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IN THE HIGH COURT OF SOUTH AFRICA

GAUTENG LOCAL DIVISION, JOHANNESBURG

Case number: A5005/2015

DATE: 16 NOVEMBER 2015

In the matter between:

BARNETT: ELMER ROBIN N.O..................................................................................First Appellant

BARNETT: YOLANDI N.O........................................................................................Second Appellant

BARNETT: ELMER ROBIN........................................................................................Third Appellant

BARNETT: ANDRE GEORGE N.O..........................................................................Fourth Appellant

BARNETT: MARIA CORNELIA ESTELLE N.O.......................................................Fifth Appellant

BARNETT: ANDRE GEORGE.....................................................................................Sixth Appellant

DE JAGER: BARBARA WILHELMINA................................................................Seventh Appellant

And

RANKOU: EDWARD SERAME.........................................................................................Respondent

JUDGMENT

SATCHWELL J:

INTRODUCTION

1. This  appeal, against the judgment of our late sister Mayat J handed down on  17^th May 2013,   concerns an application by the applicant  (‘Rankou’) to resile from a written contract  entered into between himself  and two trusts (‘ Barnet Family Trust’ and  the ‘Elmer and Yolandi Trust’)  for the sale  of shares in a company  known as  Lumin Light Nett (Pty)  Ltd (‘Lumin’) .

 

2. The facts may be very briefly stated.   The  first six respondents are all members of the Barnett family.   Sixth   respondent  (‘George’)  performed building alterations for Rankou who was satisfied therewith and the two  entered  into business discussions regarding Lumin.   Pursuant thereto,  Rankou concluded a written agreement on    20^th February 2008  with  the Barnett Family Trust and the Elmer & Yolandi Barnett Family Trust for the sale and purchase of  33.33% of the issued shares in Lumin  for the purchase price of R 2 million.  Subsequent thereto,  during 2008 and 2009,  Rankou received  five dividend payments .   Share  certificates in Lumin  were  issued in his name.      

 

3. By 2010,   Rankou learnt that Lumin was suffering from the recession   and in a cash-flow crisis and further funds were required.   Rankou signed an application for an overdraft facility with Nedbank which was declined[1].    This led to further discussions and Rankou ultimately took the view that  the Memorandum of Agreement  for the Sale of Shares  (‘the agreement’) in Lumin  “should be declared void ab initio and of no force or effect” alternatively “be cancelled”   and that first and second respondents as trustees  of the  Barnett Share Family Trust   (‘ Elmer’ and ‘Yolandi’)  alternatively  third respondent (‘Elmer’) in his personal capacity  and  fourth and fifth  respondents as trustees of  the Barnett Family Trust  (‘George’  and ‘Maria’)  alternatively  fourth respondent (‘George’) George in his personal capacity be ordered to refund the sum of  two million Rand  (R 2 000 000) to Rankou.

 

4. The application  brought by Rankou before Mayat J  relied on a number of procedural and locus standi issues pertaining to the trusts,       alleged failure of the written  agreement to properly reflect the discussions and real  agreement  which had taken place prior to written conclusion and signing of same and alleged misrepresentations inducing  conclusion of the written sale of shares agreement.

 

5. The  learned judge in the court a quo found that  the one trust was not in existence and that,  absent  authorization for co-trustees to act independently,   the written agreement was void ab initio.    The learned judge also found that  Rankou’s averments pertaining to the oral agreement were plausible  whilst the Barnett’s  averments pertaining to the written agreement were untenable.  

THE PARTIES

6. The Memorandum of Agreement for the Sale of Shares,   dated 20^th February   2008  identifies three entities on the first page:   the ‘Company’  which is  Lumin,    the ‘Sellers’   which are both  the Barnett Family Trust   IT 5424/01   and the  Elmer & Yolandi Barnett Family Trust  IT 12901/06   and the ‘Purchaser’   who is Rankou.    The agreement spells out that the purchaser and the sellers have reached an agreement for the sale and purchase of  33.33 % shares in the company from the sellers.

 

7.   At the time this agreement was concluded,  20^th February 2008,    only the Barnett Family Trust  IT 5424/01^[2] and the Barnett Share Family Trust  IT 12901/061^[3]    had been registered.      The Elmer & Yolandi Barnett Family Trust did not yet exist and had not been registered.

