INSOLVENCY LAW CASES APRIL 2016

INDEX

CASE NAMES

SUBJECT INDEX

CASES

CASE NAMES

ABSA Bank Limited v Naude NO and others [2015] JOL 33323 (SCA)

Absa Bank Ltd v Van Zyl NO and Another (35976/2015) [2016] ZAGPPHC 247 (22 April 2016)

City of Tshwane Metropolitan Municipality v Mitchell [2016] 2 All SA 1 (SCA)

Communicare and others v Khan and another [2015] JOL 33681 (SCA)

Land and Agricultural Development Bank of South Africa t/a The Land Bank v Factaprops 1052 CC and another 2016 (2) SA 477 (GP)

Liu v Roering NO and Another (25713/2016) [2016] ZAGPPHC 205 (15 April 2016)

Masstores (Pty) Ltd v Pick 'N Pay Retailers (Pty) Ltd and another 2016 (2) SA 586 (SCA) 

Minnaar v Van Rooyen NO [2015] JOL 33908 (SCA)

Naidoo and others v Kalianjee NO and others 2016 (2) SA 451 (SCA)

October and another NO v Hendricks and another 2016 (2) SA 600 (WCC)

Oelofsen NO and Another; In re: Oelofsen NO and Another v Bamboo Rock 1215 CC and Others (8949/16) [2016] ZAGPPHC 245 (21 April 2016)

Osborne v Cockin and Others; Osborne v Cockin N.O. and Others (5618/2015, 6053/2015) [2016] ZAECGHC 19 (12 April 2016)

Schickerling NO and Another v Chickenland (Pty) Ltd t/a Nando's (22712/2016) [2016] ZAGPPHC 208 (15 April 2016)

Shanmugam v Peter N.O and Others (11638/2015) [2016] ZAKZDHC 16 (20 April 2016)

Southern Value Consortium v Tresso Trading 102 (Pty) Limited (Klopper NO and another as intervening business rescue practitioners)[2015] JOL 34787 (WCC)

SUBJECT INDEX

Administrative law – Property – Section 118(3) of the Local Government: Municipal Systems Act 32 of 2000 – Interpretation of – Whether security provided for in section 118(3) in favour of a municipality, for moneys owed to it for services delivered in respect of fixed property, is extinguished when the property is sold at a sale in execution and subsequently transferred to the purchaser – Debt not extinguished on transfer of property, but municipality must comply with jurisdictional requirements in terms of own by-laws before pursuing owner for debt. City of Tshwane Metropolitan Municipality v Mitchell [2016] 2 All SA 1 (SCA)

Application for sequestration-nulla bona-sheriff did not execute the writ of execution-application dismissed-only return that was filed, was signed by Mr Barkhuizen-On Mr Barkhuizen's own version he was never duly appointed as a deputy sheriff and never had the authority to fulfil the duties of a deputy sheriff. Absa Bank Ltd v Van Zyl NO and Another (35976/2015) [2016] ZAGPPHC 247 (22 April 2016)

Business rescue – Adoption of business rescue plan – Application for setting aside of plan – Non-joinder – Test for non-joinder – does party have direct and substantial interest in subject matter of litigation which may prejudice non-joined party – Creditors who would be prejudicially affected by setting aside of business rescue plan should be joined as parties to the matter. ABSA Bank Limited v Naude NO and others [2015] JOL 33323 (SCA)

Business rescue-business rescue practitioner-knowledge of cancellation of franchise agreement Schickerling NO and Another v Chickenland (Pty) Ltd t/a Nando's (22712/2016) [2016] ZAGPPHC 208 (15 April 2016)

Business rescue-Ejectment application – Defence – Sections 133(1), 134(1)(c) – Companies Act 71 of 2008 Southern Value Consortium v Tresso Trading 102 (Pty) Limited (Klopper NO and another as intervening business rescue practitioners)[2015] JOL 34787 (WCC)

Companies-Civil procedure – Default judgment – Section 424(1) – Companies Act 61 of 1973 – Personal liability of members of close corporation – Acting recklessly in conducting affairs of company – Granting of order under section 424(1) of Companies Act 61 of 1973 by default where no evidence has been adduced – Erroneous within meaning of rule 42(1)(a) – Uniform Rules of Court Minnaar v Van Rooyen NO [2015] JOL 33908 (SCA)

Company law – Members of company – Right to vote at general meeting – Member’s right to vote at a general meeting would ordinarily fall within the category of personal membership rights and not corporate rights. Communicare and others v Khan and another [2015] JOL 33681 (SCA)

Creditors-rights-applying for sale of business as a going concern-application dismissed Liu v Roering NO and Another (25713/2016) [2016] ZAGPPHC 205 (15 April 2016)

Liquidators-joint liquidators-two of three signed contract-contract invalid Shanmugam v Peter N.O and Others (11638/2015) [2016] ZAKZDHC 16 (20 April 2016)

Liquidators-ordered to pay costs de bonis propriis-omitted to divulge information to the court -uberrimae fides Oelofsen NO and Another; In re: Oelofsen NO and Another v Bamboo Rock 1215 CC and Others (8949/16) [2016] ZAGPPHC 245 (21 April 2016)

Security-Lease — Huur gaat voor koop rule — When applicable — Inapplicability of rule to 'collateral rights' unconnected with lease — Exclusivity clause in lease agreement integral part of that lease and not collateral right. Masstores (Pty) Ltd v Pick 'N Pay Retailers (Pty) Ltd and another 2016 (2) SA 586 (SCA) Security-Mortgage bond — Nature — Not only applying to immovable property — Special notarial bond constituting mortgage bond — Security by Means of Movable Property Act 57 of 1993, s 4; Insolvency Act 24 of 1936, s 2. Land and Agricultural Development Bank of South Africa t/a The Land Bank v Factaprops 1052 CC and another 2016 (2) SA 477 (GP)Security-Notarial bond — Special notarial bond — Nature — Constituting mortgage bond — Security by Means of Movable Property Act 57 of 1993, s 4; Insolvency Act 24 of 1936, s 2. Land and Agricultural Development Bank of South Africa t/a The Land Bank v Factaprops 1052 CC and another 2016 (2) SA 477 (GP)Security-Notarial bond — Special notarial bond Extinctive prescription — Period of prescription — Debt secured by special notarial bond — Special notarial bond constituting mortgage bond to which 30-year prescription period applying — Prescription Act 68 of 1969, s 11(a)(i). Land and Agricultural Development Bank of South Africa t/a The Land Bank v Factaprops 1052 CC and another 2016 (2) SA 477 (GP)Security-Usufructuary - person in charge-consent of usufructuary essential- Land — Unlawful occupation — Eviction — Statutory eviction — Unlawful occupier — Whether holder of bare ownership in context of usufruct could be unlawful occupier — Prevention of Illegal Eviction from and Unlawful Occupation of Land Act October and another NO v Hendricks and another 2016 (2) SA 600 (WCC)

Sequestration application-benefit-trust to be sequestrated-opposed application-denial of joint venture false-order granted Osborne v Cockin and Others; Osborne v Cockin N.O. and Others (5618/2015, 6053/2015) [2016] ZAECGHC 19 (12 April 2016)

Trustee — Property passing to trustee — Warrant to take possession of insolvent's property — Issued in circumstances where assets already under judicial attachment — Whether magistrate precluded from issuing warrant — Insolvency Act 24 of 1936, s 69(3). Naidoo and others v Kalianjee NO and others 2016 (2) SA 451 (SCA)

CASES

ABSA Bank Limited v Naude NO and others [2015] JOL 33323 (SCA)

Business rescue – Adoption of business rescue plan – Application for setting aside of plan – Non-joinder – Test for non-joinder – does party have direct and substantial interest in subject matter of litigation which may prejudice non-joined party – Creditors who would be prejudicially affected by setting aside of business rescue plan should be joined as parties to the matter

The appellant bank had voted against a business rescue plan in respect of the second respondent. Despite that, the plan was adopted. As a result, the bank brought an application against the company and the first respondent who was the business rescue practitioner, for a declaratory order that the decision taken at the relevant meeting of creditors, approving the business rescue plan for the company, was unlawful and invalid. A counter-application was brought by the company and the practitioner for a declaratory order that in terms of the old Companies Act 61 of 1973, a cross-suretyship executed by the company and other related companies, in favour of the bank, was void.

The application was dismissed, inter alia, on the basis that the bank had failed to join the creditors of the company and that it was precluded by section 133 of the Companies Act 71 of 2008 from bringing such an application without the written consent of the practitioner or the leave of the Court. The counter-application was dismissed as it was found that the cross-suretyship was valid and not contrary to the provisions of section 226(1) of the old Companies Act 61 of 1973.

In a subsequent application, the bank stated that it seemed that the plan could not be implemented as the bank had not received any payments. In the meanwhile the business rescue plan was implemented and the first payments to creditors, in terms of the business rescue plan, were made. The practitioner deposed to an answering affidavit and raised the issue of the non-joinder of the creditors of the company. The reasons for insisting on joinder of the creditors were that the setting aside of the business rescue plan would undo their vote in favour of such plan and it would require each creditor to return all monies that were paid to it pursuant to such plan. The bank averred that the notice given to creditors in terms of section 130 of the Companies Act 71 of 2008 was sufficient.

Held that notice in accordance with the provisions of section 130(3) is confined to matters where an application is brought prior to the adoption of a business rescue plan. The court held further that the argument by the bank that the issue of non-joinder did not arise because the creditors had knowledge of the proceedings, due to the notices dispatched to them, and did not intervene, was without substance. The test whether there has been non-joinder, is whether a party has a direct and substantial interest in the subject matter of the litigation which may prejudice the party that has not been joined. If an order or judgment cannot be sustained without necessarily prejudicing the interest of third parties that had not been joined, then those third parties have a legal interest in the matter and must be joined. In this case, as explained above, if the creditors were not joined their position would be prejudicially affected. Consequently, the court below was correct in upholding the non-joinder point.

