REPORTABLE
CASE
NO.: SA 44/2009
IN
THE SUPREME COURT OF NAMIBIA
In
the matter between:
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WALDEMAR STRAUSS
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FIRST APPELLANT
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BAREND NICOLAAS VENTER
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SECOND APPELLANT
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and
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JAN HARM LABUSCHAGNE
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RESPONDENT
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CORAM:
Shivute CJ, Maritz JA et
O’Regan AJA
Heard
on: 13/07/2011
Delivered
on: 21/06/2012
APPEAL
JUDGMENT
O’REGAN
AJA:
This
appeal concerns the validity of several contracts entered into
between Mr Jan Labuschagne, the respondent in this Court, and Mr
Waldemar Strauss, the first appellant in this Court. Mr Barend
Venter, the second appellant, is a lawyer who drafted the contracts.
Mr Labuschagne argues amongst other things that the contracts are
void, on the grounds that they are in
fraudem legis of the provisions
of the Agricultural (Commercial) Land Reform Act, 6 of 1995, as
amended (“the Land Reform Act”). The High Court upheld
his argument and it is against the order of the High Court that the
appellants now appeal.
Factual
Background
Mr
Labuschagne is a retired farmer. He is the owner of two farms in the
Omaheke Region, one called “Haarlem”
and the other called “Sukses”.
In about 2007, Mr Labuschagne decided to retire to Henties Bay,
more than 750km away from where the two farms are situated. As he
found it difficult to manage the farms from this distance, he
decided to sell them. Mr Labuschagne was aware that the provisions
of the Land Reform Act constituted an obstacle to his plan to sell
his farms.
Towards
the end of 2008, Mr Venter approached Mr Labuschagne and introduced
Mr Strauss to Mr Labuschagne as a potential buyer for the farms.
When Mr Labuschagne enquired about whether such a sale would be
possible given the provisions of the Land Reform Act, Mr Venter
informed him that there was a way of avoiding the obstacles created
by the Act.
In
due course, Mr Labuschagne and Mr Strauss reached an agreement on
the farms and Mr Venter then drew up the contracts. The first
contract was a loan agreement whereby Mr Strauss loaned Mr
Labuschagne N$8 700 000 “being monies lent and advanced”.
The key terms of the loan agreement were that:
N$3
100 000 would be advanced on or before 1 January 2009;
N$1,5
million would be advanced on or before the last day of March 2009;
The
balance would be advanced in five tranches before the 1 January each
succeeding year, commencing in 2010 and ending in 2014;
The
five tranches would be made up of a capital amount of N$1 120 000 as
well as, unusually, “interest calculated at 10% per annum on
the outstanding balance” of advances still to be made;
Once
the first amount of N$3 100 000 had been paid, a mortgage bond in an
amount of N$3 000 000 would be registered over the two farms in
favour of Mr Strauss and additional bonds might be registered as
further advances were made, at the discretion of Mr Strauss; and
The
capital would only be repayable to Mr Strauss with 20% compound
interest per annum in the event of the two farms not being
bequeathed to Mr Strauss upon the death of Mr Labuschagne.
The
second agreement was an agreement of lease. It provided that Mr
Strauss would lease the two farms from Mr Labuschagne for a period
of nine years and eleven months at the nominal rental of N$1 000 per
month. The properties leased included “all implements, cattle,
game and any other moveable property, grazing thereon and water
installations as inspected by the parties on 25 October 2008”.
The lease agreement also contained an option in favour of Mr Strauss
to purchase the farms for the sum of N$8 700 000, (i.e. the same
amount as had been loaned to Mr Labuschagne by Mr Strauss in terms
of the loan agreement). The lease agreement also provided that Mr
Strauss may at his own expense “erect any structures of
whatsoever description as may be useful for the conduct of the farms
and improve the facilities” of the farms. It was further
agreed that at the end of the lease period, Mr Labuschagne could
either request Mr Strauss to remove the structures at his own
expense or could choose to become the owner of the improvements in
which event he agreed to compensate Mr Strauss in an amount equal to
half the construction costs.
The
third agreement was described as a “further agreement”
to establish rights and obligations additional to those provided for
in the other two agreements. The most notable provisions of this
agreement were that Mr Labuschagne was “not entitled to amend
his Last Will” without giving prior written notice to Mr
Strauss and any amendments made without notice to Mr Strauss would,
according to the agreement, not be enforceable.
In
addition to the three agreements, there were two further documents:
a new Will and Testament, drawn up for Mr Labuschagne to sign, that
provided that Mr Venter would be the Executor of his estate and that
Mr Strauss would inherit the two farms. Beyond this bequest, the
remainder of Mr Labuschagne’s estate was, in terms of the
Will, bequeathed to members of his family. The second document was a
power of attorney authorizing the passing of a mortgage bond over
the farms in favour of Mr Strauss as provided for in the loan
agreement, as described above.
There
were two further relevant provisions in the scheme of agreements,
according to Mr Labuschagne. The first was that the purchase price
for the farms had originally been agreed at N$8 600 000 but had been
increased by N$100 000 so that Mr Venter could be paid commission on
the transaction. The second was that, according to Mr Labuschagne,
he agreed to give Mr Venter one of his tractors, worth approximately
N$70 0000 as part of the commission.
