Effect and consequences of deliberately circumventing law to give full ownership of agricultural land to foreign national
Fourie and another v Mueller and others SA 75-2021 2024 NASC 14 June 2024
Facts
The second respondent, a foreign national, wanted to acquire commercial agricultural land in Namibia. The appellants, owners of a certain farm in Namibia (Zebra River Farm), intended to sell their farm. They mandated the first respondent to find a purchaser, and he facilitated contact between the second respondent and the appellants. Upon the sale of the farm, the first respondent was not paid the estate agent’s commission. Aggrieved, he approached the High Court to assert his claim for the payment of the commission. The High Court ruled in favour of the first respondent and granted him payment of the claimed commission, with interest and costs. The appellants appealed to the Supreme Court, arguing that the High Court erred in its finding that the first respondent was entitled to the commission.
Issues
1. Whether the first respondent, an estate agent, was the effective cause of the sale of a certain immovable property and was thereby entitled to a commission, as was determined by the court a quo.
2. Whether the contractual scheme which led to the effective change of ownership of the agricultural land in question was valid and enforceable, and whether or not it was in conflict with Act 6 of 1995, as amended.
3. Whether the contractual arrangement for effectively transferring ownership of the farm was deliberately structured to circumvent the Act’s provisions concerning the acquisition of agricultural land by a foreign national.
Discussion
The structural scheme which led to the change of ownership of the agricultural land in question effectively culminated in the Secret Springs Trust, through its sole shareholding in Marck Investments, becoming the controlling entity in the company. As such, all the company’s assets, including the Zebra River Farm, were ultimately controlled by the Secret Springs Trust, of which Rambert is the founder, sole beneficiary and effectively the controlling trustee of the Trust.
‘[48]The legislative purpose of the Agricultural (Commercial) Land Reform Act 6 of 1995 is to enable the State to acquire agricultural land for land reform, ensuring that such land is allocated to Namibian citizens, particularly those who do not own or have enough agricultural land, and those disadvantaged by past discriminatory practices. To this end, the Act, inter alia, regulates the acquisition of agricultural land by foreign nationals.
[49] The restriction on the acquisition of agricultural land by foreign nationals is contained in s 58 of the Act… [51] It is apparent from the provisions
above that the acquisition of agricultural land by foreign nationals without prior consent of the Minister is prohibited. It is common cause that ministerial consent had not been obtained in
the transaction now under consideration. Thus, the pivotal issue is whether the contractual arrangement was crafted to skirt the requirements of s 58, and to misrepresent the parties’ actual intent in concluding the transactions.
[52] This Court, in its recent ruling in Bergh & others v Wohlfart & others dealing with the provisions of s 58 of the Act, reaffirmed the criteria for identifying a simulated transaction as established by Watermeyer JA in Commissioner of Customs and Excise v Randles, Brothers & Hudson Ltd:
‘A disguised transaction in the sense in which the words are used above is something different. 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 is subject to the 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 is interpreted by the Courts in accordance with what is found to be the real agreement or transaction between the parties.’
[53] Counsel for the first respondent rightly observed that the Act does not specifically refer to trusts. The pivotal inquiry, nevertheless, is to determine the real intention behind the parties’ decision to structure the ownership as they did, and whether or not the scheme so elaborately crafted falls foul of the prohibition contained in s 58 of the Act.
[54] Rambert’s intention, as evinced by the record of the proceedings in the High Court and confirmed by counsel for the appellants on appeal, was to gain full ownership of the farm…
[57] It was always Rambert’s intention to obtain full ownership of the farm. The proverbial wrench in the gears of Rambert’s plan to acquire the farm was the Minister’s delay in deciding whether or not to grant the requisite consent, as the appellants were desirous of completing the sale without delay.
[58] Fourie, guided by legal advice and past experiences, suggested a plan which would enable the parties to proverbially kill two birds with one stone: facilitating the effective transfer of ownership interest, and circumventing the prohibition contained in s 58 of the Act.
