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Court case on buy-and-sell agreements – Furman NO and Others v Hattingh [2018] ZAGPJHC 649

Furman NO and Others v Hattingh [2018] ZAGPJHC 649

In this judgement of the South Gauteng High Court, the rights of an executor to enforce a buy-and-sell agreement entered into between members of a close corporation (CC) was dealt with and confirmed.

W was initially the only member of a close corporation (CC) called Air and Allied Technologies CC (A&AT).  In 2008 the respondent (H) acquired an interest of 25% in A&AT by entering into agreement with W (the acquisition agreement).  On the same day W and H also concluded two further agreements.  One was a members’ association agreement to regulate the day-to-day business of A&AT, while the second was a buy-and-sell agreement (the buy-and-sell) to provide for the purchase of the member’s interest by H in the event of W’s death or disability and vice versa.  Each also took out a life policy on the life of the other in order to fund such a purchase.

H was married in community of property to B, who subsequently died.  The date of death is not mentioned in the judgement, but it had to be prior to or during 2013.  As a result of this marriage, B was the joint owner with H of an undivided half-share of the 25% interest in A&AT.  After her death, B’s heirs similarly became entitled to such half of the 25% interest.  H did not notify the executor in B’s deceased estate of his holding of 25% in A&AT.

On 29 August 2013 W and H entered into an addendum to the acquisition agreement, which purported to cancel the acquisition agreement.  The necessary documentation to record this was lodged with the CIPC.  Prior to that, on 8 August 2013, W and H concluded an agreement to hand over management and control over A&AT to H, as W intended to emigrate from South Africa and settle in Australia.

In evidence it became clear that the addendum’s sole purpose was to prevent B’s heirs to obtain a right to the undivided half-share of H’s 25% interest in A&AT.  Despite the addendum, H continued to play an integral role in the management and operations of A&AT and shared in dividends as if still holding the 25%.

W passed away in 2016.  The executors in his deceased estate are the plaintiffs in this matter.
The plaintiffs claim performance under the buy-and-sell, and specifically that H pays over the proceeds of the policy H held on W’s life (some R15m) in exchange for W’s 75% interest in A&AT being transferred by the plaintiffs to H.  The plaintiffs aver that the addendum is a simulation and therefore no valid contract and that whether or not the addendum was a valid contract, it did not cancel the buy-and-sell.  This latter averment was based on the argument that the buy-and-sell had its own requirements for amendment and cancellation.

The court (Tsoka J) held that the addendum was indeed a simulation and therefore no valid contract. The court held further that the addendum did not cancel the buy-and-sell and that W’s estate was entitled to the proceeds of the policy on W’s life in exchange for the transfer of W’s 75% interest in A&AT to H.  H was ordered to pay the proceeds of the policy to the plaintiffs.

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