Current Commercial Cases 1998 - Stellenbosch University

Current Commercial Cases

1998

ISBN 978-1-920569-26-6

A SURVEY OF THE CURRENT CASE LAW

written by

Advocate Mark Stranex BA (Natal) Hons LLB (Cape Town)Member of the Johannesburg Bar

The Law Publisher CCCK92/26137/23

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Contents

Index ...................................................................................................................................................................... 4

BRAZ v AFONSO . 8ABSA BANK LTD v STANDARD BANK OF SA LTD ... 9ABSA BANK BPK v COETZEE 10GOVERNMENT OF THE REPUBLIC OF THE EASTERN CAPE v FRONTIER SAFARIS (PTY) LTD 11BENKENSTEIN v NEISIUS . 12HARKSEN v LANE N.O.13PARK-ROSS v DIRECTOR: OFFICE FOR SERIOUS ECONOMIC OFFENCES 15COOPER v MASTER OF THE SUPREME COURT .. 16LORENTZ v TEK CORPORATION PROVIDENT FUND 17SA FIDELITY GUARDS HOLDINGS (PTY) LTD v PEARMAIN 18FOCKEMA v FOCKEMA ... 19BARKHUIZEN v FORBES .. 20 AGRO-DRIP (PTY) LTD v FEDGEN INSURANCE CO LTD 21LAPPEMAN DIAMOND CUTTING WORKS (PTY) LTD v MIB GROUP (PTY) LTD 22NBS BANK LTD v BADENHORST-SCHNETLER BEDRYFSDIENSTE BK 24FOURIE v SENTRASURE BPK ..25CADBURY (PTY) LTD v BEACON SWEETS AND CHOCOLATES (PTY) LTD 26METEQUITY LTD v NWN PROPERTIES LTD .. 27THE MV RECIFE: SAFBANK LINE LTD v CONTROL CHEMICALS (PTY) LTD 28PHILOTEX (PTY) LTD v SNYMAN 30BRAITEX (PTY) LTD v SNYMAN . 30TJ JONCK BK v DU PLESSIS N.O. 33JOWELL v BRAMWELL-JONES ... 34GEANEY v PORTION 117 KALKHEUWEL PROPERTIES CC 36JEEVA v TUCK N.O. ... 37DE LANGE v SMUTS N.O. 38DELANGE v PRESIDING OFFICER, PAARL MAGISTRATES’ COURT 39LEECH v FARBER N.O. 40NBS BANK LTD v WIETSCHE JACOBS ONTWIKKELAARS BK41VAN HEERDEN v BASSON 43ALEX CARRIERS (PTY) LTD v KEMPSTON INVESTMENTS (PTY) LTD 44BODY CORPORATE OF BRENTON PARK BUILDING NO 44/1987 v BRENTON PARK CC 45HUISAMEN v PORT ELIZABETH MUNICIPALITY . 46MICHAEL v CAROLINE’S FROZEN YOGHURT PARLOUR (PTY) LTD 47DEEDAT v THE MASTER .. 48ROOMER v WEDGE STEEL (PTY) LTD 49NPC ELECTRONICS LTD v S TAITZ KAPLAN & CO 50NBS BANK BPK v DIRMA BK ..51LIEBENBERG v ABSA BANK LTD . 52TELEFUND RAISERS CC v ISAACS ... 53JOUBERT v IMPALA PLATINUM LTD 54BERZACK v NEDCOR BANK LTD . 53ESS KAY ELECTRONICS v FIRST NATIONAL BANK 54VAN ZYL N.O. v TURNER N.O. 55GORE N.O. v ROMA AGENCIES CC ... 56BANK OF LISBON INTERNATIONAL LTD v WESTERN PROVINCE CELLARS LTD 57PATERSON N.O. v KELVIN PARK PROPERTIES CC .. 58HÜLSE-REUTTER v HEG CONSULTING ENTERPRISES (PTY) LTD 59MARAIS v ENGLER EARTHWORKS (PTY) LTD .... 60SANDDUNE CC v CATT ... 61JONES v WYKLAND PROPERTIES 62WILLIAMS v HARRIS . 63HENRY v R E DESIGNS CC 64SHEPSTONE & WYLIE v GEYSER N.O. 65JOHNSON v BLAIKIE & CO (PTY) LTD..... 66LE’BERGO FASHIONS CC v LEE .. 67TRUTH VERIFICATION TESTING CENTRE CC v PSE TRUTH DETECTION CC 68GORDON LLOYD PAGE & ASSOCIATES v RIVERA .. 69VERMEULEN v AFRICA STEEL & TIMBER 70SNYMAN v ODENDAALSRUS PLAASLIKE OORGANGSRAAD71UNION SHIPPING AND MANAGING CO SA v LINA MARITIME LTD 72MV YU LONG SHAN v DRYBULK SA . 73MDAKANE v STANDARD BANK OF SOUTH AFRICA LTD 74KATZEFF v CITY CAR SALES (PTY) LTD 75NBS BOLAND BANK BPK v ONE BERG RIVER DRIVE CC 76NORTH AMERICAN BANK LTD v GRANIT 77INFO PLUS v SCHEELKE .. 79

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WORLDWIDE VEHICLE SUPPLIES LTD v AUTO ELEGANCE (PTY) LTD 80NEDCOR BANK LTD v ABSA BANK LTD .. 81CHAIN v STANNIC CONTRACT HIRE (PTY) LTD . 82SELBORNE CARPET WHOLESALERS CC v J & S CARPETS CC 83MULLER v COCA-COLA SABCO (SA) (PTY) LTD ... 84EISER v VUNA HEALTH CARE (PTY) LTD 85SUN WORLD INTERNATIONAL INC v UNIFRUCO LTD 86LOURENCO v FERELA (PTY) LTD 87CTP LTD v INDEPENDENT NEWSPAPERS HOLDINGS LTD 88GHN OFFICE AUTOMATION CC v PROVINCIAL TENDER BOARD, EASTERN CAPE 90MIDWAY TWO ENGINEERING & CONSTRUCTION SERVICES v TRANSNET LTD 91TWEEDIE v PARK TRAVEL AGENCY (PTY) LTD .. 92HATTRICK PROPERTIES v NORTH CENTRAL LOCAL COUNCIL OF THE CITY COUNCIL OF DURBAN 93SOUTHERN LIFE ASSOCIATION LTD v KHAYZIF AMUSEMENT MACHINES CC 94JACANA EDUCATION (PTY) LTD v FRANDSEN PUBLISHERS (PTY) LTD 95KNYSNA HOTEL CC v COETZEE N.O. 96LAVERS v HEIN & FAR BK 97WARD v SMIT 98STANDARD BANK OF SA LTD v ONEANATE INVESTMENTS (PTY) LTD 99ABSA BANK LTD v DE KLERK 101OWNERS OF THE CARGO LATELY LADEN ON BOARD THE MT CAPE SPIRIT v MT CAPE SPIRIT 102TERBLANCHE N.O. v BAXTRANS CC 103BEINASH & CO v NATHAN (STANDARD BANK OF SA LTD INTERVENING) 104DE LANGE v SMUTS N.O. 105ABSA BANK LTD v MASTER OF THE SUPREME COURT 106FIRST NATIONAL BANK OF SA LTD v COOPER N.O.107PARUK v GLENVAAL DEWAR RAND NATAL (PTY) LTD 108BARNARD v PROTEA ASSURANCE CO LTD . 109POLVERINI v GENERAL ACCIDENT INSURANCE CO SA LTD 109BECK v PREMIER, WESTERN CAPE ... 111NEW GARDEN CITIES INC v ADHIKARIE... 113SUNMORE INVESTMENTS CC v EASTERN METROPOLITAN SUBSTRUCTURE 114BAILES v HIGHVELD 7 PROPERTIES (PTY) LTD.. 115MUNNIKHUIS v MELAMED N.O. ... 116McCULLOCH v KELVINATOR GROUP SERVICES OF SA (PTY) LTD 117GENCOR SA LTD v TRANSITIONAL COUNCIL FOR RUSTENBURG AND ENVIRONS 118GOODMAN BROS (PTY) LTD v TRANSNET LTD.. 119SA METAL MACHINERY CO LTD v TRANSNET LTD 120CATERHAM CAR SALES & COACHWORKS LTD v BIRKIN CARES (PTY) LTD 121NINO’S COFFEE BAR & RESTAURANT CC v NINO’S ITALIAN COFFEE AND SANDWICH BAR CC 122NINO’S ITALIAN COFFEE & SANDWICH BAR CC v NINO’S COFFEE BAR & RESTAURANT CC 122PHEIFFER v FIRST NATIONAL BANK . 124MARLBORO TRANSPORT SERVICES CC v GOGLE . 125ABSA BANK LTD v DEEB . 126MV SNOW DELTA: DISCOUNT TONNAGE LTD v SERVA SHIP LTD 127CAPRI ORO (PTY) LTD v COMMISSIONER FOR CUSTOMS AND EXCISE 128VISION PROJECTS (PTY) LTD v COOPER CONROY BELL & RICHARDS INC 129TOWNHOUSE ESTATES CC v BERRANGE N.O. .... 130MINISTER OF LAND AFFAIRS v RAND MINES LTD .. 131SWEETS FROM HEAVEN (PTY) LTD v STER KINEKOR FILMS (PTY) LTD 132AUGUSTO v SOCIEDA DE ANGLOANA DE COMMERCIO INTERNATIONAL 133THERON v PHOENIX MARKETING (PTY) LTD (HEYMAN INTERVENING) 134BANTJIES v KUNTZE.. 135STELLENBOSCH FARMERS WINERY LTD v VLACHOS 136HOTELS, INNS AND RESORTS SA (PTY) LTD v UNDERWRITERS AT LLOYDS 137VENTER N.O. v EASTERN METRO SUBSTRUCTURE OF THE GREATER JOHANNESBURG TRANSITIONAL COUNCIL138COOLS v THE MASTER ... 139EX PARTE MARX . 140KING PIE HOLDINGS (PTY) LTD v KING PIE (PINETOWN) (PTY) LTD 141LORDAN v DUSKY DAWN INVESTMENTS (PTY) LTD142CLIFFORD v COMMERCIAL UNION INSURANCE CO OF SA LTD 143SANTAM BPK v CC DESIGNING BK .. 144THE MT TIGR v BOUYGUES OFFSHORE... 145

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Index

Acknowledgement of debtdebtor cited incorrectly does not invalidate

documen 125Agency

agent not disclosing existence of principal 75commission payable upon fulfilment of order 56

Agentconfidential information obtained by, used for competitor

titor 53sale of item for owner 80

Anton Pillerapplicant to allege documents held by respondent

may 87applicant to allege documents held by respondent

vit 87applicant to show prima facie cause of action 87duty of disclosure by applicant, basis of its right 86not equivalent to a search warrant 85order may allow applicant access to documents 85order not appropriate for calculating quantum of cla 86

Auditordetermining price of shares 43liability toward third parties relying on financial 50

Authoranonymity, when not proved 95identity of, shown by © 95

Bankcollecting cheque for person other than payee 10reversing entries 99

Bank accountmoney deposited in as property of account holder 55

Bank and customerloan constituted by withdrawal of funds 101withdrawal of funds, effects thought to be cleared 101

Bank and customer contractbreach of by failure to comply with exchange con-

trol 53, 73Bank-customer relationship

contract between, debtor and creditor 52

Carriageshipper’s liability toward carrier, dangerous substa 28

Carriage of goodsonus of proving damage to goods 44

Causationof damages, sine qua non test 129

Chequewords and figures differing 52

Cheques

dishonour when cheque is stale 8stale, whether giving grounds for notice of dishonou 8true owner, agency relationship alleged 10true owner, proof of in action against collecting ba 10

Close corporationliquidation of when just and equitable to do so 36member’s interest, acquisition of under Act 36personal liability for debts of 33, 66winding up, indebtedness extinguished before ap-

peal 41Companies

financial assistance for purchase of shares 133liquidation of, enquiry following 40liquidation of, opposition to, grounds for 59scheme of arrangement, creditors’ objections to 142security for costs, action by liquidator 65winding up 59

Companyexternal, winding up of locally 98liquidation of, shareholder first required to offer 134security for costs 21, 22separate nature of, piercing veil 67shares, price determination of by auditor 43

Competitionagent having access to confidential information 53agreement not to compete, whether enforceable 70confidential information, what constitutes 53customer list as confidential information 53

Condictio indebitiwithdrawal of funds from bank account 101

Confidential informationinterdict to prevent use of 53unlawful use of 69

Constitionenquiry under Insolvency provisions, right to inform 39

Constitutioncompany’s right to litigate, security for costs 22right to information 40rights of solvent spouse 13unfair hearing when information not furnished 40

Constructionlien effective against bond holder 51

Contractbreach, extent of restitution allowed 92breach, prior to supervening impossibility 92cancellation of by Tender Board 90cancellation of, restitution resulting from 74cancellation, party’s duty to continue performing 94common assumption 117credit application form, whether incorporating agree 136damages for breach, foreseeability of 53evidence of surrounding circumstances leading to

con 117executory contract, election to complete 56

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exemption clause, how interpreted 137implied term 126interpretation of 71interpretation of, plain meaning of words 34mistake entering into 49payment under protest 138prescription of creditor’s right to claim 116price, determination of by third party 43repudiation, what constitutes 115restraint of trade 18revival of contract void through failure of suspensi 12simulated transaction 81supervening impossibility following breach 92suspensive condition, failure of, later revival of c 12tacit or implied term 137tacit term 132tacit term, not proved 117tacit term, when proved 72tacit terms 69term that one party has unfettered discretion, unenf 76vague provision, unenforceability of 24vague terms of 135vague terms resulting in voidability 76vagueness, when invalidity results 126waiver 106waiver of right to cancel 135written memorial of inaccurately recording true agre 80

Contractual provisionlessor cancelling 94

Corporationsecurity for costs 64

Credit Agreementcompliance with s 11 of Credit Agreements Act not re 82

Credit agreementrepossession by credit grantor asserting ownership r 82

Credit Agreementsdemand in terms of section 11 of Act 74

Credit Transactionfloorplan agreement, validity of 81

Credit Transactionsapplication for credit form including suretyship pro 49credit application form, insertions made 83credit application form, whether incorporating agree 136interest rate, variation of 126repossession, credit receiver’s right to repayment o 74

Credit transactionsinstalment sale transaction, repossession 82interest rate objectively determinable 24

Damagesbank not responsible where customer’s agent caused

d 53causation, failure to disclose 108remoteness of 53

Debtextinguishment of by third party 79splitting of where only one cause of action exists 109

Delictauditor’s duty toward third party 50breach of statute as giving rise to claim for damage 53

course and scope of employment, employee actingouts 137

unlawful competition as 72Delictual liability

may be established by reference to contractualoblig 54

Deliverylonga manu method 19

Directorserious economic offence committed by 15

Donationpresumption against 20validity of, compliance with General Law Amendment

A 19Duty of care

auditor, toward third party 50by employer to employee to submit insurance

claim 54

Employeewhether employer vicariously responsible for ac-

tions 91Employment

control over employee hired out to other party 91pension fund, employee’s rights to 17

Enquiryliquidated company 40

Enrichmentcollecting bank, receiving proceeds of stolen

cheque 9Estate agent

commission, entitlement to after sequestration ofse 130

Estate agent’s commissionrepayable when sale void 62

Estoppeldelivery of goods as 79failure to inform creditor of sale of business 136

Evictionbuyer dispossessed by police authority 97

Evidencecontract, interpretation of, surrounding

circumstanc 117contract not accurately recording true agreement 80parole evidence, introduction of showing parties

to 84suretyship, parties to 84

Exchange controlbreach of regulations by bank 53

Financial statementsrelied on by creditor to extend credit 50

Fixed propertysale of required to be in writing 62transfer of fatally defective 96

Foreign debtunenforceable against rehabilitated debtor 77

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Import and exporttransit of goods, whether subject to duties 128

Insolvencyadvantage to creditors 104close corporation, personal liability for debts of 33co-trustees, remuneration to be paid to 16commercial, when proved 41cost of administration, commision as 56creditor’s locus standi after indebtedness extinguis 41disposition without value, including nominal or illu 103enquiry, constitionality of denying right to informa 39executory contract, election to complete 56external company, liquidation of in local country 98factual, when proved 41friendly sequestration 104insolvent’s right to sue in respect of own property 60interrogation 37interrogation, constitutionality of 105late claim, submission of 139local authority, preferential claims on transfer of 138locus standi of applicant 61rehabilitation, averments must display candour 140rehabilitation, effect of in discharging debt 77sale of business, not complying with s34(1) 57sale of business, whether traded has continued to tr 58section 34 notice not properly given 61secured creditor confining claim to security it hold 106security for costs of action brought by liquidator 65solvent spouse’s constitutional rights 13trustee, no power to act after confirmation of accou 107voidable disposition 55