The appeal was dismissed with costs.

Communicare and others v Khan and another [2015] JOL 33681 (SCA)

Company law – Members of company – Right to vote at general meeting – Member’s right to vote at a general meeting would ordinarily fall within the category of personal membership rights and not corporate rights

The high court granted an order that the election of certain directors of the two appellant companies was invalid and had to be set aside. The companies’ articles of association provided that a third of the members of the boards of the companies was obliged to retire by rotation at the end of each year. At the meeting question, the retiring directors were excluded from voting in the election of their successors.

Two of the grounds upon which the appellants opposed the relief sought by the respondents and which formed the basis of the appeal, were that the resolutions were validly passed and in any event, that the respondents lacked the necessary locus standi to challenge their validity. The locus standi of the respondents was challenged on the basis that where a majority of members at a general meeting are lawfully entitled to correct, condone or ratify irregular conduct by the company in the management of its internal affairs, a court will not intervene at the behest of a member to compel the company to rectify such conduct. therefore, the appellant contended that individual members such as the respondents had no right to enforce corporate rights, except when the irregularity complained of could not be remedied by the company, or the member’s individual membership rights had been affected adversely. It was submitted that on the facts of the present case, the right of the respondents to vote at the annual general meetings of the appellants, was a corporate right, and not an individual member’s right.

Held that the issue for determination was whether the respondents had the power to approach a court to enforce, against the appellants, their rights to effectively exercise their votes on the election of directors at the annual general meetings of the appellants.

The court confirmed that a member’s right to vote at a general meeting and have his vote counted, would ordinarily fall within the category of personal membership rights. Each member has a special interest in the observance of this right, distinct from the general interest which the members have in the observance by the company of its articles. In terms of section 165(1) of the Companies Act 71 of 2008, a personal action by a member at common law, to enforce rights which vest in a member in the articles, does not seem to have been abolished.

The eligibility of retiring directors to vote as members, in respect of the election of directors to fill vacancies in their number, was dependent upon their status as directors remaining as such, until the election took place. The court concluded that on a proper interpretation of the companies’ articles, the directors who retired at an annual general meeting were entitled to vote as members in respect of the election of individuals to fill such vacancies. The exclusion of the retiring directors from voting was accordingly unjustified and the resolutions appointing replacement directors were correctly declared invalid by the High Court and set aside.

The appeal was dismissed with costs.

NAIDOO AND OTHERS v KALIANJEE NO AND OTHERS 2016 (2) SA 451 (SCA)

Insolvency — Trustee — Property passing to trustee — Warrant to take possession of insolvent's property — Issued in circumstances where assets already

under judicial attachment — Whether magistrate precluded from issuing warrant — Insolvency Act 24 of 1936, s 69(3).Insolvency — Trustee — Property passing to trustee — Warrant to take possession of insolvent's property — Distinction between such warrant and one issued under CPA — Provisions applicable to issuing of warrant under CPA not applicable to issuing of warrant under Insolvency Act — Insolvency Act 24 of 1936, s 69(3); Criminal Procedure Act 51 of 1977, s 21.

This matter concerned the validity of a search-and-seizure warrant issued by a magistrate in terms of s 69(3) of the Insolvency Act 24 of 1936 (the Act). The liquidators of a close corporation, M & M, of which the first appellant was the sole member, had approached the magistrate for such a warrant on the basis of their reasonable belief that assets of M & M had been concealed. The appellants had subsequently, without success, applied to the court a quo to have the warrant set aside. In the Supreme Court of Appeal, the appellants raised multiple challenges against the validity of the warrant. The court rejected all such challenges and dismissed the appeal.One challenge was that the liquidators' application constituted an abuse of process, in that (a) the warrant was unnecessary, in that assets which the relevant authorities were empowered in terms of the warrant to attach were already under judicial attachment; and (b) the request for the warrant had been motivated by an improper purpose.Held, as to (a), that the judicial processes had proven to be ineffective, and the surreptitious concealment of assets long after the formality of their attachment did not preclude a magistrate from issuing a warrant to preserve them. As to (b), the claims to such effect were entirely unsubstantiated. In reality, the existence of a reasonable suspicion that the assets of M & M had been concealed constituted an answer to both allegations. It was argued that while the issuing of a warrant under s 69(3) constituted the exercise of a judicial discretion, it was not akin to civil proceedings. As such, given that the warrant had included a costs order and, in providing a 'return date', had been granted provisionally, it had been issued beyond the provisions of s 69 of the Act.Held, that while the clauses relating to costs and the return date were anomalous, it was clear that the warrant had not been issued in the process of civil litigation, but, in the light of its other provisions, it was no more than a warrant issued under s 69. The anomalous provisions, in truth, had no effect — the costs clause was unenforceable, while the reference to a 'return date' did not mean that the warrant was 'provisional'. The appellants also contended that, in light of the wording in s 69(4) of the Act that the warrant 'be executed in a like manner as a warrant to search for stolen property', one had to regard such a warrant as one issued under the provisions of the Criminal Procedure Act 51 of 1977 (CPA). The warrant under consideration did not, however, match up to the strict requirements of a criminal warrant and had to be set aside.Held, that there were fundamental differences between a warrant issued under s 69 of the Act and a criminal warrant, and, as such, the former could not be construed as being akin to a warrant issued under s 21 of the CPA, nor necessarily subject to the same limitations and restrictions attendant upon criminal warrants. Further, the reference to s 21 of the CPA in the warrant meant simply that it had to be executed in the manner set forth under such section, and not that it was, or was to be regarded as, a warrant issued under the CPA. As such, the appellants'

argument, that the warrant had to comply with the provisions of s 21 of the Criminal Procedure Act and that it was therefore necessary for a specific police officer to be identified in the warrant as the person who should effect the search and seizure, fell away.

LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA t/a THE LAND BANK v FACTAPROPS 1052 CC AND ANOTHER 2016 (2) SA 477 (GP)

Mortgage — Mortgage bond — Nature — Not only applying to immovable property — Special notarial bond constituting mortgage bond — Security by Means of Movable Property Act 57 of 1993, s 4; Insolvency Act 24 of 1936, s 2.Mortgage — Notarial bond — Special notarial bond — Nature — Constituting mortgage bond — Security by Means of Movable Property Act 57 of 1993, s 4; Insolvency Act 24 of 1936, s 2.Prescription — Extinctive prescription — Period of prescription — Debt secured by special notarial bond — Special notarial bond constituting mortgage bond to which 30-year prescription period applying — Prescription Act 68 of 1969, s 11(a)(i).

Subsection 11(a)(i) of the Prescription Act 68 of 1969 provides for a prescription period of 30 years in respect of 'any debt secured by mortgage bond'. The correct interpretation of s 11(a)(i) is that a special notarial bond is included in the reference to 'mortgage'. It follows that the applicable period of prescription of a debt secured by a special notarial bond is 30 years. The notion that mortgage bonds must in all instances apply to immovable property is negated by the substitution (effected by s 4 of the Security Act 57 of 1993) of the definition of 'special mortgage' in s 2 of the Insolvency Act 24 of 1936, to include both 'a mortgage bond hypothecating immovable property and a notarial mortgage bond hypothecating specially described movable property'. Both confer a real right of security upon registration in the Deeds Office. 

MASSTORES (PTY) LTD v PICK 'N PAY RETAILERS (PTY) LTD AND ANOTHER 2016 (2) SA 586 (SCA) 

Delict — Specific forms — Interference with contractual relationship — What constitutes — A and B both leasing spaces in shopping centre — In terms of A's contract with landlord, A restrained from operating supermarket; in terms of B's contract with landlord, B given exclusive right to operate supermarket — A operating supermarket in breach of its restraint preventing B from obtaining performance in terms of its right to exclusivity — Whether requirements of delict met.Delict — Specific forms — Interference with contractual relationship — Inducement not prerequisite for successful action.Lease — Huur gaat voor koop rule — When applicable — Inapplicability of rule to 'collateral rights' unconnected with lease — Exclusivity clause in lease agreement integral part of that lease and not collateral right.

The appellant in this matter, Masstores (Pty) Ltd (Masstores), leased part of the shopping centre, Capegate, in terms of an agreement entered into with the owner (lessor) at the time, the Capegate Regional Centre Joint Venture (JV). Such agreement contained a restraint provision to the effect that Masstores would not operate as a 'general food supermarket'. The first respondent, Pick 'n Pay Retailers (Pty) Ltd (Pick 'n Pay), had also entered into a lease agreement with the JV in terms of which it leased a part of the shopping centre. That lease agreement secured Pick 'n Pay a right of exclusivity by providing that the lessor would not permit any other supermarket to be operated in the shopping centre. However, in the view of Pick 'n Pay, Masstores did commence operating a general food supermarket when the latter launched its Foodco concept in its Game store in Capegate. Arising therefrom, Pick 'n Pay launched an application in the court a quo, seeking a final interdict against Masstores, restraining it from interfering in the contractual relationship between Pick 'n Pay and the second respondent, Hyprop Investments Ltd, being the JV's successor in title (Hyprop), by carrying on a business exclusively granted to Pick 'n Pay in terms of the latter's lease agreement. The court a quo granted the interdict. Masstores appealed such order.The first question that called for the Supreme Court of Appeal to decide was whether Masstores had operated a general food supermarket, thereby breaching its agreement with Hyprop, and trading in competition with Pick 'n Pay. It held that it had. This was in the light of the photographic evidence, the ordinary dictionary definition of 'supermarket', and Masstores' views of its own affairs. Pick 'n Pay's claim was based in delict, namely the unlawful interference (in this case by Masstores) in a contractual relationship (between Pick 'n Pay and Hyprop). The central question, then, was whether Pick 'n Pay had successfully met the requirements to establish such a delict, namely: an unlawful act; which constituted an interference in the contractual relationship; and which was committed with some form of dolus. Related was the question whether, as was claimed by Masstores, to be successful in its claim for unlawful interference in a contractual relationship, Pick 'n Pay had to prove an inducement by Masstores of Hyprop.Held, that Pick 'n Pay had established the requirements for its delictual claim. Masstores, in becoming aware of Pick 'n Pay's rights to exclusivity yet continuing to trade as a supermarket, acted contrary to the restraint contained in its lease and in defiance of the demand to cease trading as a supermarket. In doing so it acted wrongfully in preventing Pick 'nPay from obtaining the performance to which it was entitled by virtue of its contractual right of exclusivity. Further, in failing to heed the demand from Hyprop to desist from conducting a supermarket, it acted with direct intent, or, at the very least, dolus eventualis. Held, that inducement or enticement is not a requirement in a claim based on unlawful interference in a contractual relationship. Delictual actions in interference cases, in addition to those where inducement or enticement features, include those where there is a breach of a legal duty or the infringement of a subjective right; this case would fall into the latter category.On behalf of Masstores it was further argued that Pick 'n Pay's personal right to exclusivity, which it had negotiated with JV, the owner of Capegate at the time, did not bind successive owners, ie Hyprop. The huur gaat voor koop rule which might otherwise have been of assistance to Pick 'n Pay, so it was argued, was limited to a lessor's obligation to give possession and a lessee's concomitant obligation to pay rental; the right to exclusivity, however, was a 'collateral right' unconnected with the lease.

