THE SUPREME COURT OF APPEAL OF SOUTH AFRICA

JUDGMENT

Not Reportable
Case No: 1049/2021

In the matter between:

BLUCHER HAUMAN MELLET N O
FIRST APPELLANT
HENDRIK FRANCOIS MELLET N O

SECOND APPELLANT
CAROLINA JOHANNA PRINSLOO N O
THIRD APPELLANT

and

MARAIS ROCCO VERMEULEN

FIRST RESPONDENT
EVAN ERNEST CORBETT
SECOND RESPONDENT

Neutral citation:
Mellet N O and Others v Vermeulen and Another (1049/2021)
[2022] ZASCA 176 (07 December 2022)
Coram:
PETSE AP, MAKGOKA AND PLASKET JJA AND MAKAULA AND
MASIPA AJJA
Heard:
07 September 2022
Delivered:
07 December 2022
Summary:  Close Corporation Act 69 of 1984 – whether  a Trust inter vivos can own
member’s interest in a Close Corporation – ss 29(1) and 29(1A) of the Close
Corporation Act – party alleging compliance with s 29(1A)(a) – (d) must prove it – onus
not discharged – appeal dismissed with costs.

ORDER

On appeal from: Free State Division of the High Court, Bloemfontein (Musi JP,
Loubser J concurring, Daffue J dissenting, sitting as court of appeal):
The appeal is dismissed with costs.

JUDGMENT

Makaula AJA (Petse AP, Makgoka and Plasket JJA and Masipa AJA concurring):

Introduction
[1] This appeal relates to the application of s 29(1) and s 29(1A) of the Close
Corporation Act 69 of 1984 (the CCA), in the instance where the Blucher Mellet Family
Trust (the Trust) acquired a 60 percent member’s interest in a close corporation,
Findaload CC (the close corporation), and sold it to the respondents. The core issue
for determination is whether the Trust was legally able to acquire the member’s interest
and it arose in the following circumstances. The respondents failed to perform their
obligations in terms of the agreement of sale. The appellants brought an application in
the Free State Division of the High Court, Bloemfontein (the high court) to compel them
to do so. The respondents brought a counter-application in which they attacked the
validity of the agreement of sale on the basis that s 29(1) of the CCA prohibited the
Trust from holding a member’s interest in the close corporation.

[2] The contention by the appellants before the high court was that the Trust did
not, in fact, hold the member’s interest, but merely served as a conduit to channel the
sale from the first appellant, in his personal capacity, to the first and second
respondents. The high court, per Mbhele J, sitting as the court of first instance, upheld
the application and ordered, amongst others, that: (a) a bond be registered over the
properties owned or registered in the names of the respondents (as security for
payment of the purchase price); and (b) for the respondents to pay 50 percent of the

‘transfer’ costs to the attorneys seized with the task of registering the bond. (The word
‘transfer’ in the order is a patent error. The parties agree that the word should be
‘registration’.)

[3] Following this, the respondents appealed to the full court of the Free State
Division of the High Court, Bloemfontein (the full court). Musi JP and Loubser J upheld
the appeal with costs, with Daffue J dissenting. The further appeal is before us with
the speval leave of this Court.

Background facts
[4] The appellants are members of the Trust. The first and the third appellants are
also members of the close corporation. The first appellant held a 60 percent member’s
interest, and the third appellant a 40 percent member’s interest, in the close
corporation. The first appellant wanted to sell his member’s interest to the
respondents. He did not want the purchase price to be paid directly to him, so he asked
the respondents to pay him via the Trust. To fulfil this arrangement, the Trust entered
into an agreement titled a Deed of Sale of Membership Interest (the agreement) with
the respondents.

[5] I turn now to the salient provisions of the agreement. The seller is defined as
the Trust and the purchaser is defined as both respondents. The subject of the sale,
the ‘membership interest’ is defined as the 60 percent member’s interest ‘currently
held by B H Mellet and to be transferred to the Seller as well as the Claims consisting
of the assets and liabilities listed in Annexure A, B, C and D hereto’.

[6] Clause 4 provides that the ‘Seller sells to the Purchaser, who purchases the
Membership Interest and the claims consisting of the assets listed in Annexures A, B,
C and D hereto with effect from the effective date, subject to the terms and conditions
set out in this agreement’.

[7] Clause 7 contains a warranty. The Trust warranted that Mellet would transfer
his member’s interest to the Trust, and that he would be bound by the agreement ‘in
the same manner as if he personally sold the interest to the Purchaser’.

[8] Clause 14 is headed ‘MISCELLANEOUS’. It inter alia provides that, when
possible, every provision of the agreement should be interpreted ‘in a manner which
makes it effective and valid under applicable Law’ but if a provision is ‘held to be illegal,
invalid or unenforceable under applicable Law, that illeglity, invalidity or
unenforceability shall not affect the other provisions of this Agreement, all of which
shall remain in full force’.

[9] Finally, in clause 26, the respondents undertook to furnish security ‘for the due
and proper payment of the purchase price’. They were required to do so by registering
a bond over two properties. Clause 26.3 provides that the registration of the bond ‘shall
be handled by Blair Attorneys and the registration costs and fees shall be paid by the
seller and the purchaser on a 50/50 basis’.