Instalment salecancellation of entitling credit receiver to repayme 74

Instalment sale transactionreservation of ownership, purchaser not in posession 79

Insuranceambiguous term, interpreted in favour of insured 109employer failing to notify insurer timeously of empl 54failure to disclose by broker 108insured defrauded of vehicle 144insured required to take all reasonable steps 144material assessment of risk, factors affecting 143offer of settlement, insurer requiring acceptance in 109repudiation by insurer, right to after insured makes 25repudiation upon failure to disclose 108untrue statement made by insured following submissio 25

Interdictinterpretation of court order 88

Interestappropriation of payment to 124capitalisation of 99in duplum rule 99rate determined by one party only, invalidity of 24

Interest ratevariation of in unfettered discretion of one party 126

Interrogationconstitutional right of interrogee 40prejudice to interogee no ground for contesting cred 37right to information and documents 39under Insolrvency Act, constitutionality of 105

Jurisdictionattachment to found, action in personam in

shipping 127of magistrates’ court, personal liability of mem-

ber 66

Leasecancellation, tenant’s duty to continue paying

rent 94commodus usus, landlord’s duty to afford 132landlord’s claim not allowed for payment of future

r 61lease concluded by nominee for close corporation

to 47Lien

builder’s lien, effective against bond holder 51Liquid document

provisional sentence allowed even if debtorincorrec 125

Liquidationjust and equitable ground 36of company, grounds for opposing 59

Liquidatoraction by, security for costs 65

Loanby bank when funds withdrawn 101interest provision essential term of 24

Local authoritydevelopment of property, change of plan in

regard to 93subdivision of property 114use of property, zoning regulation in relation

to 113zoning scheme created under earlier law remaining

ef 46Locus standi

creditor in application to wind up 41review of admission of creditor’s claim 37

Mandatebank as performing under when paying custom-

er’s che 52Master

discretion in authorising appointment of trus-tee 48

Mineral rightscertificate of, may include granite and mar-

ble 131Mistake

suretyship provision in credit applicationform 49

Mortgageclaim by mortgagee in insolvent estate relying

solel 106Mortgage bond

ineffective against builder’s lien 51interest rate variation clause 126

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interest rate variation provision, enforceabilityof 76

Onus of proofinsurance policy, qualification in compared to

excep 54Originality

presumed under s 26 95Ownership

agent for owner not considered owner 80delivery taking place when purchaser not in

possessi 79estoppel, owner giving right of disposal to an-

other 80purchaser not in possession of goods when condi-

tion 79transfer of 19

Passing offby inserting telephone number at directory entry

of 68cannot be asserted against holder of right to

name 122location where reputation of holder exists 121not proved where holder no longer manufacturing

prod 121reputation as element of goodwill protected by 121

Pension fundsurplus funds in 17

Pledgewithout delivery of pledged asset impossible 81

Possessionpossessory remedy can be employed by insol-

vent 60Prescription

amendment to claim, whether interrupted 99commencement of running of 116contractual obligation, date of performance of as

co 116identity of interested party not known to credi-

tor 97interruption of by issue of summons 99when arising in respect of defective property

transf 96Presumption

of copyright 95of originality 95

Pricedetermination of by third party 43

Propertybond holder’s rights and builder’s lien 51development, local authority issuing notice then

cha 93development, use of information obtained by an-

other 69lease entered into by nominee for close corpora-

tion 47mineral rights, certificate of 131restrictive conditions imposed by township

owner 113rezoning of 114rezoning of by functionaries under newly assigned

la 46sale of land, identification of property 12sale of, requirement that in writing 62sectional title, body corporate’s right to let commo 45subdivision, imposition of condition may not

expropr 114transfer of fixed property, defect in 96use of, condition imposed in agreement of sale 113water flow, neighbour not obliged to accept 63water, obligation to allow flow of 63zoning of, residential use 46

Provisional sentenceacknowledgement of debt incorrectly citing

debtor 125foreign debt 77

Real securitypledge without delivery of asset 81

Reckless tradingpersonal liability for debts of close corpora-

tion 33, 66Rehabilitation

candour in averments in application for 140effect of in discharging debt 77

Restitutionextent of following breach 92

Restraintemployee undertaking not to interfere with custom-

ers 18Restraint of trade

engaging in business ‘directly or indirectly’ 67not enforced where it does not protect goodwill of

p 70use of company to avoid restraint 67

Riskmaterial factors affecting insurer 143

Saledamages for breach of warranty 75eviction, seller’s warranty against when police

disp 97suspensive condition, reserving ownership 79warranty against eviction, breach of 75

Sale of businessfailure to comply with s34(1) 57failure to inform creditor of 136whether affected by s34 of Insolvency Act 58

Sale of fixed propertyin writing, complete terms to be recorded 115in writing, exchange of letters 115in writing, failure to record material term 62term relating to use of contained in agreement 113

Sale of landagent’s commission, sequestration of seller prior

to 130identification of property 12

Scheme of arrangementcreditors’ objections to 142

Sectional title

8

BRAZ v AFONSO

A JUDGMENT BY SCHUTZ JA(SMALBERGER JA, NIENABERJA, SCOTT JA and ZULMAN JAconcurring)SUPREME COURT OF APPEAL26 SEPTEMBER 1997

1997 CLR 587 (A)

Notice of dishonour of a cheque isdispensed with in terms of section48(2)(c)(iv) of the Bills ofExchange Act (no 34 of 1964) whenit is shown that the drawee bankis not bound to pay the cheque.Where the cheque in question is‘stale’ being presented more thansix months after date of thecheque, this in itself may be anindication that the drawee bank isnot bound to pay the cheque.Insufficiency of funds to pay thecheque, where shown, will besufficient indication of the draweebank not being bound to pay thecheque, even if the bank’s statedreasons for not paying the chequeare that the cheque is stale.

THE FACTSOn 3 February 1993, Afonso and

three others drew a cheque forR318 155 in favour of Braz orbearer. On 2 June 1994, Brazpresented the cheque to thedrawee bank for payment. Thecheque was returned marked‘stale’. Braz brought an action forprovisional sentence, alleging thatnotice of dishonour had beendispensed with in terms of section48(2)(c)(iv) of the Bills of Ex-change Act (no 34 of 1964). Sub-section 48(2)(c)(iv) provides thatnotice of dishonour is dispensedwith as regards the drawer wherethe drawee is not bound, asbetween himself and the drawer,to pay the bill.

Braz further alleged that thebank was not bound, as betweenitself and Afonso (and the otherdrawers of the cheque), to pay thecheque because (i) the bank hadan agreement with its customersthat it would not be obliged to payon a cheque presented for pay-ment more than six months afterthe date appearing on the cheque,(ii) there were insufficient fundsin the account to meet payment ofthe cheque, alternatively therewas no overdraft facility availableto meet payment of the cheque.

Afonso contended that the bankhad not failed to pay the chequeon the grounds of insufficiency offunds, but on the grounds that thecheque was ‘stale’, ie was morethan six months old. He arguedthat section 48(2)(c)(iv) wastherefore inapplicable, and noticeof dishonour had not been dis-pensed with.

THE DECISIONAn allegation that notice of

dishonour has been dispensedwith because of insufficient fundsor an absence of overdraft ar-rangements is an allegation of thefulfilment of a simple conditionwhich completes the plaintiff’scase in an action based on a liquiddocument. Braz had establishedfulfilment of the simple conditionof insufficiency of funds bymaking the allegation in regardthereto, Afonso not having deniedthat the funds had been insuffi-cient.

Afonso’s argument was how-ever, that in view of the bank’sreasons for returning the cheque,the sufficiency of funds wasirrelevant. This argument couldnot be upheld. Section 48(2)(c)(iv)contemplates only the questionwhether or not the drawee bank isbound to pay the cheque. Thereasons for such a bank notpaying a cheque are not relevant,so long as the bank is not, as amatter of law, bound to pay thecheque. The bank in the presentcase was not, as a matter of law,bound to pay the cheque, becausethe funds necessary to pay it wereinsufficient. This Braz had estab-lished. Notice of dishonour wastherefore dispensed with.

Provisional sentence wasgranted.

Cheques

9

ABSA BANK LTD v STANDARD BANK OF SA LTD

A JUDGMENT BY VANHEERDEN DCJ(MAHOMED CJ, EKSTEEN JA,NIENABER JA and VANCOLLER JA concurring)SUPREME COURT OF APPEAL19 SEPTEMBER 1997

1997 CLR 583 (A)

When the signature to a cheque isforged, the cheque is a nullitybecause it fails to comply withthe requirement that the cheque besigned by the person giving it, andconsequently any payments madeunder that cheque cannotdischarge any indebtedness. Apayee bank which pays a chequeto a collecting bank in suchcircumstances pays the chequewithout cause (sine causa) andmay recover from the collectingbank the amount of the cheque ifthe payment which is madeunjustifiably enriches thecollecting bank.

THE FACTSOn 24 October 1991, a cheque for

R150 000 payable to JF Horn,drawn on the Standard Bank ofSA Ltd by Unitrans Bulk (Pty) Ltdwas deposited into Horn’sVolkskas Bank current account.Volkskas presented the cheque tothe Standard Bank for payment,and received R150 000 which itprovisionally credited to Horn’saccount. That account had been inoverdraft to the extent ofR81 843,94. When the StandardBank paid the forged cheque, itbelieved that the signatures on itwere genuine signatures.

The cheque had been stolen fromUnitrans, and the signatures itbore had been forged. When theforgery was discovered, theStandard Bank credited Unitranswith the amount of the cheque,and sought to recover that sum,less the amount by which Horn’saccount had been in credit, fromVolkskas. While the credit toHorn’s account was still consid-ered provisional, being within aten-day clearance period,Volkskas froze operations onHorn’s account and refused toallow withdrawals from it.

Standard Bank brought an actionagainst Absa Ltd, which hadsucceeded Volkskas and assumedits liabilities, based on thecondictio sine causa (recovery onthe grounds of payment madewithout cause). Absa Bank de-fended the action on the groundsthat it had not received the R150000 for itself, but had collected theproceeds of the cheque for thecredit of Horn’s account and onhis behalf. Thereafter, Horn’sindebtedness to Volkskas hadbeen extinguished by way of setoff.

THE DECISIONThe agency relationship con-

tended for by Absa did not existafter Horn’s account had beencredited with the proceeds of thecheque. After having creditedHorn’s account with those funds,Absa held them in its own right,and became Horn’s debtor to theextent that the account was inpositive balance. Since it did notact as Horn’s agent when credit-ing his account, the consequencewas that in extinguishing hisindebtedness to the bank, it wasenriched to that extent. Set off didnot operate at all—when Horn’saccount was credited, the effectwas not that one debt was set offagainst another but that he paidan amount then owing to hisbank.

Absa argued that it had not beenenriched because it had been paidfor a debt then owing to it, ie itsclaim for payment had beensubstituted for payment. How-ever, because of the clearanceperiod adhered to by the bank, thepayment it had received wasprovisional. The bank had there-fore not been finally paid, and hadAbsa brought an action againstHorn for repayment of his over-draft, Horn would not have beenentitled to affirm that the bankhad received final payment of allamounts owing to it. Absa hadtherefore failed to show that it hadnot been enriched by the paymentmade into Horn’s account.

The appeal was dismissed.

Cheques

10

ABSA BANK BPK v COETZEE

A JUDGMENT BY EKSTEEN JA(HOWIE JA, OLIVIER JA,SCHUTZ JA and PLEWMAN JAconcurring)SUPREME COURT OF APPEAL26 SEPTEMBER 1997

1997 CLR 601 (A)

An action by the payee of a chequeagainst a collecting bank fornegligently collecting a cheque foranother person requires proof thatthe payee is the true owner of thecheque. This will not be shownwhere there is no proof that thedrawer intended payment to bemade to the payee of the cheque.

THE FACTSIn terms of a divorce settlement,

Coetzee obtained the issue of aDiners Club credit card in his ownname and gave it to his ex-wife forher exclusive use. She conductedthe account with Diners Club, andpaid its account. Some time later,unbeknown to Coetzee, DinersClub issued a cheque for R18 000in favour of Coetzee and sent thecheque to his ex-wife. The chequewas crossed and marked ‘notnegotiable: account payee only’.Mrs Coetzee paid the cheque intoher account with Absa Bank Bpk,and the bank collected the chequefor her.

Coetzee brought an actionagainst Absa, basing his claim onthe allegations that he was thetrue owner of the cheque, that hissignature had been forged on thereverse of the cheque, and thatAbsa had negligently collected thecheque.

Absa denied the allegations.

THE DECISIONIt was essential to the success of

Coetzee’s action that he prove thathe was the true owner of thecheque. To show that he was thetrue owner, it was necessary forhim to show that transfer ofownership had taken place,

according to the common lawrules for transfer of ownership.

One of these rules is that thetransferor (Diners Club in thepresent case) intends to transferownership to the transferee. Therewas however, no evidence thatDiners intended to transferownership of the cheque toCoetzee. Furthermore, in obtain-ing the cheque from Diners, MrsCoetzee did not act as Coetzee’sagent: Coetzee had not beenaware of the existence of thecheque at this time, and there hadnever been any intention that MrsCoetzee should use the card foranyone other than herself. MrsCoetzee had never intended thecheque, nor its proceeds to beCoetzee’s.

Section 19(4) of the Bills ofExchange Act (no 34 of 1964)provides that if a cheque is nolonger in the possession of thedrawer, a valid and unconditionaldelivery would be presumed untilthe contrary was proved. Thissection however, did not assistCoetzee as it referred to thepossession of a cheque and not thetransfer of it.

Coetzee had not shown that hewas the true owner of the cheque.His action against Absa wasdismissed.

Cheques

11

GOVERNMENT OF THE REPUBLIC OF THEEASTERN CAPE v FRONTIER SAFARIS (PTY) LTD

A JUDGMENT BY PLEWMAN JA(SMALBERGER JA, FHGROSSKOPF JA and HARMS JAconcurring, STREICHER JAdissenting)SUPREME COURT OF APPEAL29 SEPTEMBER 1997

UNREPORTED

An Act conferring on thegovernment the power of controland management over a certainarea does not preclude thegovernment from handing oversuch control and management toanother party in terms of acontract to that effect providedthat the government does notthereby surrender ultimate controlof such control and managementto the other contracting party.

THE FACTSThe Government of the Republic

of Ciskei leased to Frontier Safaris(Pty) Ltd an area of land consist-ing of three game reserves form-ing part of a national naturereserve. In terms of the lease, theGovernment was obliged tomaintain the infrastructure of theland, including main access roadswithin the reserves and fencing.Frontier Safaris was obliged tomaintain certain aspects of theinfrastructure of the area, such assurface drinking water, and it wasobliged to carry out managementand other maintenance tasks. Interms of clause 7.1 of the lease,Frontier Safaris undertook toemploy and pay all staff necessaryfor the administration and mainte-nance of the reserves, and toaccommodate residents of thereserves with such benefits as theprovision of surplus meat at aprivileged rate, the right to obtainherbs for their own use and thecollection of thatching grass andfirewood.

In terms of section 25(1) of theCiskei Nature Conservation Act(no 10 of 1987) the control, main-tenance, development and man-agement of a national naturereserve vests in the Department ofAgriculture, Forestry and RuralDevelopment.

Frontier Safaris brought variousclaims against the Government,based on allegations of breach ofthe contract of lease. The Govern-ment raised the special plea thatthe lease purported to divest theDepartment of Agriculture,Forestry and Rural Developmentof the control, maintenance,development and management ofthe national nature reservesreferred to in the lease, that it wasnot in law competent to concludesuch a contract, and that accord-ingly, the Government was notliable for damage flowing fromthe alleged breach.

THE DECISIONThe vesting of the management

of the reserves as referred to insection 25(1) imposed a duty onthe government to manage thereserves. However, this powerwas permissive and not directory.On a proper interpretation of thelanguage of the section, thegovernment was not precludedfrom engaging an outside body tocarry out any of the activitiesreferred to in the section.

Clause 7.1 provided for anundertaking by Frontier Safaris,and not an all-embracing right tomanage the reserves. The clausewas subsidiary to the limitationselsewhere provided for in thecontract, and it did not operate todivest control of the managementof the reserves from the govern-ment. The overall effect of thecontract was to create a series ofreciprocal obligations on theparties all of which were consist-ent with the legislation. It was notpossible to say that the effect ofthe contract was to divest thegovernment of the powers ofcontrol, maintenance, develop-ment and management of thereserves, as given to it in the Act.

The special plea was dismissed.

Property

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BENKENSTEIN v NEISIUS

A JUDGMENT BY FITZGERALD AJCAPE OF GOOD HOPE PROVIN-CIAL DIVISION9 JUNE 1997

1997 (4) SA 835 (C)

An agreement for the sale of landmay be revived after the failure ofa suspensive condition where theparties to the original sale enterinto an agreement amending theprevious sale by waiving thesuspensive condition. Subsequentconduct by the parties to anagreement may indicate anintention to substitute the sellerfor another, but this will notnecessarily mean that the parties’intention was to renounce theoriginal agreement in toto. Thefact that the parties makeprovision for subsequentagreement regarding theidentification of subdivided partsof the property does not render thedescription of the property vagueon the grounds that the propertysold is not readily ascertainable.