Held, that, in respect of the lease entered into by Pick 'n Pay, the right to exclusivity was a sine qua non for its tenancy. Thus understood, the right to exclusivity was integral to the right of occupancy and could not be regarded as a collateral right. Appeal dismissed.

OCTOBER AND ANOTHER NO v HENDRICKS AND ANOTHER 2016 (2) SA 600 (WCC)

Land — Unlawful occupation — Eviction — Statutory eviction — Unlawful occupier — Whether holder of bare ownership in context of usufruct could be unlawful occupier — Prevention of Illegal Eviction from and Unlawful Occupation of Land Act 19 of 1998, s 1.Usufructuary - person in charge-consent of usufructuary essential

This case concerned the executor of an estate who applied in that capacity as the owner of a property to evict certain 'unlawful occupiers' under the Prevention of Illegal Eviction from and Unlawful Occupation of Land Act 19 of 1998.The case raised the position of a usufructuary and holder of bare ownership in the context of the Act, and the question whether a holder of bare ownership could be an 'unlawful occupier'. An 'unlawful occupier' is defined as 'a person who occupies land without the . . . consent of the owner or person in charge, or without any other right in law to occupy the land . . .' (s 1).Held, that an owner might, or might not be, the person in charge of the land (the person with authority to permit others to enter or reside on it); and that it was the consent of the person in charge that was relevant. In the context of a usufruct, the usufructuary would be the person in charge; and a holder of bare ownership occupying without the consent of the usufructuary could be an 'unlawful occupier

City of Tshwane Metropolitan Municipality v Mitchell [2016] 2 All SA 1 (SCA)

Administrative law – Property – Section 118(3) of the Local Government: Municipal Systems Act 32 of 2000 – Interpretation of – Whether security provided for in section 118(3) in favour of a municipality, for moneys owed to it for services delivered in respect of fixed property, is extinguished when the property is sold at a sale in execution and subsequently transferred to the purchaser – Debt not extinguished on transfer of property, but municipality must comply with jurisdictional requirements in terms of own by-laws before pursuing owner for debt.

The interpretation of section 118(3) of the Local Government: Municipal Systems Act 32 of 2000 was at the heart of the present matter. The question on appeal was whether the security provided for in section 118(3) in favour of a municipality, for moneys owed to it for services delivered in respect of fixed property, is extinguished when the property is sold at a sale in execution and subsequently transferred to the purchaser.

In February 2013, the respondent purchased immovable property situated within the appellant’s municipal boundaries at a sale in execution.

In terms of section 118(1), a registrar of deeds may not register the transfer of property, except on production of a clearance certificate confirming that all amounts due to the municipality in respect of that property for service fees, levies, rates and taxes for the two years preceding the date of application for the certificate, had been paid in full. When the respondent applied for a clearance certificate, the appellant issued a written statement reflecting an outstanding amount in respect of municipal service fees, levies and rates. That amount included debts older than two years preceding the date of the application for a clearance certificate.

The amount in question was disputed by the respondent, and the appellant amended the amount to represent only the debt due for the two years preceding the date of the respondent’s application for issue of the certificate. Consequently, the historical debt was left still outstanding, due and payable if it had not become prescribed.

The respondent sold the property to a third party (“Prinsloo”) who, before taking transfer, applied to the appellant for the supply of municipal services. A municipal official refused to open an account in her name and informed her that she would be held liable for the historical debt. Prinsloo, accordingly, gave instructions to the attorney who was to deal with the transfer not to proceed with it until the issue of the historical debt had been resolved. The respondent then approached the High Court for a declaration that he, or his successors in title of the property, were not liable for the historical debt owed to the appellant by previous owners. Finding in the respondent’s favour, the High Court held that the security provided by section 118(3) in favour of the respondent was extinguished by the sale in execution and subsequent transfer of that property into the name of the applicant.

Held – In the case of City of Tshwane Metropolitan Municipality v Mathabathe and another [2013] 3 All SA 227 (2013 (4) SA 319) (SCA), the present Court clearly held that a transfer of property from one owner to another does not extinguish the security created by section 118(3). In distinguishing between that case and the present one, the court a quo was wrong. The Court disagreed with the respondent’s submission that section 118(3) of the Act should be interpreted in accordance with the common law relating to the effect of a sale in execution on the rights of bondholders. No distinction can therefore be drawn between property sold either at a sale in execution or in a private sale when considering the question whether the hypothec created by section 118(3) survives transfer. It follows that the court below erred in concluding that the appellant’s statutory hypothec had been extinguished by the sale in execution and subsequent transfer of the property into the name of the respondent.

The Court held that there was nothing preventing the appellant from perfecting its security over the property to ensure payment of the historical debt. Perfecting its security would involve obtaining a court order, selling the property in execution and applying the proceeds to pay off the outstanding historical debt. Counsel for the appellant conceded that before a municipality can look to an owner for payment, it has to comply with its own by-law, and has to show that there is no occupier on the property concerned and the person who had entered into the contract to receive the services cannot be traced or has absconded, is unable to pay, or does not exist.

The majority of the court concluded that the court below should not have made the orders it granted and the respondent’s application should have been dismissed. The appeal was thus upheld.

Southern Value Consortium v Tresso Trading 102 (Pty) Limited (Klopper NO and another as intervening business rescue practitioners)[2015] JOL 34787 (WCC)

Company law – Company in business rescue – Ejectment application – Defence – Sections 133(1), 134(1)(c) – Companies Act 71 of 2008

Mini Summary

Having granted an order ejecting the respondent from certain property, the court provided its reasons.

In August 2014, the applicant and respondent concluded a lease agreement in terms of which applicant let the property to respondent. About eight months later, the applicant informed the respondent that it was in breach of the agreement of lease by failing to make payment of the rental and additional charges.

In the present application, the applicant stated that it had cancelled the lease agreement and that it was entitled to eject respondent from the property. The respondent had been placed under business rescue, and the intervening parties were the business rescue practitioners. They raised a number of defences in limine. They argued that there was a conflict in the identity of the entities which claim to represent the applicant; that there was no proof that the applicant’s manager was authorised to bring the present application on behalf of applicant; that the applicant had come to court with dirty hands in that it had unlawfully dispossessed respondent from the property by changing the locks; and that the applicant’s attachment of respondent’s movables was irregular. The substantive defence was that applicant was precluded by the provisions of sections 133(1) and 134(1)(c) of the Companies Act 71 of 2008 from pursuing the present application.

Held that the preliminary points were without merit, and mostly were irrelevant to the present matter.

Turning to the principal defence, the Court explained that section 133 of the Companies Act 71 of 2008 set a general moratorium on legal proceedings against company during business rescue proceedings, and section 134 protected the company’s property interests. The applicant’s cause of action in the present case was the rei vindicatio. It sought to recover property in respect of which it had a real right, namely ownership. It did not seek to enforce any contractual or other personal right against respondent. As the property in question in this case did not belong to the respondent, the business practitioners could therefore not rely on the provisions of section 133(1) of the Companies Act 71 of 2008 as a defence to applicant’s claim. Similar reasoning applied to the interpretation of section 134(1)(c) of the Companies Act 71 of 2008. Therefore, the applicant was not precluded by the provisions of

sections 133(1) and 134(1)(c) of the Companies Act 71 of 2008 from asserting its right of ownership in the property.

Minnaar v Van Rooyen NO[2015] JOL 33908 (SCA)

Civil procedure – Default judgment – Section 424(1) – Companies Act 61 of 1973 – Personal liability of members of close corporation – Acting recklessly in conducting affairs of company – Granting of order under section 424(1) of Companies Act 61 of 1973 by default where no evidence has been adduced – Erroneous within meaning of rule 42(1)(a) – Uniform Rules of Court

Judgment by default was granted against the appellant in terms of section 424(1) of the Companies Act 61 of 1973, which was still in operation at the time of the order being granted. The application had been brought by the liquidator of a company against the appellant and four other former directors, on the basis that they had acted recklessly in the conduct of the affairs of the company and should thus be liable for all the debts of the company.

Ten months later, the appellant sought the rescission of the default judgment in terms of rule 42(1)(a) of the Uniform Rules of Court, and under the common law. The Court refused relief under the rule because the order had not been erroneously sought, and refused relief under the common law on the basis that the appellant was in wilful default.

