THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA

JUDGMENT

REPORTABLE
Case no:  668/06
In the matter between
I SCHWARTZ NO

APPELLANT
and
S E PIKE

1ST RESPONDENT
A VAN DER MERWE

2ND RESPONDENT
M M MASITO N.O.

3RD RESPONDENT

Coram:
MTHIYANE, HEHER and VAN HEERDEN JJA

Heard:
3 SEPTEMBER 2007
Delivered: 19 SEPTEMBER 2007

Summary: Contract – interpretation – association agreement – disposal of
deceased member’s interest in close corporation – unilateral appointment by
executor of accountant to value interest in conflict with parties’ intention –
members to be afforded opportunity to reach consensus on appointee.

Neutral citation: This judgment may be referred to as Schwartz NO v Pike
[2007] SCA 106 (RSA).
____________________________________________________________________

HEHER JA

HEHER JA:
[1] The appellant is the executor in the estate of Michelle Ann Pennels (the
deceased) who died in a motor accident on 7 December 2002. In the Pretoria High
Court he applied for an order that the first and second respondents (hereinafter
referred to as ‘Pike’ and ‘Van der Merwe’ respectively) each pay to the estate the
amount of R1 053 712,00 together with interest at the rate of 15,5% per annum
thereon from 17 March 2006 and the costs of the application. As third respondent he
joined the liquidator of a close corporation, Lore Marketing 46 CC (hereinafter
referred to as ‘the corporation’) but sought no relief against him.
[2] Bredenkamp AJ dismissed the application with costs but this Court granted
special leave to appeal. Pike and Van der Merwe opposed the appeal before us.
[3] The appellant founded his case on a written Association Agreement entered
into by the deceased, Pike and Van der Merwe as members of the corporation at
Krugersdorp on 5 March 2001. According to its terms the respective interests of the
members were to be in the proportions 15 : 60 : 25. The object of the corporation was
to conduct a restaurant business (‘The Hungry Hunter’) in Centurion which was to be
managed by the deceased and Pike as full-time employees of the business. According
to the appellant’s affidavit, the deceased died while returning from work at the
restaurant with the night’s cash takings of R33 000 belonging to the corporation in
her possession.
[4] Clause 16 of the Agreement regulated the disposal of a deceased member’s
interest in the event of his or her death as follows:

‘16.1 The remaining Members (“Remaining Members”) and the duly appointed executor of the
Deceased’s estate (“executor”) shall within 30 (THIRTY) days from the date of the
executor’s appointment as such enter into negotiations with the view of reaching an
agreement as to the reasonable and fair value of the Deceased’s Interest as at the date of the
Deceased’s death. If the Remaining Members and the executor are unable to reach an
agreement, then they shall jointly appoint a chartered accountant to determine the
reasonable and fair value of the Deceased’s Interest. If the parties concerned are unable to
reach an agreement as to the appointment of a chartered accountant, then either the
Remaining Members or the executor may request the acting President of the South African
Institute of Chartered Accountants to nominate a chartered accountant for the purpose as
aforementioned, in which event any such nomination by such acting President shall be final
and binding on all the Remaining Members and the executor.
16.2
Any value that the chartered accountant, appointed in accordance with the aforementioned
provisions, [determines] in regard to the value of the Deceased’s Interest as at the date of his
death shall be final and binding on all the Remaining Members and the executor.
16.3
Upon the death of the Deceased there shall be deemed to have taken place, with effect from
the date of the Deceased’s death an automatic sale by the deceased’s estate of the
Deceased’s Interest and his Loan Account (collectively referred to as the “Whole Interest”) .
. . to the Remaining Members upon the following terms and conditions:-
16.3.1 The Remaining Members shall in equal shares purchase the Whole Interest,
irrespective of the size of their respective Interests;
16.3.2 The purchase price in respect of the Whole Interest to be paid to the Deceased’s
estate shall be the aggregate of the value of his Interest (determined as provided
above) plus an amount equal to the value of the Deceased’s Loan Account as
reflected in the Corporation’s books of account as at the date of the Deceased’s
death. Unless the parties concerned agree otherwise, such purchase price shall
become due and payable to the Deceased’s estate within 4 (FOUR) months from the