THE FACTSIn June 1996, Benkenstein con-

cluded an agreement with Neisiusand the second respondent interms of which he purchased‘portion A of the farm Meerendal,measuring 4,2826 ha which is tobe subdivided’. It was recordedthat the size of the property mightdiffer from that reflected on thediagrams still to be approved andhad to be divided in two equalportions with both parties’ ap-proval. The property was thenregistered in the name of the thirdrespondent, a close corporation, ofwhich Neisius and the secondrespondent were members. Theagreement was subject to twosuspensive conditions: (i) the saleof certain fixed property ownedby Benkenstein by 6 August 1996for R350 000, and (ii) the approvalof a subdivision of the property, tobe secured by Benkenstein.

The agreement was amendedtwice, firstly by extending theperiod within which Benkensteinwas to sell his own property byone month to 6 September 1996,and later by waiving the firstsuspensive condition completely.The second amendment waseffected on 13 September 1996, bywhich time Benkenstein had notsold his own property.

On 12 February 1997,Benkenstein’s attorney wrote toNeisius and the second respond-ent and sought their writtenconfirmation that they had beenduly authorised to act for the closecorporation, that they intended touphold the original agreement,would not enter into any otheragreements with other partiesregarding the property, andwould not effect transfer of theproperty to a certain Mr and MrsPrestage or to any other party.

In November 1996, Neisius andthe second respondent had pur-ported to sell the property to Mrand Mrs Prestage, but latercancelled the sale after

Benkenstein objected to this. On 3February 1997, they had con-firmed that the original agreementwas valid and binding betweenthe parties to it.

Benkenstein applied for an orderinterdicting the close corporationfrom dealing with the propertyand directing Neisius and thesecond respondent to take allsteps necessary to procure transferof the property to him.

THE DECISIONThe non-fulfilment of the first

suspensive condition by 6 Septem-ber 1996 meant that the agreementterminated automatically on thatdate and became void ab initio.Benkenstein however, contendedthat the agreement was laterrevived when the parties effectedthe second amendment of 13September 1996.

When the parties entered into thesecond amendment, they effec-tively reaffirmed their intention tosell the property, even thoughthey referred to the secondsuspensive condition as havingbeen ‘waived’. The revival of theearlier agreement was possible insuch circumstances, and there wasno question of there having beenany failure to comply with theprovisions of the Alienation ofLand Act (no 68 of 1981) since theparties had effected the amend-ment in writing. Benkenstein’scontention was therefore correct.

Neisius however, contended thatBenkenstein’s conduct subsequentto the conclusion of the amend-ment on 13 September 1996showed that he did not intend torevive the original agreementbecause he had attempted to enterinto an agreement with the closecorporation which owned the landand not the original sellers. It wasclear however, from the fact thatBenkenstein’s attorney hadreferred to the original agreementin correspondence with theoriginal sellers, and had obtained

Property

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the confirmation from them thatthe original sale would be upheld,that the parties’ later conduct wasnot inconsistent with an intentionto sell the property in accordancewith the original agreement.

Neisius also contended that theproperty as described in the

agreement was not readily ascer-tainable. However, the propertywas identifiable, in view of thefact that subdivision had takenplace, and the fact that the agree-ment provided for further agree-ment regarding the subdivisioninto two equal portions did not

detract from the identification ofthe property: the precise mannerof subdivision was a separatematter for the agreement of theparties.

Benkenstein was granted theorder he sought.

HARKSEN v LANE N.O.

A JUDGMENT BY GOLDSTONE J(CHASKALSON P, LANGA JP,ACKERMANN J and KRIEGLER Jconcurring, O’REGAN J,MADALA J, MOKGORO J andSACHS J dissenting)CONSTITUTIONAL COURT7 OCTOBER 1997

1998 (1) SA 300 (CC)

Sections 21, 64 and 65 of theInsolvency Act (no 24 of 1936) arenot in conflict with the provisionsof the Constitution of theRepublic of South Africa Act (no200 of 1993) and do not offendagainst the rights of the solventspouse whose property has beenattached in terms thereof.

THE FACTSHarksen was married to her

husband out of community ofproperty. Her husband’s estatewas sequestrated. The trusteesattached Harksen’s property interms of section 21 of the Insol-vency Act (no 24 of 1936). She wasalso summoned to an interroga-tion in terms of section 64 of theAct and ordered to produce booksand documents there.

Harksen attacked the constitu-tionality of these provisions,arguing that they offended herrights as provided for in sections 8and 28 of the Constitution of theRepublic of South Africa Act (no200 of 1993).

Section 21(1) provides that theeffect of the sequestration of theseparate estate of one of twospouses shall be to vest in theMaster and then the trustee, allthe property of the solvent spouse.Section 21(2) provides that thetrustee shall release any propertyof the solvent spouse proved tohave been the property of thatspouse immediately before his orher marriage to the insolvent, aswell as other property falling intocertain specified categories.

Section 64 provides that thepresiding officer of an inquiry intothe affairs of an insolvent estatemay require the interrogation ofany person who is able to givematerial information concerningthe business affairs of the insol-vent person, or the insolventperson’s spouse. Section 65entitles any person so interrogatedto invoke the law relating toprivilege applicable to a witnesssummoned to produce a book ordocument in a court of law.

Section 8 of the Constitution (‘theequality clause’) provides thatevery person shall have the rightto equality before the law and toequal protection of the law, andno person shall be unfairly dis-criminated against. Section 28(1)of the Constitution (‘the propertyclause’) provides that everyperson shall have the right toacquire and hold rights in prop-erty. Section 28(3) provides thatwhere any rights are expropriatedpursuant to a law, such expropria-tion shall be permissible for publicpurposes only and shall be subjectto the payment of compensationagreed to or determined by acourt of law.

The matter was referred to theConstitutional Court for decision.

Insolvency

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THE DECISIONThe property clause

Expropriation may take the formof compulsory acquisition ofrights in property by a publicauthority for a public purpose, ora deprivation of rights in prop-erty. While no such distinctionwas made in section 28, it wasclear that the section did imposerequirements for any expropria-tion made against a person’sproperty. The question waswhether the ‘transfer’ of theproperty of a solvent spouse interms of section 21 of the Insol-vency Act constituted an expro-priation at all of that spouse’sproperty.

In order to answer this question,it was necessary to look at thebroad context and purpose ofsection 21 as a whole. The purposeand effect of this provision wasnot to divest the solvent spouse ofownership of his or her property.Its purpose was to ensure that theinsolvent estate was not deprivedof property to which it wasentitled. The onus of proving thatsuch property was that of thesolvent spouse might rest on thesolvent spouse, but this did notaffect the purpose of the provi-sion. Section 21 does not intendthat the transfer shall be perma-nent, or for any purpose otherthan to enable the Master ortrustee to determine whether theproperty forms part of the insol-vent estate.

Section 21 did not amount to anexpropriating provision, neitherby a public authority as referredto in section 28, or at all. It there-fore did not offend against therights created in section 28 andwas not to be struck down asbeing unconstitutional.The equality clause

In order to determine whether astatutory provision offendsagainst the equality clause, it isnecessary to determine firstlywhether the provision differenti-ates between people or categoriesof people. If it does, the nextinquiry is whether the differentia-tion bears a rational connection toa legitimate government purpose.If it does not, section 8(1) of theConstitution is violated; if it does,the next inquiry is whether thedifferentiation amounts to unfairdiscrimination.

Section 21 of the Insolvency Actclearly differentiated betweenpeople: it differentiated betweenthe solvent spouse of an insolventperson and other persons. Thisdifferentiation was however, notwithout a rational connection to alegitimate government purpose.Given the increase in economi-cally active spouses, and theintermingling of their assets whenacquired during the marriage, thepractical constraints on a trusteeof the insolvent spouse in havingto distinguish one spouse’s assetsfrom the other’s required thatsome assistance be given to the

trustee in completing his task.While it might be true that theeffect of the section would be tocreate inconvenience for thesolvent spouse, its provisionscould not be said to be arbitrary orlacking in rationality. Because thefacts necessary for the determina-tion of which spouse could claimownership of the assets alleged tobe those of the solvent spousewould lie peculiarly within theknowledge of that spouse, theonus of proving that those assetswere those of that spouse layproperly upon him or her.

The differentiation imposed bysection 21 clearly amounted todiscrimination: the solventspouse—as opposed to othersassociated with the insolventspouse—was affected. However,the section does not divest thesolvent spouse of his or herproperty, though it does cast anonus on the solvent spouse toprove that the property is his orhers. This inconvenience does notexceed the inconvenience andburden faced by ordinary citizenswhen forced into litigation inorder to enforce their rights.

The same reasoning in respect ofsections 64 and 65 of the Insol-vency Act applied.

The sections of the InsolvencyAct attacked by Harksen did notoffend her constitutional rights,and could not be considered inviolation of the Constitution.

Insolvency

15

PARK-ROSS v DIRECTOR: OFFICE FORSERIOUS ECONOMIC OFFENCES

A JUDGMENT BY FARLAM JCAPE OF GOOD HOPEPROVINICIAL DIVISION20 JUNE 1997

1998 (1) SA 108 (C)

The Director of the Office forSerious Economic Offences is notobliged to furnish the evidenceobtained in inquiries conductedunder the Investigation of SeriousEconomic Offences Act (no 117 of1991) to the person whoseactivities have been investigatedeither before obtaining theevidence of that person, or as aprecondition to referring thematter to the Attorney-General interms of the Act.

THE FACTSThe Director of the Office for

Serious Economic Offencesconducted investigations into theaffairs of Southern OceanicServices (Pty) Ltd. Evidence givento the Director implicated Park-Ross in fraudulent and corruptactivities, and the Director in-formed Park-Ross of this fact. TheDirector informed Park-Ross thatin all probability he would recom-mend to the Attorney-Generalthat he consider prosecuting Park-Ross on charges of corruption,fraud, theft and contraventions ofthe Companies Act (no 61 of1973). He invited Park-Ross togive evidence in reply to theallegations made against him,before he submitted a final recom-mendation to the Attorney-General.

Park-Ross responded to theDirector’s approach by statingthat he could not decide whetherto give evidence to him, as re-quested, until such time as he hadperused all of the evidence so farsubmitted to the Director. Herequested the transcript of theproceedings which had alreadytaken place before the Director, aswell as all documentation pertain-ing to it.

The Director refused to furnishthe transcript and documentation.Park-Ross then brought an appli-cation for an order allowing himsight of the complete transcript ofthe evidence given by witnesses atthe inquiry conducted by theDirector, and all written state-ments made by witnesses at theinquiry. He also sought an inter-dict preventing the Director frommaking any recommendation tothe Attorney-General in terms ofsection 5(1) of the Investigation ofSerious Economic Offences Act(no 117 of 1991).

THE DECISIONPark-Ross argued that in terms

of section 23 of the Constitution,he was entitled to the transcriptand documentation. The sectionprovides that every person shallhave the right of access to allinformation held by the State orany of its organs insofar as suchinformation is required for theexercise or protection of any of hisor her rights.

This was a right however, whichcould be exercised only if Park-Ross had the right to be heard bythe Director, or a legitimateexpectation that he would beheard, and given access to all thedocuments he required, before theDirector submitted his report interms of the Act. Park-Ross had nosuch right. In terms of the Act, theDirector is empowered to makeinquiries, where he has reason tosuspect that a serious economicoffence has been committed. Hispowers are of a preliminary andinvestigative nature, like thepowers of the police. The Act didnot make the investigation into aperson suspected of havingcommitted a serious economicoffence any different from theinvestigation conducted by anordinary detective in the policeforce. Those being the limitedpowers of the Director, Park-Rosscould not contend that he had anyrights which might be affected bytheir exercise.

There was also no reason torecognise any right to inspect thetranscript and documentationbefore it was sent to the Attorney-General. The Attorney-Generalhimself was not obliged to seekthe comments of a suspect beforedeciding to prosecute. An investi-gating officer such as the Directorwas similarly not obliged to seekthe comments of a person he hasinvestigated, before deciding torefer the matter to the Attorney-General.

The application was dismissed.

Insolvency

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COOPER v MASTER OF THE SUPREME COURT

A JUDGMENT BY HUGO J(BROOME DJP and NICHOLSON Jconcurring)NATAL PROVINCIAL DIVISION30 OCTOBER 1997

[1998] 1 All SA 158 (N)

Where co-trustees of an insolventestate disagree about theproportion of the remuneration tobe paid to them, a court mayintervene to determine theproportion each should receive,provided that this is a matterwhich can properly be said to be amatter relating to the estate.

THE FACTSCooper and the second and third

respondents were co-trustees inan insolvent estate. Cooperdisagreed with the award of aspecial fee to the second respond-ent by the Master of the SupremeCourt. He brought an actionagainst the Master and the othertwo respondents inter alia review-ing the award of the special fee,and for an order that appropriatedirections be given as to theprocedure and manner in whichan appropriate allocation of anyspecial fee amongst the three co-trustees was to be determined,and declaring that in the absenceof agreement, such fee was to bedivided equally between them.

The court granted an orderreviewing the award of the specialfee, but refused to grant the ordergiving directions for the appropri-ate allocation of a special fee.Cooper appealed against thisrefusal.

THE DECISIONSection 56(5) of the Insolvency

Act (no 24 of 1936) provides thatwhenever trustees in the insolventestate disagree on any matterrelating to the estate, the mattershall be referred to the Masterwho shall determine the questionin issue. The question waswhether the disputed between theco-trustees in the present case wasa disagreement ‘relating to theestate’ and therefore one which

could be adjudicated upon interms of this section.

The determination of the quan-tum of the remuneration to bepaid to trustees was a matterprovided for in the tariffs laiddown in terms of the InsolvencyAct. Any disagreement about thiswas clearly a matter relating to theestate. Any disagreement at thatstage, about the proportion of thework to be done by each trustee,and the corresponding remunera-tion to be paid to each, would be amatter relating to the estate, andcould be dealt with by the Masterin terms of section 56(5). Wherehowever, the quantum of remu-neration had been determined,and there was disagreement wasabout the proportion of remunera-tion to be paid to each co-trustee,this would be a dispute betweenthe trustees which be of no inter-est to the estate.

The dispute between the co-trustees in the present case was adisagreement about the quantumof remuneration to be paid tothem. It was therefore a disagree-ment relating to the estate, andone which could be determined interms of section 56(5). The courtwas entitled to apply the provi-sions of the section and givedirections for the appropriateallocation of a special fee. In theabsence of agreement between theco-trustees, as to the division ofany remuneration the Mastermight allow, the fee was to bedivided equally between them.

Insolvency

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LORENTZ v TEK CORPORATIONPROVIDENT FUND

A JUDGMENT BY NAVSA JWITWATERSRAND LOCALDIVISION31 JULY 1997

1998 (1) SA 192 (W)

The trustees of a pension fund arenot entitled to allow the employercontributing to the pension fund acontribution holiday, merelybecause there is a surplus in thepension fund. Normally, theemployer may be allowed acontribution holiday only incircumstances where the surplusis attributable to pastovercontributions. In approvingthe transfer of the assets of thepension fund to a new fund, whenthe transfer has been agreed to bymembers of the fund, the trusteesmust ensure that the interest ofthe members have beensafeguarded and apply anysurplus funds then existing in thetransferring pension fund.

THE FACTSLorentz was employed by Tek

Corporation Ltd in its DefyApplicances Division. He was amember and trustee of Tek’spension fund.

In 1993, the trustees of thepension fund decided to form aprovident fund and eighty sevenpercent of the members of thepension fund transferred theirmembership to the provident fundthen formed, together with theiractuarial reserve. The providentfund was the Tek CorporationProvident Fund. At the time of thetransfer from the pension fund tothe provident fund, there was asurplus in the pension fund ofR17,7m. By July 1995, this surplushad increased to R27m. Tek usedthis surplus to meet its ownobligations to the pension fund,and from inception of the fund,paid no contributions to it.

Rule 4.2.1 of the pension fundrules provided that Tek wasobliged to contribute suchamounts as were agreed uponfrom time to time between theemployer and the trustees. Suchamounts were not to be less thanthe amounts determined by theactuary to be necessary to ensurethat the Registrar’s requirementswith regard to the financialsoundness of the pension fundwas met. Tek cited this rule tojustify having taken the contribu-tion holiday. In terms of rule19.5.2 , if an actuarial valuation ofpension fund assets disclose thatthere was a substantial actuarialsurplus or that there is a deficitthat required to be funded, themanner of dealing with thesurplus or funding the deficit wasto be considered by the trusteesand recommendations made toTek for a decision. Tek’s decisionwas to be made within the limita-tions imposed by the Act andwould be final.