On appeal, the appellant argued that evidence must be led in order to determine liability under section 424(1). The court must determine whether a director’s conduct is reckless or whether the business of the company was carried on with the intention to defraud creditors of the company. It was contended further that the plaintiff must prove this on a balance of probabilities, and the court must assess the evidence. In this matter, no evidence at all was led.

Held that rule 41(1)(a), on which the appellant relied provides that a court may, in addition to any other powers it may have, mero motu or upon the application of any party affected, rescind or vary an order or judgment erroneously sought or erroneously granted in the absence of any party affected thereby.

None of the allegations against the appellant were supported by evidence. None was led. There was thus no proof at all, let alone prima facie proof, of whether his conduct had been fraudulent or reckless. Default judgment should, therefore, not have been granted. The question that then arose was whether it was erroneously sought and erroneously granted within the meaning of rule 42(1)(a). The Court held that it is inconceivable that an order would be made declaring a director liable for the debts of a company on the basis of reckless or fraudulent conduct where no evidence is led to support the allegations made. The liquidators were not entitled procedurally to default judgment against the appellant without leading evidence. By its very nature, the right to the relief sought under section 424(1) of the Companies Act 61 of 1973 had to be proved on a balance of probabilities. The liquidators were not entitled to rely on allegations made in the particulars of claim and denied in the defendants’ joint plea. At the very least they should have lead witnesses to show that

the directors had acted recklessly or with intent to defraud creditors. The order in terms of section 424(1) was thus erroneously sought, and, as a result, erroneously granted. It accordingly had to be rescinded in terms of rule 42(10(a).

The appeal was upheld and the default judgment set aside.

Liu v Roering NO and Another (25713/2016) [2016] ZAGPPHC 205 (15 April 2016)

Creditors-rights-applying for sale of business as a going concern-application dismissed

The applicant is urgently applying that the respondents be prevented from selling any of the liquidated company’s, Xing Xing Farming, assets pending the rendering of a valuation report by a chartered accountant and an order directing the respondents to take the aforesaid report into account when contemplating a sale of any, or all of, Xing Xing Farming’s assets.  This chartered accountant should be nominated and appointed by the Chairperson of the South African Institute of its Chartered Accountants and must do so by no later than 7 court days after the expiration of the 10 days.  The chartered accountant is to be granted access by the respondents to all of Xing Xing Farming’s assets on portion 28 of the Groenfontein Farm in the Bronkhorstspruit district for a proper valuation of the assets.  The applicant is also further applying that the respondents be interdicted from selling any or all the assets of Xing Xing’s pending finalisation of an application to be brought within 30 days of an order being made to set aside the ex parte order made on 9 February 2016 by Louw J under case number 8595/2016.

The Xing Xing Farming operation is a close corporation; it was placed under voluntary liquidation and the respondents are the appointed liquidators. The close corporation’s business comprises of the production and sale of chicken eggs in batteries. 

 The applicant in his affidavit set out how he became involved in the business with his brother.  He averred that he was unaware of the liquidation and was very surprised as the business was from 2003 until 2015 (excluding the year 2002) making a substantial profit each year.  He is a creditor due to his share of the profits never being paid out to him. 

Despite his back-breaking work in building the batteries and his contempt for not receiving his share of the profits he is not contesting the liquidation i.e. applying for the rescission of the liquidation and has not instituted action against his brother for his fair share.  His aim is to claim his share of the profits as a creditor in the liquidation.  To achieve this, this application is to ensure that not only for his benefit, but also for the benefit of the other creditors, the business is sold as a going concern and not as a forced sale.  Although it is not put out in the papers that it must be sold as a going concern this was submitted from the bar.  The reason why it must be sold as a going concern is that “simple arithmetic indicates that the business is doing well and is very far from being bankrupt or even in trouble”.  To this end a chartered accountant’s valuation is necessary and the sale must be stopped to facilitate a higher sale value.  Louw J’s order must also be set aside.

In response to this the respondents set out that the operation of this business comprise of chickens consisting of productive lay hens, chickens destined to become lay hens and which are in the process of being reared and lay hens past their production stage.  All of this requires immediate and extensive management in order to avoid any loss in numbers.  As it was a fully operational farmer operation that was taken over it required immediate attention in the form of insuring that the hens are properly fed, water provided, eggs removed and sold and all the other duties normally to be expected of an operation of this nature.  To this extent they approached the court to extend their power to effect the running of the business.  It was conceded that this ex parte application contains the standard or normal orders for an extension of the powers of liquidators.  From this order it is clear that the respondents were now empowered to defend or institute legal proceedings of a civil nature, criminal proceedings, urgent legal proceedings and the recovering of outstanding accounts.  To offer compensation made to the company debtor and to accept payment or to grant an extension of any debtor.  To compromise or admit any claim and to make arrangements with creditors.  Furthermore the order entailed that they could carry on or discontinue any part of the business of the company insofar as it may be necessary for the beneficial winding-up thereof.  They were also empowered to sell any movable and immovable property of the company by public auction, public tender or private contract.  Without this order being extended they would not have been entitled to continue trading the business to engage services of the employees and pay their salaries and similar practical requirements which impact on the normal day to day running of the business. 

At the end of January 2016 when the liquidators took control of Xing Xing Farming there existed a major threat to the farming operation in that there was virtually no water on the farm as the borehole supplying water “have but dried up”.  It was common cause that there was a serious drought during this period.  Without this order being granted the liquidators would not have been entitled to procure water from the neighbouring farms.  A further three boreholes were drilled on the property.  Chicken feed had to be procured to the value of approximately R350 000 per week.  This feed supply could be maintained only on arrangement for delayed payment of accounts.

There is no further cash available to pay the outstanding amount of R847,218.60 due to Satinsilk Investments (Pty) Ltd the supplier of the feed.  A successful battery operation requires stringent disease control which in turn means substantial amounts have to be paid for medicine.

The total outstanding debts amount to R2,483,661.10.  The amount of overdue debtors is growing and becoming a major concern.

A veterinarian surgeon, Dr. P.W. Smith, attended to the farm and his report as attached to the answering affidavit.  It is his opinion that the pullets are to be transferred to laying houses as soon as possible.  He is further of the opinion that if the chickens are not placed out soon there will be serious consequences, amongst which will be vices such as egg-eating and cannibalism.  A buyer, Ascend Investment Holding (Pty) Ltd, was identified who is willing to purchase the movable assets, vehicles and equipment, the hatcheries and livestock for an amount of R4,1 million.  In view of the dire consequences of not feeding the chickens the sale is thus necessary and must be executed eminently.

The respondents also caused the valuation of the assets of Xing Xing Farming which was also done by a duly appointed registered appraiser which is also attached to the answering affidavit.  According to this valuation report a value of R4 779,770.00 is established as a forced sale value.

It is accordingly the respondents’ contention that the application to rescind Louw J’s order is misconceived as it will render it impossible for the respondents to continue with the farming operation.

It was also argued that the legal duties and obligations of the liquidators and specifically section 353 of the Companies Act, 61 of 1973, provides that the effect of a voluntary winding-up on the status of a company is that it shall from the commencement of the winding-up cease to carry-on its business except insofar as it may be required for the beneficial winding-up thereof.

 

The applicant’s application for the stay of the sale is also ill-conceived.  I cannot find that the liquidators are not fulfilling their duties in terms of the law.  The whole nature of liquidation applications call for forced sales. This kind of operation that have to be run by liquidators that do not have expert knowledge of chicken battery farming has a huge duty in terms of the law to keep the business running but obtain a willing buyer as soon as possible. No valuation by the applicant is attached to his papers.  No reasons are set out why a chartered accountant would be in a position to give a valuation of the assets.  It is conceivable that a chartered accountant could give a total of the assets, but not of a forced sale value.  In view of Plascon-Evans Paints Ltd v Van Riebeeck Paints (Pty) Ltd  [1984] ZASCA 51; 1984 (3) SA 623 (AD) at 634H there is nothing to gainsay the valuation as attached to the answering affidavit of the respondents and the court must accordingly accept the respondents’ version.  If this test is applied to the facts in this application it was submitted that the applicant was not entitled to any relief.

This application is fatally flawed, misconceived and does not pass muster of the Plascon-Evans principles and therefore I make the following order:The application is dismissed with costs.

 

Schickerling NO and Another v Chickenland (Pty) Ltd t/a Nando's (22712/2016) [2016] ZAGPPHC 208 (15 April 2016)

Business rescue-business rescue practitioner-knowledge of cancellation of franchise agreement

The applicant, the business rescue practitioner, is applying on an urgent basis that a mandatory interdict be granted in favour of the second applicant in terms of which the respondent is ordered to fulfil all its obligations towards the second applicant in terms of the provisions of the franchise agreement entered into by and between the second applicant and the respondent on 1 December 2009.  The second applicant offers reciprocal performance of its obligations in terms of the same agreement.  This mandatory interdict is pending the outcome of the pending action between the second applicant and the respondent under case number 3880/2015.  The applicants are also requesting that the respondent be ordered to notify all suppliers

to the second applicant to continue to supply the second applicant with product in terms of the provisions of the agreement on the same cash on delivery basis as before.

The first applicant is the business rescue practitioner of the second applicant Ashraf Alli Gani Investments CC. The respondent is franchisor of a chain of fast foods commonly known as Nando’s. The second applicant and the respondent on 18 February 2009 concluded a franchise agreement. This agreement was subject to an option for the renewal of the contract which was to expire on 30 November 2014.

The option to renew the franchise agreement is before this court under case number 3880/2015 and set down for trial on 31 October 2016. On 28 November 2014 the members of the second applicant adopted a resolution to commence business rescue proceedings. On 19 February 2015 the applicant proposed a business rescue plan which was adopted.

