811 (AD); [1992] 2 All SA 498 (A) (28 September 1992)
Case No. 344/91
IN THE SUPREME COURT OF SOUTH AFRICA APPELLATE
DIVISION
In the appeal of:
PAUL ANTHONY LEWIS
Appellant
and
ONEANATE (PTY) LTD
1st Respondent
BERGRIVIERSHOEK (PTY) LTD
2nd Respondent
Coram
: CORBETT C J et E M GROSSKOPF, NESTADT,
EKSTEEN J J A et NICHOLAS A J A.
Date Heard
: 31 August 1992 Date
Delivered: 28 September 1992
JUDGMENT
NICHOLAS
A J A:
Dewdale Farm lies in the Franschhoek Valley. It
comprises two portions : portion 2 of farm No 1145, which is some 38 hectares in
extent
and is owned by Oneanate (Pty) Ltd ("Oneanate", which is pronounced as if
it were written 1 & 8); and portion 1 of farm No 1145,
which is owned by
Bergriviershoek (Pty) Ltd ("Bergriviershoek") and also has an area of some 38
hectares. Oneanate, which holds all
the shares in Bergriviershoek, is controlled
by Mr G Lubner. It conducts a fresh fish farming operation on both portions of
Dewdale
Farm.
On 28 January 1990, Mr Paul A Lewis wrote to Lubner a manuscript letter which
was "confirmed" by Lubner on behalf of Oneanate and
Bergriviershoek. The
complete document reads as follows:-
2
"PAUL A LEWIS MAHè BOX 652 SEYCHELLES
28 January 1990
G Lubner
C/O DEWDALE FARM
FRANSCHHOEK
Dear Mr
LUBNER
Re : ONEANATE (PTY) LTD
BERGRIVIERSHOEK (PTY) LTD I wish to confirm that you have accepted my offer to
purchase the properties owned by the above two companies
at Franschhoek and
which comprise the farm and farming operations currently conducted by you under
the name and style of Dewdale
Farm. The salient terms of our agreement are as
follows:
1.
Purchase price for the property, farms and commercial operations,
tools, equipment and appurtenances etc. is R10 500 000 (ten million
five hundred
thousand rand).
2.
This will be paid as to R7
000 000 in cash and the balance will be financed by way of a mortgage to be
granted by Oneanate (Pty) Ltd
for R3 500 000 repayable over a period of 3 to 5
years. Interest on the loan will be at 15% per year payable quarterly in
advance.
Principal will be repayable in tranches of R375 000 per quarter
commencing at the beginning of the fourth year with a
balloon
3
payment at the time the final tranche becomes payable.
3. The transaction will be structured in the most efficient manner possible (and
as presently advised) the farm property owned by
Oneanate (Pty) Ltd will be
transferred to Bergriviershoek (Pty) Ltd. This will include the commercial and
farming operations. I will
thereafter acquire the shares and loan claims in the
last mentioned company thereby giving me total ownership and control of the
venture.
4. I will be responsible for all legal costs involved in giving effect to the
transaction including costs of transfer from Oneanate
to Bergriviershoek but you
will be responsible for the commission of R250 000 due to Anton Buirski
Associates Inc who have negotiated
this transaction.
5. Inasmuch as this transaction will be subject to the approval of the Exchange
Control division of the South African Reserve Bank,
the deal will accordingly be
subject to such approval being given both to me and to you and our respective
interests.
6. Finally I wish to record that although we have reached agreement on all the
main issues final documentation will still have to
be
4
drawn and it is agreed that such documentation may incorporate terms which have
not been specifically discussed. Notwithstanding
as far as 1 am concerned we
have 'a deal' and I
shall be pleased if you would append your signature to this letter confirming
this. I also wish to record that although I have entered
into this agreement in
my personal capacity I reserve the right to make the acquisition in whatever
corporate or trust structure
as I may be advised, in which event for the sake of
good order, my signature to this letter may be regarded as binding on such
corporate
entity. I also confirm that you are dealing with me
personally.
Yours sincerely
(sgd) P A
Lewis
PAUL ANTHONY LEWIS
CONFIRMED
(sgd) G Lubner
AS
WITNESS
G LUBNER on behalf of
ONEANATE (PTY) LTD (sgd) A
Buirski
BERGRIVIERSHOEK (PTY) LTD. A BUIRSKI."
5
On 8 February 1990 Lewis advised Lubner by telefax that "there
is not and never was a final deal" between the parties.