It
is common cause between the parties that there was a subsequent oral
agreement between them that the initial payment would be N$1 500 000
not N$3 100 000 as originally agreed, but there is a dispute between
the parties as to whether there was a further oral agreement varying
the date of the initial payment. Nothing turns on this dispute.
Mr
Labuschagne left the farms at the beginning of December 2008. In his
founding affidavit, he states that he expected the initial payment
on 1 January 2009 and when it had not been deposited by 12 January,
he approached his current legal representatives for advice. He was
then informed that the scheme was contrary to the provisions of the
Land Reform Act. His legal representatives wrote to Mr Venter on 14
January 2009 cancelling the agreements in the light of the breach of
the agreement by Mr Strauss in failing to pay the initial instalment
on time. Mr Venter replied stating, amongst other things, that Mr
Strauss did not accept the cancellation of the agreements. Mr
Labuschagne’s legal representatives then instructed his bank
not to accept any payments from Mr Strauss since the agreements had
been cancelled.
Some
days later, Mr Labuschagne’s legal representatives discovered
that Mr Strauss was selling some of Mr Labuschagne’s cattle at
auction. Given that Mr Strauss had gone ahead and sold cattle from
the farms at auction despite the cancellation of the agreements, Mr
Labuschagne feared that his farms would be depleted of livestock and
game and therefore far diminished in value before he could regain
control of them. It was in the light of these events that Mr
Labuschagne approached the High Court for relief on an urgent basis.
Proceedings
in the High Court
The
application was launched in the High Court on 2 February 2009. The
relief sought was the issue of a rule nisi
requiring Mr Strauss and Mr Venter to show cause why relief in the
following terms should not be granted:
That
Mr Strauss be evicted from the two farms within seven days of the
confirmation of the rule nisi;
That
Mr Strauss be interdicted from selling or disposing of any of the
game or cattle situated on the farms;
A
declaration that the agreements between Mr Labuschagne and Mr
Strauss are cancelled, alternatively that they be declared void;
That
Mr Labuschagne repay all monies he had received in terms of the
contracts to Mr Strauss; that Mr Strauss pay to Mr Labuschagne all
the proceeds from the sale of game and livestock and that Mr Venter
hold any monies he had received from Mr Strauss regarding the
agreements in trust until the resolution of the application;
That
an interdict be granted preventing the registration of mortgage
bonds over the farms by Mr Strauss and Mr Venter; and
That
Mr Venter return the tractor that he had received from Mr
Labuschagne as commission.
The
rule nisi
was issued on 5 February 2009, and a return date was set of 26 March
2009. That return day was extended several times until Mainga J in
the High Court heard the matter on 26 October 2009. By the time of
the hearing in the High Court, it was common cause between the
parties that the farms did constitute “agricultural land”
within the meaning of the Agricultural Land Reform Act. There were
thus two main issues before the Court: were the agreements void ab
initio in view of the
provisions of the Land Reform Act; and, if not, whether the
agreements had been cancelled by Mr Labuschagne.
The
High Court handed down judgment on 26 November 2009. It held that
the question whether the agreements were void turned upon the true
nature of the agreement between Mr Strauss and Mr Labuschagne. The
High Court held that the applicable legal principle is that parties
may arrange their affairs to remain outside of the provisions of
legislation, but if the design of their transaction is intended to
disguise its true nature, the Court will give effect to the true
nature of the transaction.
The High Court held that the true agreement between the parties was
one of purchase and sale, and that the scheme provided in the
agreements had been adopted only to avoid the provisions of the Land
Reform Act.
Given this conclusion, the Court did not consider whether the
agreements had been validly cancelled or not. The Court accordingly
confirmed the order set out in the rule nisi
with minor amendments and ordered the respondents in that Court to
pay the costs of the applicant such costs to include the costs of
two instructed counsel.
The
order made by the High Court was, in effect the following (for
convenience, the parties are described as they are described in this
appeal):
1. That the first appellant and everyone
occupying through him be evicted from farms “Haarlem” No.
391 and “Sukses” No. 427 situated in the district of
Gobabis, and shall vacate the said farms within 14 days of this
order.
2. That the first appellant be interdicted
and restrained, whether by himself, his servants or agents, from
selling or disposing of any cattle or game situated on the aforesaid
premises;
3. That it be declared that all agreements
between the respondent and the first appellant referred to in the
founding affidavit are cancelled; alternatively that it be declared
that all agreements between the respondent and the first appellant
referred to in the founding affidavit be declared null and void and
of no force and effect.
4. That the respondent repays to the first
appellant all monies that the first appellant has paid to the second
appellant in terms of the aforesaid agreement;
5. That the first appellant and the
Registrar of Deeds are prohibited from registering or causing to be
registered any bond or bonds on farms “Haarlem” or
“Sukses” in first appellant’s name or any of its
nominees;
6. That the first appellant be ordered to
pay to the respondent forthwith all monies received by him or his
agents in respect of the sale of respondent’s cattle and/or
game situated on the aforesaid farms since 1 December 2008 (provided
that the respondent deducts the amount of a lien over the properties
in the amount of N$124 061,77) and provides the respondent with full
particulars of such sales within seven days of service of this Order.
