A business person was awarded R5m after an associate failed to pay in terms of various share sale agreements in an ongoing dispute involving a major Mpumalanga golf estate development.
The Supreme Court of Appeal (SCA) overturned two previous high court judgments, which ruled sale agreements between the two men were either void or unlawful, explaining why four judges had been wrong.
The SCA’s view on whether agreements adhere to relevant national credit laws sets the record straight for all share agreements in SA.
Petrus Cilliers, an attorney and business person, was developing a new golf estate in Sterkrivier in 2006 called The Legend. Jacobus Nel, a business person with multiple private companies, was Cilliers’ business acquaintance. Cilliers agreed to sell Nel 5% of the Legend development for R8m.
Cilliers brought in Kuwaiti investors the following year. As a result of these new investors, the Legend development underwent a slight restructuring.
Nel became hesitant about his investment. However, Cilliers believed the development would have good returns, saying Nel’s shares would appreciate to R30m in only three years.
He even offered to purchase Nel’s shares for R30m after those three years. Persuaded, Nel drew up an agreement — which became their first agreement — in 2008.
The first agreement also outlined a complicated financing structure, with Cilliers marketing two of the erven and building resorts on these pieces of land.
Cilliers made an initial payment of R6m in terms of the first agreement, beginning the purchase of Nel’s shares. However, he soon defaulted on payment.
This led to a second agreement, in 2011, which reduced the share price to R12m instead of the R30m Cilliers said he would pay and undertook to pay the remaining R6m in R2m instalments, with interest. However, Cilliers only made one payment of R1m, in 2012, and thereafter stopped. Nel was therefore owed at least R5m.
Nel instituted a trial to get Cilliers to pay. During the trial in 2021, Nel initially indicated Cilliers drafted the first agreement since Cilliers was an attorney. Nel, however, admitted during cross-examination that it was he himself who drafted the first agreement.
In 2021, Pretoria judge Selby Baqwa dismissed Nel’s claim, ruling that the first agreement had been replaced by the second and “cannot be resuscitated in any form”. Baqwa also dismissed the second agreement as he found the second agreement to be a credit agreement.
“Credit agreements” refer to delays of payment for a specified amount, where interest is charged. A classic example is instalment agreements, which the second agreement was. Importantly, neither Nel nor Cilliers were registered credit providers with the National Credit Regulator, which is a requirement for this kind of credit agreement.
Nel, unsatisfied, appealed to a full bench of three judges but lost again. He then tried at the SCA.
The SCA ruled in Nel’s favour, overturning the full bench and high court’s dismissals.
Despite agreeing that the second agreement was unlawful, the SCA said that, on the facts, there was no “intention of the parties ... to abandon” the first agreement. Writing for a unanimous court, acting SCA judge Elizabeth Baartman examined whether the first agreement, too, fell short of national credit laws.
Baartman found that “the agreement ... was primarily about the sale of shares”. Cilliers had “made optimistic predictions” and the first agreement “was drafted pursuant to that estimation”. At all times, “the intention was ... that the amount should be paid in [cash].”
Importantly, she said there was no “charge, fee or interest payable” by Cilliers for the shares. This meant it was not a credit agreement. In contrast, the second agreement specifically indicated there would be interest charged.
Nel “was anxious to have the money paid into one of [his companies] to minimise adverse tax implications”. Despite investing R8m, Nel has only received R7m thus far. “It follows that [the first agreement] is not a credit agreement in terms of [national credit laws],” the judge ruled.
Nel was therefore “entitled to relief based on [Cilliers’] breach” of the first agreement, and Cilliers was ordered to pay the missing R5m and legal costs.
However, Baartman slammed the parties for “confusing” court papers.
The SCA’s ruling on whether an agreement is in line with national credit laws sets the record straight for all similar agreements around SA.
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