In the business rescue plan the following proposal was adopted:

“PROPOSALS

Pending the outcome of the action under case number 3880/15 the company will continue to trade under the name and style of a Nando’s branded franchise from the current leased premises and undertake to substantially comply with the franchise agreement concluded with Chickenland (Pty) Ltd, to the extent that it is consistent with the adopted business rescue plan.

That the practitioner may appoint any individual from time to time, at his sole discretion, to attend the training provided in terms of the franchise agreement with Chickenland (Pty) Ltd.”

On 24 February 2015 the attorney of the respondent gave a written undertaking which reads as follows:

“(1) Pending finalisation of the declaratory issued under case number 3880/15, Ashraf Alli Gani Investment CC (in business rescue) (“the franchisee”) and Chickenland (Pty) Ltd (“the franchisor”) will comply with their respective contractual obligations provided for in the franchise agreement concluded between the parties on 18 December 2009, as if the franchise agreement was still in existence.

(2) It is recorded that the franchisor agrees hereto in order to avoid unnecessary costs in litigation and does not hereby waive any rights that it has flowing from the expiry of the franchise agreement on 30 November 2014, alternatively determination thereof by the franchisor.

(3) Insofar as supply of products through Vector Logistics (Pty) Ltd and other suppliers are concerned, the continued supply thereof is dependent upon the franchisee meeting its obligations with such suppliers.”

Paragraph 17.1.2 of the franchise agreement reads as follows:

“17.1 Notwithstanding any other provision contained in this agreement it is agreed that this agreement shall terminate, at the FRANCHISOR’s sole and absolute discretion at any time subsequent to the happening of any of the events listed below, notwithstanding that there may be a delay between the event and the exercising of the election in the event that the FRANCHISEE:-

17.1.1 …

17.1.2 fails to timeously pay the franchise, royalty, marketing fee or any other amount due and owing by it to the FRANCHISOR; …”

The royalties were not paid but were paid in on 30 March 2016 reflected at the respondent on 31 March 2016.

 The applicant has accordingly not established a prima facie right entitling him to continue to operating the franchise after the valid termination thereof.

I am satisfied that on the common cause facts the royalties were only paid after the date set out in the cancellation letter.  I am satisfied that clauses 17.1 read with 17.1.2, the cancellation clause, constitutes a lex commissorio.  Thus even if the respondent is an unwilling party to the current de facto and de jure situation it does not affect the lex commissisorio and the cancellation.

I find that the letter of cancellation came to the knowledge of the first applicant.  I find that it should have come to his notice as the business rescue practitioner who was responsible to ensure payment of these royalties.  This is further enunciated by section 140 of the Companies Act. 

The only question the court must then ask itself is whether the adopted business rescue plan can in any way impact on the cancellation of the agreement.  The applicant could not provide any section in the Companies Act, or any case law, that the mere fact that there are business rescue proceedings impacting on the cancellation.  Upon a perusal of the sections in the Companies Act relating to business rescue no such prohibition could be found.  When interpreting the Companies Act the Act must be interpreted and applied in a manner that gives effect to the purpose of section 7.  It could be argued that the cancellation does not conform to the purpose of section 7(d).  Section 7(d) reads as follows:

“reaffirm the concept of the company as a means of achieving economic and social benefits”.

The application is dismissed with costs.

Absa Bank Ltd v Van Zyl NO and Another (35976/2015) [2016] ZAGPPHC 247 (22 April 2016)

Application for sequestration-nulla bona-sheriff did not execute the writ of execution-application dismissed-only return that was filed, was signed by Mr Barkhuizen-On Mr Barkhuizen's own version he was never duly appointed as a deputy sheriff and never had the authority to fulfil the duties of a deputy sheriff.

The applicant applied for the provisional sequestration of the Doornbult Trust which conducts farming operations in the North West Province. The applicant bank instituted an action against the trust which resulted in an order during November 2011 for payment of approximately R2,5 million to the applicant. All attempts to appeal the order were unsuccessful.

During August 2014 a writ for attachment of movable property was obtained and according to the applicant a Sheriff of the High Court was instructed to execute

same. According to the applicant the return of the Sheriff was one of nulla bona and it was on the basis of this alleged deed of insolvency which the applicant based its application for sequestration. In the alternative it was submitted that the trust is factually insolvent.

I shall deal first with the issue of the alleged deed of insolvency. On behalf of the respondent it was submitted that the writ of execution relating to movables was not executed by a Sheriff of the High Court, that the applicant has consequently failed to prove a deed of insolvency on the part of the respondent with the result that the application should be refused.

It is necessary to say a little more about the execution process in this matter. On behalf of the applicant it was stated that the writ of execution was duly executed by the Sheriff, Mr B. Mosikili. According to the first respondent, who is one of the trustees of the trust, the writ was never executed by Mr Mosikile. He stated that on 3 February 2015 Mr H Barkhuizen of the office of the Sheriff of Schweizer Reneke came to the farm on which the farming operations are conducted. He was apparently armed with the writ of execution relating to the movables of the trust. In the return, under the hand of Mr Barkhuizen, he stated, inter alia,  that he served the document personally on the first respondent and also stated that after a proper investigation he could not find any assets for the outstanding amount. He then stated the following: "Hereby I submit a nulla bona fide." The reference to a "nulla bona fide" is, on the face of it, support for the statement of the first respondent that Mr Barkhuizen did not really know what he was supposed to do on the farm. He clearly also did not ask the first respondent to point out sufficient disposable property to satisfy the judgement. That much is evident from the return itself.

The second, and perhaps biggest problem relating to the execution of the judgement, is the fact that it appears that Mr Barkhuizen was not a duly appointed Sheriff or deputy sheriff of this court. In the answering affidavit the first respondent disputed the legality of the nulla bona return. He stated that Mr Barkhuizen had never lawfully been appointed as Sheriff or deputy sheriff of either the Magistrate's Court or the High Court. He could consequently not have lawfully executed the judgement against the trust. As such, the trust did not commit the deed of insolvency upon which the applicant relied to prove its entitlement to sequestrate the trust.

The application is dismissed with costs.

 

Oelofsen NO and Another; In re: Oelofsen NO and Another v Bamboo Rock 1215 CC and Others (8949/16) [2016] ZAGPPHC 245 (21 April 2016)

Liquidators-ordered to pay costs de bonis propriis-omitted to divulge information to the court -uberrimae fides

Ex parte applications-material facts not disclosed-de boniis cost s awarded

The applicants are joint provisional liquidators of the insolvent estate, Tradewell Investments (Pty) Ltd (Tradewell). About 26 days before the liquidation of Tradewell four immovable properties were transferred from Tradewell estate to Bamboo Rock. This was the catalyst of the liquidator's ex parte application who sought a caveat be

registered over all four properties and instituted an action to set aside the said dispositions.

It is contended by the liquidators that no exchange of funds took place for the disposition of the properties. However, the first respondent states that the disposition was conducted in terms of a contract that was concluded between it and Tradewell even though no bonds were registered over the properties.

The first respondent submits that on 28 October 2013 it sold two properties to Tradewell for R7000 000.00 (seven million) excluding vat. Tradewell developed a Sectional Title Complex known as River View on these properties purchased. According to the sale agreement, between the first respondent and Tradewell, provision was made for the purchase price to be paid by means of the transfer of selected units, in River View, to the seller, the first respondent.

The first respondent submits that to the best of its knowledge this sale agreement was transmitted to the first applicant on 27 January 2016 by the attorneys responsible for the transfer of the properties, Van Den Berg Attorneys. That being the case the first respondent contends that the sale agreement was in the hands of the applicant's when the ex parte order was sought. It is further contended, that the transfer of the units, in terms of the sale agreement, took place on 6 November 2015.

It is common cause that at the time that the applicant's launched their ex parte application they were well aware of the sale agreement and its contents.

The first respondent has persisted with the submission that the sale and transfer was in the ordinary course of business. Further, when the applicant's brought their ex parte application they had the duty of uberrimae tides  in presenting all the material facts, the terms of the sale agreement and together with a copy thereof before the court, as these were essential to consider for the decision to grant or not to grant the order sought.

There is one crisp issue before me and I am guided by the dictum in National Director of Public Prosecutions v Basson (2002) 2 All SA 255 at para [21]:

"[21] Where an order is sought ex parte  it is well established that the utmost good faith must be observed. All material facts must be disclosed which might influence a court in coming to its decision, and the withholding or suppression of material facts, by itself, entitles a court to set aside an order, even if the non-disclosure or suppression was not wilful or ma/a fide (Schlesinger v Schlesinger 1979 (4) SA 342 (W) at 348E - 349B)."

In addition to these paragraphs is the applicant's reply to the first respondent's contention that material facts were not placed before the presiding officer who heard the ex parte application, this the sale agreement was received by the applicants, that it was 'evident'  that more than the purchase price was paid for sale, in that over and above the transfer of the units, an amount of R2 703 000.00 was 'allegedly' paid as 'a partial payment'.

Further, that in their replying affidavit they allege that the contents of the agreement were brought to the attention of the presiding officer and ' disclose (d) the contents thereof to the above Honourable Court, in my founding affidavit'. That the contents

of the sale agreement will be in dispute and this was the reason why a copy was not attached for the ex parte application.

In dealing with this matter, I am of the view that the applicants have conceded that they did not attach the sale agreement in the ex parte application as the contents thereof were going to be in dispute in an action to be instituted and as such was not provided to the presiding officer at the ex parte application.

Was it a material document that the presiding officer required to make an informed decision in granting of the order that was made? From the first applicant's own averments the contract was alluded to in the form of what Paul Moolman claimed and it was also stated that the contents of the agreement were brought to the attention of the presiding officer at the hearing. What I am not able to discern from the papers, is the applicant's disclosure on the papers of the contents of the agreement in the founding affidavit as submitted by the applicants in their replying affidavit, especially so in respect of the manner of the payment of the purchase price.

