Nedbank Limited v Botha N.O and Others (1210/2018) [2019] ZAECGHC 57 (21 May 2019)

IN THE HIGH COURT OF SOUTH AFRICA

EASTERN CAPE DIVISION, GRAHAMSTOWN

CASE NO: 1210/2018

DATE HEARD: 02/05/2019

DATE DELIVERED: 21/05/2019

In the matter between

NEDBANK LIMITED

PLAINTIFF

and

RUDOLPH ALBERT BOTHA N.O. FIRST

DEFENDANT

HESTER JOHANNA ELIZABETH BOTHA N.O. SECOND DEFENDANT

GERBER BOTHA AND GOWAR TRUSTEES

(PTY) LTD THIRD

DEFENDANT

BOTHA EN RETIEF VOERKRALE CC

FOURTH DEFENDANT

RUDOLPH ALBERT BOTHA FIFTH

DEFENDANT

HESTER JOHANNA ELIZABETH BOTHA

SIXTH DEFENDANT

JUDGMENT ON EXCEPTION

ROBERSON J:-

[1] The plaintiff instituted an action against the defendants for payment of R12 059 924.74, interest thereon, and costs on the attorney and client scale. The first three defendants (the Trustees) were sued in their capacity as trustees of the Herbou en Doorskraal Trust (the Trust). The plaintiff loaned money to the Trust and the fourth, fifth and sixth defendants were sureties for the loan. The first and fifth defendant (Botha) is a member of the fourth defendant (the CC) and it was he who signed the deed of suretyship on behalf of the CC. The plaintiff called up the loan and judgment has already been granted against all the defendants except for the CC which defended the action and has filed its plea. The plaintiff has excepted to paragraphs 3.2 and 5.1 of the plea on the ground that the defence pleaded in these paragraphs is bad in law and does not disclose a defence.

[2] In paragraphs 3.2 and 5.1 of its plea the CC has pleaded that the suretyship which it signed is invalid because of the provisions of s 52 of the Close Corporations Act 69 of 1984 (the Act). This section provides:

“Prohibition of loans and furnishing of security to members and others by corporation

(1) A corporation shall not, directly or indirectly, make a loan-

(a) to any of its members;

(b) to any other corporation in which one or more of its members together hold more than a 50 per cent interest; or

(c) to any company or other juristic person (except a corporation) controlled by one or more members of the corporation,

and shall not provide any security to any person in connection with any obligation of any such member, or other corporation, company or other juristic person.

(2) The provisions of subsection (1) shall not apply in respect of the making of any particular loan or the provision of any particular security with the express previously obtained consent in writing of all the members of a corporation.

(3) Any member of a corporation who authorizes or permits or is a party to the making of any loan or the provision of any security contrary to any provision of this section-

(a) shall be liable to indemnify the corporation and any other person who had no actual knowledge of the contravention against any loss directly resulting from the invalidity of such loan or security; and

(b) shall be guilty of an offence.

(4) For the purposes of this section-

(a) 'loan' includes-

(i) a loan of any property; and

(ii) any credit extended by a corporation where

the debt concerned is not payable or is not

being paid in accordance with normal business

practice in respect of the payment of debts of

the same kind;

(b) one or more members of a corporation shall only be deemed to control a company or other juristic person as contemplated in subsection (1) (c), if the circumstances envisaged in section 226 (1A) (b) of the Companies Act in relation to a director or manager or his or her nominee, or directors or managers or their nominees, referred to in that section, and a company or body corporate, are present in respect of any such member or his or her nominee, or such members or their nominees, and any such company or other juristic person; and

(c) 'security' includes a guarantee.”

[3] In Hanekom v Builders Market Klerksdorp (Pty) Ltd and Others 2007 (3) SA 95 (SCA) Scott JA said the following at para [4]:

“……….. the object of s 52 read as a whole is undoubtedly to protect non-consenting members, ie to prevent a member from using the resources of a close corporation for his or her own benefit, to the detriment of other members. ……….. although

not expressly stated in s 52, it is clear from ss (3) that any loan or security falling within ss (1) and not exempted in terms of ss (2) is void and not capable of ratification.”