[59] The final structure in the stratagem, the Secret Sprigs Trust, positioned Rambert as the controlling trustee and the sole beneficiary, essentially granting him effective ownership and the controlling interest as defined by s 1(a)(iii) of the Act. Rambert controlled the trust, which is the sole shareholder of Marck Investments. As the sole beneficiary of the trust, he is the ultimate beneficial owner of the shares in Marck Investments.
[60] The trust deed’s terms suggest that the two Namibian trustees serve in mere nominal roles, seemingly superfluous appendages to the trust’s structure and powerless. In his position as the controlling trustee, Rambert has the power to indirectly appoint and remove directors of Marck Investments, and thus holding the controlling interest in the company as envisaged in s 1(a)(iii).
[62] On the facts before this Court, the entire scheme amounts to a subterfuge to unlawfully circumvent the prohibition in s 58 of the Act. The acquisition of the farm was accordingly in direct conflict with s 58 of the Act, and is illegal and void as a consequence.
[64] Once a court has found that a transaction involving ownership of agricultural land was entered into in violation of s 58 of the Act, the court is duty-bound to bring such a transgression to the attention of the Minister for the Minister to exercise the powers conferred on him or her by s 60 of the Act. This is the approach this Court should adopt…
Is there scope for the payment of a commission?
[68] … In light of this Court’s finding that the transactions amounted to a scheme in fraudem legis, it follows that the first respondent is not entitled to estate agent’s commission from this illegal scheme.
[67] This finding is based on the ordinary principle that commission is only payable when a valid sale has been concluded, unless there is evidence that suggests a different agreement had been reached. Commission is thus only payable once a valid transaction has been effected. Since no valid transaction occurred here, the High Court’s decision to award the first respondent a commission stands to be set aside.
Costs
[76] The general rule regarding costs dictates that costs should follow the result. Whilst the appellants enjoy a measure of success because the judgement and order of the High Court are to be set aside and replaced with an order dismissing the first respondent’s claim for commission, this would not be an instance to apply the general rule. Misconduct of parties in a matter can justify a court’s departure from the general rule on costs where a court is satisfied that a party or parties acted improperly, dishonestly or in a discreditable manner.[77] In this instance, the appellants engaged in a deliberate scheme to circumvent s 58 of the Act. This amounts to acting in fraud of the Act, amounting to dishonest and improper conduct, warranting the severe censure of this Court. Their fraudulent conduct should thus deprive them of costs both in this Court and in the High Court.’
Determination
Held that, the intention of the second respondent as evinced by the record in the proceedings in the High Court and confirmed by counsel on appeal was that Rambert, a foreign national, intended to gain full ownership of the farm.
Held that, based on the facts before this Court, the entire scheme amounted to a subterfuge to unlawfully circumvent the prohibition in s 58 of the Act. The acquisition of the farm was accordingly in direct conflict with s 58 of the Act, and is illegal and void as a consequence.
Held that, in light of this Court’s finding that the transactions amounted to a scheme in fraudem legis, it follows that the scheme was illegal and not enforceable, and the first respondent is not entitled to estate agent’s commission from this illegal scheme. This is based on the ordinary principle that commission is only payable when a valid sale had been concluded, unless there is evidence that suggests a different agreement had been reached. Commission was only payable once a valid transaction had been effected. Since no valid transaction occurred here, the High Court’s decision to award the first respondent a commission stood to be set aside.
With regards to costs, it was held that the appellants engaged in a deliberate scheme to circumvent s 58 of the Act. This amounted to acting in fraud of the Act, amounting to dishonesty and improper conduct, warranting the severe censure of this Court. Their fraudulent conduct should thus deprive them of costs both in this Court and in the High Court.
The appeal succeeded, with no order as to costs made.
Court order
The judgement and order of the High Court were set aside and substituted with orders dismissing the plaintiff’s claim, and declaring as void ab initio the transfer of shares from second respondent to Jean-Pierre Rambert and all other transactions flowing therefrom resulting in the changer of ownership of the farm, with no order as to costs being made. The Registrar of the Court was directed to furnish a copy of the judgement to the Minister of Agriculture, Water and Land Reform.
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