“On an examination of the facts, the date of sale, the terms of the sale agreement, especially as regards the manner of the payment of the purchase price, the date of the opening of the sectional title and the date of transfer of the units, all these point towards, to my view, an ordinary sale agreement in the course of the business of the first respondent.”

[24] The applicants themselves found it relevant to make a cursory mention of the 'claim' of the sale agreement and when called out on the said sale agreement, in this current application, they saw it fit to put up the sale agreement which was in their possession and they saw it fit to advise the court of its contents.

The aforesaid, to me, is an indication that the sale agreement and the contents thereof were recognised by the applicants as being material. The applicant's saw it fit to suppress and not disclose this material information when they moved the ex parte application. This amounts to the violation warned of in Schlesinger supra when moving an ex parte application.

The reason advanced for the suppression of the material fact of the sale agreement, that is, the contents were to be contested in an action to be instituted, is evident that the applicant acted in a mala fide manner in the non-disclosure. The presiding officer should have been apprised of all the facts in order to make an informed decision. As the matter stands before me the likelihood is that a different result would have emerged and the order sought by the applicants might not have been granted.

In the circumstances I conclude that in this instance an order setting aside the order granted by Lauw J on 9 February 2016 is warranted.

The fact that the applicants are liquidators, owing a duty to the estate that is being liquidated (Tradewell), does not give them carte blanch to flaunt the law and act in a mala fide fashion, all in the name of protecting the estate. All litigants have a duty to ensure they litigate in good faith, uberrimae fides.  If the applicant's suspected that this amounted to a dispossession and they had the necessary factors to back this up and refute the first respondent case, then what was wrong with being honest and upfront with the court?

The order of Lauw J of 9 February 2016 is reconsidered and set aside.

The applicant's, Jacobson Marthinus Oelofsen N.O and Lebogang Michael Moloto N.O, are ordered to pay the costs de bonis propriis on a party a party scale the one paying the other to be absolved.

Such costs are to include the employment of two counsels, one being senior counsel.

Osborne v Cockin and Others; Osborne v Cockin N.O. and Others (5618/2015, 6053/2015) [2016] ZAECGHC 19 (12 April 2016)

Sequestration application-benefit-trust to be sequestrated-opposed application-denial of joint venture false-order granted

Anton Pillar order-return date-court to ascertain if order was necessasry

There are before me two applications.  In case no 5618/2015 applicant seeks confirmation of a Rule Nisi in terms whereof an interim interdict relating to certain cattle was granted, together with an Anton Piller Order relating to documentation and the furnishing of information in respect of the cattle. 

In case no 6053/2015 applicant seeks an order for the provisional sequestration of a Trust known as the Cockin Trust, IT/304/2007.  Because the issues in both applications are to a certain extent interlinked they were argued together, with Mr. Smuts S.C. appearing for the applicant in both applications and Mr. Paterson S.C. appearing for the various respondents in each case.

Applicant describes himself as a director of companies and a businessman.  He avers that during 2013 he and a certain Shaun Cockin who was trading as Cockin Partners, entered into an oral agreement in terms of which, inter alia, applicant’s cattle would graze on farms owned or controlled by Shaun Cockin; their progeny would be divided equally between them on a date to be agreed; Shaun Cockin would account to applicant on a monthly basis for the cattle and their progeny; and applicant would retain ownership of the cattle.

For purposes of convenience I will refer to Shaun Cockin hereunder as “Shaun” as this is the manner in which he was referred to throughout the various affidavits filed in the two applications.

Pursuant to the above agreement applicant delivered a large number of cattle to Shaun.  An audit done on 28 February 2014 of all the cattle under Shaun’s control confirmed that 611 cattle belonging to applicant were in Shaun’s possession.  In addition thereto applicant and Shaun entered into a written “Agreement of Joint Venture” during March 2014 in terms whereof applicant made available 281 cattle for the joint cattle farming operation and Cockin Partners made available the land for grazing, with all offspring to be divided equally between the parties to the agreement.  It was also agreed that applicant retained ownership of the cattle.  It is not in dispute that in consequence of the agreements, both oral and written, Shaun came to be in possession of 1831 cattle belonging to applicant which were distributed by him amongst various farms for purposes of grazing.

On 31 August 2015 Shaun furnished to applicant a “DM Osborne and Cockin Partners Joint Venture and Report” in which the aforesaid number of cattle in Cockin Partners’ possession was confirmed and in which it was also reported that there were “no losses”. 

[7] During mid-September 2015, however, applicant’s manager visited the various farms on which applicant’s cattle were allegedly grazing and discovered that there was in fact a significant shortfall in the number of applicant’s cattle under Shaun’s control.  In consequence of this applicant approached Shaun on 12 September 2015 with the request that he explain the discrepancies by not later than 14 September 2015. 

[8] Tragically, on 13 September 2015, Shaun committed suicide. 

[9] Thereafter, during the week of 14 September 2015, an inspection was conducted and applicant ascertained that most of his cattle were missing and could not be accounted for. 

[10] A meeting was then arranged in Cathcart on 17 September with a number of Shaun’s creditors at which an attorney, Mr. Werner De Jager, was present.  On 22 September 2015 De Jager furnished a provisional report in which he stated that his instructions were that the value of the livestock claimed against Shaun’s estate “may be as high as R25 million.”  He stated further that over and above the livestock claims “the other liabilities mentioned amount to approximately R10 million.”  He concluded that it was therefore clear that Shaun’s estate was “hopelessly insolvent.” 

[11] Indeed, on 8 October 2015, an application for the provisional sequestration of Shaun’s deceased estate was brought by a creditor, Colorado Farming CC.  According to the deponent to the founding affidavit in that matter the deceased’s estate was indebted to Colorado in the sum of R1 365 500,00 arising out of the misappropriation by Shaun of 173 head of its cattle, Colorado having entered into a similar commercial arrangement in respect of the grazing of its cattle with Shaun, as that entered into between applicant and Shaun. 

[12] On 13 October 2015 a provisional order of sequestration in respect of Shaun’s deceased estate was granted by this Court and Mr. De Jager together with Mr. Timkoe were on 20 October 2015 appointed by the Master of this Court as joint provisional trustees of Shaun’s insolvent deceased estate.

[13] In the meantime, applicant arranged for such cattle as were still on Shaun’s farms to be removed and returned to him.  As at 30 October 2015, however, 200 head of cattle covered by the oral grazing agreement and 1025 covered by the Joint Venture agreement were missing.  The value of applicant’s missing stock was approximately R11 million.  As was stated by applicant it was clear that Shaun had been involved in conducting a massive “Ponzi” scheme. 

[14] Applicant, assisted by the South African Police Stock Theft Unit, attempted to track down his missing cattle.  He managed to trace a limited number of the cattle which, so it transpired, had been sold by Shaun to other farmers despite applicant having retained his ownership thereof.  Applicant was advised by the Police,

however, that all endeavours in terms of the Criminal Procedure Act to trace the remainder of the cattle had been exhausted and that applicant should pursue other legal means to obtain redress.

[15] Applicant accordingly launched the aforementioned Anton Piller application in an attempt to seek evidence regarding the whereabouts of his missing cattle.  Applicant averred that Shaun’s widow, Marioth Cockin (to whom I shall hereinafter refer to as “Marioth”) and his son, Mark William Cockin (“Mark”) were, at the time of Shaun’s death, in partnership together with him, trading as Cockin Partners.  He averred that Cockin Partners was essentially a family concern in which Shaun, Marioth and Mark were not only father, son, mother and wife but also intimate business partners acting in furtherance of a family enterprise.  He averred further that the Cockin Trust was the alter ego of Shaun and that Shaun had utilised the Trust with the intention of diverting thereto assets which belonged to persons defrauded by Cockin Partners.

[16] In his Anton Piller application applicant cited a number of respondents, including Cockin Partners as first respondent; Marioth in her various capacities, namely, as second respondent in her capacity as executrix of Shaun’s deceased estate; as third respondent in her personal capacity and “possibly a partner of Cockin Partners”; as fifteenth respondent in her capacity as a Trustee of the Cockin Trust and as sixteenth respondent in her capacity as a Trustee of a Trust known as the Downs Trust.  Also cited was Mark in his personal capacity and “possibly a partner of Cockin Partners” and as the “duly authorised managing Trustee of the Cockin Trust and the Downs Trust.”  He was also cited as fourteenth respondent in his capacity as “Managing Trustee of the Cockin Trust.”

[17] On 2 November 2015 the application came before me in chambers and I granted an interim interdict, inter alia, interdicting and restraining the various respondents from dealing with applicant’s cattle and placing various obligations upon them to disclose information and documents relating to the cattle and, generally, to perform such acts as would assist in tracing the whereabouts of applicant’s cattle.

[18] In argument before me on the extended return day the issue largely resolved itself into a question of costs.

[19] Both counsel were agreed for present purposes that the matter fell to be determined on the basis of the following dictum of Strathern AJ in Friedshelf v Kalianji 2015 (4) SA 163 (GJ) at paragraph 67:

“In my view the test at the opposed return day or reconsideration of an Anton Piller order is whether, after considering the competing allegations and submissions on the affidavits, the applicants still make out a strong prima facie case.  In this regard the Court would not be bound to determine the matter on the basis of facts alleged by the respondent which cannot be rejected on paper, as argued in this matter by the respondent’s counsel.” 

[20] The application has been opposed only by Marioth in her capacity as second respondent and Mark in his capacity as fourth respondent.  In their respective answering affidavits both of them deny that they were ever partners with Shaun in the business conducted by him as Cockin Partners.  Mark denies further that he was

the “Managing Trustee” of the Cockin Trust.  I should mention that it became common cause that Mark was never a partner.  Both aver that they had no involvement whatsoever in Shaun’s business and that they had only limited knowledge of his business dealings with applicant and Shaun’s other creditors.  They stated that they had no knowledge at all of Shaun’s fraudulent dealings with applicant’s cattle. 

