Die Registrateur van Aandelebeurse v Cornelius Stephanus Aldum h/a onder andere Onecor Groep, Cash for Africa, Bankwise, Number One en Simunye

During the second half of 1999, the respondent (a professional money lender who was not a member of a stock exchange nor a bank official) entered into written agreements ostensibly providing loans to shareholders of Sanlam and Old Mutual shares that had been allocated during the demutualization of these insurers. The agreements purported to be loan agreements with shares as security. Initially the respondent used pledge agreements, but after an urgent application by the Registrar of Stock Exchanges in July 1999 which resulted in an interdict, he changed the form to loan agreements. Of approximately 23,000 such loan transactions involving Sanlam and Old Mutual shares, only 12 were repaid. The loans had to be repaid within 7 days and carried interest and fees totaling approximately 34%. The agreements provided that upon default, the respondent could have the shares sold "on behalf of the lender" through a stockbroker (IDE), and any surplus would be deposited for the lender's benefit. The Registrar brought an application alleging that these loan agreements were simulated transactions that were in reality purchase contracts for listed shares in contravention of sections 3(2) and 39 of the Stock Exchanges Control Act 1 of 1985.

• Whether the loan agreements were simulated transactions that were in substance contracts for the purchase and sale of listed shares
• Whether the respondent contravened section 3(2) of the Stock Exchanges Control Act 1 of 1985 by conducting business in the purchase and sale of listed shares without being a member of a stock exchange or bank official
• Whether the respondent contravened section 39 of the Stock Exchanges Control Act regarding advertising of such business
• Whether a costs order should be made against the Registrar as a public official acting in the execution of official duties

The appeal was dismissed with costs.

For a transaction to be declared a simulation (sham), the court must be satisfied that there is a real, definitely ascertainable intention which differs from the apparent intention as evidenced by the form of the transaction. The fact that parties may foresee or even intend certain practical consequences (such as default and sale of security) does not convert the legal nature of the transaction from one form (loan with security) to another (sale). The court must examine all the rights and obligations created by the agreement to determine the true intention. A contract of purchase and sale requires genuine animus emendi on the part of the purchaser and animus vendendi on the part of the seller. Where loan agreements provide for sale of security "on behalf of the lender" through third party brokers upon default, with surplus proceeds held for the lender's benefit, and where some borrowers do in fact repay and recover their property, these factors are inconsistent with a finding that the true intention was an immediate or conditional sale to the lender.

The court noted the warning from Zandberg v Van Zyl that if 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 purports to be. The court also observed that it was not surprising that of approximately 23,000 loan transactions, only 12 were repaid, given the short repayment period (5 working days) and the high interest and fees (approximately 34%). While these features suggested the respondent and lenders expected the shares would be sold in most cases, this expectation did not transform the legal nature of the agreements. The court's treatment of the costs issue suggests that even where a public official acts in execution of official duties, a costs order may be justified where there are sound reasons for such an order, though the judgment does not elaborate on what those reasons were in this case.

This case is significant in South African law for clarifying the test for determining whether a transaction is simulated (a sham). It establishes that even where parties may foresee or intend a particular practical outcome (such as loss of security), this does not necessarily mean the legal form of the transaction is a sham concealing a different legal relationship. The case illustrates the importance of examining the actual rights and obligations created by an agreement, not merely the practical likelihood of certain consequences. It also provides guidance on the application of the Stock Exchanges Control Act provisions prohibiting unlicensed share dealing, and reinforces that the substance over form doctrine requires clear evidence of a genuine alternative intention, not merely that the same commercial result could have been achieved differently. The case is also relevant to the question of costs against public officials acting in the execution of their duties.