The issue
[10] As indicated above, s 29(1) and s 29(1A) of the CCA are central to a
determination of the issue before us. Together, they create a prohibition and an
exception to the prohibition.

[11] Section 29(1) creates the prohibition. It provides:
‘Subject to subsection (1A) or (2)(b) and (c), only natural persons may be members of a
corporation and no juristic person or trustee of a trust inter vivos in that capacity shall directly
or indirectly (whether through the instrumentality of a nominee or otherwise) hold a member’s
interest in a corporation.’

[12] Section 29(1A) creates the exception. It provides:
‘A natural or juristic person in the capacity of a trustee of a trust inter vivos may be a member
of a corporation: Provided that-

(a)
no juristic person shall directly or indirectly be a beneficiary of that trust;
(b)
the member concerned shall, as between himself or herself and the
corporation, personally have all the obligations and rights of a member;
(c)
the corporation shall not be obliged to observe or have any obligation in respect
of any provision of or affecting the trust or any agreement between the trust
and the member concerned of the corporation; and
(d)
if at any time the number of natural persons at that time entitled to receive any
benefit from the trust shall, when added to the number of members of the

corporation at that time, exceed 10, the provisions of, and exemption under,
this subsection shall cease to apply and shall not again become applicable
notwithstanding any diminution in the number of members or beneficiaries.’

The appellants’ argument
[13] Before the court of first instance, the appellants sought an order enforcing the
provisions of clause 26 of the agreement. They averred that the Trust had already
complied with the provisions of clause 26.3 by paying its 50 percent contribution
towards the costs of registering the bond.

[14] The appellants contended that it was common cause between the parties that
the Trust would take transfer of the member’s interest solely as a conduit between
Mellet and the respondents. It was never the intention of the parties that the Trust
should hold the member’s interest. They contended, however, that s 29(1A) makes it
clear that an inter vivos Trust can hold or own an interest in a close corporation.

[15] In addition, the appellants argued that it was not incumbent upon them to attach
the Trust Deed, the relevant resolutions, and other documents to show that the Trust
met the requirements of s 29(1A). A bald statement that the Trust met the
requirements, without any evidence to support it, was made in the appellants’ replying
affidavit. The appellants also stated that a certificate issued by the Companies and
Intellectual Property Commission proved that the requirements of s 29(1A) had been
met.

The respondents’ argument
[16] The respondents pleaded that the agreement is in direct conflict with s 29(1) of
the CCA in that the seller was not a natural person and could not have been a holder
of a member’s interest in a close corporation. Their counter–application sought
declaratory orders that the agreement was, as a result, unlawful, void ab initio and
consequently unenforceable.

[17] The respondents submitted that the legality of the agreement was pertinently
raised in the papers and the appellants did not place any evidence before the court
that brought them within the terms of s 29(1A) of the CCA. They submitted that the

agreement is unambiguous and means that the Trust and not the appellants in their
personal capacities would own 60 percent of the member’s interest, and then sell it to
the respondents.

Analysis
[18] The agreement makes it clear that the seller of the member’s interest is the
Trust. It is common cause that the Trust held a member’s interest in a close corporation
and purported to sell it to the respondents. If there had been any doubt, it was dispelled
by the first appellant himself when he stated that as he was ‘desirous to transfer the
benefits of the sale to the Trust’ provision was made in the agreement ‘that the
member’s interest held by myself, was to be transferred to the Trust and directly be
sold to the Respondents’. Section 29(1) of the CCA is thus implicated. It was raised
squarely by the respondents to assail the validity of the sale.

[19] A member of a close corporation is defined in s 1 of the CCA to mean ‘a person
qualified for membership of a corporation in terms of section 29 . . .’. Section 29(1) is
clear and unambiguous. It provides that only natural persons can become members
of a close corporation. The word ‘only’ is prescriptive and disqualifies juristic persons
and Trustees of trusts inter vivos from either directly or indirectly holding a member’s
interest in a close corporation unless there is compliance with s 29(1A).

[20] Section 29(1) is qualified by s 29(1A). It specifies the circumstances in which
natural or juristic persons who are trustees of inter vivos trusts may hold member’s
interests in close corporations. Two of the four requirements are that no juristic person
may be a beneficiary of the trust whether directly or indirectly; and the total of natural
persons who are beneficiaries plus the members of the close corporation do not
exceed ten. Furthermore, s 29(2) specifies in positive terms who may hold member’s
interests. Three categories of person qualify. They are: a natural person and two
categories of natural or juristic persons who are trustees.

[21] It stands out starkly that s 29 contemplates, as a default position, that only
natural persons are capable of holding member’s interests. The exception created by
s 29(1A) is qualified: natural as well as juristic persons may hold member’s interests
but only in the capacity of a trustee in certain circumstances. This point was made by

Boruchowitz J in Southern African Bank of Athens Ltd v Salvadora Properties Ninety
Nine CC1 when, with reference to the definition of a member of a close corporation in
terms of s 1, he held that the definition ‘envisages membership of the person
representing the trust and not the trust itself’.