Oneanate and Bergriviershoek thereupon issued
a summons out of the Cape
Provincial Division on 19 March
1990, claiming an order on Lewis to perform the obligations
undertaken by him in his letter, a copy of which was annexed
to the Particulars of Claim as Annexure "D". Lewis
excepted to the
Particulars of Claim "on the ground that
they lack the averments necessary to sustain the cause of
action pleaded." The main grounds of exception were the
following:-
"1. The alleged agreement upon which the Plaintiffs rely (annexure "D" to the
Particulars of Claim), ex
facie
its own terms, does not constitute a
binding agreement because:
1.1 The mortgage
contemplated in clause 2 thereof constitutes the giving of financial assistance
in contravention of section 38 of
the Companies Act No 61 of 1973. This
renders
6
the agreement unenforceable and void; 1.2 [the alleged agreement is void for
vagueness because]
(a) of the inadequate and vague description
of 'the property', farms,
commercial
operations, tools, equipment and
appurtenances, etc.' being
sold
(clause 1);
(b) of the uncertainty and doubt as to the structure of the transaction as set
out in clause 3;
(c) it is clear from the alleged agreement that the parties had not reached
agreement on all the material terms of the agreement
and/or by reason of the
express intention of the parties to draw 'final documentation' which may
'incorporate terms which have not
been specifically discussed' (clause
6)."
The exception was dismissed with costs
including the costs of two counsel.
The matter now comes before this court
in pursuance of leave to appeal granted by the court a
quo.
Annexure
"D" purports in the first unnumbered paragraph to confirm an acceptance by "you"
(sc. Mr Lubner)
7
of an offer to purchase the properties owned by Oneanate and
Bergriviershoek comprising the farm and farming operations currently
conducted
by "you" under the name of Dewdale Farm. However, Counsel on both sides were
agreed that on a proper construction of Annexure
"D" it is an "agreement" for
the purchase by Lewis for R10 500 000 of Oneanate's shares and loan account in
Bergriviershoek after
certain preliminary steps had been taken, namely, the
transfer by Oneanate to Bergriviershoek of portion 2 of farm No 1145 and of
"the
commercial or farming operations". In this way, Lewis would upon the acquisition
of the shares in Bergriviershoek acquire "total
ownership and control of the
venture."
As used in paragraph 2 of Annexure "D" the word "financed" is inappropriate :
a mortgage does not provide finance; its function is
to secure a debt. It became
common cause that the meaning of paragraph 2 was that the balance of the
purchase price, amounting to
R3 500 000, would be secured by a mortgage bond for
that sum
8
to be passed by Bergriviershoek in favour of Oneanate.
It
was the case of the appellant/excipient that the passing of
such mortgage bond would constitute a contravention of s
38(1) of the
Companies Act
, 61 of 1973. This provides:-
"38 (1) No company shall give, whether directly or indirectly, and whether by
means of a loan, guarantee, the provision of security
or otherwise, any
financial assistance for the purpose of or in connection with a purchase or
subscription made or to be made by
any person of or for any shares of the
company, or, where the company is a subsidiary company, of its holding
company."
In
Lipschitz NO v U D C Bank Ltd
1979(1)
S A 789 (A) this court had under consideration the provisions
of s 86
bis
(2) of the Companies Act 46 of 1926 to which
s.38(l) corresponds. From the judgment of MILLER J A, with
whom the other members of the court concurred, the
following propositions may be extracted:
1. The prohibition against the giving of financial
assistance is couched in very wide terms. It relates
to "any" financial assistance, whether given "directly
9
or indirectly", and it relates to such assistance not only when it is given for
the purpose of the purchase of or subscription for
any shares in the company,
but also when it is given "in connection with" such purchase or subscription (at
797 D-E).
2. The prohibition contains two main elements - the giving of financial
assistance, and the purpose for which it is given. Although
the two elements are
linked to form a single prohibition, they are vitally different in concept (at
799 E).
3. There is no comprehensive definition of "financial assistance" in the section
or elsewhere in the Act. From time to time various
tests have been formulated by
the courts as a guide to a proper answer to the question whether what a company
has done in a given
case constitutes the giving of "financial assistance" within
the meaning of the section (at 798
B-C).
4.