7. That the second appellant returns
forthwith the tractor of the respondent received by him as part of
his commission in respect of such agreement mentioned above;
8. That the first and second appellants
pay, jointly and severally, the costs of this application on an
attorney and client scale, including the costs of 5 February 2009
relevant to the urgent application.
The
High Court did not set out the order in terms but, following
ordinary practice, merely identified the paragraphs in the rule
nisi,
which were confirmed. From the reasoning in the judgment, it is
plain that the High Court did not conclude that Mr Labuschagne had
cancelled the agreements as the first part of the order in paragraph
3 suggests, but concluded that the agreements were void ab
initio, which is the second and
alternative ground in paragraph 3. This is a matter to which I
return in the last paragraphs of this judgment.
The
appellants noted an appeal against the judgment of the High Court to
this Court on 9 December 2009. The record of appeal was lodged eight
courts days late. The effect of lodging the appeal record late is
that the appeal lapses automatically. Accordingly the appellants
seek condonation for the late filing of the record, and the
reinstatement of the appeal. Before turning to the issues raised in
the appeal, it will be helpful to set out the relevant provisions of
the Land Reform Act.
Legislative purpose and framework of the
Land Reform Act
The
Preamble to the Land Reform Act states that the purpose of the Act
is:
“To
provide for the acquisition of agricultural land by the State for the
purposes of land reform and for the allocation of such land to
Namibian citizens who do not own or otherwise have the use of any or
of adequate agricultural land, and foremost to those Namibian
citizens who have been socially, economically or educationally
disadvantaged by past discriminatory laws or practices; to vest in
the State a preferent right to purchase agricultural land for the
purposes of the Act; to regulate the acquisition of land by foreign
nationals …”.
The Preamble makes plain that the Act
seeks to pursue a land reform programme in order to address one of
the persistent and unjust consequences of Namibia’s history –
the fact that many Namibian citizens remain without access to
adequate agricultural land. The Preamble also makes clear that the
primary beneficiaries of the land reform process are to be “those
Namibian citizens who have been socially, economically or
educationally disadvantaged by past discriminatory laws or
practices”.
Accordingly,
the Act seeks to pursue the objective of land reform by prohibiting
the alienation of agricultural land in commercial farming areas
unless it has first been offered to the State. Offering the land to
the State provides the State with an opportunity to purchase land it
considers suitable for land reform. It is only if the State issues a
certificate of waiver in respect of the land that the private
landowner may alienate the land to a new owner that is not the
State. Section 16 of the Act provides that the certificate of waiver
is a statement in writing by the Minister certifying that the State
does not intend to acquire the agricultural land in question at the
time of the offer.
Section 14 provides that any land acquired by the State pursuant to
section 17 will be used for land reform. It stipulates that the land
will be acquired -
“in
order to make such land available for agricultural purposes to
Namibian citizens who do not own or otherwise have the use of
agricultural land or adequate agricultural land, and foremost to
those Namibian citizens who have been socially economically ore
educationally disadvantaged by past discriminatory laws and
practices.”
Simply
put, therefore, the purpose of the Act is to require owners of
agricultural land in commercial farming areas to offer it to the
State prior to alienating the land to enable the State to acquire
suitable agricultural land for land reform purposes.
Key
legal provisions
The
relevant provisions of section 17 of the Land Reform Act provide as
follows:
“(1) Subject
to subsection (3), the State shall have a preferent right to purchase
agricultural land whenever any owner of such land intends to alienate
such land.
…
(2) Notwithstanding
anything to the contrary in any law contained but subject to
subsection (3), no agreement of alienation of agricultural land
entered into by the owner of such land, or, in the case where such
land is alienated by a company or close corporation in the
circumstances contemplated in paragraphs (a) and (b), respectively,
of the definition of ‘alienate’, no agreement of sale or
instrument of transfer or transfer otherwise of any shares of the
company or of any member’s interest in the close corporation or
any portion of such interest which, but for this subsection, would
have passed the controlling interest in the company or close
corporation to another person, shall be of any force and effect until
the owner of such land –
(a)
has first offered such land for sale to the State; and
(b) has
been furnished with a certificate of waiver in respect of such land.
(3)
Subsections (1) and (2) shall not apply where agricultural land is
alienated
–
…
(b) in
the administration of a deceased estate or in accordance with a
redistribution of assets in such an estate between heirs and
legatees”.
Section
58(1) of the Land Reform Act provides that:
“Notwithstanding
anything to the contrary in any other law contained, but subject to
subsection (2) and section 62, no foreign national shall, after the
date of commencement of this Part, without the prior written consent
of the Minister, be competent –
(a) to
acquire agricultural land through the registration of transfer of
ownership in the deeds registry; or
(b) to
enter into an agreement with any other person whereby any right to
the occupation or possession of agricultural land or a portion of
such land is conferred upon the foreign national –
(i)
for a period exceeding 10 years; or
(ii) for
an indefinite period or for a fixed period of less than 10 years, but
which is renewable form time to time, and without it being a
condition of such agreement that the right of occupation or
possession of the land concerned shall not exceed period of 10 years
in total.”