[22] It seems to me that because the Trust purported to hold the member’s interest,
rather than a trustee, the appellants do not get out of the starting blocks to bring
themselves within the terms of s 29(1A). In any event, they have adduced no evidence
whatsoever to do so. It was suggested by counsel for the appellants that a certificate
issued by the Companies and Intellectual Property Commission (CIPC) that reflects
the first appellant and third appellant, Ms Carolina Prinsloo, as members of the close
corporation in their capacity as trustees, proves compliance with s 29(1A). There is no
merit in this argument. Speculation that some unknown functionary must have satisfied
himself that Mellet and Prinsloo were authorised and met the requirements of s 29(1A)
is not evidence of these facts.

[23] It is as well to remember that it is incumbent on parties to set out their cause of
action or defence, as the case may be, in clear and concise terms to enable to
opposing party to know the nature of the case or defence advanced.2 It was
accordingly crucial that the appellants place relevant facts to prove compliance with
s 29(1) and s 29(1A) and not merely rely on a copy of the CK document which was an
annexure to the replying affidavit. In view of the appellants’ failure to adequately prove
compliance with the provisions of s 29, there was insufficient evidence upon which the
court of first instance could find in their favour.

[24] The respondents have established that the agreement is in conflict with s 29(1)
and was accordingly invalid. The appeal must therefore fail. There is nothing to
suggest that costs should not follow the result. Counsel for the respondents requested
that costs of two counsel be allowed. The matter is not at all complex. The costs of
two counsel are not warranted.

1 Southern African Bank of Athens Ltd v Salvadora Properties Ninety Nine CC [2010] ZAGPJHC 37
para 15.
2 Rule 18 of the Uniform Rules of Court.

[25] In the result, the following order is made:
The appeal is dismissed with costs.

__________________
M Makaula
Acting Judge of Appeal

APPEARANCES

For appellants:
SJ Reinders
Instructed by:
Eugene Attorneys, Bloemfontein

For respondents:
N Snellenburg SC (with R van der Merwe)

Instructed by:
Lovius Block Attorneys, Bloemfontein
THE SUPREME COURT OF APPEAL OFSOUTH AFRICA
MEDIA SUMMARY OF JUDGMENT DELIVERED

FROM

The Registrar, Supreme Court of Appeal
DATE

07 December 2022
STATUS

Immediate

Please note that the media summary is for the benefit of the media and does not form part
of the judgment.

Mellet N O and Others v Vermeulen and Another Blucher Hauman Mellet N O & Others v
Marais Rocco Vermeulen & Another (1049/2021) [2022] ZASCA 176 (2022) (07 December
2022)

MEDIA STATEMENT

Today the Supreme Court of Appeal dismissed an appeal against an order of the Full Court of
the Free State Division of the High Court, Bloemfontein. The appeal related to the application
and interpretation of sections 29(1) and 29(1A) of the Close Corporation Act 69 of 1984 (the
Act) in the event where a family trust, the Blucher Mellet Family Trust (the Trust), had acquired
a 60 percent member’s interest in a close corporation from one of its trustees and which it
immediately sold to the respondents. The core issue for determination was whether the Trust
was legally able to acquire the member’s interest or not. The respondents brought a counter-
application in which they attacked the validity of the agreement of sale on the basis that s 29(1)
of the Act prohibited the Trust from holding a member’s interest in the close corporation except
under certain narrowly circumscribed circumstances.

The appellants instituted legal proceedings against the respondents in the Free State Division
of the High Court, Bloemfontein seeking an order for specific performance against the
respondents. They contended that it was common cause between the parties that the Trust
would take transfer of the membership interest from the first appellant solely as a conduit to
receive the purchase price that would ordinarily have been payable to the first appellant. It had
never been the intention of the parties that the Trust itself should hold the membership interest.
Thus, the Trust would merely have acted as a conduit to channel the funds. They contended

that ss 29(1) and 29(1A) made it apparent that an inter vivos trust, which was a juristic person,
could have held or owned an interest in a close corporation. The respondents, in turn, pleaded
that the agreement is in direct conflict with the aforementioned sections in that the Trust was
not a natural person and could not have been a holder of a member’s interest in a close
corporation.

The SCA considered the sections and found that the Act specified the circumstances in which
natural or juristic persons who are trustees of inter vivos Trusts may hold member’s interests
in a close corporation. Section 29 contemplates that only natural persons are capable of holding
member’s interests. However, s 29(1A) allowed an exception which provided that natural as
well as juristic persons may hold member’s interests as a trustee, but only in certain narrowly
defined circumstances. Since the Trust here purported to hold the member’s interest, rather
than a trustee, the appellants did not get out of the starting blocks to bring themselves within
the terms of the exception provided for in s 29(1A) of the Act. On the contrary, the respondents
succeeded in establishing that the agreement of sale was in conflict with s 29(1), and therefore
invalid.

In the result, the appeal was dismissed with costs.
--- ends --