One such
test is the so-called "impoverishment
test",
10
which asks the question, has the company become poorer as a result of what it
did for the purpose of or in connection with the purchase
of its shares ? (at
798 C-E).
5. The application of the impoverishment test is not always appropriate. In some
cases the test may be a helpful guide and may often
yield a clear and decisive
answer to the problem. In other cases it may be not only unhelpful but
irrelevant (at 801 D-E).
6. The section provides in terms that the giving of a guarantee or the provision
of security constitutes the giving of financial
assistance. In such cases, if
the giving of the guarantee or the providing of the security is shown to be for
the purpose of or in
connection with the purchase of the company's shares, the
section would be contravened, whether or not such guarantee or security
actually
renders or is likely to render the company poorer (at 800-801).
11
7 Although the section does not in terms prohibit the
conclusion of a contract for the sale of shares in which there is provision for
the giving of financial assistance, if a contract
provides for future financial
assistance which if actually given would be in contravention of the section, it
is invalid and unenforceable
(at 802B-803C).
The question in this
part of the appeal is whether Annexure "D" so provides. As a first step towards
answering the question, Annexure
"D" must be interpreted. Since these are
proceedings on exception, it must be borne in mind that the appellant has the
duty as excipient
to persuade the court that upon every interpretation which the
Particulars of Claim, including Annexure "D", can reasonably bear,
no cause of
action is disclosed. Cf
Theunissen en Andere v Transvaalse Lewendehawe
Koöp Beperk
1988(2) SA 493 (A) at 500 E.
Paragraph 2 of Annexure "D", although
12
elliptic, is reasonably capable of the interpretation that
Bergriviershoek is to pass a mortgage bond in favour of Oneanate for R3,5
million as security for the payment of the balance of the purchase price of the
shares. The description of the property to be mortgaged
is not spelled out, but
paragraph 2 when read with paragraph 3 is reasonably capable of meaning that it
will be the property owned
by Oneanate (i.e. portion 2 of the farm No 1145)
which is to be transferred to Bergriviershoek. Annexure "D" does not specify the
way in which the transfer of the property and the passing of the bond are to be
effected, but in order for the exception to succeed,
the excipient/ purchaser
would have to show that whatever course be adopted, it would result in the
provision by Bergriviershoek
of financial assistance in contravention of
s.38(l).
I conceive that in the ordinary course the bond would be registered
simul
ac semel
and
pari passu
with the registration of the transfer of
portion 2 from Oneanate
13
to Bergriviershoek. If that is done there will be no moment of
time when Bergriviershoek will own the property unburdened by the bond.
(See
Warner's Trustees v Wicht
(1886) 4 S C 463
at 464). What will be acquired
by Bergriviershoek will be portion 2 subject to the mortgage bond.
The object of a provision such as s 38(1) is the protection of creditors of a
company, who have a right to look to its paid-up capital
as the fund out of
which their debts are to be discharged (See
Trevor & Another v Whitworth
and Another
(1887) 12 A C 409
at 414). The purpose of the legislature was to
avoid that fund being employed or depleted or exposed to possible risk in
consequence
of transactions concluded for the purpose of or in connection with
the purchase of its shares (Cf
Lipschitz N O v U D C Bank Ltd
(
supra
) at 801 C).
If the course outlined above should be adopted, there will not result a
giving of financial
14
assistance by Bergriviershoek in contravention of s 38(1).
Although the passing of a bond constitutes the provision of security, it
will
not in the special circumstances of this case amount to the giving of financial
assistance. It will not bind any of the assets
which will be held by the company
at the moment immediately prior to the passing of the bond. Unless the amount of
the mortgage debt
exceeds the realisable value of portion 2 (as to which there
is nothing alleged in the Particulars of Claim), the company's financial
position will in no way be altered by the transaction, and it will not be
exposed to any possible risk in consequence of it. The
simultaneous registration
will no doubt facilitate the purchase of the shares, but it is Oneanate who will
be giving the financial
assistance by transferring to Bergriviershoek portion 2
free of any consideration, but subject to the mortgage bond.
In my opinion therefore ground 1.1 of the exception was rightly
dismissed.
15
The second ground of exception is that the agreement is void
for vagueness.
"The question whether a purported contract may
be void for vagueness does not readily fall to be decided by
way of
exception". (per HOEXTER J A in
Murray & Roberts
Construction
Ltd v Finat Properties (Pty) Ltd
1991(1) SA
508 (A) at 514 F). The reason is set out in the judgment in
Burroughs
Machines Ltd v Chenille Corporation of S A (Pty)
Ltd
1964(1) SA 669 (W), which was cited by HOEXTER J A.