The
relevant portion of the definition of “alienate” as
defined in section 1 of the Land Reform Act, as amended, reads as
follows:
“alienate’,
in relation to agricultural land means sell, exchange, donate or
otherwise dispose of, whether for any valuable consideration or
otherwise…”.
Issues on appeal
The
following issues arise in this appeal.
(a) Should the applications for condonation
for late filing of the record, and for the reinstatement of the
appeal be granted?
(b) Did the agreements entered into between
Mr Labuschagne and Mr Strauss constitute agreements to “alienate”
land in contravention of the Land Reform Act?
(c) Were the agreements void ab
initio on the basis that they
were in fraudem legis?
(d) Has Mr Labuschagne validly cancelled
the agreements?
Question
(b) will only need to be addressed if the applications for
condonation of late filing of the record and reinstatement of the
appeal are granted. Similarly, question (c) will only have to be
answered if it is found that the contractual scheme between Mr
Labuschagne and Mr Strauss did not constitute an alienation of land
within the meaning of the Land Reform Act and question (d) will only
have to be considered if it is concluded that the contractual scheme
was neither an alienation of the land, nor void on account of being
in fraudem legis.
Applications
for condonation for late filing of appeal record and for
reinstatement of the appeal
As
appears from what has been set out above, the appellants lodged the
appeal record eight days late. Rule 5(5)(b) of the Rules of this
Court provide that, save in circumstances not applicable in this
case, an appeal record shall be lodged within three months of the
date of the judgment or order appealed against. Barring certain
exceptions not of relevance to this application, a noted appeal
lapses if this sub-rule is not observed.
The
High Court handed down judgment on 26 November 2009 and the appeal
record should therefore have been lodged on or before 25 February
2010. The appeal record was lodged on 10 March 2010, some eight
court days late. On 8 November 2010, the Registrar informed the
appellants that the appeal had been deemed to be withdrawn.
Thereafter, some two weeks later, both appellants launched
applications for condonation for the late filing of the appeal
record and the reinstatement of their respective appeals. The
respondent opposed both applications.
In
terms of Rule 18, this Court has the power to condone non-compliance
with its rules on “sufficient cause shown”. In Namib
Plains Farming and Tourism CC v Valencia Uranium (Pty) Ltd and 5
Others, as yet unreported
judgment of this Court delivered on 19 May 2011,
Shivute CJ noted that:
“The
principles relating to the consideration of an application for
condonation are well-known. In considering whether to grant such, a
court essentially exercises discretion, which discretion has to be
exercised judicially upon consideration of all the facts in order to
achieve a result that is fair to both sides. Furthermore, relevant
factors to consider in the condonation application include the extent
of non-compliance and the explanation given for it; the prospects of
success on the merits; the importance of the case; the convenience of
the court, and the avoidance of unnecessary delay in the
administration of justice.”
In
this case, the appeal record was lodged only eight days late, which
was not a substantial delay given that the rule provides three
months for the filing of appeal records. Moreover, as soon as the
late filing was drawn to the attention of the appellants, they filed
applications for condonation of their late filing of the appeal
record and sought the reinstatement of their appeals. The affidavits
supporting the applications for condonation and reinstatement
provided a full explanation for the late filing of the record. The
delay occurred, it appears in both cases, because junior counsel who
appeared for the appellants made a bona
fide mistake in determining
when the appeal record should be filed. Rule 5(5)(b) as explained
above requires the appeal record to be lodged within three months of
the date of the judgment or
order against which an appeal
is made. By contrast, the equivalent rule in South Africa requires
the appeal record to be lodged within three months of the date upon
which the appeal is noted.
According to the affidavits annexed to the condonation applications,
the legal representatives calculated the date for filing of the
record on the basis of the South African rule, not the rule of this
Court.
It
is not the first time that this error has been made in this Court. A
similar error was made by legal representatives in Channel
Life Namibia (Pty) Ltd v Otto 2008(2)
NR 432 (SC) at para 41. In that case, this Court found that the
error was negligent, though bona
fide. Nevertheless, given the
fact that the non-compliance
with the rule was not substantial and that the issues raised in the
case were important and difficult, upon which it could not be said
that there were no prospects of success, the Court in Channel
Life Namibia granted
condonation for the late filing of the appeal record and reinstated
the appeal.