date on which the value of the Deceased’s Interest has been agreed upon or
determined by a chartered accountant, as the case may be, in accordance with the
aforementioned provisions.’
[5] The appellant deposed that he had, on 20 June 2003, written to an attorney who
represented Pike and Van der Merwe ‘calling on them to agree on the value of
Pennels’ interest and stating that they are invited to follow the procedures in terms of
Clause 16’. That was wildly inaccurate. In fact the terms of the letter, Annexure G to
the founding affidavit, were as follows:
‘Thank you for your letter dated the 5th June 2003.
I do not accept that the Lore Marketing C.C. did not exist trading as Hungry Hunter. A copy of one
of the cheques drawn is attached.
As you are aware I have placed a value on the Lore Marketing C.C. as per my letter dated the 13th
May 2003.
In terms of clause 16 of the Association Agreement, we are to reach an agreement on the value,
failing which clause 16 prescribes the procedure to be followed.
Your clients are invited to advise what value they place on the Lore Marketing C.C. at date of death
of Miss Pennels, and your clients are to confirm how they arrived at such value so that I as Executor
of Miss Pennels’s Estate can give proper consideration thereto.
Once you have provided me [with] the aforesaid valuation and how it is calculated, I will revert to
you for purposes of holding a meeting to attempt to resolve the matter, provided, of course, we are
not too far apart on the valuation.’
Clearly, the reference to clause 16 was made merely in passing as the main focus was
directed to arriving at a value by agreement which, if achieved, would have rendered
the subsequent procedures of no concern to anyone.
[6] The appellant did not in his affidavit refer to or rely upon previous

correspondence. It is apparent that by the time he wrote Annexure G he was aware of
a fundamental dispute between the parties as to whether the corporation was
operating the restaurant at the time of the deceased’s death.
[7] The appellant’s affidavit continues,
‘We could not agree on a valuation nor could we agree on the appointment of an accountant.
Accordingly, I addressed a letter to . . .  the South African Institute of Chartered Accountants calling
on them to appoint a Chartered Accountant in terms of the provisions of Clause 16 of the
Association Agreement . . . On or about the 8th December 2005 I received a letter from Lucro
Auditing (“Lucro”) enclosing a copy of a letter from the South African Institute of Chartered
Accountants confirming that Lucro had been appointed as Chartered Accountant to determine the
valuation of the deceased’s interest . . . Liza Julie Wood (“Wood”) of the firm Lucro was appointed
to do the valuation . . . Wood determined the valuation to be R2 107 424,00 as at the 7th December
2002 as per a copy of the valuation annexed hereto marked “K”.’
[8] In letters dated 8 December 2003 the appellant demanded payment from each
of Pike and Van der Merwe of a half of the value of the deceased’s interest and
tendered delivery and transfer of her interest in the corporation and cession of the
value of her loan account.
[9] On 14 December 2005 the attorney representing Van der Merwe responded that
his client denied being indebted to the estate in any amount whatsoever. According to
his letter,
‘2.
Our client denies that he was ever requested by your client to agree to the appointment of an
auditor as contemplated in clause 16.1 of the association agreement. There was no attempt
by the members to agree to such an appointment. Your client’s alleged request to the
President of the South African Institute of Chartered Accountants for the appointment of an
independent auditor was therefore premature and our client accordingly does not deem