[4] The CC relies specifically on s 52 (1) (c) of the Act, maintaining that the reference to “or other juristic person” should be interpreted to include a trust. For the purposes of the exception, it is accepted that the other member of the CC, Ina Retief, did not consent in writing to the provision of security to the Trust.

[5] The plaintiff’s position is that the section cannot be so interpreted and that even if it can, the Trust is not controlled by one or more members of the CC.

[6] It was accepted on behalf of the CC that a trust is not a juristic person. It was however submitted that the section should be interpreted to give effect to its purpose as stated by Scott JA in Hanekom (supra). It was submitted further, relying on Venter v Rex 1907 TS 910, that in special circumstances it was permissible to read words into a statute. In Venter v Rex at 914-915 Innes CJ stated:

“ …………….. it appears to me that the principle we should adopt may be expressed somewhat in this way – that when to give the plain words of the statute their ordinary meaning would lead to absurdity so glaring that it could never have been contemplated by the legislature, or where it would lead to a result contrary to the intention of the legislature, as shown by the context or by such other considerations as the Court is justified in taking into account, the Court may depart from the ordinary effect of the words to the extent necessary to remove the absurdity and to give effect to the true intention of the legislature.”

[7] Support for the interpretation contended for was twofold. Firstly it was submitted that where there is confusion between a trusteeship and a beneficiary, or an identity between the trustee and the beneficiary, then a loan to such trustee would become an indirect loan to the member in his capacity as a beneficiary and the same would apply to the provision of security. In my view this is an unwieldy interpretation. It would be dependent on and relative to the particular internal workings of a particular trust. If “other juristic person” was to include a trust, it would apply to all trusts, even where there was no confusion between a trusteeship and a beneficiary, or an identity between the trustee and the beneficiary.

[8] Secondly it was submitted that it is well known that business trusts are often operated as if they possess juristic personality. Reference was made to the judgment in Niewoudt and Another NNO v Vrystaat Mielies (Edms) Bpk 2004 (3) SA 486 (SCA) where Harms JA said at para [16] and [17]:

“[16] This case raises a troubling aspect about business trusts. Trustees have to act jointly unless the trust deed provides otherwise and trust deeds seldom do. The principle works well in the traditional trust setting where trustees hold property on behalf of beneficiaries or where the trust is a charitable one.

[17] The trust deed in this case is typical of a newer type of trust where someone, probably for estate planning purposes or to escape the constraints imposed by corporate law, forms a trust while everything else remains as before.”

[9] Reference was also made to the judgment in Land and Agricultural Bank of SA v Parker and Others 2005 (2) SA 77 (SCA) where Cameron JA (as he then was) discussed trusts where there is a separation of ownership or control from enjoyment (the “core idea” of the trust), and certain types of business trusts where such separation is entirely lacking. At para [29] he said the following:

“It is evident that in such a trust there is no functional separation of ownership and enjoyment. It is also evident that the rupture of the control/enjoyment divide invites abuses. The control of the trust resides entirely with beneficiaries who, in their capacity as trustees, have little or no independent interest in ensuring that transactions are validly concluded. On the contrary, if things go awry, they have every inducement as beneficiaries to deny the trust's liability. And no scruple precludes their relying on deficiencies in form or lack of authority since their conduct as trustees is unlikely to be scrutinised by the beneficiaries. This is because the beneficiaries are themselves, or those who through close family connection have an identity of interests with them.”

[10] It was submitted on behalf of the CC that even where there are several trustees the reality is often that the trust is effectively controlled by the sole beneficiary who operates the trust for himself as beneficiary, as if the trust is a corporation with the sole beneficiary as the shareholder. This reality, so it was submitted, is what is referred to in ss 52 (1) (b) and (c) of the Act.

[11] Again I think that this is an unwieldy interpretation. While not denying the reality referred to, this does not occur in all trusts. Given the core idea of separation of ownership and enjoyment, the interpretation of the section sought would not apply in the case of a trust which adheres to the core idea. And if there is abuse, Cameron JA, in Land and Agricultural Bank (supra) at paras [33] to [37], referred to the powers of the Master of the High Court and of the courts to ensure that the trust form is not abused.