In
our view, there is little to distinguish the facts in this case from
the facts in Channel Life
Namibia (Pty) Ltd. The mistake
that led to the late filing of the appeal record, though a negligent
one by a legal practitioner was not grossly negligent. The record
was filed only eight days late, and once the attention of appellants
was drawn to their non-compliance with the rule, both appellants
filed applications for condonation for the late filing of the
record, coupled with reinstatement of the appeal. These applications
were supported by comprehensive and clear affidavits. The issues in
the appeal are novel, complex and important and involve the
interpretation of legislation. Although, as will become clear from
this judgment, the appellants do not succeed on appeal, it cannot be
said that their applications had no reasonable prospects of success
and that their applications for condonation must be refused on that
ground alone. In particular, the question of whether a contractual
arrangement is simulated or not, is a question which raises
difficult factual questions upon which courts often differ. In the
circumstances, the appellants’ applications for condonation
for the late filing of the record and reinstatement of their appeals
are both granted. I shall return to the question of costs relating
to these applications at the end of this judgment.
Submissions
of the parties on the merits of the appeal
Counsel
for both appellants argued that:
the
contractual scheme between the first appellant and the respondent
did not bring about an alienation of the farm within the meaning of
section 1 of the Land Reform Act;
the
parties legitimately arranged their affairs to avoid the provisions
of the Land Reform Act, so the transaction was not in
fraudem legis and the rights
and obligations of the parties to the transaction are different to
the rights and obligations that arise from a contract of purchase
and sale; and
there
was no valid cancellation of the contracts between the respondent
and first appellant.
Counsel
for the respondent argued that the contractual arrangement between
the first appellant and the respondent was void as it was in
conflict with section 17 of the Land Reform Act, in two respects:
the
Last Will and Testament made by the first appellant constituted a
prohibited disposal as defined in the Act; and
the
true nature of the contractual arrangement constituted a disguised
alienation of agricultural land.
Did
the contractual scheme entered into by Mr Labuschagne and Mr Strauss
constitute the “alienation” of land within the meaning of
the Land Reform Act?
The
High Court found that the true agreement between the parties was one
of purchase and sale, rather than separate agreements of lease and
loan, and that the scheme had been “designedly disguised to
escape the provisions” of the Land Reform Act. It therefore
held that the contracts that made up the scheme were void ab
initio. The High Court also
found that the contractual scheme did constitute an “alienation”
of the land within the meaning of the Land Reform Act.
The
question whether the contractual scheme entered into by Mr
Labuschagne and Mr Strauss, viewed as a whole, constitutes an
alienation of land within the meaning of the Land Reform Act is
logically anterior to the question whether the contractual scheme is
in fraudem legis.
This is because it is clear that if the contractual scheme does
constitute an alienation of agricultural land, it is clearly in
breach of the Act on two grounds. The first is section 17 of the
Act, which requires land to be offered for sale to the State before
land is alienated. It is common cause, that Mr Labuschagne did not
offer the land for sale to the State before entering into this
scheme with Mr Strauss. Secondly, the scheme would be in breach of
section 58(1) of the Act, which prohibits the acquisition of
agricultural land by foreign nationals unless the Minister has given
prior consent to the acquisition. The Act defines a “foreign
national” as a person who is not a Namibian citizen
and it is common cause that Mr Strauss is not a Namibian citizen and
did not receive the consent of the Minister to acquire the farms.
In
answering the question whether the contractual scheme constitutes an
“alienation” of land within the meaning of the Land
Reform Act, it will be useful to start by analyzing the express
elements of the contractual scheme. In considering this question,
the Court must consider the agreements as drafted, and not consider
whether there were tacit agreements between the parties not
disclosed in the language of the contracts as drafted. The question
of whether the contracts as drafted are not a fair reflection of the
actual agreement between the parties is a question that is
considered in the next part of this judgment.
The
contractual scheme has four key elements: the first is the agreement
of loan, whereby Mr Strauss agrees to lend Mr Labuschagne an amount
of N$8 700 000 in various tranches. The second element of the scheme
is that the loan is only to be repaid if Mr Labuschagne does not
bequeath the farms to Mr Strauss. In those circumstances, the
capital is repayable at a rate of 20% compound interest from the
date of the loan agreement. The third key element of the scheme is
the lease agreement whereby Mr Strauss leased the two farms from Mr
Labuschagne for 9 years and 11 months at a low rental of N$1 000 per
month. The fourth relevant element is the fact that Mr Labuschagne
executed a new Will in terms of which Mr Strauss was to inherit the
two farms and the second appellant was to be the executor of his
estate. In addition, there was a further agreed term whereby Mr
Labuschagne undertook not to amend his will without giving prior
written notice to Mr Strauss.
From
this analysis of the scheme, it is plain that it was not an
ineluctable consequence of the scheme, as expressed in the written
contracts, that Mr Labuschagne would transfer ownership of the farms
to Mr Strauss. Although the scheme contemplates that Mr Strauss may
well become owner of the farms in due course, transfer of ownership
will, according to the agreement, only take place upon the death of
Mr Labuschagne in terms of a bequest in his Will. The parties did
however contemplate that Mr Strauss might well not inherit the farms
in terms of Mr Labuschagne’s Will. This is evident from the
term that provided that if Mr Labuschagne did not bequeath the farms
to Mr Strauss; the loan capital would be repaid in full together
with compound interest at 20% per annum.