himself bound by such appointment.
3.
In any event, it is quite evident that the valuation by Lucro Auditing was performed upon
certain assumptions apparently based on information furnished to them by your client. It is
abundantly clear that at least some of the information upon which the valuation was based is
incorrect and completely unfounded. We place on record that Lucro Auditing never even
approached our client in order to obtain any information from him or to verify any
information or facts furnished to them in regard to the close corporation.
4.
Our client is adamant that the valuation arrived at by Lucro Marketing is based on a
complete misconception of the actual and true facts and circumstances pertaining to the said
close corporation as at the date on which the late M.A. Pennels passed away. Therefore our
client rejects the valuation furnished by Lucro Marketing and our client most certainly does
not deem himself bound by such valuation.’
[10] Pike and Van der Merwe both deposed to answering affidavits. There is
conflict between them as to how and when the latter abandoned his interest in the
corporation, but, on either version, the deceased was still alive at the time. Pike sets
up a case that the remaining members agreed to dispose of the business to a new
corporation (‘Telegenix Trading 161 CC’) which they incorporated for the purpose
and which owned and was running the restaurant by November 2002. Because of the
narrow issue on which this appeal turns, further references to the merits of the dispute
are unnecessary.
[11] Pike denied in his affidavit that he and the appellant had been unable to agree
on the appointment of a chartered accountant as contemplated in clause 16.1. He drew
attention to a letter written shortly thereafter by attorneys representing him which
suggested to a Mr Jack Roux (who represented the estate) that Roux should nominate
an independent valuator and ‘[s]hould we be satisfied with a nomination we shall both

jointly appoint him to value the assets of Telegenix Trading 161 CC’. He attached to
his affidavit Roux’s reply of 22 December 2003 suggesting the appointment of one
Roode and asking whether Pike would be satisfied if Roux were to appoint him. He
also attached his reply to Roux’s proposal; which read as follows:
‘In order to clarify this matter, kindly furnish us with a complete list of all the entities which you
allege the deceased held an interest in.
On receipt of the list, we can deal with all the entities individually.
We look forward to hearing from you soon.’
[12] Pike stated on oath that neither he nor his attorneys received any further written
communications from Roux or the appellant regarding the appointment of an
accountant for purposes of a valuation of the deceased’s interest in the corporation.
On 5 December 2005, he deposed, ‘my attorneys of record were simply advised by
the [appellant] that Lucro Auditing had been appointed to value Pennel’s interest in
the close corporation and that they had placed a value on her interest in the said
corporation’.
[13] Van der Merwe, in his answering affidavit, denied that the appellant ever
requested him to agree on the appointment of an accountant as provided for in clause
16.1. With regard to the valuation he denied that he chose not to be involved in the
process. He stated that until he received a copy of the valuation report during
December 2005 he had been unaware of the appellant’s request to the Institute to
appoint an accountant or of the fact that Lucro Auditing had performed a valuation. If
he had been informed of the situation he would, he deposed, certainly have become
involved.

[14] The denials by the respondents that the appellant had complied with the terms
of clause 16.1 in so far as that related to the choice of a chartered accountant cried out
for a reply setting out facts that substantiated the appellant’s bald averments in the
founding affidavit. But the appellant could not rise to the challenge. The paragraph in
which he deals with their denials encapsulates the argument which was addressed to
us by his counsel in the appeal:
‘10.
It is apparent from the aforementioned that either the remaining members or the executor
“may” request an appointment from the president of the South African Institute of Chartered
Accountants. It is common cause that there was no agreement reached as to the identity of the
chartered accountant to be appointed. Even on the first and second respondents’ version no
agreement is contended for. The only issue therefore is whether there was an obligation upon the
executor to request the first and second respondents to agree to an appointment. The clause does not
specify the need for such a request. The first and second respondents have accordingly
misunderstood or deliberately misconstrued the provision of the agreement. The only requirement is
that no agreement should have been reached. On their own version, no such agreement was reached.
There is accordingly no dispute of fact on this issue which is relevant to the determination of this
application.’
[15] Bredenkamp AJ did not swallow the argument and neither can we. The matter
is one of interpretation. The essential exercise is to extract the parties’ true intention
from the words which they used to express that intention, accepting that life can only
be given to the language by a proper regard for the context in which the words appear
together with any admissible background facts.
[16] The substance of clause 16.1 shows that the parties chose a four stage process
to give effect to the disposal of a member’s interest. In the first stage the parties were

