Engelbrecht N.O. and Others v Stadler

The plaintiffs are joint trustees of the insolvent estate of Alwyn Bernardus Smit, whose estate was finally wound up on 8 April 2014. Before sequestration, Smit made payments totalling R751,300 to Melkbaai Makelaars CC (Melkbaai), a close corporation of which the defendant, Cecilia Stadler, was the sole member. The defendant, Smit's erstwhile sister-in-law, had requested financial assistance from Smit in late 2009. In return, Smit wanted a 50% interest in Unit 10 at The Cliffs, a property owned by Melkbaai. An oral agreement was reached: Smit would pay R1.134 million (half the property valuation) at R7,000 per month from February 2010 to acquire a half-share of the defendant's member's interest and loan claim in Melkbaai, giving him an effective 50% interest in Unit 10. Payments were made into Melkbaai's ABSA bank account at the defendant's direction. The defendant conducted Melkbaai's account as her personal account, using it for personal expenses. Unit 10 was sold by Melkbaai to a third party in April 2016 and transferred in March 2017, rendering the agreement impossible to perform.

• Whether the payments made by the insolvent were to the defendant or to Melkbaai, a separate legal entity
• Whether Melkbaai was the alter ego or agent of the defendant such that payments to Melkbaai constituted payments to the defendant
• Whether the plaintiffs established an oral agreement for the sale of a half-share of the member's interest in Melkbaai
• Whether supervening impossibility of performance entitled the plaintiffs to restitution
• Whether payments from third-party accounts (ASFD, Mrs Smit, Silver Crow) constituted dispositions of the insolvent's property for purposes of section 26 of the Insolvency Act
• Whether the defendant benefited from the dispositions

1. The defendant shall pay the plaintiffs the sum of R706,300. 2. The defendant shall pay the plaintiffs' costs, including the qualifying expenses of expert witnesses Ms Fey and Mr Bahlman, and wasted costs occasioned by postponements on 2 November 2020, 2 August 2021, 25 October 2021, 1 February 2022, and 4 May 2023.

1. Where a company or close corporation is used as the alter ego or instrumentality of its controlling shareholder/member, not conducting its own business but merely furthering the personal affairs of its controller, payments made to such entity may be treated in law as payments to the controller. 2. Where supervening impossibility of performance occurs, the innocent party is entitled to rescission and restitution of what was performed. 3. Money transferred from a third party's bank account to another account cannot be reclaimed by the person who controlled the third party's account as a matter of law, because the depositor relinquishes rights to the money upon transfer.

The court noted that even if the alter ego argument had not been properly pleaded, there was no prejudice to the defendant because the issue was fully ventilated at trial. The court observed that it had inherent jurisdiction to decide a matter not formally pleaded where it had been fully ventilated, following PAF v SCF 2022 (6) SA 162 (SCA).

This case provides important guidance on the alter ego doctrine in South African company law, including the consideration of unpleaded issues that have been fully ventilated at trial. It also clarifies the law on supervening impossibility of performance in executory contracts involving insolvent estates.