It
is necessary now to determine whether the scheme constitutes an
”alienation” of land within the meaning of the Land
Reform Act. The Act defines “alienate” as meaning,
“sell, exchange or otherwise dispose of whether for any
valuable consideration or otherwise…” One of the
dictionary meanings of the word “alienation” is “the
action of transferring ownership to another”
and “to alienate” has an equivalent meaning. This
meaning, too, has been attributed to the term “alienate”
by South African courts.
Sale and exchange (the two specific categories of alienation
mentioned in the Act’s definition of “alienate”)
also involve the effective transfer of ownership. One of the
purposes of both sale and exchange is to transfer ownership. What of
the category “dispose of”? Again, the Oxford Shorter
English Dictionary definition of “to dispose of” is “to
deal with definitely; to get rid of; to get done with; to finish”
as well as, in a secondary meaning, “to make over by way of
sale or bargain” or to “sell”. The common theme
that unites the instances of “alienate” in the statutory
definition (sale, exchange and disposition) is the principle that
ownership in the land is to be transferred to a new owner.
This
ordinary textual understanding of the word “alienate” is
also consistent with the statutory context in issue here, and in
particular with the purpose of section 17 of the Act. Section 17
affords the State a preferent right to purchase agricultural land to
be used for land reform purposes, before agricultural land is
“alienated” by its owner. This purpose fits neatly with
an interpretation of “alienate” that is based on the
transfer of ownership by one owner to another, so that the State can
acquire land before another person acquires it. It sits less easily
with an interpretation that would include the granting of a lease
over the land, an interpretation that the respondent suggested.
Although it may well be that there are circumstances where it is
appropriate to interpret “alienate” with a broader
meaning,
such a broad interpretation does not seem to be appropriate here.
To do so, would result in section 17 requiring owners to offer to
sell their land, in circumstances where they have not decided to
transfer ownership in the land, but merely to lease it or perhaps
grant a right of way over it. Such a result does not seem to fit
well with the clear purpose of the section. In the circumstances,
respondent’s argument that “alienate” has a
broader meaning that its ordinary dictionary meaning cannot be
accepted as the ordinary meaning of “alienate” fits more
easily within the context of section 17 of the Act.
The
question that then arises is whether, on a reading of the express
terms of the contractual scheme, it can be said that they constitute
an agreement to alienate the farms. As is apparent from the analysis
of the contractual scheme above, it is not an ineluctable
consequence of the scheme in issue in this case that ownership of
the farms will be transferred from Mr Labuschagne to Mr Strauss.
That consequence is certainly possible, indeed probable, but it is
not inevitable. As transfer of ownership of the property is not a
necessary consequence of the scheme, it cannot be said to constitute
an “alienation” of land within the meaning of the Land
Reform Act. As reasoned above, an “alienation” of land
implies the transfer of ownership from an existing owner to a new
owner. Such a transfer might well happen, and indeed even be
intended (a matter to which I turn below), in terms of the
contractual scheme here, but it is not the only outcome consistent
with the terms of the scheme. For it expressly contemplates and
permits Mr Labuschagne to change his will, and bequeath the farms to
someone other than Mr Strauss, though if he does so, it regulates
the terms for the repayment of the loan.
Accordingly,
the High Court’s conclusion that the contractual scheme
entered into by Mr Labuschagne and Mr Strauss constituted an
“alienation” of land within the meaning of the Land
Reform Act cannot be accepted as correct. It is necessary,
therefore, to turn to the next question that arises and that is
whether the scheme is in fraudem
legis.
Is the scheme
in fraudem
legis?
The
next question for consideration is whether the contractual scheme
between Mr Labuschagne and Mr Strauss constituted an agreement in
fraudem legis of the provisions
of the Land Reform Act. The record makes clear that Mr Labuschagne
wished to sell his farms but knew that given the terms of the Land
Reform Act, he could not do so unless he first offered to sell them
to the State as required by section 17. He also knew that Mr
Strauss, as a foreign national, could not purchase his farms without
ministerial permission.
Although
there is no doubt that people may arrange their affairs to avoid
statutory prohibitions, the arrangement of their affairs must not
result in a simulated transaction. As Innes CJ reasoned in Dadoo
and Others v Krugersdorp Municipal Council 1920
AD 530 at 548–
“ … parties
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 the parties intend to avoid the operation of the law, and
that 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 statute, 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.”
The
question that arises is whether the contractual scheme here is a
guise “calculated to escape” the provisions of the Land
Reform Act. As Innes J discussed in Zandberg
v Van Zyl 1910 AD 302 at 309:
“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 circumstance, that the same object
might have been attained in another way will not necessarily make the
arrangement other than it as purports to be. The enquiry, therefore,
is in each case one of fact, for the right solution of which no
general rule can be laid down”.
The
nature of a simulated transaction that would be held to be in
fraudem legis was further
described in Commissioner of
Customs and Excise v Randles, Brothers and Hudson Ltd 1941
AD 369 at 395 - 6:
“In
essence, it is a dishonest transaction: dishonest, inasmuch 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 subject to 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 in 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.”
Determining
whether the contractual scheme in this case is a disguised or
simulated transaction will require a consideration of whether the
parties actually intended that the agreements they entered into
would have the legal effect as drafted, or whether, in fact, they
intended their agreement to have a different consequence which they
could not express because it would be in conflict with the
provisions of the Land Reform Act.