 

8. Rankou avers that he had no knowledge of  (and therefore no particular interest in the identity of)  the existence of the trusts or their role in the agreement.

 

9. The learned judge in the court a quo found that   the written agreement was  unenforceable in relation to the Barnett Share Family Trust because   Elmer  had  signed on  behalf of the Elmer & Yolandi Barnett Family Trust  which was not yet extant although he  was a  trustee of the Barnett Share Family Trust;  because there  was no  suggestion that Elmer  was in error at the time he did so;  because of   the absence of any averments pertaining to the common continuing intention of all parties to the agreement; and the  failure to seek rectification of the agreement on the basis of the agreement.

 

10.  There is no dispute that the trust referred to as the Elmer & Yolandi Barnett Family Trust did not exist at the time of the agreement.   There is no dispute that the  Masters Reference Number IT  12901/06  attached to  the ‘seller’  on first page of  the agreement and in the  definitions clause   is that of the Barnett Share Family Trust.     All the respondents -  Elmer, Yolandi,  George and Maria  have confirmed on oath^[4] in their answering affidavit that  “the trustees for the time being of the Barnett Share Family Trust and the Barnett Family Trust respectively intended to enter into the contract concerned to sell shares”.    and that  “ the first respondent [Elmer]  and the fourth respondent  [ George]  were duly authorized by their co-trustees to act on behalf of each of their respective co-trustees in entering into the contract concerned.”   Elmer was a trustee of the Barnett Family Share Trust.

 

11. I can see no reason why,   In the circumstances,  the  approach to be taken  to these facts   should not follow  that set out by  Miller JA   in Gralio (Pty) Ltd v D E Claassen (Pty) Ltd  1980  (1)   SA 816 AD  that  “a defendant who raises the defence that the contract sued upon does not correctly the common intention of the parties, need not even claim formal rectification of the contract;  it  is sufficient if he pleads the facts  necessary to entitle him to rectification and asks the Court to adjudicate upon the basis of the written contract relied upon by plaintiff as it stands to be corrected”.   Gralio supra   was followed and applied in in Citibank NA, South Africa Branch v Paul N.O. and Another 2003 (4) SA 180 (TPD) at 188D-E and in  Boundary Financing Ltd v Protea Property Holdings Pty Ltd 2009 (3) SA 447 (SCA) at 453A-B.

 

12. The Barnetts say that they always intended the Barnett Share  Family Trust  to enter into the agreement and     the master’s reference number to that trust  is obviously reflected  in the agreement.  The Barnetts do not formally need to claim rectification.     This court is entitled to determine the matter upon the basis of the written agreement as it stands to be corrected should this court  decide that  the agreement should be so rectified.    After all,  the issue is the  details of the true terms of the contract.    There is no variation of the contract only correction of the name of a party in the document which reflects that contract.    It is not necessary that there be a mutual mistake on the part of  all  contracting parties – in the present case the details of the trusts were,  according to Rankou,   irrelevant and of no concern to him.

 

13. I regret that I am unable to agree with the approach taken by the learned judge in the court a quo on this point and  cannot agree that the absence of a claim for rectification renders the agreement “effectively unenforceable at least in relation to the Barnett Share Family Trust”.  I do not take the view that “one of the averred sellers of the shares in the company,  as described in the written agreement, does not exist”.     Both trusts existed at the relevant time – both were correctly identified by their  registration numbers,   one was misnamed.

 

RESOLUTIONS AND AUTHORISATIONS

14. In the agreement,   each Trust,   as seller,  is recorded as “duly authorized by the Trustees”   and the  memorandum is signed  by  George on ‘behalf of Barnett Family Trust’,  Elmer  “ on behalf of Elmer & Yolandi Barnett Family Trust.”

 

15. Rankou  complains^[5] that  the agreement should be declared “void ab initio”  apparently on the ground that there are “no resolutions underlying”   which authorize  only Elmer and George to sign  as opposed to   each of Elmer and Yolandi and of  George and Maria, as co-trustees,   being  required to sign. 

 

16. The learned judge in the court a quo found that  there was nothing to suggest that the relevant trustees of each of the trusts jointly with their co-trustees  bound the trusts in relation to the written agreement.  This finding was made because there  are no resolutions to show that the co-trustees of each of the two trusts acted jointly to authorize either Elmer or George to sign the agreement.  The general rule  is that trustees are obliged to act jointly in dealings with the outside world unless otherwise authorized.    Accordingly,     the  court found that the trust deeds did not empower Elmer or George to act independently and there was no evidence to suggest that co-trustees had delegated their powers or authorized these trustees.   Therefore the written agreement could not be enforced against a third party in the position of Rankou.