In 1994, Tek sold Defy to MalbakIndustrial Holdings Ltd. Two-

thirds of the previous members ofthe pension fund, ie those employ-ees who were employed in Tek’sDefy Division, ceased beingmembers of the provident fundand their credits in it were to betransferred to Malbak’s providentfund. At this time, the employeesof Tek’s Defy Division, led byLorentz, contended that thepension fund should have trans-ferred its surplus of R17,7m to theprovident fund in 1993. Heapplied for orders declaring thatthe trustees of the pension fundwere not entitled to use thesurplus in the pension fund toallow Tek to avoid making contri-butions to the provident fund, anddirecting the trustees of thepension fund to determine theportion of surplus funds to betransferred to the provident fundand effect payment of the amountso determined to the providentfund.

The provident fund and thepension fund opposed the appli-cation, contending that the pen-sion fund had been entitled to usethe surplus to allow Tek a contri-bution holiday, provided it met itsobligations to the pension fund,and that employees who weremembers of the fund enjoyed norights to the surplus of the pen-sion fund when this arose.

THE DECISIONThe object of the fund was to

provide retirement and otherbenefits for employees: the fundwas therefore a trust, and thismeant that the trustees of thepension fund bore a fiduciaryduty to the beneficiaries of thefund. It was not necessarilyinconsistent with that duty for thetrustees to allow the employer acomplete contribution holiday,but whether or not that shouldhave been allowed depended onthe question why the surplus inthe pension fund arose. If thesurplus was a result of previous

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overcontributions by the em-ployer, the trustees might havebeen entitled to allow a contribu-tion holiday. It was wrong inprinciple to give the benefit ofearnings from sources other thanthe employer’s overcontributionto the employer. In the presentcase however, there was no clearevidence that overcontributionwas the cause of the surplus.

The pension fund was a legalperson, separate and distinct fromthe employer which was thepredecessor of the present em-ployer. Given the lack of evidenceas to the source of the surplus, itshould properly be regarded asbelonging to the pension fund,and no-one else. The argumentthat the employer took the invest-ment risk in relation to pensionfunds, would be obliged to makegood any deficit that might arise

in the pension fund, and wastherefore entitled to lay claim toany surplus, was unacceptable.

Properly interpreted, rule 4.2.1entitled the trustees to allow acontribution holiday in the eventof Tek having overcontributed tothe fund. In applying such aninterpretation of the rule, andallowing Tek a contributionholiday, Tek would not receiveany financial advantage, andwould gain only access to theovercontribution. The trustees hadhowever, allowed the contributionholiday without determiningwhether or not Tek hadovercontributed to the fund.Furthermore, they had neglectedto exercise their fiduciary duties toapply pension fund assets to meetthe objects of the fund, and hadfailed to ensure that when thetransfer of assets to the provident

fund took place, this was done forthe benefit of members. Althoughrule 19.5.2 gave Tek the final sayin what to do with a surplus, itcould not act arbitrarily and onlyin its own financial interests inthat regard. It was still obliged toact bona fide, and could not usepension fund assets to its ownadvantage.

Section 14(1)(c)(i) of the PensionFunds Act (no 24 of 1956) imposesconditions on the transfer ofbusiness from a registered fund toany other person. The conditionsreferred to in that section must beconsidered by the trustees whenapproving the transfer of theassets of the pension fund, andthey must ensure that the interestsof pensioners have been ad-equately safeguarded.

The application was granted.

Contract

SA FIDELITY GUARDS HOLDINGS (PTY) LTD v PEARMAIN

A JUDGMENT BY LIEBENBERG JSOUTH EASTERN CAPE LOCALDIVISION16 JULY 1997

[1997] 4 All SA 650 (SE)

An employer is entitled tointerdict an employee who hasagreed to a restraint on hisactivities following terminationof his employment, even where theemployee gives an undertakingnot to contact customers of theemployer with a view to enticingthem to his new employer.

THE FACTSSA Fidelity Guards Holdings

(Pty) Ltd employed Pearmain as abranch manager in one of itsoffices. In terms of the employ-ment agreement, Pearmain wasrestrained from being interestedin a business similar to that beingcarried on by Fidelity Guards, orin any business competing withthe business being conducted byFidelity Guards. The restraint wasto apply until after the end of atwelve month period followingany termination of Pearmain’semployment.

Pearmain resigned from FidelityGuard’s employ on 2 January1997. In the middle of that month,

Pearmain began employment witha close corporation whose busi-ness was similar to that of FidelityGuards. Fidelity Guards sought aninterdict to enforce the restraintand to prevent Pearmain fromsoliciting business from existingclients and from enticing employ-ees to terminate their employmentwith Fidelity Guards. Pearmaincontended that the restraint couldnot be enforced beyond protectingFidelity Guard’s customer base.He undertook not to contract withor contact any of Fidelity Guard’scustomers, and contended thatwith this undertaking, Fidelity’sinterests were adequately pro-tected.

19

THE DECISIONFidelity Guards had shown that

its interests were wider than itscustomer base alone. Pearmainhad had regular contact withcustomers of Fidelity Guards, andhad established good relation-ships with them. As a result ofthis, and his intimate knowledgeof customer requirements, he wasin a position to exploit the confi-

dential information of the com-pany and its trade secrets, to thedetriment of Fidelity Guards. Inview of this, the undertakinggiven by Pearmain was notsufficient to protect the company’sinterests.

Even if it were held that FidelityGuards did not have any interestgoing beyond the protection of itscustomer base, the undertaking

given by Pearmain was insuffi-cient. Fidelity Guards was stillentitled to an interdict to preventthe possibility of Pearmain ex-ploiting its trade secrets or busi-ness connections in his newemployment. It was entitled todepend on the terms of the re-straint to obtain such an interdict.

The interdict was granted.

FOCKEMA v FOCKEMA

A JUDGMENT BY STEGMANN JWITWATERSRAND LOCALDIVISION17 OCTOBER 1997

1997 CLR 616 (W)

A deed of donation complies withsection 5 of the General LawAmendment Act (no 50 of 1956)when it is recorded in writingafter it has been orally acceptedfollowing an oral communicationto the donee of the donation, evenwhen the items donated asrecorded in the written deed ofdonation are not the fullcomplement of items earlierdonated orally. The donor divestshimself of ownership of the itemsso donated when he doeseverything necessary to enabletransfer of the items.

THE FACTSActing on concerns expressed by

his wife regarding her anticipatedfinancial needs following hisdeath, Dr R A P Fockema con-sulted an attorney to discuss thepossibility of donating certain ofhis assets to her prior to his death.It was decided that Fockemawould donate his share portfolioto his wife. Fockema stated to hiswife that he would do this and shetold him that she accepted thedonation.

The attorney prepared a deed ofdonation which listed the sharesto be donated to Fockema’s wife,and annexed share securitiestransfer forms for the purposes oftransfer of the shares. The deedconfirmed that Fockema haddonated the shares to his wife.Fockema signed it and the sharetransfer forms, attached therelevant share certificates to theforms, and placed them in anenvelope in a strong room in thecommon home. Fockema later toldhis wife that he had done this, andshe thanked him for the shares.Fockema told his wife that the

deed of donation and accompany-ing documentation was in thesafe.

After Fockema died, Fockema’swill revealed that he bequeathedhis estate to his wife and threechildren in equal shares. His wifedisclosed the fact that the dona-tion had been made. In the face ofreluctance to accept the validity ofthe donation, she brought anaction against the executor, theMaster and the three children foran order declaring that Fockemahad made a valid donation priorto his death and that the executorshould amend the liquidation anddistribution account to accordwith the donation and take allsteps necessary to have the sharesregistered in her name. Sheobtained this order. The childrenappealed.

THE DECISIONSection 5 of the General Law

Amendment Act (no 50 of 1956)provides that for an executorycontract of donation to be valid,the terms thereof must be embod-ied in a written document signed

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by the donor. In order to complywith the section, a donor mayrecord the donation in writing,and thereafter the acceptance ofthe donee may be obtained eitherorally or in writing. Alternatively,the donor may make the donationorally, and thereafter the accept-ance of the donee may be obtainedorally, the inchoate contract soformed becoming a formally validand binding contract when it isrecorded in writing and signed bythe donor.

In the present case, the donationembodied in the deed of donationsigned by Fockema was essen-

tially the donation which hadearlier been accepted by his wife.Though this did not encompass allof the shares in his portfolio, nofurther acceptance of the donationwas required of his wife in orderto render the executory contractvalid in terms of section 5.

By thanking Fockema for theshares, his wife accepted what-ever shares he had donated to her.By indicating to her that the deedof donation was in the safe,signing the share transfer formsand providing the share certifi-cates, Fockema divested himself ofownership of the shares. Delivery

of them to her had been effectedby the method of ‘longa manu’.

There was no room for aninterpretation of the eventssurrounding the conclusion of thedeed of donation that Fockemahad intended that the donationwould only take effect upon hisdeath. There was therefore noevidence to suggest that thedonation had been made incontemplation of death (mortiscausa) and was for that reasoninvalid as not complying with theWills Act (no 7 of 1953).


Contract

BARKHUIZEN v FORBES

A JUDGMENT BY LEACH J(LIEBENBERG J dissenting,FRONEMAN J concurring)EASTERN CAPE DIVISION28 NOVEMBER 1996

1998 (1) SA 140 (E)

Although it may be said that thereis a presumption against adonation having been made, sucha presumption does not absolvethe person alleging factsinconsistent with such a donationhaving been made—such as that aloan was made—from provingthose facts.

THE FACTSBarkhuizen brought an action

against Forbes for repayment ofvarious loans which she allegedshe had made to him. Forbesresponded to the claim by statingthat Barkhuizen had donated themoney and items which shealleged had been lent to him. Inassessing the defence, LiebenbergJ took the view that Forbes borethe onus of proving that a dona-tion had been made, and foundthat he had failed to discharge thisonus. Froneman J took the viewthat Forbes’ defence that a dona-tion had been made did notabsolve Barkhuizen of having toprove that she had made the loansto Forbes. Although both judgesawarded Barkhuizen her claims,in view of their differing assess-ments of the onus of proof, theyawarded payment of differingamounts to Barkhuizen. Leach Jgave a judgment resolving thedifference between the judgmentsof Liebenberg J and Froneman J.

THE DECISIONAlthough it is stated that there is

a presumption against donationshaving been made, in applyingsuch a presumption, there was noreason to vary the normal rulethat the person alleging a contractmust prove it. The fact therefore,that Forbes alleged a donation,did not absolve Barkhuizen ofhaving to prove the contract ofloan which she alleged formed thebasis of her claim. The presump-tion against donations meant thatthe court had to give considera-tion to the fact that a donation wasunlikely, and give weight to thatconsideration in the particularcircumstances of the case.

Barkhuizen’s claims were sub-stantially awarded to her.

21

AGRO-DRIP (PTY) LTD v FEDGENINSURANCE CO LTD

A JUDGMENT BY STREICHER JWITWATERSRAND LOCALDIVISION2 JULY 1996

1996 CLD 708 (W)

A company ordered to furnishsecurity for the costs of thedefendant

THE FACTSAfter Agro-drip (Pty) Ltd’s

factory was destroyed by fire, interms of a policy of insurance,Fedgen paid it R3 527 424. Alleg-ing fraud on the part of Agro-dripin making the claim, and thatAgro-drip was indebted to it inthe sum of R3 527 424, Fedgenapplied for the liquidation of thecompany. It obtained a provi-sional order for its liquidation, butits application was later with-drawn, and the order was dis-charged.

Agro-drip brought an actionagainst Fedgen for payment ofR1 882 576 being the balance of itsclaim in terms of the insurancepolicy. At the time that it broughtthis action, Agro-drip’s businesshad been destroyed, it had insuffi-cient working capital to continueand/or revive its business, it hadno reasonable prospect of revivingits business, and it had no machin-ery or other assets in South Africa.

Agro-drip alleged that despite itsfinancial position, it had a claimagainst Unicor GmbH for deliveryof a machine purchased forDM1 370 000, or for repayment ofthe amounts paid to that companyfor the machine, and that theamount due to it on that accountexceeded the amount of any costsorder Fedgen might obtain. Italleged that because of Fedgen’sapplication for its liquidation, itsbank had called up its overdraftfacility and the liquidator hadfrozen its business, and the resultof these events was that it hadbeen put into an impecunioussituation.

Fedgen counterclaimed repay-ment of R3 527 424, and sought anorder that Agro-drip furnishsecurity for its costs in the actioninstituted by it. Fedgen relied forits counterclaim partly on theevidence of an individual whohad been convicted in a Jerusalemcourt of perjury and the fabrica-tion of evidence.

Agro-drip brought a secondaction against Fedgen in which itclaimed it had suffered damagesin the sum of R13 403 530,13 as aresult of the loss of its businesscaused by Fedgen’s applicationfor its liquidation.

Agro-drip opposed the applica-tion for an order that Agro-dripfurnish security for costs.

THE DECISIONFedgen would be entitled to

security for its costs if it couldshow that it fell within the termsof section 13 of the Companies Act(no 61 of 1973). The sectionprovides that where a company isa plaintiff or applicant in any legalproceedings, the court may at anystage, if it appears that there isreason to believe that the com-pany will be unable to pay thedefendant’s costs if successful inits defence, require sufficientsecurity to be given for thosecosts.

The first question to be deter-mined was therefore whether ornot there was reason to believethat Agro-drip would be unable topay Fedgen’s costs if the lattercompany was successful in itsdefence. The allegations made byAgro-drip concerning theamounts due to it from Unicorwere unsubstantiated. It had notindicated what amounts it hadpaid to Unicor, and had giveninsufficient details of the com-plaint it had in regard to themachine returned to that companyand who would be liable for thecost of repairs to it. It had noteven placed a value on the ma-chine. Given the fact that Agro-drip had no liquid funds, therewas every reason to believe that itwould not be able to pay Fedgen’scosts. Accordingly, unless therewere other relevant specialcircumstances, Agro-drip shouldbe required to furnish security forFedgen’s costs.

Companies

22

A special circumstance sug-gested by Agro-drip was thatFedgen’s defence was not bonafide because it depended on theevidence of a person who hadperjured himself in the Jerusalemcourt. However, Fedgen did notonly depend on this person’sevidence, nor did it depend onlyon the allegation that Agro-dripwas the cause of the fire givingrise to the insurance claim.Fedgen’s claim could furthermore,

not be said to be vexatious orhopeless.

Agro-drip further alleged that itsfinancial position was a directresult of Fedgen’s action in bring-ing liquidation proceedingsagainst it. However, this allega-tion was not properly substanti-ated, and there was no prima faciecase that Fedgen’s action had beenresponsible for Agro-drip’sfinancial position.

The fact that Fedgen would incurvery little costs in respect of itscounterclaim in addition to thecosts it would incur in defendingAgro-drip’s claim, was not aspecial circumstance relevant tothe question of security for costs.It could also not be said thatFedgen had unnecessarily delayedin bringing its application forsecurity for costs.

Agro-drip was ordered tofurnish security for costs.

LAPPEMAN DIAMOND CUTTING WORKS (PTY) LTD vMIB GROUP (PTY) LTD

A JUDGMENT BY JOFFE JWITWATERSRAND LOCALDIVISION17 APRIL 1997

1997 (4) SA 908 (W)

A court will not be predisposed toorder a company plaintiff toprovide security for costs for thedefendant in terms of section 13 ofthe Companies Act (no 62 of 1973)but will exercise its discretion inmaking such an order bearing inmind the values of theConstitution which confers onevery person the right to havejusticiable disputes settled by acourt of law.

THE FACTSLappeman Diamond Cutting

Works (Pty) Ltd brought an actionfor damages against MIB Group(Pty) Ltd. In July 1995, Lappemanwas ordered to furnish securityfor MIB’s costs in the action, interms of section 13 of the Compa-nies Act (no 61 of 1973). In No-vember 1995, it was ordered thatcertain issues would be deter-mined separately from otherissues relevant to the matter, andin the same month, the amount ofsecurity payable by Lappemanwas fixed at R185 000.

After the trial commenced inJanuary 1997, proceedings werestill taking place before the TaxingMaster for the provision of in-creased security for additionalcosts incurred during 1996. Theseproceedings had begun earlier inJanuary 1997. The Taxing Masterordered that the matter be de-cided by the trial judge or anotherjudge. The matter was referred tothe trial judge.

In argument before the trialjudge, Lappeman contended thatsection 13 was unconstitutional,alternatively that the judge shouldexercise his discretion againstMIB. Section 13 provides thatwhere a company is plaintiff orapplicant in any legal proceed-ings, the court may, if it appearsby credible testimony that there isreason to believe that the com-pany will be unable to pay thecosts of the defendant or respond-ent if successful in its defence,require sufficient security to begiven for those costs.