to negotiate with each other to try to reach agreement on the price. Then, if they
failed, they were to try to agree on the identity of a chartered accountant who, as their
joint appointee, would undertake the valuation of the interest. Thirdly, if they were
unable so to agree, any member of the corporation or the executor could approach the
Institute to make the appointment. Finally, the person so appointed would make the
valuation, impliedly after receiving the input of interested parties. This last step was a
dispute-breaking mechanism which could only be invoked once the preceding
procedures had been exhausted - such is clear from the conditional nature of stages
two, three and four. Counsel’s submission that the appellant would have been entitled
to proceed directly to the third or fourth stage is in conflict with the words and the
apparent underlying intention to resolve matters by agreement without the trouble,
delay and cost involved in employing an accountant if that could be avoided. The co-
operative efforts which the clause envisages should be understood in this light rather
than, as counsel suggested, be treated merely as wishes which can be disregarded.
Moreover the members would know that, until it could fairly be said that they were
unable to reach agreement as to the identity of the joint appointee, they would not
have to expect an appointment by the Institute or deal with its consequences. The
exhaustion of the opportunity thus served a practical purpose in the whole scheme.
The contention of appellant’s counsel that absence of agreement was the equivalent of
inability to agree in the circumstances of this case cannot be sustained. Inability to
agree may readily imply absence of consensus but the reverse is not necessarily the
case. How could it be concluded that they were or would be unable to agree on the
appointment simply because they were poles apart on the question of value, as

counsel argued? The clause clearly contemplates that all parties shall have the
reasonable opportunity to arrive at agreement on a joint nominee. The evidence shows
without any possibility of doubt that the appellant did not afford the respondents such
an opportunity. To that extent he failed to prove a necessary precursor to his reliance
on the valuation procedures of clause 16.1.
[17] Appellant’s counsel sought to avoid the logic of the clause by submitting that
the second stage of the parties’ design was nothing more than an agreement to agree
which, in accordance with established principle, could not be enforced against his
client. He relied particularly on the formulation by Schutz JA in Premier, Free State,
and Others v Firechem Free State (Pty) Ltd 2000 (4) SA 413 (SCA) at 431G-H. I am
by no means sure that a court will, in determining whether a party has complied with
a contractual term, necessarily allow the unenforceability of that term to override the
clear intention of the parties; cf the remarks of Grosskopf JA in Whyte v Da Costa
Couto 1985 (4) SA 672 (A) at 683D-E. In any event, on the interpretation which I
have placed on the second stage of the agreed process, the appellant was under an
obligation to afford a reasonable opportunity to the other members to reach consensus
on a joint appointment before approaching the Institute. Whether he did or did not do
so is a simple question of fact which is capable of ready proof. It is irrelevant to that
obligation that agreement would or would not result from proper compliance or that
the parties could not be compelled to reach agreement in consequence of compliance.
As Ponnan JA pointed out when considering an analogous situation in Southernport
Developments (Pty) Ltd v Transnet Ltd 2005 (2) SA 202 (SCA) at 208D:
‘The contract under consideration in Firechem contained no deadlock-breaking mechanism. In the

present case the agreement prescribes what further steps should be followed in the event of a
deadlock between the parties. The engagement between the parties can therefore be analysed as
requiring not merely an attempt at good faith negotiations but also the participation of the parties in
a dispute resolution process that they have specifically agreed upon.’
Put simply, if the appellant wished to derive the benefits of the process he was
obliged to participate in it in accordance with the agreed terms.
[18] Since it was at the end of the day common cause that the applicant had not
afforded the respondents any opportunity to achieve consensus on the identity of the
accountant who would resolve the dispute concerning the value of Ms Pennel’s
interest, the application was premature and had to fail.
[19] The appeal is accordingly dismissed with costs.

____________________
J A   HEHER

JUDGE OF APPEAL

MTHIYANE JA
)Concur
VAN HEERDEN JA
)