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Strauss and Another v Labuschagne (SA 44/2009) [2012] NASC 6 (21 June 2012)

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REPORTABLE


CASE NO.: SA 44/2009



IN THE SUPREME COURT OF NAMIBIA



In the matter between:




WALDEMAR STRAUSS

FIRST APPELLANT

BAREND NICOLAAS VENTER

SECOND APPELLANT



and




JAN HARM LABUSCHAGNE

RESPONDENT




CORAM: Shivute CJ, Maritz JA et O’Regan AJA


Heard on: 13/07/2011


Delivered on: 21/06/2012



APPEAL JUDGMENT




O’REGAN AJA:


  1. 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

  1. Mr Labuschagne is a retired farmer. He is the owner of two farms in the Omaheke Region, one called “Haarlem”1 and the other called “Sukses”.2 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.


  1. 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.


  1. 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:


  1. N$3 100 000 would be advanced on or before 1 January 2009;

  2. N$1,5 million would be advanced on or before the last day of March 2009;

  3. The balance would be advanced in five tranches before the 1 January each succeeding year, commencing in 2010 and ending in 2014;

  4. 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;

  5. 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

  6. 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.


  1. 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.


  1. 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.


  1. 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.


  1. 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.


  1. 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.


  1. 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.


  1. 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

  1. 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:


  1. That Mr Strauss be evicted from the two farms within seven days of the confirmation of the rule nisi;


  1. That Mr Strauss be interdicted from selling or disposing of any of the game or cattle situated on the farms;


  1. A declaration that the agreements between Mr Labuschagne and Mr Strauss are cancelled, alternatively that they be declared void;


  1. 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;


  1. That an interdict be granted preventing the registration of mortgage bonds over the farms by Mr Strauss and Mr Venter; and


  1. That Mr Venter return the tractor that he had received from Mr Labuschagne as commission.


  1. 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.


  1. 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.3 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.4 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.


  1. 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.


  1. 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.


  1. 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

  1. 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 …”.


  1. 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”.


  1. 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.5 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.”6


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

  1. 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”.


  1. 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.”


  1. 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

  1. 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?


  1. 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

  1. 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.


  1. 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.


  1. 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.”


  1. 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.7 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.


  1. 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.


  1. 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

  1. Counsel for both appellants argued that:


  1. 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;

  2. 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

  3. there was no valid cancellation of the contracts between the respondent and first appellant.


  1. 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:


  1. the Last Will and Testament made by the first appellant constituted a prohibited disposal as defined in the Act; and

  2. 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?

  1. 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.


  1. 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 citizen8 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.


  1. 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.


  1. 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.

  1. 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.


  1. 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”9 and “to alienate” has an equivalent meaning. This meaning, too, has been attributed to the term “alienate” by South African courts.10 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.


  1. 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,11 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.


  1. 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.


  1. 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?

  1. 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.


  1. 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.”


  1. 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”.


  1. 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.”


  1. 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.


  1. 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”12, “accords with reality”13 or contains anomalies14 or is “startling”.15 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.


  1. 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.”16



  1. 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.


  1. 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.


  1. 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.

  1. 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.


  1. 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”.

  1. 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.


  1. 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.


  1. 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.


  1. 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.


  1. 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.


  1. 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.17 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.


  1. 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.


  1. 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.


  1. 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.


  1. 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




1 Farm Haarlem No 391, Registration Division “L”, Omaheke Region, measuring 4310,4080 hectares.


2 Portion 1 of the Farm Sukses No 426, Registration Division “L”, Omaheke Region, measuring 2992, 2544 hectares.


3 See the High Court judgment Labuschagne v Strauss and Others, Case A 24/2009, as yet unreported, handed down on 26 November 2009 at paras 24 – 26. The High Court relied, inter alia, on the decisions of the South African Appellate Division in Zandberg v Van Zyl 1910 AD 309 (per Innes J), Erf 3183/1 Ladysmith (Pty) Ltd and Another v CIR 1996(3) SA 942 (A) at 953 A – C;


4 Id. at para 27.


5 Section 16 of the Land Reform Act.


6 Section 14 of the Land Reform Act.


7 Rule 8(1) of the Rules regulating the conduct of the Supreme Court of Appeal of South Africa, published under GN R1523 in Government Gazette 19507 of 27 November 1998, as amended by GN R979 published in Government Gazette 33689 of 19 November 2010.


8 See section 1 of the Act.


9 Shorter Oxford English Dictionary.


10 See, for example, Crous NO v Utilitas Bellville 1994(3) SA 720 (C) where Van Deventer J held that “Met inagneming van bostaande uitsprakereg en woordeboek-definisies, sou dit na my mening korrek wees om te se dat die algemeen-aanvaarde of gewone betekenis van “vervreem” (“alienate” op Engels) ‘n vrywillige en “willekeurige"’ oordrag van eiendomsreg van ‘n saak deur die eienaar daarvan na ‘n nuwe eienaar impliseer”. (At 725F – G) “Taking into account the above jurisprudence and dictionary definitions, in my opinion, it would be correct to say that the generally accepted or ordinary meaning of “alienate” (“vervreem” in Afrikaans) implies a voluntary and intentional transfer of ownership of a thing by its owner to a new owner.”


11 See for example Caravan and Rivas v New Transvaal Gold Fields 1904 TS 136; Breytenbach v Frankel and Another 1913 AD 390 at 402.


12 See Erf 3183/1 Ladysmith (Pty) Ltd and Another v CIR 1996(3) SA 942 (A) at 954D.


13 See Skjelbreds Rederi and Others v Hartless 1982(2) SA 710 (A) at 735 E – F.


14 See Erf 3183/1 Ladysmith (Pty) Ltd and Another v CIR, cited above n 11, at 954 I.


15 Id at 955D.


16 At para 55.


17 See Brayshaw v Schoeman en Andere 1960 (1) SA 625 (A) at 630 C – D: “Ek dink dit moet as '‘n algemene stelling aanvaar word dat in geval van '‘n opdrag om “'‘n koper te vind”, die voltooing van '‘n geldige koop die gebeurtenis is waarop die agentekomissie betaalbaar is, tensy bykomstige oorwegings of indiciae tot die teendeel op '‘n ander uitleg dui.” (“I think it is must be accepted that the general proposition is that where there has been an instruction “to find a buyer”, it is the conclusion of a valid sale agreement that gives rise to the duty to pay commission to the agent, unless there are other considerations or indications that suggest a different understanding.”) See also Jurgens Eiendomsagente v Share [1990] ZASCA 81; 1990 (4) SA 664 (A) at 675 G – H where the Court noted that an agreement to vary the ordinary rule would require clear and unambiguous language (“Duidelike en onmiskenbare bewoording”).