Section 22 of the Constitutionprovides that every person shallhave the right to have justiciabledisputes settled by a court of lawor another independent andimpartial forum.

MIB applied for the provision ofincreased security.

Companies

23

THE DECISIONSection 13 gives the court a

discretion in determining whethera plaintiff company should beordered to provide security forcosts. The question was in whatmanner the discretion should beexercised. A court may haveregard to the manner in which thediscretion has been exercised inthe past, but binding authorityneed not be followed where this isinimical to the spirit, purpose andobjects of the Constitution.

In the past, courts have adoptedthe attitude that in the absence ofspecial circumstances, security forcosts will be ordered. The object ofsection 13 is to protect a personfrom being forced to defend an

action brought by a litigant whichis insolvent and consequently inno position to pay the defendant’scosts in the event of a costs orderbeing granted against it. Thisobject is not necessarily inconsist-ent with the object of maintainingthe values of the Constitution solong as courts retain a widediscretion in applying the section.However, if such a wide discre-tion is to be retained, the attitudeadopted by the courts in the pastcannot be followed. In decidingwhether or not to order that aplaintiff must furnish security forcosts, a court must be predisposedneither to order that security forcosts be furnished nor to refrainfrom so ordering.

In the present case, MIB haddelayed in bringing the applica-tion for the provision of security.It must have been aware longbefore it brought its applicationthat additional costs were beingincurred for which security hadnot been furnished. On the otherhand, Lappeman had obviouslysecured payment of its own legalservices in engaging its own legalrepresentatives in the matter. Itwas appropriate therefore to orderthat Lappeman furnish additionalsecurity for each day of continua-tion of the trial, but not in respectof costs incurred subsequent tothe separation order granted inNovember 1995.


Companies

The object of s 13 is to protect the public in litigation by bankrupt companies(Hudson & Son v London Trading Co Ltd 1930 WLD 288). The bankrupt com-pany is not excluded from the courts but only prevented if it cannot find securityfrom dragging its opponent from one court to another (Cowell v Taylor (1885) 31ChD 34 (CA) at 38). In my view this object can be achieved and the values of theConstitution referred to above can be respected if the discretion contained in s 13is approached, neither with a predisposition to granting security, as is the presentapproach in this Division, nor with the predisposition not to grant security. Thewide discretion favoured by the English cases, pursuant to which the discretion isapproached without any commitment in advance as to how the discretion is to beexercised, will achieve the desired result.

24

NBS BANK LTD v BADENHORST-SCHNETLER BEDRYFSDIENSTE BK

A JUDGMENT BY STEGMANN JWITWATERSRAND LOCALDIVISION11 SEPTEMBER 1997

1997 CLR 606 (W)

A provision in a money lendingcontract which gives one of theparties the right to vary theinterest rate arbitrarily andwithout reference to any objectivecriteria is invalid.

THE FACTSMrs Badenhorst-Schnetler signed

a power of attorney forBadenhorst-SchnetlerBedryfsdienst BK authorising theexecution and registration of abond in favour of NBS Bank Ltd.The bond was passed over theclose corporation’s property assecurity for money lent or to belent by the bank to it.

The bond provided that the closecorporation was to repay the sumadvanced in monthly instalments,and that the interest rate payableon the sum advanced would be16.25% per annum or at suchother rate as the bank mightdetermine from time to time. Interms of clause 14, the bank wasentitled to vary the interest ratefrom time to time, as well as thecorresponding monthly instal-ments. In terms of clause 19,interest would be calculated onthe monthly balance outstandingand would capitalised monthly.

The close corporation did notproperly pay the monthly instal-ments as provided for in the bondand the bank issued summonsagainst it for repayment of theloan. The close corporationdefended the action on thegrounds that the provisions fordetermination of the interest ratewere vague and rendered thebond void for uncertainty. Thebank applied for summary judg-ment.

Credit Transactions

THE DECISIONA money lending contract is

similar to a contract of letting andhiring of property in that, like aprovision for rental, the moneylending contract must include astipulation for a particular interestrate or one which can be ascer-tained without reference to thewill of either of the parties. It isfundamental to the validity of thecontract that the interest rateshould be determined by agree-ment or by reference to someobjective criterion. If the bond hadincorporated some such methodof determining the interest rate,such as that the bank was entitledto give notice of an interest ratechange and thereafter vary therate accordingly, it would havebeen unobjectionable. However,the bond did not incorporate aprovision to that effect.

Whereas the bank might havebeen entitled to vary the interestrate, according to banking prac-tice, it was not entitled to unilater-ally determine the rate of interestto be paid by the borrower fromtime to time. Banking practicemight entitle a bank to do so in thecase of an overdraft, but thegeneral rule that the essentials of acontract must be certain in them-selves, applied in the case of amoney lending contract. If thecontract is lacking in that respect,it is void for vagueness.

It followed that because clause14 of the bond conferred on thebank the power to vary theinterest rate arbitrarily and in itsown discretion and withoutreference to objectively ascertain-able criteria, it was null and void.Summary judgment was refused.

25

FOURIE v SENTRASURE BPK

A JUDGMENT BY VAN DENHEEVER AJNORTHERN CAPE DIVISION13 JANUARY 1997

1997 (4) SA 950 (NCD)

An insurance policy which rendersthe policy void in the event of theinsured making an untruestatement in support of a claim isnot rendered void when theinsured makes an untruestatement to the insurer’s assessorafter having submitted a claimand the untrue statement is notmade ‘in support of’ the claim. Aprovision that such a policy isrendered void in suchcircumstances refers to astatement made in response to arequest for such details as theinsurer reasonably requires interms of the insured’s obligationto notify the insurer of the eventgiving rise to the claim.

THE FACTSSentrasure Bpk insured Fourie

against damages caused by fire tohis house and the contents thereof.In terms of clause 7 of the policy,if in any statement or declarationmade in support of any claim,there was an untruth, the policywould become null and void andineffective. In terms of clause 9 ofthe policy, the insured wasobliged to notify the insurer ofany event giving rise to a claimwithin 30 days of the event andfurnish such details as Sentrasuremight reasonably require.

A fire took place at Fourie’shouse. Fourie submitted a claim interms of the policy to Sentrasure,and Sentrasure appointed anassessor to investigate the claim.The police also investigated theincident, and took fingerprintsfrom various items which hadbeen removed from the housebefore the fire. The police matchedthe fingerprints on one of theseitems, a microwave oven, to thefingerprints of Fourie. Theytelephoned Fourie and told him ofthis. He told them that he hadrecently had occasion to move theoven, and thought that his finger-prints had got onto the oven atthis time.

The following month, Fouriestated to Sentrasure’s assessor thathe had not received any reportfrom the police regarding theincident. He made this statementat a time when the police finger-print investigation had not yetbeen completed, and before a laterreport came from the policeregarding further fingerprintfindings on the microwave oven.Fourie later admitted that thisstatement was not the truth, butadded that he had thought thepolice report was of little impor-tance and he did not wish to doanything which might delay theprocessing of his claim.

Sentrasure repudiated Fourie’sclaim on the grounds that theprovisions of clause 7 applied andthe policy had become null andvoid and ineffective as a result ofFourie’s untruthful statementmade to its assessor.

THE DECISIONThe onus of proving the right to

repudiate rested on Sentrasure. Itsown evidence however, showedthat when Fourie made the state-ment to its assessor, the policeinvestigation was not complete,and the statement had been madein the face of suspicions by theassessor that Fourie’s claim was afraudulent one. In these circum-stances, Fourie’s statement couldnot be considered to be untruth-ful, despite his later admissionthat it was.

Even if Fourie were to be held tohis admission, because clause 7referred to any statement made ‘insupport of any claim’, the ques-tion still remained whetherFourie’s statement had been madein support of his claim. Hisstatement had not been made interms of clause 9 of the policy, ie itwas not one made for the pur-poses of submitting a claim andproviding the details which mightbe required by Sentrasure in thatregard. Yet, this was the statementreferred to by clause 7. Any doubtas to which statement clause 7might be referring to—one madein terms of clause 9 or one madelater—had to be resolved infavour of Fourie who had notbeen the author of the policy. Hisstatement could therefore not besaid to have been made in supportof his claim, and therefore couldnot be said to have been made interms of clause 7. Sentrasure wasnot entitled to depend on thisclause to repudiate Fourie’s claim.

Even if this interpretation ofclause 7 was incorrect, it had to beremembered that Fourie’s state-

Insurance

26

ment had been made in responseto an investigation by the assessorinto the cause of the fire, and thequantum of the ensuing claim—

not in support of Fourie’s claim. Itwas also not a statement which,had it not been made, would haveresulted in Sentrasure not paying

out on the claim. As such, it wasnot material to the outcome of theclaim.

Sentrasure was not entitled torepudiate Fourie’s claim.

CADBURY (PTY) LTD v BEACON SWEETS ANDCHOCOLATES (PTY) LTD

A JUDGMENT BY MARITZ AJTRANSVAAL PROVINCIALDIVISION26 SEPTEMBER 1997

1998 (1) SA 59 (T)

Provided that a trade markdistinguishes the trade markproprietor’s goods from those ofanother, the trade mark is capableof registration without theaddition of any disclaimer, even ifthe trade mark incorporates adescription of the goods orservices in respect of which thetrade mark has been registered.

THE FACTSBeacon Sweets and Chocolates

(Pty) Ltd was the registeredproprietor of the LiquoriceAllsorts and Device trade mark.The registered mark contained amemorandum which recordedthat registration of the markwould not give the right to theexclusive use of a sweet deviceseparately from the mark. Thesweet device was a representationof sweets in a bowl. The memo-randum also recorded that a blankspace in the mark would only beoccupied by matter of a whollydescriptive or non-distinctivecharacter, or by a trade markregistered in the name of Beaconor of which Beacon was theregistered user. It was also re-corded that Beacon undertookthat in use the trade mark wouldonly be used in respect of goodscontaining liquorice or a liquoriceflavour.

Cadbury (Pty) Ltd applied for anorder that a memorandum beentered against the mark that theregistrant disclaimed exclusiverights in the phrase LiquoriceAllsorts separately from the markand admitted that registrationwould not debar third partiesfrom describing their confection-ery by the phrase LiquoriceAllsorts.

THE DECISIONCadbury was seeking, in effect, a

declaratory order that by dealingin sweets under the name ‘Liquo-rice Allsorts’ it would not beinfringing Beacon’s trade mark.

Section 24(1) of the Trade MarksAct (no 194 of 1993) provides thatin the event of non-insertion in oromission from the register of anyentry, or of any entry wronglymade in or wrongly remaining onthe register, or of any error ordefect in any entry in the register,any interested person may applyto court for the desired relief. The‘non-insertion in or omission’referred to in this section was areference to matters such asdisclaimers, conditions of registra-tion and memoranda, the non-insertion or omission of whichmight confer on the registeredproprietor rights greater thanthose to which he was legitimatelyentitled.

Cadbury contended that thissection should be applied in thepresent case by the addition of thedisclaimer because the phraseLiquorice Allsort was not capableof distinguishing Beacon’s sweets,as required by section 9 of the Act,because it consisted exclusively ofa sign serving to designate thekind or quality of the sweets.

Trade Mark

27

In determining whether a dis-claimer should be added, thecourt exercises a discretion. Itdetermines whether the mark isdistinctive, ie adapted to distin-guish the goods or services soldby the proprietor of the trademark. The question was thereforewhether the phrase Liquorice

Allsorts could be seen as capableof distinguishing Beacon’s sweetsfrom the sweets of another person.

The phrase Liquorice Allsortswas not merely a phrase descrip-tive of Beacon’s sweets. It con-veyed the meaning of a combina-tion of different sweets sold byBeacon, and was inherently

capable of distinguishing itssweets from those of any otherperson. It was therefore notmerely a phrase indicating thekind or quality of the sweets, andits registration as a trade mark didnot require the addition of anydisclaimer.


METEQUITY LTD v NWN PROPERTIES LTD

A JUDGMENT BY VANDIJKHORST JTRANSVAAL PROVINCIALDIVISION11 SEPTEMBER 1997

[1997] 4 All SA 607 (T)

While a corporate trustee actsthrough the agency of a naturalperson who is its nomineeappointed in terms of section 6 ofthe Trust Property Control Act(no 57 of 1988) it is the entitywhich brings and defends actionsand not its nominee. The properplaintiff or defendant in any suchaction is therefore the trust itselfand not its nominee.

THE FACTSIn July 1990, the Master of the

Supreme Court issued Letters ofAuthority certifying that PeterQuinton in his capacity as nomi-nee of Metequity Ltd andMetboard Ltd was authorised toact as trustee of the Jan Nel BondTrust. In terms of clause 14 of thetrust deed, the trustees wereempowered to do all thingsnecessary for the carrying out ofany act to be carried out by thetrustees, and were empowered toexercise any of the powers con-ferred on them through any oftheir duly authorised officers fromtime to time, including the insti-tuting of any actions affecting thetrust.

Metequity Ltd and Metboard Ltdbrought an action against NWNProperties Ltd for the recovery ofmoney owing under a mortgagebond passed in favour of the trust.NWN defended the action on theground that no Letters of Author-ity were issued to Metequity andMetboard and that they—asopposed to Quinton—thereforedid not have locus standi to sue.NWN relied on section 6(4) of theTrust Property Control Act (no 57of 1988) which provides that if

any authorisation is given to atrustee to act as trustee and thetrustee is a corporation, suchauthorisation shall be given in thename of a nominee of the corpora-tion. It contended that the authori-sation given in terms of thissection was given to the ‘dulyauthorised officers’ of the trusteesas referred to in clause 14 of thetrust deed, ie to Quinton, whoalone was entitled to act for thetrust.

THE DECISIONNWN’s contentions could not be

upheld. Every company actsthrough its directors, and everycompany required to carry outduties must do so through theactions of a natural person actingon its behalf. The position of acorporate trustee, as the positionof any other trustee, is not thesame as that of the executor of adeceased estate who is appointedby the issuing of letters of execu-torship after being nominated in awill. The corporate trustee isappointed in a trust deed andderives its authority from thatfounding document. That authori-sation is later confirmed by theauthorisation given by the Master

Trusts

Trusts

28

in terms of the Trust PropertyControl Act.

An authorisation given in termsof section 6(4) of that Act appliesthe conferring of such authorisa-tion to the case of a corporate

trustee. The section recognisesthat the trustee is the companyand confirms this by referring tothe natural person as the compa-ny’s nominee. The natural personis merely the person to whom

representations to the companymay be addressed, and the personby whom the actions of thecompany may be exercised.

NWN’s contentions were re-jected.

THE MV RECIFE: SAFBANK LINE LTD v CONTROLCHEMICALS (PTY) LTD

A JUDGMENT BY FITZGERALD AJCAPE OF GOOD HOPE PROVIN-CIAL DIVISION1 JULY 1997

1997 (4) SA 852 (C)

A carrier which is aware of therisks inherent in a product whichit agrees to transport for a shipperis not, merely by virtue of itsawareness of the risk, precludedfrom claiming damages from theshipper for damage caused by theproduct. Provided that thedamages arise from somethingother than the damages whichmight normally be expected toarise from such a product, incircumstances where Article IV,paragraph 6 of the Carriage ofGoods by Sea Act (no 1 of 1986)apply, the shipper is liable tocompensate the carrier fordamages so sustained.

THE FACTSControl Chemicals (Pty) Ltd as

shipper entered into a contract ofcarriage with Safbank Line Ltd ascarrier for the shipment of calciumhypochlorite aboard the MVRecife. As a result of a contaminantor defect in the product or itspackaging, an explosion tookplace in the container holding thecalcium hypochlorite, as a resultof which Safbank and the otherplaintiffs suffered damages.

In terms of clause 6 of the bill oflading, Safbank would not beresponsible for the safe andproper stowing of cargo in con-tainers where containers werepacked by the shipper. Theshipper was to carefully inspectand clean containers beforepacking them, and agreed to beliable for and indemnify thecarrier for any injury loss ordamage arising from its failure tostow the goods properly in con-tainers, and for any damage orexpense caused by the contents ofthe container to other property orpersons. The bill of lading wasgoverned by the provisions of theCarriage of Goods by Sea Act (no1 of 1986). Article IV, paragraph 6of the Schedule to the Act pro-vides that the shipper of goods ofan inflammable, explosive ordangerous nature, to which thecarrier has not consented, shall beliable for all damage and expenses

arising out of such shipment.In the early 1970s, Safbank

received a circular from the P&Iclub of its ship which indicatedthat the carriage of calciumhypochlorite had given rise tomarine disasters involving firesand explosions. A circular issuedby the second plaintiff, the timecharterer of the ship, repeated thewarning contained in the P&I clubcircular, and stated that all con-signments of the chemical shouldbe shipped on deck at the ship-per’s risk. In 1976, the secondplaintiff’s general manager hadwarned again of the possibilitiesof accidental ignition of calciumhypochlorite.