 

17. Certain  Deeds of  Trust  are attached to the Barnetts’  answering affidavit – Annexure LLN2 for the Elmer Barnett Share Family Trust^[6]   and Annexure LLN4   for the  Barnett Family Trust^[7].   There is nothing in either deed of trust  which requires  any resolution of the trustees to be reduced to or made in writing.   There is nothing in either deed which requires both trustees  to sign any document executed for or on behalf  of the trust.  There is nothing in either deed  which prohibits the delegation of duties by one  trustee to another.   Provision is made for the co-trustees to determine from time to time the manner in which documents shall be signed. There is also no provision in the Trust Property Control Act 57 of 1988 that resolutions taken by trustees of a trust should be in writing. 

 

18. There is no evidence, in the form of minutes of meetings or resolutions,  recording that the co-trustees of each trust took a decision that one trustee only could sign  the written agreement on behalf of both trustees.   In argument,  much was attempted to be made of the requests for such documentation from the Barnetts’ attorney which documentation was never forthcoming.   The upshot is that it never came and apparently does not exist.   There was much criticism of the absence of any explanation for the failure to make or keep such documentation.   This takes the matter no further.  

 

19. All the respondents -  Elmer, Yolandi,  George and Maria  have confirmed on oath^[8] in their answering affidavit that  “the trustees for the time being of the Barnett Share Family Trust and the Barnett Family Trust respectively intended to enter into the contract concerned to sell shares”    and that  “ the first respondent [Elmer]  and the fourth respondent  [ George]  were duly authorized by their co-trustees to act on behalf of each of their respective co-trustees in entering into the contract concerned.”    This  version of the respondents which (in motion court proceedings must be accepted unless patently absurd ^[9])   is that  they are not only  permitted to but that they always intended to and  did  act jointly without written record thereof.   

 

20. Accordingly,  it is difficult to  agree with the submission made by Rankou complaining of the absence of a  written resolution authorising only one trustee to  sign the agreement on behalf of  each   trust.   I regret that I am unable to agree with the finding of the learned judge in the court a quo for the reasons I have set out above. 

AGREEMENT

The Oral Agreement claimed to be concluded

 

21. Rankou’s challenge to the terms of the agreement  is against as it is recorded in writing.    He  avers that the real agreement  was  concluded in the course of  various discussions.    He reached an agreement in December 2007[10] with George  and with Lumin [11] (represented by George),  that  he would  “inject”  the sum of R 2 million into Lumin,   he would receive one third of the shares in Lumin and dividends in respect thereof,  he would be a “silent partner” and participate on the level of a director.

 

22.   These terms are  described as  either  ‘express’ or ‘implied’ or ‘tacit’ and definitely ‘oral’.   In other words,  it is whatever is not  recoded in the actual written document as the agreement between the parties.

 

23. Ultimately  Rankou’s  only complaint is that  his ‘injection’ of R 2 million was never recorded as a loan  but as the ‘purchase price’  for the shares.    All other terms of the agreement were met -  he did receive the one-third of the shares,  he did receive dividends,  he did participate in the affairs of the company.

 

24.  Rankou supplies no details  this ‘injection’:    He would  “inject R 2 000 000 into the business of Lumin”  and would “be given one third of the shares of Lumin” and  “would receive dividends in respect of my one third  of the shares” ^[12]. This R 2 million injection “would be reflected on an interest free loan account in my favour in the books of Lumin”^[13].

 

25. Rankou is silent in his founding affidavit as to the terms of the “injection”.  It is appreciated that he maintains that he was not purchasing the shares which he acquired.  But he does not set out the length of time that his injection would remain in Lumin,  whether any interest or benefit  (other than dividends and shares) would attach thereto,     under what circumstances he would be free to withdraw this injection.

 

26. Rankou  alleges that  he agreed only to make  an investment in Lumin.  He would become a  shareholder but his investment would not be a purchase price for these shares  and his investment would remain on the books as a loan.   This would have the  more fortunate result that he would be identified as a creditor in the books of the company  and his R 2 million would not be lost in case of a  loss of any  value  in  his shares.