With his usual clarity COLMAN J said at at 676 F - 677 A :
"It has been held on more than one occasion, and in particular by the
Appellate Division in the case of
Delmas Milling Co v du Plessis
1955(3)
S.A. 447, that a question of the kind with which I have been concerned, namely
whether a purported contract is void for vagueness,
should not lightly be
decided on exception. There are circumstances in which a Court at the exception
stage is able, with certainty
or with a requisite degree of confidence, to say
that what purports to be a contract is not a contract, and that the plaintiff
has
no case. But that is not always so. More frequently, when the attack upon
the purported
16
contract is based upon the vagueness or uncertainty in its language, the Court
at the exception stage finds itself in a difficulty.
There is always the
possibility that evidence may resolve the uncertainties. The evidence to do that
may be evidence of surrounding
circumstances, which apparently is always
admissible if the contract does not yield a clear interpretation on its wording
alone.
It may also be evidence of a different type which, according to the
judgment in the
Delmas Millin
g case, is to be received by the Court if
all else fails. Such evidence may include evidence of prior negotiations or be
of some other
type which will clarify what is otherwise incapable of clear
interpretation."
Annexure "D" is inept
and inelegant, clumsy in
expression and confused in thought and language. But that
is not a ground
per se
for holding it to be ineffective.
It is clear that the parties intended that
Annexure "D" should be a
commercial document having
commercial operation. The letter begins, "I wish to confirm
that you have accepted my offer ..." It refers to "the
salient terms of our agreement". It refers in paragraph 3
17
to "the transaction." In para 6 Lewis recorded that "as
far
as I am concerned we have 'a deal'". (Counsel for the
appellants made
a submission based on the use of the
quotation marks. I do not agree with it.
Such use would
not be a sound reason for holding that "deal" did not bear
its ordinary meaning of a business transaction or a bargain.)
The deal was
confirmed on behalf of Oneanate and
Bergriviershoek by G Lubner. His signature was witnessed by
A Buirski - it
was recorded in para 4 that "You (viz Lubner)
will be responsible for the
commission of R250 000 due to
Anton Buirski Associates Inc who have
negotiated this
transaction" ; and Anton Buirski & Associates Inc. appears
on the summons as attorneys for the plaintiffs.
COLMAN J said in the
Burroughs Machines
case
(
supra
) at 670 G-H :
"It is my task ... to examine exh. 'A' in order to see whether or not it
fixes a price, or provides for the fixing of a price with
the requisite degree
of certainty. In so doing I must, I think, have regard to the fact that exh. 'A'
is a commercial
18
document executed by the parties with a clear intention that
it should have commercial operation. I must therefore not lightly hold
the
document to be ineffective. I need not require of it such precision of language
as one might expect in a more formal instrument,
such as a pleading drafted by
counsel. Inelegance, clumsy draftmanship or the loose use of language in a
commercial document purporting
to be a contract, will not impair its validity as
long as one can find therein, with reasonable certainty, the terms necessary to
constitute a valid contract." He continued by saying that the approach which the
Court
should adopt in a situation of this kind was helpfully
described in the
case of
Hillas & Co Ltd v Arcos Ltd
(1932)
[1932] UKHL 2
;
147 LTR 503
(H L). LORD WRIGHT said at 514 :
"Business men often record the most important agreements in crude and summary
fashion; modes of expression sufficient and clear to
them in the course of their
business may appear to those unfamiliar with the business far from complete or
precise. It is accordingly
the duty of the Court to construe such documents
fairly and broadly, without being too astute or subtle in finding defects."
19
LORD TOMLIN said in that case at 512:
"...the problem for a court of construction must always be so to balance
matters, that without the violation of essential principle
the dealings of men
may as far as possible be treated as effective, and that the law may not incur
the reproach of being the destroyer
of bargains." See also
Murray and Roberts
Construction
(
supra
) at 514 C-D;
Soteriou v Retco Poyntons (Pty) Ltd
1985(2) S A 922 (A) at
931 G-I;
and
Genac Properties JHB (Pty) Ltd v N B C
Administrators C C
1992(1) S A 566 (A) at 579 F-G.
At the same time it is not for the court to
make a contract for the parties where they have not expressed themselves in such
a way
that their meaning can be determined with a reasonable degree of
certainty. See the authorities quoted in the
Burroughs Machines
case at
671 A-C.
It is on these lines that I approach the problems raised by para 1.2 of the
exception.