Calcium hypochlorite fell withinthe category of substances pro-vided for by the InternationalMaritime Dangerous Goods Code(the IMDG code). The codeprovides that the chemical shouldbe stored away from sources ofradiant heat. The calcium hy-pochlorite was in fact stored in acontainer which was exposed tothe sun, and Control Chemicalscontended that this was a con-tributory cause of the explosionwhich had occurred.

The parties asked the court todetermine* whether in conse-quence of the explosion, ControlChemicals was liable to indemnifythe plaintiffs for the loss they hadsustained.

Shipping

29

THE DECISIONSafbank was aware of the dan-

gers inherent in the shipping ofcalcium hypochlorite and hadaccepted the normal risk ofcarriage of this product. In thecase of calcium hypochlorite, thenorm is that the product does notexplode spontaneously, as isevident from the fact that despitebeing transported on a continualbasis, such explosions are notknown to occur continually.Safbank’s acceptance of the risk ofcarrying the product was no morethan that determined by the riskof such normal carriage of theproduct.

* The court was also asked to deter-mine the cause of the explosion, andthe court found it to have been causedby a containment or defect in theproduct or its packaging.

The circulars received bySafbank concerning the risksinherent in calcium hypochloriteindicated that it knew of thedangers of this product as theyexisted at the time when thecirculars were issued, and notnecessarily as they were when theexplosion actually occurred. Theywere therefore no proof thatSafbank had accepted all risksassociated with the product at thetime it undertook the carriage ofthe product. The presence in thecargo transported by Safbank of acontaminant or defect, such aswas the cause of the explosion inthe present case, was not part ofthe risk accepted by Safbank.

Safbank had never contracted tobear this risk, and did not consentto it.

As far as Control Chemicals’contention regarding the contribu-tion of the sun’s heat to theexplosion was concerned, theterms of the IMDG code were thatthe heat sources referred to wereman-made sources such as flames,sparks and heating coils, ratherthan the radiant heat of the sun.

It followed that Safbank wasentitled to rely on article IV,paragraph 6 of the Carriage ofGoods by Sea Act, and accord-ingly Control Chemicals wasliable to indemnify the plaintiffsfor the loss they had sustained.

Shipping

30

PHILOTEX (PTY) LTD v SNYMANBRAITEX (PTY) LTD v SNYMAN

A JUDGMENT BY HOWIE JA(EKSTEEN JA, MARAIS JA,SCHUTZ JA and VAN COLLERJA concurring)SUPREME COURT OF APPEAL13 NOVEMBER 1997

1998 (2) SA 138 (A)

Personal liability of a director forthe debts of his company isimposed by section 424 of theCompanies Act (no 61 of 1973)where the ‘business of thecompany was ... carried onrecklessly or with intent todefraud creditors of the company’.A director alleged to have carriedon the business of his companyrecklessly is measured against thestandard of the reasonable personbelonging to the same class ofperson to which the directorbelongs, and having the sameknowledge or means to knowledgepossessed by the director.

THE FACTSWolnit Ltd was a member of the

Rentmeester group, 65% of itsshares being held by RentmeesterVersekeraars Ltd.Wolnit’s direc-tors acted as a board. They were JVermooten, P J Gous, PJNiemandt, S J Nel, S J Du Plooy,SM Pretorius and NB Read.

In January 1986, Wolnit negoti-ated a new lease in respect of afactory which was owned byRustenburgse Nywerheid-Beleggings (Pty) Ltd (RNB). Thelease was concluded by means ofan agreement with the IndustrialDevelopment Corporation, whichheld the shares in RNB. In termsof this agreement, the IDC pur-chased an option held by Wolnitin respect of the RNB shares forR1,55m. Simultaneously, the IDCgave Wolnit the option to pur-chase the same shares, whichoption when exercised wouldoblige Wolnit to pay the IDCR2,15m. Wolnit would be obligedto exercise this option at the endof the ten-year period of the lease.In Wolnit’s financial statementsfor the 1986 financial year, thesum of R1,55m received from theIDC was reflected as an extraordi-nary profit, and a sum of R387 875which the IDC had exacted as therepurchase price for the RNBshares upon termination of anearlier ten-year lease, was re-flected as pre-paid rental. Wolnittraded at a loss for the year atR926 150. Shareholders’ interestwas shown at a positive figure.

After draft financial statementshad been prepared for the periodending December 1986, Wolnit’sauditors wrote to the companyindicating that the company’ssolvency had depended on theextraordinary profit reflected inthe earlier financial statementsand that the question was whetherWolnit could continue to operateas a going concern.

In 1987, Wolnit’s net loss rose to

R1,2m. Trebbob Beleggings (Pty)Ltd, another company in theRentmeester group, had lentWolnit money which with interestresulted in Wolnit’s indebtednessto that company in the sum ofR1,12m as at 30 June 1987, andR2,2m by 29 March 1988. R1,1m ofthis was later capitalised.Thedirectors explained the loss for1987 in the same as they hadexplained the loss in the previousyear, ie by ascribing it to weakeconomic circumstances,undercapitalisation of the concernand uncontrollable factors in thefinancial controls. In the first halfof 1988, the company’s loss stoodat R762 925.

Wolnit’s financial position wasdiscussed at aRentmeesterbeleggings Ltd(Rentbel) board meeting on 29March 1988. It was decided thatWolnit would continue to tradeand that its creditors would beaddressed with letters of comfort.Credit Guarantee Corporation,which had insured against non-payment of Wolnit’s trade suppli-ers, expressed concern about theissue of the letters of comfort andinformed the company that itwould be limiting its exposure toR1,5m.

In 1988, Wolnit showed a loss ofR1,1m. It that year, it announcedits intention to enter the fashionmarket. It also passed two mort-gage bonds, one in favour of itsbanker, Volkskas Bank, and theother in favour of Trebbob. Thelatter was passed without theknowledge of Credit Guarantee,which had earlier addressedWolnit with the suggestion thatTrebbob’s loan be subordinated. Amanagement report to Wolnit’sboard of directors described thecompany’s results as disappoint-ing, the company’s bank accountoverdrawn close to its limit ofR1m, and stated that the compa-ny’s stocks would have to be sold

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at cut prices to maintain cashflow. The report stated thatmanagement remained confidentthat the cash flow position wouldchange, that the results for Janu-ary 1989 showed a profit beforeinterest, and that the future of thecompany looked a lot better. Anegative shareholders’ interestwas reflected. Wolnit’s board ofdirectors considered this report inFebruary 1989, as well as thecompany secretary’s predictionthat a projected loss of only R140000 at the end of the financial yearcould be expected. At this meet-ing, the difficult cash flow posi-tion was acknowledged, as well asdifficulties with obtaining insur-ance with Credit Guarantee andthe fact that the company’s audi-tors were not prepared to issuefinancial statements withoutqualification. One of the directorsrequested representatives fromRentbel and Rentmeester toguarantee the company’s loanaccount to ensure that the finan-cial statements could be issued.Liquidation of the company wasnot considered to be an option asthe directors considered that thecompany was in the process ofimproving.

When the Wolnit board metagain in April 1989, it consideredthe February and March manage-ment reports, both of which statedthat profit levels before interestwere increasing but that cash flowremained critical. Shareholders’interest was shown as negativeand the company’s problems dueto such factors as inflation andincreases in input costs werereferred to as sources of theseproblems. The April report statedthat there had been a net loss afterinterest of R34 301, and the Mayreport stated that there had been anet profit after interest of R7 402.

Wolnit’s draft financial state-ments for the 1989 financial yearreported a trading loss of R946

936, and they were qualified bythe auditors. In July 1989, Wolnitreported on its position to theboard of Rentbel, Wolnit’s ulti-mate holding company, indicatingthat operating capital needed tobe injected into the company toameliorate its cash flow problems,that the only alternative to this asa solution was to sell stock, butthat this would affect profitability.Rentbel had in the past supportedthe company by giving guaranteesto creditors such as Volkskas.

The Wolnit board consideredmanagement reports for June andJuly. Both continued to reportcash flow problems, giving as thepossible solutions either reductionof stocks or the acquisition offunding to hold stock until morerealistic prices could be obtained.The reports recommended properfunding for the company andrationalisation within it. TheAugust report stated that therehad been a trading loss of R164124 and ex-stock sales of R303 343involving cut prices. In Novem-ber, the Wolnit directors met atthe premises of Rentbel. It consid-ered a summary of results for theperiod July to September. Theseindicated a trading loss of R594301 for September and that profitbefore interest and tax was R938000 below budget. Gross profitwas a negative figure due to salesof finished goods at losses. Tradecreditors which had stood at R655000 in July, then stood at R2,43m.It was decided to sell the businessof the company, but nothing cameof this. Later in the month, thecompany was put into liquidation.

THE DECISIONA director alleged to have

carried on the business of hiscompany recklessly is measuredagainst the standard of the reason-able person belonging to the sameclass of person to which thedirector belongs, and having the

same knowledge or means toknowledge possessed by thedirector. In applying this test, acourt should have regard to thescope of operations of the com-pany, the role functions andpowers of the directors, theamount of the debts, the extent ofthe company’s financial difficul-ties and the prospects of recovery.

In determining whether or not adirector has been reckless in thissense an evidential test is whetheror not the director has allowed thecompany to carry on business andincurr debts when in the opinionof reasonable businessmen, therewould be no reasonable prospectof the creditors receiving paymentwhen due. Were that to occur, theproper inference would be thatthe business was being carried onrecklessly. This is not to say thedirectors cannot take risks: partici-pation in business necessarilyinvolves taking risks. However, adirector may not take the risk of acreditor not being paid when areasonable businessman wouldnot take such a risk. Such wouldbe the case where it is realised thatpayment will not be made whenpayment becomes due, or where itis realised that there is a verystrong chance that payment willnot be made when paymentbecomes due. A director’s honestbelief that payment would bemade when due would be irrel-evant when the allegation is thathe acted recklessly, as opposed tofraudulently.

It must also be remembered thatin assessing the director’s behav-iour, the director’s particularknowledge, qualifications andexperience may be taken intoaccount.Applying the legal principles

The 1986 financial statementswhich showed an extraordinaryprofit and an asset in the form ofpre-paid rental were inaccurate.They were presented by the

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directors in that manner in orderto show Wolnit in a better lightthan it actually was, and the effectof this was to mislead creditors ofthe company. As a result of thismanner of rendering the financialstatements, the shareholders’interest was incorrectly stated asbeing positive, whereas it shouldhave been stated as being nega-tive. That figure was a litmus testof solvency and it accordinglyshowed the company to be solventwhen it was not. Whether or notthe directors’ intention was toprejudice creditors was irrelevantto the question whether they hadbeen reckless. Being a publiccompany, Wolnit’s financialstatements could have beenscrutinised by anyone. Had anycreditor done so, it would havebeen misled by them. Wolnit wasfactually insolvent at all timesfrom 1986 until its liquidation.

As far as the commercial sol-vency of the company was con-cerned, it was significant that theauditors had warned that theymight have to add a ‘going con-cern’ qualification to the financialstatements. Wolnit’s directors atall times knew of the company’sinability to trade and pay its debtswithout group support. Thisshould have prompted them, asreasonable businessmen, to obtain

certainty on what financial sup-port the group would provide andthe duration thereof. In fact, thecompanies of the Rentmeestergroup had given only tokenassistance to Wolnit, held anegative view of its prospects andwere not prepared to inject anyfunds into the company. Itscompanies made no direct pay-ments to Wolnit’s creditors,merely switching existing guaran-tees from one creditor to another,and its capitalisation of theTrebbob loan was done merely torestore ostensible solvency to thecompany. Being commerciallyinsolvent, Wolnit was left with thedestructive course of having tosell stock to obtain cash flow. Theresult of this were the losseswhich eventually led the directorsto the conclusion that the businessof the company should be termi-nated. This was a realisation thatshould have come to them a yearearlier.

Wolnit’s attitude to its creditorsindicated that its directors werecarrying on the business of thecompany recklessly. The directorsfailed to inform Credit Guaranteeof the registration of the bond infavour of Trebbob, when theyknew that Credit Gurarantee hadexpressed concern aboutTrebbob’s position, requesting

consideration of the subordinationof its claim. The effect of register-ing the bond in favour of Trebbobwas to prejudice other creditors,subjecting them to greater expo-sure than before. In doing this, theRentmeester group was takingsteps to protect itself and Wolnitwas carrying on business indisregard of creditors’ interests.

The Rentmeester group hadexhibited no confidence in Wolnit.The motivation to carry onWolnit’s business was thereforelimited only to the hope that thecompany would be saved by anamalgamation with anothercompany or a managementbuyout. The Wolnit board couldnot say that it had been persuadedby the optimism of the manage-ment reports. As reasonablebusinessmen, they should havediscounted the optimism of thesereports which had normally beenbased on generalities. Theirincurring of further debt duringthe months leading up to liquida-tion of the company showed acomplete lack of financial plan-ning which would have beennecessary to keep Wolnit fromcommercial insolvency.

The evidence established that thedirectors were knowingly partiesto reckless trading and werepersonally liable to the creditorsfor the debts of the company.

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TJ JONCK BK v DU PLESSIS N.O.

A JUDGMENT BY HATTINGH JORANGE FREE STATE PROVIN-CIAL DIVISION14 MARCH 1997

1998 (1) SA 971 (O)

To show that a person has carriedon the business of a closecorporation with gross negligence,it is necessary to take intoaccount the scope of business ofthe corporation, the person’s rolefunction and power, the amount ofthe debts of the corporation, theextent of the corporation’sfinancial difficulties, theprospects of recovery, and thedegree to which the person hasdeviated from the standard of thereasonable man.

THE FACTSFrom inception of Price Chain

CC in February 1990, the closecorporation experienced lossesand its liabilties exceeded itsassets by more than R400 000. Inall but one year of its existence, itcontinued to make losses, and itsliabilities always exceeded itsassets. In February 1993, itsaccumulated loss was R655 956,88and its liabilties exceeded itsassets by some R370 000.

The member of Price Chain, acertain Mr Oosthuizen, lentmoney to the close corporationthroughout its existence. ByFebruary 1993, his loan to PriceChain was some R500 000 and hehad secured this loan by means ofa notarial bond over the move-ables of the close corporation.

Oosthuizen owned severalbusinesses and was a successfulfarmer. He was in control of thebusiness of Price Chain at alltimes. In May 1993, Oosthuizen’snotarial bond was perfected withthe granting of an order in themagistrate’s court entitling him totake possession of the moveablessubject to the bond. At the sametime, Price Chain waived all itsrights against Oosthuizen.

TJ Jonck BK sold and deliveredgoods on credit to Price Chain CC.Upon being asked by TJ Jonckabout the financial position ofPrice Chain, Oosthuizen repliedthat he had struggled for a longtime with the business and he wasbusy with it. He later stated thatTJ Jonck’s money was safe.

When Price Chain went intoliquidation, it owed TJ Jonck R117639,42 in respect of such sales. TJJonck brought an action againstOosthuizen in terms of section 64of the Close Corporations Act (no69 of 1984) to declare him person-ally liable for the debts of PriceChain.

THE DECISIONSection 64 of the Close Corpora-

tions Act provides that if at anytime it appears that any businessof a corporation was being carriedon with gross negligence or withintent to defraud any person, acourt may declare that any personwho was knowingly a party to thecarrying on of the business in suchmanner, shall be personally liablefor all or any of the debts of thecorporation.

To show that he had done sowith gross negligence, it wasnecessary to take into account thescope of business of the corpora-tion, Oosthuizen’s role functionand power, the amount of thedebts of the corporation, theextent of the corporation’s finan-cial difficulties, the prospects ofrecovery, and the degree to whichOosthuizen had deviated from thestandard of the reasonable man.

It was clear that Oosthuizen hadactively taken part in the businessof the corporation. He was anexperienced businessman. From atleast February 1992, the corpora-tion was factually insolvent andOosthuizen had expressed con-cern about the financial positionof the coporation from that time.In passing the notarial bond andperfecting it without the knowl-edge of his trade creditors, he hadacted to their prejudice and purelyin his own interests. He hadassured TJ Jonck that it would bepaid at a time when he knew itwould not be.

In these circumstances,Oosthuizen carried on the busi-ness of the corporation with grossnegligence. In terms of section 64,he was liable for the debts of thecorporation.

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JOWELL v BRAMWELL-JONES

A JUDGMENT BY HEHER JWITWATERSRAND LOCALDIVISION24 JANUARY 1996

1998 (1) SA 836 (W)

The shares in a company asreferred to in a contract will beconsidered to be the shares in thecompany so named, even if thatcompany's only asset is the sharesin another company the benefitsof which are intended to be for theenjoyment of the person holdingthe shares in the company referredto.