The Written Agreement as Recorded.

27. Rankou identifies himself as  “an adult businessman’.     He is clearly a successful  businessman since he  has expended some R 50 000 on an entrance gate to his property and lighting along the perimeter as well as  a further R 500 000  on home alterations including two additional garages, enlargement of  the reception area,  addition of a bar, addition of a study  and a revamp of the existing dwelling.

 

28.   The document which this astute businessman signed  is headed “Memorandum of Agreement for the Sale of Shares”^[14].      It is a  six page document which Rankou has signed on  the lower right corner of each page.    He is identified as  the “purchaser” on the first page and each page,  sometimes  adjacent to his signature,    is reference to the sale and purchase of shares in the company.  I note that beneath  Rankou’s signature on the second last page there is however  no indication that he is the purchaser, but nothing turns on that fact. 

 

29. A non-variation clause is contained within the agreement.

 

30.  Both the   maxim   caveat subscriptor  and the prescription against parol evidence   may   be perceived as having diminishing roles in our modern law but  good reason need be shown why  neither rule should apply.   The written document cannot  be completely rewritten  to suit  a version which is  completely contrary to that contained in that written document.   We are not here concerned with a small  amendment or  completion of  a lacuna  or  clarification of an ambiguity.     Rankou seeks to completely   ignore the  written document which he,  a businessman,   signed.   

 

31. Rankou  claims that he intended to and only “injected” or “invested”  the sum of R 2 million into Lumin    and that this money was  “a loan”  to be reflected in the ‘loan account’  in the books of the company.   Yet the document proclaims itself to be an agreement “for the sale of shares”,     refers to the parties as “sellers” and “purchaser”,   records  the “sale price”   and makes no mention of any loan account.  Obviously this court cannot be asked to rewrite the written document to reflect an entirely contrary  agreement.  Instead, Rankou asks that the document be declared void ab initio.    

The Judgment of the Court a quo

 

32. The court a quo found that  Rankou’s averments pertaining to the oral agreement  was “plausible”.    The court found that   fifth respondent’s  (‘Maria’) averments pertaining to the purchase price “accruing”   to the “sellers”   were “so untenable in the circumstances… that they could be rejected  merely on the papers”.     The learned judge found her   view was fortified by the absence in the agreement of  any substantive obligation imposed on the sellers of the shares  and the absence of the vesting of any rights in Rankou  in  relation to the sellers.   Furthermore,  the agreement was silent on any loan accounts by shareholders.

 

33. I have some difficulty in following the learned judge’s reasoning.    It is difficult to see why the purchase price should accrue to anyone other than the identified sellers of those shares  i.e. the trusts.         It  would be unusual that any further obligation would  attach to sellers of shares other than that they transfer same to the purchaser.   Similarly it is   difficult to  envisage any further rights vesting in a purchaser other than acquisition of the shares purchased.   The absence of any mention of a loan account is of no assistance to Rankou – it rather contradicts his version.

 

34. These are motion court proceedings in which credibility issues should  play no part and I cannot find that the averments of Rankou are more or less ‘plausible’ than those of the Barnetts in the circumstances of this written document.

 

35.  (this was not an issue in  argument) 

 

36. I am unpersuaded by the reasoning of the learned judge in the court a quo.    It is for Rankou to make out a case for setting aside this written agreement.   I do not find that the version of the respondents is, in any way,  improbable or even unusual for the reasons I have already given.  

MISREPRESENTATIONS

37. Rankou avers that  either  Elmer alone  or Elmer and George  or George alone  made certain misrepresentations which  they knew to be false and which induced him to enter into the agreement.

 

38. I  have had some difficulty in comprehending the nature of the misrepresentations  which  Rankou avers caused him to conclude this written agreement.   Are the misrepresentations that the Lumin business was a good operation assured of healthy rewards?      Are the misrepresentations that  there would be a profitable return?    Are the misrepresentations that  the Barnett family were bona fide and honest in their dealings?   Are the misrepresentations that Rankou was not purchasing a shareholding?    Are the misrepresentations that  he would be making a loan recorded as such in the   financial records  of  Lumin?  

 

39. The chronology is that there was initially  mention of a  franchise opportunity and thereafter    an opportunity to make a capital injection into the company in exchange for both shares and dividends.  Finally,   there was the written agreement.