[21] Marioth stated further as follows:

“It is apparent from applicant’s founding affidavit and annexures that there is not a single piece of evidence or document which establishes that I was involved in or a party to the business conducted by Shaun with applicant and his other creditors and the allegations are baseless, reckless and unlawful.” 

[22] This averment, so said applicant in his reply based on certain documentation obtained in consequence of the aforementioned order, was dishonest and untruthful.  The document referred to, Annexure DM23, emanating from First National Bank, is a so-called “Facility Agreement” dated 19 November 2014 in terms of which FNB offered a credit facility to “Shaun Russell Cockin and Marioth Janet Cockin trading together in co-partnership under the name of Cockin and Partners.”  The offer was duly accepted “for and on behalf of Shaun Russell Cockin and Marioth Janet Cockin trading together in partnership under the name or style Cockin and Partners” and was signed at the end thereof by both Shaun and Marioth above the designation of each as “Partner”.

[23] Not surprisingly, Mr. Paterson had considerable difficulty in dealing with this issue.  He submitted that the facility agreement was only disclosed in reply and that Marioth had therefore been deprived of the opportunity of providing an explanation therefor.  He submitted that in all probability she was merely assisting Shaun as his wife.  In my view, however, this submission cannot be sustained.  If indeed there was an innocent explanation for Annexure DM23 one would have expected an application to file a further affidavit setting out such explanation, and such application would in the circumstances obviously have readily been granted.  That no such application was forthcoming speaks volumes.  The only inference to be drawn in the circumstances is that no innocent explanation exists and that applicant’s averment, to the effect that Marioth’s allegations to the contrary in her affidavit were false, is correct. 

[24] This document is, in my view, damning not only of Marioth’s denial that she was ever involved in any business conducted by Shaun but also of the denial by Mark that Marioth was a partner.  In all the circumstances Mark must have been aware of the fact that Marioth was indeed a partner and his denial of this fact is not credible. 

[25] In my view, the fact that Marioth and Mark falsely denied her membership of the partnership clearly constitutes an attempt to distance themselves and the Cockin Trust of which they are trustees as far as possible from Shaun’s fraudulent conduct.  In view of the false evidence concerning Marioth’s role in the Cockin Partnership no reliance can be placed on their evidence insofar as it seeks to rebut applicant’s averments that the businesses were closely interlinked.   In my view, as was

submitted by Mr. Smuts, this fact is sufficient in itself to justify the application for the Anton Piller order. 

[26] Applicant’s averment that Cockin Partners was essentially a family concern and that the business affairs of the ”Cockin Group” were closely interlinked also gains considerable support from a document obtained in consequence of the order, namely, DM24, prepared by an accountant, Mr. Rossouw, who provided services to Shaun, Cockin Partners, the Cockin Trust and the Downs Trust  in July 2013, for the “Cockin Group” headed “Cockin Family: Farming Enterprises Review.”  In this document Rossouw states that “the entire family enterprise is farmed through four different entities.”  As appears from his report these entities are the Cockin Trust, which is described as being a business Trust and the entity that physically conducts the farming enterprise on The Downs and Olive Grove farms in Cathcart; the Downs Trust which is a property trust that owns the Downs farm; Cockin Partners which, according to Rossouw “is operated as a sole proprietor in Shaun Cockin’s name” and which leases ground and livestock in partnership with various role players and conducts farming operations with profit shares being paid to the partners in line of the various agreements.  The fourth entity at the time was Shaun’s father, Vernon Cockin.

[27] With regard to Cockin Partners Mr. Rossouw states as follows:

“In theory this business operates completely separate to the Cockin Trust – however, in practice due to cash flow shortages, this business loans and repays cash from and to the Cockin Trust on a regular basis.  This business also runs livestock on the Downs and Olive Grove farms from time to time.”

[28] Rossouw states further in a letter addressed to Shaun and Mark on 25 November 2013 as follows:

“A Trust is a separate legal entity over which no one person has or should be perceived to have control of.  Any decisions affecting a trust must be made in accordance with the trust deed as decided upon, minuted and resolved by the board of trustees.  This is of paramount importance i.e. the paper trail for all transactions in the Trust must be there.

The one very concerning point which pops up time and time again when I look at the transactions which have passed through your Trust bank account in the 2013 financial year is the number of times that cash is transferred between the trust bank account and the other bank accounts such as Cockin Partners, M.W. Cockin etc.  This cannot happen if you want to maintain the persona of a Trust.  In theory each of these transactions would need to be approved by the trustees (which has not happened).”

[29] In my view, after a consideration of the competing allegations and submissions contained in the various affidavits including that of applicant’s farm manager Mr. Vigne to the effect that at an inspection during February 2015 he observed 30 of applicant’s heifers on Mark’s farm, The Downs, the applicant has made out a strong prima facie case justifying the launching of the interdict and the Anton Piller

application.  He is accordingly entitled to an order confirming the rule nisi together with the costs of the application.

[30] I turn to consider the application for the provisional sequestration of the Cockin Trust under Case no 6053/2015.  Cited as first and third respondents in this application are Mark and Marioth Cockin in their capacities as trustees of the Cockin Trust.  The independent trustee of the Cockin Trust, Mr. Andrew Smith, is cited in his capacity as such as fourth respondent.  The aforementioned Mr. Werner De Jager is cited as second respondent in his capacity as a trustee of Shaun’s insolvent deceased estate.

[31] Section 10 of the Insolvency Act 24 of 1936 provides as follows:

“If the court to which the petition for the sequestration of the estate of a debtor has been presented is of the opinion that prima facie –

(a)   The petitioning creditor has established against the debtor a claim such as is mentioned in subsection (1) of section nine; and

(b)   The debtor has committed an act of insolvency or is insolvent; and

(c)   There is reason to belive that it will be to the advantage of creditors of the debtor if his estate is sequestrated, it may make an order sequestrating the estate of the debtor provisionally.”

[32] In Firstrand Bank Ltd v Evans 2011 (4) SA 597 (KZD) Wallis J, as he then was, stated as follows at paragraph 27:

“Once the applicant for a provisional order of sequestration has established on a prima facie basis the requisites for such an order the court has a discretion whether to grant the order. There is little authority on how this discretion should be exercised, which perhaps indicates that it is unusual for a court to exercise it in favour of the debtor. Broadly speaking it seems to me that the discretion falls within that class of cases generally described as involving a power combined with a duty.  In other words where the conditions prescribed for the grant of a provisional order of sequestration are satisfied then, in the absence of some special circumstances, the court should ordinarily grant the order. It is for the respondent to establish the special or unusual circumstances that warrant the exercise of the court's discretion in his or her favour.”

[33]  As was stated in Provincial Building Society of South Africa v Du Bois 1966 (3) SA 76 (W), referred to with approval in Kalil v   Decotex (Pty) Ltd and Another  1988 (1) SA 943 (AD), in an opposed application for a provisional order of sequestration the necessary prima facie case is established only when the applicant can show that on a consideration of all the affidavits filed a case for sequestration has been established on a balance of probabilities.

[34] Much argument was addressed to me by both counsel with regard to whether applicant had discharged the onus upon him.  In the view that I take of the matter it is not necessary to deal with much of the argument that was presented because, in my opinion, the matter can be determined on a relatively narrow basis. 

[35] As appears from what I have set out above with regard to the Anton Piller application it not disputed that Shaun unlawfully sold applicant’s cattle, valued at approximately R11 million.

[36] As also appears, especially from the report of Rossouw, there was a considerable degree of intermingling of the various “Cockin group” operations.  In my view, having regard to certain evidence relating to a joint attempt by Shaun and Mark to sell the entire Cockin Family Farming Enterprise to applicant and to the affidavits of Messrs. Ranger and Knott, Mark clearly had full knowledge of Shaun’s business operations. 

[37] Furthermore, it is clear that Marioth was in fact a partner with Shaun in the Cockin Partners business, that she dishonestly attempted to distance herself from such involvement, and that Mark made common cause therewith. 

[38] It is against this background that evidence relating to certain lucerne sales which came to the fore in consequence of the Anton Piller order becomes of great relevance.  It is not disputed that certain sums of money transferred by Shaun to the Cockin Trust were recorded as “lucerne sales.”

[39] In his affidavit in support of the respondents’ opposition to the application the aforementioned Rossouw stated, with regard to the annual financial statements of the Cockin Trust, that he was satisfied that at the time they were signed that they were a “fair and correct presentation” of the financial records and information presented to him by Shaun and Mark.  He then stated that subsequent to Shaun’s death, however, “information has come to light that this information supplied to me was not always complete and correct resulting in an understatement of Shaun’s liabilities due to his fraudulent activities.  I have also been made aware of an overstatement of the value of livestock reflected on the 2015 financial statements of the Cockin Trust due to incorrect livestock quantities being supplied to me by first respondent and an overstatement of lucerne sales in the Cockin Trust due to misallocations due to incorrect narrations on the bank statements provided to me.”

[40] Rossouw then proceeds to state further as follows:

“An amount of R1 895 000 has subsequently been identified by the first respondent (Mark) as having been misallocated to lucerne sales in the 2015 year and as such will need to be corrected by crediting the loan account with this amount.  As a result the correct lucerne sales that were debited against the loan account reflects at a nett value of R678 640 in the 2015 year...  A further similar adjustment to the lucerne sales in the current financial year has been identified by the first respondent equal to an amount of R998 000 which has been credited to the loan account...”