THE FACTS*

Dr A Jowell executed a will interms of which he created a trustwhose trustee, Mrs Jowell, wouldbe invested with the shares inGlencordale (Pty) Ltd. The capitalbeneficiaries of the trust were tobe Dr Jowell’s surviving children,and the income beneficiary was tobe Mrs Jowell. In the event of MrsJowell surviving Dr Jowell, astrustee of the trust, she would nothave the power to dispose of theGlencordale shares. In the event ofDr Jowell surviving Mrs Jowell,the trustees would have the powerto dispose of these shares.

Glencordale’s only asset was atranche of 247 000 shares inTrencor Ltd. 75% of the shares inGlencordale were owned by DrJowell during his lifetime and 25%by Mrs Jowell. DuringGlencordale’s holding of theshares in Trencor, their valueincreased and at all times theypaid a dividend sufficient tosupport both Dr and Mrs Jowell.

Dr Jowell died in January 1970,leaving his wife and four surviv-ing children, one of whom was theplaintiff. The income from thetrust then supported Mrs Jowell,as it had in the past, and the valueof the shares in Trencor increased.

In 1989, Mrs Jowell decided toemigrate to Canada. She obtainedthe advice of stockbrokers, ac-countants and legal advisers, thedefendants, to assist her in decid-ing how best to arrange herfinancial affairs in view of herdecision. The defendants advisedher to sell the shares in Trencorheld by Glencordale, lend theproceeds of the sale to the AlanJowell Trust and cause that trustto purchase Escom loan stock. Mrs

Jowell followed this advice, andthe effect of doing so was to giveher a greater income than she hadhad previously enjoyed from thetrust. The Alan Jowell Trust hadbeen created by Dr Jowell duringhis lifetime, and in terms of it, MrsJowell was entitled to the incomefrom that trust while the fourchildren of the Jowells were itscapital beneficiaries.

Jowell, the plaintiff, alleged thatthe transactions entered into uponthe advice of the defendants werein breach of the will trust andwere beyond the power (ultravires) of that trust and the AlanJowell Trust. He alleged that theresult was the loss of assetscapable of bringing about theincome contemplated by Dr Jowellin his will and the denial of anybenefit to the capital beneficiaries.Jowell alleged that the defendant’saction was wrongful and negli-gent and had resulted in loss tohim by virtue of the subtraction ofthe Glencordale shares from theassets of the trust and that thisloss amounted in damages to thesum of R10 844 098. He claimedthat damages in this amount werecalculated by assessing the valueof the Trencor shares as at theprobable date of Mrs Jowell’sdeath compared to the value ofthe Escom loan stock as at thatdate, basing this assessment onthe contention that the true subjectof the trust was the Trencor shareswhich were held through theGlencordale shares.

The defendants excepted to theclaim on a number of grounds, thefirst of which was that the amountof the plaintiff’s claim was calcu-lated on the value of the Trencorshares whereas the plaintiff hadonly alleged a right as against the

* (i) This matter being an exception, the facts as stated here are as theywere alleged in the plaintiff’s particulars of claim. (ii) Some aspects of theexceptions taken, not being of a commercial nature, are not considered inthis summary.

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Glencordale shares*. The plaintiff’sallegation involved the claim thatthe Trencor shares were subject toa restraint on alienation, but theterms of the will, which were clearand unambiguous, provided forno such restraint and did not giveJowell a vested right to theTrencor shares on the death ofMrs Jowell.

THE DECISIONWhile the stage when exception

was being taken was not anappropriate time for the interpre-tation of the will or contractunderlying the dispute, in thepresent case the terms of the willwould determine the properassessment of the merits of theexception. In interpreting theterms of the will, it was notpermissible to speculate about theintentions of the testator if thoseterms were expressed plainly inthe words of the will, as they werein the present case.

Dr Jowell’s will described thesubject matter of the trust as theshares in Glencordale. The subjectmatter of the trust was this assetand not the assets which underlaythe shares. Glencordale did nothold the shares in Trencor asnominee of the testator, but asowner of them in its own right.Therefore, whatever attitude DrJowell had had toward the sharesin Trencor—whether he consid-ered them to be his property or,strictly, the property of anotherperson, Glencordale—he had nopower to divest them ofGlencordale and vest them in atrust.

Evidence of the circumstancessurrounding the execution of DrJowell’s will, which would sug-gest that he considered theTrencor shares his own and heldmerely as a conduit byGlencordale, was inadmissible,because the plain meaning of thewords he had used, ‘the sharesheld by me’ unambiguously stated

that the shares he was disposingof were the only ones he held, iethose in Glencordale and no othercompany. Those words could notbe extended to mean the propertyof the company whose shares heheld.

The fact that the Glencordaleshares could not be sold if MrsJowell survived Dr Jowell, butcould be sold if she did not,indicated that what the testatorintended to dispose of in his willwas not the property which theshares represented, but the sharesthemselves. As trustee and benefi-ciary, Mrs Jowell’s inability todispose of the Glencordale sharesensured that she would retaincontrol of that company, but if shehad predeceased Dr Jowell therewould have been no need forensuring the continuation of thatcontrol. The testator’s apparentintention was to ensure this andnot the preservation of theTrencor shares for the benefit ofthe ultimate beneficiaries.

The exception was upheld.

* The plaintiff considered the exception to include an attack on the allega-tion that the rights of the capital beneficiaries vested in them on the deathof Dr Jowell. The judge held that their rights did vest in them at that time,Mrs Jowell’s rights in the Glencordale shares being purely fiduciary.

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GEANEY v PORTION 117 KALKHEUWELPROPERTIES CC

A JUDGMENT BY KIRK-COHEN JTRANSVAAL PROVINCIALDIVISION12 JUNE 1997

1998 (1) SA 622 (T)

Where a close corporation isconducted as a partnership, iewith the active participation ofmembers between whom arelationship of mutual confidenceis necessary for the continuationof the business of the closecorporation, the close corporationmay be placed in liquidationwhere there has been a breakdownof that relationship. A court willnot make an order for thecessation of a member’s interest interms of section 36(1)(d) of theClose Corporations Act (no 69 of1984) unless sufficient facts areplaced before the court to enable itto make such an order and makefurther orders as to theacquisition of such interest.

THE FACTSGeaney brought an application

for the liquidation of Portion 117Kalkheuwel Properties CC,alleging that she was a member ofthe close corporation holding a50% interest in it, and that as aresult of a breakdown in therelationship between her and theother member, it was just andequitable that the close corpora-tion should be wound up.

The other member, the secondrespondent, alleged that Geaneyhad purchased her 50% interest inthe close corporation from himbut had failed to pay the purchaseprice of R170 000. He claimed thathe had cancelled the sale and in aseparate action, claimed retransferof the member’s interest. Heresponded to Geaney’s applica-tion with a counter-application inwhich he sought an order thatGeaney cease to be a member ofthe close corporation and that thecourt make an order in regard tothe acquisition of her interest.

Between Geaney and the secondrespondent, there were ongoingdisputes regarding many aspectsof the business of the close corpo-ration. Their relationship wascharacterised by continuingmistrust and suspicion.

THE DECISIONThe business of the close corpo-

ration was being conducted as apartnership between Geaney andthe second respondent. In thesecircumstances, its affairs requireda personal relationship of confi-dence and trust between them.Given the breakdown in thisrelationship, it was just andequitable that the close corpora-tion should be wound up, subjectto the merits of the counter-application.

In terms of section 36(1)(d) of theClose Corporations Act (no 69 of1984) a court may order that anymember of a close corporationshall cease to be a member on thegrounds that circumstances havearisen which render it just andequitable that the member shouldcease to be a member and thecourt may make further orders inregard to the acquisition of themember’s interest and theamounts to be paid in respectthereof.

In the present circumstances, thesecond respondent had not placedsufficient evidence before court toenable it to make an order interms of this section. There wasinsufficient evidence to determinewhat a fair valuation of Geaney’sinterest was. The evidence thatthere was was confused andcontradictory. The financial affairsof the close corporation mighthave been uncertain, but greaterparticularity was required beforethe court could make an order interms of section 36(1)(d). Aliquidator, being in a position toinvestigate the financial positionof the corporation, could unravelthe complexities and bring theliquidation to finality.

The application for liquidationwas granted and the counter-application dismissed.

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JEEVA v TUCK N.O.

A JUDGMENT BY LIEBENBERG JSOUTH EASTERN CAPE LOCALDIVISION5 MARCH 1997

1998 (1) SA 785 (SEC)

A party contesting the admissionto proof of a claim by a creditor inan insolvent estate has no locusstandi to bring a review of suchadmission to proof merely on thegrounds that the admission toproof entitles the creditor tointerrogate that party at anenquiry which may be ordered interms of section 417 of theCompanies Act (no 61 of 1973).

THE FACTSSpirvin Bottling (Pty) Ltd was

placed under final liquidation inJanuary 1994. At the secondmeeting of creditors in June 1996,the second respondent proved aclaim of some R11½m against thecompany, the magistrate presid-ing at the meeting, Tuck, allowingthe claim. The joint liquidatorswere granted leave to hold anenquiry in terms of section 417and 418 of the Companies Act (no61 of 1973) into the affairs ofSpirvin.

Jeeva and the second applicantwere directors of Spirvin. Theyobjected to Tuck’s decision toallow the second respondent’sclaim and brought an applicationto review the decision and ex-punge the claim. They alleged thatthe second respondent’s claim hadprescribed by the time it wasallowed at the second meeting ofcreditors. They also alleged thatthe effect of allowing the secondrespondent’s claim, was to exposethem to interrogation by thesecond respondent at the enquiry,thereby creating the possibility ofinformation so elicited beingconveyed to the Attorney Generalwho might institute a criminalcharge against them. They allegedthat the second respondent wasnot legally entitled to interrogatethem and that if it were given thisopportunity, they would besubject to the risk of criminalsanction or personal liability forthe debts of the company.

The second respondent and thejoint liquidators opposed theapplication on the grounds thatthe directors had no locus standi,or right in law, to bring theapplication.

Insolvency

THE DECISIONIf no enquiry had been ordered,

the grounds upon which Jeevaand the second applicant broughtthe application would have fallenaway completely. The reliefclaimed by the applicants was thereview and expungement of aclaim brought by the secondrespondent, but the act com-plained of, ie admitting the secondrespondent’s claim, had not beena pre-condition to the event whichthe applicant cited as the basis ofits complaint, ie the prejudicialeffects of the enquiry. In otherwords, there was no necessaryconnection between the admissionof the second respondent’s claimand the ordering of the enquiry:the applicants could not attack theadmission of the claim by refer-ring to the unrelated event of theenquiry. It followed that theylacked locus standi to review thedecision to admit the secondrespondent’s claim.

That this was so was also evidentfrom the fact that the applicantshad cause for complaint only afterthe enquiry was ordered. Theadmission of the second respond-ent’s claim did not, when it wasallowed, affect their rights. Theywere therefore not persons ‘ag-grieved’ by any decision of thepresiding officer at the secondmeeting of creditors.

The applicants had no locusstandi to bring the application.The application was dismissed.

38

DE LANGE v SMUTS N.O.

A JUDGMENT BY CONRADIE JCAPE OF GOOD HOPE PROVIN-CIAL DIVISION29 AUGUST 1997

1998 (1) SA 736 (C)

Section 66(3) of the InsolvencyAct (no 24 of 1936) isconstitutionally invalid in that itpurports to deprive a person of hisliberty without recourse a court oflaw.

THE FACTSDe Lange was the only member

of three close corporations whichhad been wound up. At a meetingof creditors, an application wasmade for his committal to prisonon the grounds that he had failedto produce books and documentswhich he had been ordered toproduce, and that he had failed toanswer fully and satisfactorilyquestions which had been law-fully put to him.

The provision under which itwas contended he had beenobliged to do these things wassection 66(3) of the Insolvency Act(no 24 of 1936). The sectionprovides that if a person sum-moned to an interrogation underthe Act fails to produce any bookor document which he wasordered to produce or refuses toanswer any question lawfully putto him, the presiding officer at theenquiry may issue a warrantcommitting the person to prisonwhere he shall be detained untilhe has undertaken to do what isrequired of him.

The presiding officer granted theapplication. De Lange undertookto do what was required of him,and the warrant for his arrest anddetention was suspended. DeLange then brought an applicationreviewing the decision to commithim to prison and seeking anorder that section 66(3) of theInsolvency Act was unconstitu-tional.

THE DECISIONSection 12 of the Constitution of

the Republic of South Africa Act(no 108 of 1996) provides thatevery person has the right tofreedom and security of theperson, including the right not tobe detained without trial. Theeffect of this section is to declarethat only a court of law maydeprive a person of liberty.

Section 66 of the Insolvency Actempowers the presiding officer ofan enquiry conducted in terms ofthe Act to commit a recalcitrantwitness to prison. The presidingofficer fulfils an administrativefunction, even when he is amagistrate, and as such cannot beconsidered to constitute a ‘court oflaw’.

The section therefore conflictswith section 12 of the Constitutionin that it purports to deprive aperson of his liberty without theintervention of a court of law. Thisin itself might not be unaccept-able, given that section 36(1) of theConstitution allows for the limita-tion of the fundamental rightsgiven in the Constitution by a lawof general application, to theextent that the limitation is rea-sonable and justifiable in an openand democractic society based onhuman dignity, equality andfreedom. However, there was nocompelling reason why thecoercive steps provided for insection 66 should not be control-led by a court.

Section 66 was inconsistent withthe Constitution and invalid. Thecourt’s order declaring the thesection consequently invalid wasreferred to the ConstitutionalCourt for confirmation.

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DELANGE v PRESIDING OFFICER,PAARL MAGISTRATES’ COURT

A JUDGMENT BY SELIKOWITZ JCAPE OF GOOD HOPE PROVIN-CIAL DIVISIONFEBRUARY 1998

1998 CLR 129 (C)

A person wishing to enforce theconstitutional right toprocedurally fair administrativeaction where any of his or herrights or legitmate expectations isaffected or threatened and basingsuch a claim on an attack on theconstitutionality of a particularstatute must enforce that right byattacking the constitionality ofthe statute. Where the right toinformation and documents heldby parties interested in an enquiryconvened in terms of sections 415and 416 of the Companies Act (no61 of 1973) is asserted upon thebasis that the rights encroachedupon in those sections infringe aperson’s constitutional rights, theappropriate means of enforcingthat right is to attack theconstitutionality of thoseprovisions.

THE FACTSIn response to a request from the

liquidators of three close corpora-tions to subpoena Delange totestify and produce documents atan enquiry held in terms ofsections 415 and 416 of the Com-panies Act (no 61 of 1973), thePresiding Officer, Paarl Magis-trates’ Court Delange issued asubpoena requiring her to pro-duce documents at the enquiry.His intention was that she wouldgive evidence at the enquiry andproduce the documents relevantto the enquiry.

At the enquiry, Delange con-tended that she was entitled to beinformed in advance of the topicsin respect of which questionswould be put, and to be given inadvance copies of all the docu-ments upon which she might berequired to testify. The PresidingOfficer ruled against her. Delangeapplied for a review of his deci-sion.

THE DECISIONAlthough the subpoena was

limited to the production ofdocuments, the Presiding Officerhad nevertheless reached theconclusion when he issued thesubpoena that Delange should becalled to testify. He consideredher to be a person who couldappropriately testify, and there-fore intended the subpoena torequire her testimony as well.

Delange’s application for reviewwas based on section 24(b) of the

Republic of South Africa Constitu-tion Act (no 200 of 1993) whichprovides that every person shallhave the right to procedurally fairadministrative action where anyof his or her rights or legitmateexpectations is affected or threat-ened. Delange argued that thissection was applicable becausesection 66(3) of the Insolvency Act(no 24 of 1936) threatened acommittal to prison in the event ofan interrogee refusing to answerquestions put at an enquiry.

The reason for the review beingan objection to section 66(3), therewas no necessary connectionbetween this and the right toprocedurally fair administrativeaction. In these circumstances,Delange’s appropriate remedywas to attack the constitutionalityof section 66. The remedy soughtby Delange was, in any event,inappropriate because it wasimpractical to furnish theinterrogee with a list of ‘topics’ tobe covered in the enquiry. Thepurpose of the enquiry was toascertain facts and report on themto the Master, rather than traversea series of topics. While in certaininstances, those interested in theenquiry would have informationconcerning the affairs of theinsolvent estate, the presidingofficer would be able to exercise adiscretion as to whether, in theinterests of fairness, such informa-tion should be imparted to theinterrogee before testifying.


Insolvency

40

LEECH v FARBER N.O.

A JUDGMENT BY NUGENT JWITWATERSRAND LOCALDIVISION26 FEBRUARY 1998

UNREPORTED

A person who is the subject of anenquiry in terms of sections 417and 418 of the Companies Act (no61 of 1973) is not entitled toobtain all the information held bya creditor which might be used inthe enquiry as the basis forquestions to be put to that person,nor is that person entitled to allthe documentation held by acreditor in such an enquiry.Proceedings in which such aperson is denied such informationwould not be unfair, nor wouldthey constitute a denial of hisenjoyment of his rights asprovided for in the Constitution.