 

40. Rankou sets out the nature of his discussions with the Barnetts.     He does not set out  by  whom or when or how he was  induced to conclude this written agreement.   In short,   he is silent on the  perpetrator of,  the nature of  and the inducement offered with regard to the alleged  misrepresentations. 

 

41. I have already  commented on the document which he initialed and signed and the apparent absence of anything unusual or concealed therein. 

 

42. It would appear that it is Rankou’s case (and perhaps the finding of the learned judge in the court a quo)   that an attorney,  by the name of de Jager,  who    (either alone or in collusion with some or all of the Barnetts)  made misrepresentations and thereby perpetrated the inducement.

 

43. It is common cause that Rankou was referred to an attorney who is   seventh respondent  (‘De Jager’).  It is Rankou’s version that de Jager “expressly told me that she did not know Lumin”  or  Elmer or George  (and only knew Maria as a former receptionist).     Rankou claims that  de Jager did some investigations and then informed him that she believed the Barnetts to be “nice people” who were “Christians”.    Attorney de Jager informed Rankou that she believed that this was a “good deal”.   Rankou states,   in reply, that de Jager advised him that he could seek the independent advice of an auditor on the financial statements of  Lumin.

 

44. Rankou avers that de Jager told him that the agreement which had been drafted “conformed to my requirements’  and “safeguarded my position”.   De Jager then “read the body thereof to myself”   but Rankou himself “never even read the agreement”.

 

45. On his own version,  Rankou did not seek independent advice on the finances of the company and did not conduct any type of due diligence investigation.   Rankou did not even attempt to read  the written agreement which he initialed on six pages and signed in full on one of them.

 

46. At most,  Rankou says that de Jager read the body of the agreement over to him.   He does not say or spell out that de Jager read out to him an agreement which was and is entirely different to that which is recorded to writing.  He does not say that de Jager concocted a verbal version for him which is entirely contrary to that which he signed.   He says nothing in the papers as to that which de Jager did read to him.     Did she refer to sellers and purchaser?   Did she make mention of injections and loans?  Did she specify that he was an investor with a loan account?  Nowhere is the court informed what Rankou was told by de Jager which is, in any way,  contrary to the written document.

 

47. It must be noted,   without making any finding of dishonesty or impropriety on the part of attorney    de Jager,  that she  was not a party to the written agreement.   In Karabus Motors (1959) Ltd v Van Eck 1962 (1) SA 451 ( C ), the court  held that  a fraud emanating from an independent third party “will have no effect upon the contract”  unless  that third party is acting  “in collusion with or as the agent of one of the parties”  (453C).

48. There is no evidence of collusion  between the Barnetts and de Jager.         There is no evidence of  any  inducement  of Rankou by anyone  that he enter  into  the agreement.   Rankou states  that he knew what he wanted but that the document which he did not read  did not reflect his intentions.

49. Accordingly,   I cannot find,   as did the court a quo,   that   Rankou’s averments pertaining to the oral agreement  was “plausible” or that the respondent’s averments were “untenable”.     The learned judge did not go so far as to find that there had been misrepresentations but I can envisage no other basis for deciding to void this written agreement.  

50. The learned judge in the court a quo  made certain comments on the ‘negligence’ of de Jager apparently by reason of  her failure to set out in detail and account for  the transfer of the R 2 million funds from her trust account and to whom.   The court also made a punitive  costs order against de Jager.

51. I cannot  see any negligence on the part of de Jager.    There has been no trial and no cross-examination of either party.   On the papers, it is difficult to conceive on what basis de Jager would be required to provide any accounting to Rankou for dispersal of these funds and that there could be any negligence on her part in failing so to do.

CONCLUSION

52. For all these reasons I regret that I am unable to agree with the finding of the learned judge in the court a quo.  

53. In the result it is ordered as follows:

    1. The appeal is allowed with costs.

    2. The order of the court a quo is set aside and substituted with the following order:  The application is dismissed with costs.    

DATED AT JOHANNESBURG 16^th NOVEMBER 2015

SATCHWELL J

I agree.

MAKUME J

I agree.

WEPENER J

Counsel for Appellant: Adv R Goslett.

Attorneys for Appellant: De Jager Attorneys.

Counsel for Respondent: Adv J Van Rooyen.

Attorneys for Respondent: Van Jaarsveld Attorneys.

Dates of hearing: 11 November 2015.

Date of judgment: 16 November 2015.

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