In
determining as a matter of fact, whether a particular contractual
arrangement is simulated or not, the courts have considered whether
the arrangement has an “air of unreality”,
“accords with reality”
or contains anomalies
or is “startling”.
Where an arrangement seems anomalous or unreal, it is more likely
that a court will conclude that it is a simulated arrangement
disguising a different but tacit agreement.
In
a very recent case, the South African Supreme Court of Appeal has
restated the test in a slightly different manner. In Commissioner
for the South African Revenue Service v NWK Ltd
2011(2) SA 67 (SCA), the Court was concerned with the question of
whether certain contracts had been simulated to reduce the amount of
tax payable. The Court held that the test to determine simulation
should not merely require a Court to decide whether there is an
intention to give effect to a contract in accordance with its terms.
“The
test should go further, and require an examination of the commercial
sense of the transaction: of its real substance and purpose. If the
purpose of the transaction is only to achieve an object that allows
the evasion of tax, or of a peremptory law, then it will be regarded
as simulated. And the mere fact that parties do perform in terms of
the contract does not show that it is not simulated: the charade of
performance is generally meant to give credence to their
simulation.”
NWK,
concerned as it was with the
question of tax avoidance and evasion,
shifts the focus of analysis
from the question whether the parties intend to give effect to the
actual terms of the impugned transaction, to the question of whether
the impugned transaction makes any commercial sense at all. It is
not necessary now to decide whether the difference of emphasis that
underlies the approach in NWK
should be adopted in Namibia.
For the purposes of this case, it is appropriate merely to consider,
on the approach established in Dadoos’s
case and followed since,
whether on the factual record before it, the respondent has shown
that the contractual scheme was more likely than not a simulated
transaction.
The question thus is whether the
contractual scheme was a transaction simulated to disguise the real
agreement between the parties, an agreement that was effectively
prohibited by the terms of the Land Reform Act. One of the
considerations relevant to determining whether a contract is
simulated or not is whether it seems “anomalous” or has
an “air of unreality”. The question will be, once the
terms of the contract have been considered, it seems more likely
than not that the parties did indeed intend to be bound and to act
in accordance with the express terms of the agreement as drafted or
whether the express terms of their agreement were in fact masking a
different agreement between them, an agreement which the law would
prohibit.
The
starting point for an assessment of whether the scheme in this case
is simulated must be that it is common cause that Mr Labuschagne
wished to sell his farms, but the provisions of the Land Reform Act
constituted an obstacle to such a sale. It is also common cause
that the terms of this scheme were devised to avoid the obstacles
created by the Land Reform Act. This fact, of course, does not in
itself establish that the scheme was a simulated one, but it remains
a relevant fact against which the scheme itself must be evaluated.
Secondly,
the contractual scheme must be construed as a whole. All the parties
to these proceedings accept that this is so. All the agreements,
including the Will, were drafted at the same time and were clearly
intended to be part of one arrangement. Legally speaking, that
arrangement included a contract of loan, a lease of the farms, Mr
Labuschagne’s revised Will, as well as several sundry
obligations, including an obligation upon Mr Labuschagne not to
alter the terms of his Will without notice to Mr Strauss. All of
these provisions have to be construed as a co-ordinated scheme, not
as separate and unrelated contracts.
If
we turn then to consider the scheme, it immediately becomes plain
that several terms of the scheme are indeed “anomalous”,
“unusual” and exude an “air of unreality”.
First, although the first agreement between Mr Labuschagne and Mr
Strauss purported to be an agreement in terms of which Mr Strauss
loaned Mr Labuschagne a sum of money, the precise amount of the loan
was not stipulated in the contract. Instead, the amount of the loan
was set at N$8 700 000, but that amount was to be advanced in
various tranches over several years, and each subsequent tranche was
to be supplemented by interest calculated at a rate of 10% “on
the outstanding balance”. The notion of a loan amount being
supplemented by interest calculated on an outstanding balance of
advances still to be made in future is a novel one, and is more
consistent with an understanding that the “loan amount”
was, in fact, a purchase price. Once one accepts that the loan
amount was the agreed purchase price in respect of the farms, the
fact that it was to be paid in tranches, explains why interest was
payable on the “outstanding balance”. If the loan
agreement were truly a loan agreement, then would have expected the
parties to have determined the quantum of the loan without requiring
the loan payment to be increased by increments calculated on “the
outstanding balance”.
Secondly,
there is a provision for repayment of the loan but only in the event
that Mr Strauss does not inherit the farms from Mr Labuschagne on
his death. Save for this provision, there is no obligation upon Mr
Labuschagne to pay any interest on the loan or to make repayment of
the capital sum. This is an extraordinary arrangement that suggests
that the underlying agreement between the parties cannot be properly
characterized as a loan, but is in fact, an arrangement relating to
the payment of a purchase price that had to be formulated as a loan
merely to avoid the peremptory provisions of the Land Reform Act.
