Ferrari v Gunner

Quintin Gunner (respondent) entered into an agreement with Claudio Ferrari and Sietse van der Molen (first and second appellants) to purchase 20% of the member's interest in a close corporation, Budget Sheetmetal, later converted to a company (third appellant). Both a sale agreement and association agreement were signed on 23 July 2012. Gunner paid the full purchase price of R4.67 million in tranches, with the last payment on 22 November 2012. He commenced employment as design director on 1 September 2012. In February 2013, the close corporation was converted to a company. On 6 March 2013, before signing a shareholder's agreement, Ferrari and his sister Ketti (Van der Molen's wife) advised they did not want to be bound by the agreements. Gunner's wife, Maria D'Amico, an attorney who had represented Budget and the family for 15 years, had prepared the agreements but made clear she was acting only for Gunner in this transaction. Ferrari and Van der Molen raised defenses of undue influence and fraudulent misrepresentation regarding clause 3.7, which dealt with the possibility of holding shares in trusts. They alleged D'Amico misrepresented that unanimous consent was required for any shareholder to hold shares in a trust. Gunner was later suspended and dismissed for alleged misconduct in March-April 2013.

• Whether disputes of fact arising from affidavits should have been decided in motion proceedings
• Whether the alleged fraudulent misrepresentation by D'Amico regarding the meaning of clause 3.7 rendered the agreement invalid
• Whether the alleged undue influence exercised by D'Amico rendered the agreement voidable
• Whether an order of specific performance was appropriate given the alleged breakdown in the relationship between the parties

The appeal was dismissed with costs, including those of two counsel. The order of the Gauteng Local Division directing Ferrari and Van der Molen to sign documents appointing Gunner as a director of Budget, to transfer 20% of issued shares to Gunner, and to appoint him as a signatory to Budget's bank accounts was upheld.

1. A party alleging undue influence must prove not only that the other party had influence, but that it rendered their will weak and pliable and induced them to enter into a prejudicial transaction they would not otherwise have concluded. 2. A party claiming fraudulent misrepresentation must establish: (a) a misrepresentation as to existing fact was made; (b) the representation was false; (c) the maker knew it was false; (d) it was material in inducing the contract; and (e) but for the misrepresentation they would not have entered the contract. 3. In motion proceedings, disputes of fact should be resolved on the papers where a respondent's version is far-fetched, fictitious, contradicted by objective evidence, or constitutes bare and uncreditworthy denials, even if serious allegations like fraud are raised. 4. Specific performance is the primary remedy for breach of contract, and courts should not refuse such orders in the exercise of discretion unless there is substantial hardship or inequity, which is not established merely by alleged breakdown of trust where parties are experienced business people and the claimant holds only a minority interest. 5. An appellate court will interfere with a trial court's exercise of discretion only if it was capricious, unbiased mind was not brought to bear, or it was not exercised for substantial reasons.

The court made observations about the recording of meetings without the other parties' knowledge. While Gunner explained he recorded meetings to capture financial information accurately, the court noted he did not explain why he had not disclosed upfront that he was recording. However, this did not affect the outcome. The court also observed that if the appellants truly believed the agreement reflected a different common intention regarding unanimous consent for trust holdings, the proper remedy would have been rectification, not avoidance of the contract. The judgment noted that experienced business people like the parties can be expected to manage working relationships despite hard words exchanged between them, citing Diner v Dublin 1962 (4) SA 36 (N). Lewis JA also commented that the family's allegations of undue influence and reasons for resiling from the agreements were 'flimsy' and 'manufactured', suggesting the defenses lacked bona fides from the outset.

This case affirms important principles regarding the defenses of undue influence and fraudulent misrepresentation in South African contract law. It clarifies that courts can and should determine factual disputes in motion proceedings where one party's version is far-fetched, fictitious or contradicted by objective evidence, rather than automatically referring matters to oral evidence. The judgment emphasizes that undue influence requires proof that a party's will was rendered weak and pliable, not merely that influence existed. It also demonstrates that fraudulent misrepresentation must be properly pleaded with specifics of when, where and how the misrepresentation was made. The case reinforces that specific performance remains the primary remedy for breach of contract, and courts will not lightly refuse such orders merely because of alleged breakdown in relationships, particularly where the aggrieved party has fully performed and the refusing party's reasons appear manufactured. The judgment is significant in the context of share purchase agreements and the conversion of close corporations to companies.