[12] In S v Tieties [1990] ZASCA 4; 1990 (2) SA 461 (A) at 463E-464B, Smalberger JA, after quoting the passage in Venter v Rex referred to above, said the following:

“Where the ordinary grammatical meaning of the words used would not reflect the Legislature's true intention (as gleaned from other relevant considerations) 'it is within the powers of a Court to modify the language of a statutory provision where this is necessary to give effect to what was clearly the Legislature's intention' (per Schreiner JA in Durban City Council v Gray1951 (3) SA 568 (A) at 580B). (See also the remarks of Ward J, in Skinner v Palmer 1919 WLD 39 at 44 that 'if a proper case arose the Court could delete one word and read in another. But the Court will not reject a word of

clear meaning unless it is forced to do so.') Before a Court can modify or alter the words of a statute in terms of the above principles 'the intention of the Legislature must be clear, and not a mere matter of surmise or probability' (per De Villiers JA in Shenker v The Master (supra at 143). One must heed the warning of Corbett JA in the Summit Industrial Corporation case supra at 596J - 597B that

'it is dangerous to speculate on the intention of the Legislature (see eg the reference in Savage v Commissioner for Inland Revenue1951 (4) SA 400 (A) at 409A) and the Court should be cautious about thus departing from the literal meaning of the words of a statute (see remarks of Solomon JA in Dadoo Ltd and Others v Krugersdorp Municipal Council 1920 AD 530 at 554 - 5). It should only do so where the contrary legislative intent is clear and indubitable (see Du Plessis v Joubert 1968 (1) SA 585 (A) at 594 - 5).'

Or in the words of Davis J in De Villiers v Cape Law Society 1937 CPD 428 at 432:

'I must... be certain that the result of any alteration that I may make will be to carry out the intention of the lawgiver.... It is not enough to come to the conclusion that the amendment "probably" expresses the intention: in my opinion the Court must be certain that it does so: otherwise, as Ulpian says, it is better to adhere to the strict wording of the law.'

It follows from the above principles that, whereas a Court may in appropriate cases depart from the ordinary meaning of the words used in a statute, or even modify or alter such words, it may only do so where this is necessary to give effect to what can with certainty be said to be the true intention of the Legislature. Once such intention has been established the Court should not hesitate to give effect thereto.”

[13] In my view the submissions on behalf of the CC constitute tenuous grounds for finding that the true intention of the legislature was to include a trust as a juristic person for the purposes of s 51 (1) (c) of the Act, especially when it is accepted law that a trust is not a juristic person. I cannot even go so far as to say that the inclusion of a trust as a juristic person probably expresses the intention of the legislature, given the difficulties I have pointed out in the CC’s submissions. At the risk of repetition, such an interpretation would be relative to a specific set of circumstances, perhaps difficult to detect, which is not common to all trusts. The interpretation would clothe a trust with juristic personality only when it was operated in a particular way. Even if there was the abuse contemplated by Cameron JA in a specific instance, “[w]hat the Legislature would have intended in a situation like the present must therefore remain a matter of surmise”.[1]

[14] It follows that I am unable to interpret the section as contended for by the CC and must uphold the exception.

[15] It is therefore not necessary for me to consider the plaintiff’s further submission

that the CC is not controlled by one or more members of the CC.

[16] The following order will issue:

[16.1] The exception is upheld with costs.

[16.2] Paragraphs 3.2 and 5.1 of the fourth defendant’s plea are struck out.

[16.3] The fourth defendant is granted leave to amend its plea within 15 days of the date of service of this order.

_____________

J M ROBERSON

JUDGE OF THE HIGH COURT

Appearances

For the Plaintiff/Excipient: Adv D H de la Harpe, instructed by Whitesides Attorneys, Makhanda.

For the Fourth defendant/ Respondent: Adv T J M Paterson SC, instructed by Huxtable Attorneys, Makhanda.

[1] Per Scott JA in Randburg Town Council v Kerksay Investments Pty) Ltd 1998 (1) SA 98 (SCA) at 108A.