[41] No explanation has been forthcoming from any of the respondents as to how the misallocation of nearly R3 million in respect of lucerne sales could have been made and it is difficult to understand in the absence of any rational explanation on what innocent basis such a misallocation could have come about.  This was not a mere “overstatement” of the lucerne sales as Rossouw would have it.  Two very large amounts were deliberately allocated to lucerne sales in two different financial years.  It is common cause that Shaun did not grow nor sell lucerne.  His only source of income was from his cattle speculating business and, at the time that such misallocation was made, he was “hopelessly insolvent”.  Rossouw simply reallocated

this amount to Shaun’s loan account but there is no explanation at all as to why he did so.  As was submitted by Mr. Smuts, in the absence of any such explanation the reasonable inference arises that this was a false representation of the source of money which flowed from the deceased to the Trust.  In my view therefore, applicant has established, prima facie, that such money must be the proceeds of the unlawful sale of cattle not belonging to Shaun. 

[42] In this regard applicant states pertinently that the Cockin Trust is indebted to him in respect of his livestock that was fraudulently sold by Shaun and the proceeds of such sales having been deposited in the Cockin Trust accounts.  In the circumstances I am of the opinion that applicant has established, prima facie, that he is a creditor of the trust.  Furthermore, there is no suggestion that the Cockin Trust is able to pay such money to applicant in order to compensate him for such unlawful sale.  I agree with the submission by Mr. Smuts that in the light of the misallocation of the sum of R2 893 000 to false lucerne sales in the financial statements of the Trust, when the only source from which the insolvent deceased could have transferred this money was the unlawful sale of cattle, the Trust prima facie, cannot pay its debts and is insolvent.

[43] It will, in the circumstances, be in the best interest of creditors if the estate of the Trust is sequestrated and its affairs fully investigated.

[44] In my opinion therefore applicant has prima facie satisfied the requirements of section 10 of the Act.

[45] The following orders will issue:

Case no: 5618/2015

a.    The Rule Nisi is confirmed.

b.    The second and fourth respondents are ordered to pay the costs of the application jointly and severally, the one paying the other to be absolved.

Case no: 6053/2015

1.    The estate of the Respondent Trust is placed under provisional sequestration in the hands of the Master of this Honourable Court;

2.    The said Mark William Cockin, Marioth Janet Cockin and Andrew Oliver Smith, nomine officio in their capacities as the Trustees of the Cockin Trust and Werner de Jager nomine officio in his capacity as trustee of the insolvent deceased estate of Shaun Russell Cockin, be and are hereby called upon to show cause, if any, to this Court at Grahamstown on 17 May 2016 at 10h00 or as soon thereafter as the matter may be heard, why:

2.1         a final Order of Sequestration of the respondent estate should not be granted;

2.2         that the rule nisi be served upon Mark William Cockin, Marioth Janet Cockin, Andrew Oliver Smith and Werner de Jager personally;

2.3         That a copy of this Order be published once in the Daily Dispatch newspaper; and

2.4         That a copy of this Order be served:

2.4.1      On the employees of the respondent by affixing a copy thereof on a notice board to which the employees of the respondent have access inside the respondent’s premises, alternatively by affixing a copy of the order at the front gate of the respondent’s premises; and

2.4.2     On the South African Revenue Services in East London. 

3.    The Costs of this application shall be costs in the sequestration.

Shanmugam v Peter N.O and Others (11638/2015) [2016] ZAKZDHC 16 (20 April 2016)

Liquidators-joint liquidators-two of three signed contract-contract invalid

The applicant seeks an order interdicting the liquidators of CKT Express CC (in liquidation) from selling or transferring an immovable property to a third party purchaser pending the determination of an action which he has instituted and in which he seeks transfer of the property to him.

The basis of the applicant’s claim is that he purchased the property from the liquidators in June 2012, that the agreement is still valid and that they are precluded from selling the property to someone else.

The liquidators contend that the agreement relied on by the applicant was invalid ab initio, that it was in any event cancelled by reason of a breach by him and, further, that his claim for transfer of the property has become prescribed.

 

The facts are briefly as follows. The close corporation owns the property in question, which is described as Portion 6 of Erf x. It was placed in final liquidation in February 2012 and the first and second respondents were appointed as liquidators on 21 February 2012. They decided to sell the property to the applicant and signed a written agreement of sale on 5 June 2012. The agreement was not signed by the third respondent, who was appointed as the third liquidator on 4 June 2012.

On 2 July 2012 a firm of attorneys gave the applicant written notice that he was in breach of the agreement in that he had not made certain payments and on 16 August 2012 they notified him of the cancellation of the agreement. Most of the money which he had paid towards the purchase price was refunded to him, which he says he accepted under protest. The property was sold by public auction nearly three years later, on 18 June 2015. The successful bidders were the applicant’s sister and one Ryan Naidoo, whose wife was the sole member of the close corporation in liquidation. That agreement was cancelled on 16 September 2015 due to a failure by the purchasers to comply with their obligations. On 3 November 2015 the property was again sold by public auction.

During the confirmation period a higher offer was accepted by the liquidators and the property was sold by private treaty. On 3 November 2015 the applicant instituted an action in this court in which he seeks an order for the transfer of the property to him,

against a tender to perform all his obligations as purchaser in terms of the agreement of 5 June 2012.

On 23 November 2015 he launched an application to interdict the transfer of the property pending the final determination of the action to which I have referred, and a rule nisi together with an interim interdict was granted on that day. The matter then came before me on the opposed roll, with the applicant seeking confirmation of the rule nisi and the respondents its discharge.

Counsel for the applicant submitted that because he seeks an interdict pendente lite the test is whether the applicant has shown a prima facie right, though open to some doubt, and whether the balance of convenience favours him. There are no material disputes of fact on the papers and the matter is essentially one of law. I deal firstly with the issue relating to the validity of the agreement.

In terms of section 2(1) of the Alienation of Land Act  no alienation of land shall be of any force or effect unless it is contained in a deed of alienation signed by the parties thereto or by their agents acting on their written authority. It is by now trite that corporate entities, being unable to act other than through natural persons, cannot give written authority to their representatives, and that therefore the written-authority requirement does not apply when a functionary of a company  signs a contract for the sale of land.It was held in Northview that the principle also applies to close corporations and that a member, authorised as such to sign, does not require written authority to sign such a contract. Where a member however authorises a third person to enter into such a contract the authorisation must be in writing.

In the present matter the agreement was not signed by a member of the close corporation, but by two of the three liquidators. Counsel submitted that section 2(1) nevertheless finds no application as the liquidators were not agents as contemplated in the section and their actions were those of the close corporation. This seems to me to be correct. It has been held that when a liquidator performs the functions of the former board of directors his acts are the acts of the company.[5] And in AMS Marketing[6] the court referred with approval to Gower[7]who says when a liquidator concludes a contract he does so on behalf of the company. It follows that when there is only one liquidator he does not need written authority to sign a contract for the sale of land as he is in the same position as a duly authorised functionary of the company. If one of several liquidators signs such a contract the only question is whether he was authorised to do so, as in the case of a functionary of a company.

In terms of section 282 of the Companies Act of 1973 liquidators are required to act jointly in performing their functions.  The third respondent was appointed as a joint liquidator the day before the other two signed the agreement. It is not disputed that he had not authorised them to do so. Counsel for the applicant submitted that as a matter of probability he must have become aware of the agreement and ratified it. But there is no evidence that he did. And if he became aware of the agreement there is no evidence that he knew it required to be ratified. It would appear that none of the liquidators realised at the time that when the first and second respondents signed the agreement the third respondent had already been appointed. In any event, the effect of the third respondent’s affidavit, read with the answering affidavit deposed to by the fourth respondent, is that he did not authorise the conclusion of the agreement, nor did he ratify it. There is nothing on the papers to gainsay this, and it must of course be born in mind that the agreement was not in existence for long as it was cancelled

on 16 August 2012. It follows in my view that the agreement of 5 June 2012 was invalid as the two liquidators who signed it could not bind the close corporation without the authority of the third liquidator.

 

[9] I deal briefly with the two alternative points relied on by the liquidators. The first is that even if the agreement was validly concluded it was later cancelled as a result of a breach by the applicant of his obligations. Counsel for the applicant accepted in argument that the applicant was in breach and that the cancellation would have been proper if it was duly authorised. It appears from the papers that it was only authorised by the two liquidators who had signed the agreement, and not by the third respondent. Their answer to this is that the cancellation was ratified by the third respondent, who signed the subsequent sale agreement together with the other liquidators. Counsel for the applicant contested this on the basis that he may not even have known of the cancellation. This is a double-edged sword for the applicant. If the sale to the applicant did not come to the notice of the third respondent then he could not have ratified it. If it did come to his notice then it is inherently improbable that he would have co-signed a new agreement without knowledge of the cancellation of the first agreement. And if he signed the new agreement with knowledge of the cancellation of the first one then he ratified the cancellation. It seems to me that if the agreement on which the applicant relies was validly concluded then its subsequent cancellation was valid.

 [10] The second alternative point relates to prescription. The liquidators contend that any claim that the applicant may have had for transfer was extinguished by prescription. They say the letter of cancellation was sent to him on 16 August 2012, and any claim he may have had for transfer arose not later than the date on which he received that letter. His summons was issued on 3 November 2015. He does not dispute that this was more than three years after his claim arose. The only basis on which he contends that his claim has not prescribed is that the fourth respondent told him that the liquidators would not rely on the breach notice and acknowledged their obligation to transfer the property to him. She disputes this and says she in any event had no authority to speak for the liquidators as she was only asked to perform certain administrative tasks. It is true that in his affidavit the applicant refers to the fourth respondent as the agent of the liquidators. That does not constitute evidence that she was their agent or authorised to bind them, and there is no other evidence that she was. It follows in my view that any claim which the applicant may have had for transfer of the property was extinguished by prescription.

[11] The applicant has in my view not made out a prima facie case, not even one open to some doubt. It seems plain that the agreement on which he relies was invalid for want of authority, was in any event cancelled because he failed to comply with his obligations, and he waited longer than the prescriptive period to try and enforce his claim for transfer.

The rule nisi is discharged with costs, including those reserved on 23 November and 8 December 2015 and those occasioned by the employment of senior counsel.