A
third anomalous provision arises from the lease agreement, the terms
of which provide that Mr Strauss will pay to Mr Labuschagne a
monthly rental of N$1 000, on a property which was valued in excess
of N$8 million. The rental amount seems nominal and again it seems
unlikely that the real agreement between the parties was an
agreement of lease. The nominal rental in the lease agreement
contributes to the “air of unreality” that pervades the
contractual scheme.
The
fourth unusual provision in the contractual scheme was the
obligation undertaken by Mr Labuschagne not to amend the terms of
his Will without informing Mr Strauss. This obligation cannot be
separated from the terms of his Will which were drafted at the same
time as the other agreements, in terms of which Mr Labuschagne
bequeathed the two farms to Mr Strauss, a person not related to him.
These four unusual provisions taken
together suggest that the true nature of the agreement between Mr
Labsuchagne and Mr Strauss is not, properly understood, an agreement
whereby Mr Strauss loaned Mr Labuschagne a large sum of money
coupled with an agreement of lease. Instead, the contractual
agreement is better understood as a form of purchase and sale where,
what is in substance the purchase price, is to be paid in the form
of a loan agreement, the grant of possession of the farms is to be
afforded in guise of a lease, and the actual transfer of the
property is to be effected by bequest.
For
these reasons, this Court concludes that the High Court was correct
when it concluded that the contractual scheme entered into between
Mr Labuschagne and Mr Strauss was designed to disguise the
underlying contract between them whereby Mr Strauss purchased Mr
Labuschagne’s farms. The transfer of ownership, it was agreed
between them, would be effected by bequest in order to avoid the
obstacles presented by the Land Reform Act. The contractual scheme
was, therefore, in fraudem legis
and all the contracts entered into between Mr Labuschagne and Mr
Strauss were accordingly void ab
initio.
One
further issue needs consideration and that is the provision in the
High Court order that the second appellant return the tractor to the
respondent. Both parties agree that the tractor was received by the
second appellant from the respondent as part of his commission for
facilitating the transaction that has been the subject of these
proceedings. Now that the transaction has been found to be void ab
initio, it has not been
established that any causa
for the transfer of the tractor remains. The ordinary principle is
that commission is only payable when a valid sale has been
concluded, unless there is evidence that suggests a different
agreement was reached.
Although the transaction between the parties was not on its terms a
sale, there is no reason to find that the general principle relating
to commission should not apply to this transaction also. Commission
is only payable once a valid transaction has been effected. In this
case, no valid transaction was concluded, nor was there any evidence
of an agreement to vary the circumstances in which commission would
be payable furnished on the record. Accordingly, the appellant was
not obliged to pay any commission to the second respondent. In the
circumstances, it is not appropriate to set aside this aspect of the
order of the High Court.
In
the circumstances, the appeal must fail and the order made by the
High Court be sustained. In this respect, this Court issues an order
that reformulates paragraph 3 of the High Court in order for it to
be consistent with the High Court reasoning, as well as the
reasoning of this Court.
The
appellants also sought to overturn the costs orders that the High
Court made consequent upon that ruling. This Court will only
interfere with a costs order on appeal in limited circumstances. The
appellants have not made out a case for us to do so here.
Given
that the appellants have not succeeded in their appeal, it is
appropriate they pay the costs of the respondent, jointly and
severally, such costs to include the costs of two instructed and one
instructing counsel. Although it is correct that most of the relief
awarded is relief against the first appellant, the second appellant
lodged a notice of appeal and prosecuted an appeal, it is
appropriate, therefore, that the second appellant bear an
obligation, jointly and severally with the first appellant, to pay
the respondent’s costs.
The
following order is made:
1. The appellants’ failure to comply
with Rule 5(5)(b) is condoned and the appeal is reinstated but they
are ordered, jointly and severally, the one paying the other to be
absolved, to pay the costs of the respondent occasioned by the
application for condonation and reinstatement, such costs to include
the costs of two instructed and one instructing counsel.
2. Subject to paragraph 3, the appeal is
dismissed with costs, and the appellants are jointly and severally
liable for the payment of such costs, which include the costs of two
instructed and one instructing counsel.
3. The order made by the High Court
confirming the rule
nisi
is confirmed, save that paragraph 2.3 of the rule
nisi
by the Court a quo
is set aside and replaced with the following order: “that all
agreements between the applicant and the first respondent referred to
in the founding affidavit be declared null and void and of no force
and effect.”
_____________________
O’REGAN
AJA
I agree.
_____________________
SHIVUTE
CJ
I agree.
_____________________
MARITZ
JA
-
|
Counsel on behalf of
the appellants:
|
Mr R Tötemeyer
|
|
Instructed by:
|
Etzold-Duvenhage
|
|
|
Dr Weder, Kauta &
Hoveka Inc
|
|
|
|
|
Counsel on behalf of
respondent:
|
Mr TJ Frank SC
|
|
Assisted by:
|
Mr JAN Strydom
|
|
Instructed by:
|
Theunissen, Louw &
Partners
|
Strauss and Another v Labuschagne (SA 44/2009) [2012] NASC 6 (21 June 2012);