The first point argued on behalf of Lewis was not specifically alleged. It
was that Annexure "D" did not
20
comply with
s 2(1)
of the
Alienation of Land Act
68 of
1981
, in terms of which no alienation of land will be of any force and effect
unless contained in a deed of alienation signed by the parties
or their agents
acting on their written authority.
Annexure "D" provides for a sale of shares and loan claims, not for an
alienation of land. It was argued, however, that the words
in para 3, "the farm
property owned by Oneanate (Pty) Ltd will be transferred to
Bergriviershoek" amounted to an alienation of land, but that they did not, as
the law requires, set out the terms in such manner that
their force and effect
could be ascertained without reference to any evidence of oral consensus of the
parties. I do not agree that
the words amount to an alienation of the farm
property. It would be strange to find such an agreement in a letter addressed by
Lewis
to Lubner. The words amount to no more than a statement that Oneanate will
procure the transfer of the property to
21
Bergriviershoek.
The next point taken relates to the use of
the word
etc
in clause 1 of the letter. It was submitted that inasmuch as
it is impossible to ascertain from the letter what exactly is encompassed
by
"etc", the purported contract is void for vagueness. I do not agree. As used in
the context, the word "etc" (standing for the
phrase et
cetera
) means
"and other things of like kind or purpose as compared with those immediately
theretofore mentioned" See Black's
Law Dictionary
5th ed, p 465 s.v. Et
Cetera
. According to the
Oxford English Dictionary et cetera
means
"And the rest, and so forth, and so on .... indicating that the statement refers
not only to the things enumerated, but to
others which may be inferred from
analogy." The class to which the "tools, equipment and appurtenances" mentioned
in para 1 belong,
is the class of items in use in the "commercial operations" or
"farming operations" currently being conducted on Dewdale Farm, and
the function
of
etc
is to serve as a
22
catch-all, so as to include all items of that class. Their
identity will presumably be readily ascertainable by reference to the
facts.
The third point taken relates to paras 3 and 6 of Annexure "D", and in
particular to the first sentence of para 3.
Although that sentence
contemplates the possibility in the future of a different "structure", Annexure
"D" read as a whole is reasonably
capable of the interpretation that the
structure as there set out is the structure upon which the parties have agreed,
but leaves
open the possibility of a future agreement in this regard.
Para 6 records that "final documentation will still have to be drawn and it
is agreed that such documentation may incorporate terms
which have not been
specifically discussed". That too is consistent with the interpretation that
terms other than those set out in
the letter may be subsequently agreed upon by
the parties.
23
Where in the course of negotiating a contract the
parties
reach agreement on some points but there remain a number
of
material matters on which the parties have not yet agreed,
the position
may well be that a binding contract has not been
concluded. Nevertheless
"The existence of such outstanding matters does not, ... necessarily deprive an
agreement of contractual force. The parties may well
intend by their agreement
to conclude a binding contract, while agreeing, either expressly or by
implication, to leave the outstanding
matters to future negotiation with a view
to a comprehensive contract. In the event of agreement being reached on all
outstanding
matters the comprehensive contract would incorporate and supersede
the original agreement. If, however, the parties should fail to
reach agreement
on the outstanding matters, then the original contract would
stand."
per CORBETT J A in
CGEE Alsthom
Equipments et Enterprises
Electriques, South African Division v G K N Sankey (Pty) Ltd
1987(1) SA 81 (A) at 92 C-E,
In my opinion a trial court might well hold
24
that the case is one which falls within CORBETT J A's dictum.
Consequently the exception must fail on this ground also.
Counsel for Lewis
did not make any specific point in regard to the words in the first unnumbered
paragraph of Annexure "D", namely
"the salient terms of our agreement are as
follows". In my view this attitude was correct. The use of the word "salient"
was consistent
with the first sentence of paragraph 6.
My conclusion is that the exception was rightly dismissed by the Court
a
quo
.
Application was made in
initio
for the condonation of the late filing
of the appellant's power of attorney authorising the prosecution of the appeal.
The respondents
did not consent, but abided the decision of the court. In my
opinion a sufficient case was made out and condonation is granted with
a
direction that the appellant pay the costs of the application.
25
The appeal is dismissed with costs including the costs of two
counsel.
H C NICHOLAS A J A
CORBETT C J
E M GROSSKOPF J A
NESTADT J A CONCUR.
EKSTEEN J A