THE FACTSAfter Needwood (Pty) Ltd had

been placed in liquidation, AbsaBank Ltd, which had lent thecompany R54m, applied to theMaster of the High Court for anenquiry to be held into the affairsof the company in terms of sec-tions 417 and 418 of the Compa-nies Act (no 61 of 1973).

The Master authorised theholding of an enquiry, and ap-pointed a commissioner for thatpurpose. The commissionersummoned Leech and the otherapplicants to attend the enquiryfor examination, and to producedocuments relating to the affairsof the company.

At the commencement of theenquiry, Leech’s attorney re-quested the commissioner to rulethat the representatives of Absaproduce at the enquiry, all thedocumentation, statements,affidavits and other informationheld by Absa relating to its audi-tors, forensic accountants, valuersand other professional advisers, aswell as all of Absa’s internal anddepartmental reports and memo-randa regarding Needwoodwhich Absa intended to use forthe purpose of the enquiry, andstate the allegations that Absawould be making at the enquiry.

The commissioner refused tomake this ruling. Leech thenapplied for an order that the courtreview and set aside the decisionof the Master to convene theenquiry, and the commissioner’srefusal to make the ruling, andthat the court set aside the sub-poenas.

THE DECISIONThe ground upon which it was

contended the court should setaside the decision of the Master toconvene the enquiry was that theapplication to the Master for theconvening of the enquiry wasinsufficiently substantiated.

However, the Master has a discre-tion to authorise the holding of anenquiry and he was entitled to doso where there was fair ground forsuspicion, and the person pro-posed to be examined couldprobably give information aboutwhat was suspected. Unless it wasshown that the Master had exer-cised his discretion improperly,the court should not set aside hisdecision to convene an enquiry.

The decision to convene theenquiry could not be disturbed.

As far as the commissioner’sruling was concerned, Leechargued that the commissioner hadbeen bound to rule in her favour,in view of her right toprocedurally fair administrativeaction as provided for in section33 of the Constitution of theRepublic of South Africa Act (no... of 1996). This raised the ques-tion whether the proceedingswould be ‘unfair’, and hence aviolation of her constitutionalrights, if witnesses were requiredto be examined without first beinggiven access to the informationheld by Absa.

The enquiry was essentially aninterrogation, the purpose ofwhich was to gather informationto enable the affairs of the com-pany to be properly wound up.Interested persons, such as credi-tors and members of the company,were entitled to question wit-nesses at such an enquiry. Itwould be inconsistent with thenature and purpose of the enquirywere such persons to be requiredto disclose all the informationalready in his or her possession asa precondition to questioning thewitness.

Were the information sought byLeech to be withheld from her,there would be no substantialprejudice to her, if answers to thequestions to be put at the enquirywere still required of her.

There was therefore no ground

Insolvency

41

upon which Leech was entitled tothe information held by Absaconcerning Needwood.

As far as the documentation wasconcerned, what was said withregard to the information soughtby Leech was equally applicableto this. With regard to the docu-mentation, Leech had referred tosection 32 of the Constitution,which assures every person theright of access to all information

held by the State or any of itsorgans, in so far as that informa-tion is required for the exercise orprotection of any right.

Assuming that the commissionercould be considered an organ ofthe state, the documentationsought was not in his possessionbut in the possession of Absa. Insuch circumstances, it was moreappropriate to deal with theinterrogee’s right to documenta-

tion on an ad hoc basis, in thecourse of the enquiry beingconducted by the commissioner.This would mean that documenta-tion could be supplied to Leech asand when this might be necessi-tated by the questions being put toher. There was however, noreason to supply her with all ofthe documentation in advance, assought in the order applied for.


Insolvency

NBS BANK LTD v WIETSCHE JACOBSONTWIKKELAARS BK

A JUDGMENT BY GOLDSTEIN J(BORUCHOWITZ J and WUNSH Jconcurring)WITWATERSRAND LOCALDIVISION8 DECEMBER 1997

1998 CLR 141 (W)

Upon proof that a company orclose corporation is factually orcommercially insolvent, a partyto which that company or closecorporation is indebted is entitledto wind up its debtor, notwith-standing the existence of anycounterclaim the debtor may haveagainst that party. If however,because one of the parties success-fully obtains leave to appealagainst the court’s order grantedfollowing an application to windup, the debtor discharges itsindebtedness before the determin-ation of the appeal, an appealcourt will not grant or confirm anorder winding up the debtor.

THE FACTSNBS Bank Ltd brought an

application for the winding up ofWietsche Jacobs OntwikkelaarsBK. In asserting its right to bringthe application (its locus standi)NBS alleged that Wietsche owed ita total of some R13m arising fromthree loans made to Wietsche, andthat it had suffered damages as aresult of Wietsche having partici-pated in a large scale schemewhich was fraudulent and hadnegatively affected NBS’s goodname and reputation. Wietschebrought a counter-applicationagainst NBS designed to enforcethe release of its funds underNBS’s control in order to allow itto continue its business opera-tions. It denied having partici-pated in a fraudulent scheme asalleged by the NBS.

At the time of NBS’s application,Wietsche’s liabilities exceeded itsassets by R18 436 964. Its lastknown annual profit wasR4 409 644. It owed R48 584 843.52which had to be paid within 12months.

NBS’s application failed and thecounter-application substantiallysucceeded. NBS appealed. Pend-ing the determination of theappeal, Wietsche applied toenforce compliance with theorders obtained in its counter-application. That application wassettled with an order that NBSwas to consent to the cancellationof the bonds securing Wietsche’sindebtedness to it, upon dischargeof the indebtedness. Before thedetermination of the appeal, thiswas done, and Wietsche’s indebt-edness was discharged.

42

THE DECISIONBy the time of the determination

of the appeal, Wietsche haddischarged its indebtedness toNBS. NBS therefore did not havethe right to wind up Wietsche atthat stage, and no order thatWietsche should be wound upcould therefore be granted.Because Wietsche denied that ithad participated in the fraudulentscheme as alleged by NBS, thiscould not form the basis of anyclaim that Wietsche was in factindebted to NBS on that ground.

As far as the merits of the appli-

cation to wind up Wietsche wereconcerned, as at the date of theapplication, in the light of theprofit figure of R4 409 644 madeby Wietsche in 1995, Wietschewould have had to trade for threeto four years just to eliminate itsexcess of liabilities over assets.However, it also had to payR48 584 843,52 within 6 to 12months. It was therefore factuallyand commercially insolvent, and itought to have been wound up.Had this happened, Wietsche’scounter-application would havebeen suspended in terms of

section 359(1) of the CompaniesAct (no 61 of 1973) read withsection 66 of the Close Corpora-tions Act (no 69 of 1984). The factthat this was not done, and therelief sought by Wietsche hadbeen substantially achieved, reliefwhich merely enforced contrac-tual obligations, meant thatdespite the fact that the appealshould have been successful, thatrelief could not be undone. How-ever, because this should havebeen the result of the litigation,NBS was entitled to the costs of itsapplication and of its appeal.

Insolvency

Where, as in the present case, a corporation is shownto be insolvent to a substantial degree, its assets arepractically all mortgaged, it has relatively insignifi-cant free assets and it has overwhelming liabilitiesthat have to be paid in the short term, the position notonly does not dictate the exercise of a discretion toavoid a winding-up order; it calls for liquidation toensue.

43

VAN HEERDEN v BASSON

A JUDGMENT BYHARTZENBERG JTRANSVAAL PROVINCIALDIVISION9 OCTOBER 1997

1998 (1) SA 715 (T)

Where a contract provides that athird party will in the futuredetermine a price to which bothparties must adhere, it is open toone of the parties to apply tocourt for the correction of a priceincorrectly determined by thethird party.

THE FACTSVan Heerden and Basson were

the shareholders in InKukuweKuikens (Edms) Bpk. They en-tered into an agreement in termsof which in the event of one partywishing to sell his shares, theywere to be sold to the other partyat a price determined by theauditor of the company.

Van Heerden resigned as direc-tor of the company and signed ashare transfer form in blank forthe transfer of his shares toBasson. The shares were notvalued as provided for in theagreement, and a value of R80 000was unilaterally placed on theshares. Basson attempted to payVan Heerden this amount.

Van Heerden brought an actionfor re-transfer of the shares tohimself, alternatively the placingof a value on the shares as pro-vided for in the agreement. In anamendment to his summons, VanHeerden sought an order that hewas not subject to the valuationon the shares as provided for inthe agreement and that the courtshould determine their value, andon the basis of that valuation,Basson should be compelled topurchase the shares or re-transferthem to himself.

Basson opposed the amendmenton the grounds that the reliefsought was not based on anyprinciple of law supporting suchrelief.

Contract

THE DECISIONWhen two parties agree on the

determination of a price by a thirdparty, they have done so becausethey are unsure of the appropriateprice of the item which is to besold. They therefore depend onthe ability, competence andintegrity of the third party nomi-nated by them to determine theprice. If the determination of theprice is done incorrectly, thenpractically speaking, there hasbeen no price determination andone of the essentials of the agree-ment is lacking. In such an event,the court has the power to correctthe price determination. This is sobecause price is objectivelydetermined and if it is determinedunreasonably, the court maysubstitute this with a reasonabledetermination.

Contracting parties which haveagreed to a determination of priceby a third party have done so inorder to reach a speedy andrelatively inexpensive method ofarriving at such a price. Where acorrection has been obtained,because the determination wasunreasonable, the parties shouldbe given the choice of decidingwhether or not they still wish toabide by the contract.

There was a basis in law for therelief which Van Heerden sought.

44

ALEX CARRIERS (PTY) LTD v KEMPSTONINVESTMENTS (PTY) LTD

A JUDGMENT BY MPATI JEASTERN CAPE DIVISION23 APRIL 1997

1998 (1) SA 662 (E)

In a claim for breach of a contractof carriage in which it is allegedthat the carrier failed to delivergoods in the same condition inwhich they were received, theonus of proving that the contractwas performed without negligenceor intention to cause damage restson the carrier. However, theconsignor is still required to provethat the goods were in factdelivered in a damaged condition.

THE FACTSAlex Carriers (Pty) Ltd con-

tracted with Kempston Invest-ments (Pty) Ltd that Kempstontransport 60 reels of paper fromPort Elizabeth to George.Kempston subcontracted thecarriage to the second defendant.

When the reels of paper reachedtheir destination, the consigneerefused to accept delivery becausethe paper had become damagedby water. Alex claimed thatKempston had breached a term ofthe contract of carriage underwhich Kempston had beenobliged to deliver the paper insame condition in which it wasreceived. It claimed alternativelythat Kempston had failed in itsduty of care to take reasonablesteps to ensure that the paper didnot become damaged.

Kempston defended the actionon the grounds that it had notbreached the term as alleged norfailed in its duty of care, in thatthe paper had been delivered inthe same condition in which it hadbeen received, ie damaged bywater, which damage had oc-curred during the loading process.

Witnesses for each party gaveevidence, those for Alex Carrierstestifying that it had not rainedwhen the paper was loaded onKempston’s truck, those forKempston testifying the opposite.

THE DECISIONIn an action based on a contract

of carriage the carrier bears theonus of proving that it exercisedreasonable care in conducting thecarriage and where damages havebeen incurred in the performanceof the contract, acted withoutnegligence (culpa) or intention(dolus) to cause the damage. Thefact that the carrier bears this onusdoes not however, excuse theplaintiff from having to prove thatthe damage occurred, ie that thevalue of the goods was upondelivery, less than it had beenwhen the carriage started.

Alex Carriers had presentedevidence that the paper was givento Kempston in an undamagedcondition. However, the evidencepresented by Kempston, that itwas raining during the loadingprocess, was more probable thanthat given by the witnesses forAlex Carriers. Having dischargedthe onus of proving that it hadacted without negligence orintention, Kempston was entitledto judgment in its favour.

Contract

45

BODY CORPORATE OF BRENTON PARKBUILDING NO 44/1987 v BRENTON PARK CC

A JUDGMENT BY McCLARTY AJCAPE OF GOOD HOPE PROVIN-CIAL DIVISION4 APRIL 1997

1998 (1) SA 441 (C)

Notification of an intention toadopt rules in substitution of theexisting rules of a body corporateunder the Sectional Titles Act (no66 of 1971) by a unanimousresolution at a general meeting ofa body corporate may validlyprecede a unanimous resolutiondirecting the body corporate to letcommon property, where the effectof the substitution of the rules isto empower the body corporate toenter into such a lease.

THE FACTSAll the owners of sectional title

units of Brenton Park were givennotice of the inaugral generalmeeting of the Body Corporate ofthe Brenton Park Building. In thenotice, it was stated that it wasproposed that a resolution wouldbe adopted substituting the rulessubmitted to the Registrar ofDeeds in terms of the SectionalTitles Act (no 66 of 1971).

At the meeting, a unanimousresolution was passed adoptingthe Rules for the Control andManagement of the Building andBody Corporate known as BrentonPark in substitution of the rulessubmitted to the Registrar ofDeeds. The Rules so adoptedincluded Rule 63. Rule 63 pro-vided that Brenton HolidayResort, which was adjacent to theproperty controlled by the BodyCorporate, would be entitled touse a sewerage plant on theproperty, subject to it being liablefor the pro rata share of the costsof maintaining and repairing theplant from time to time. The Rulefurther provided that the bodycorporate would enter into anagreement of lease with theowners of the Brenton HolidayResort regularising the use of thesewerage plant in terms of a draftlease agreement attached to theRules.

A lease agreement was thensigned on behalf of the BodyCorporate and on behalf of theBrenton Holiday Resort CC.

The Body Corporate later dis-puted the validity of the lease,contending that there had notbeen compliance with section13(1) of the Sectional Titles Act.

That section provides that theowners under a sectional titlescheme may by unanimousresolution direct the body corpo-rate on their behalf to let commonproperty under a lease, andthereupon the body corporateshall have the power to deal withsuch common property in themanner directed and execute anydeed for the purpose. A unani-mous resolution was defined inthe Act as a resolution precededby a notice specifying the pro-posed unanimous resolution.

THE DECISIONThe Body Corporate contended

that there had not been strictcompliance with section 13(1) inthat the resolution had been thatthe Rules be adopted—albeitRules which incorporated aprovision that the Body Corporateenter into a lease with BrentonHoliday Resort—and not that thelease be entered into with theBrenton Holiday Resort. Thequestion was whether this consti-tuted a failure to comply withsection 13(1) read with the defini-tion of a unanimous resolution asgiven in the Act.

It was clear at least that Rule 63was validly adopted by unani-mous resolution: here, there hadbeen strict compliance withsection 13(1). All of the ownerswere given notice of the intentionto adopt this resolution, and hencenotice of a resolution directing theBody Corporate to conclude thelease. There had therefore beenproper compliance with section13(1) in respect of the lease.

The lease had been validlyconcluded.

Property

46

HUISAMEN v PORT ELIZABETHMUNICIPALITY

A JUDGMENT BY LEACH J(KROON J and MPATI J concur-ring)EASTERN CAPE DIVISION21 FEBRUARY 1997

1998 (1) SA 477 (E)

A zoning scheme created underpowers conferred by a law theadministration of which isassigned to functionaries otherthan those who created the firstzoning scheme remains effectiveand enforceable against the ownerof property subject to such azoning scheme even after theassignment thereof to such newfunctionaries.

THE FACTSThe Huisamen Family Trust

owned fixed property in PortElizabeth. The property waszoned ‘Residential 1’ in terms of azoning scheme for the city estab-lished under the Land Use andTown Planning Ordinance (no 15of 1985). The ordinance specifi-cally excluded property zonedResidential 1 from being used forbusiness purposes.

The trust applied for the rezon-ing of the property to allow usefor business purposes. Thisapplication remained pendingwhen the trust let the property toa company which used the build-ings on the property as its offices,in violation of the zoning scheme.The Port Elizabeth Municipalitythen obtained an order interdict-ing the trust from using or permit-ting the use of the property forany purposes in contravention ofthe zoning scheme.

The trust appealed against thegrant of the interdict, one of thegrounds of appeal being that thepower of the local authority toadminister and deal with zoningmatters could not have survivedthe termination of the office ofAdministrator which had takenplace when the Constitution of theRepublic of South Africa (no 200of 1993) assigned the ordinance tothe province of the Eastern Cape.Without the new functionariesvested with the authority to actunder the ordinance acting toapprove or re-establish previouslyexisting schemes, the zoningschemes established under theauthority of the Administratorwere to be regarded as havinglapsed and become unenforceable.

The trust also contended that thecourt should exercise its discretionagainst granting the interdict, orshould postpone the matter, inview of the fact that it had appliedfor the rezoning of the property.

THE DECISIONThere was no reason why a

zoning scheme created under theauthority of certain functionariesshould cease to exist merelybecause the provisions underwhich it was created was assignedto other functionaries. Even ifthere was some reason why such ascheme could be rendered ineffec-tive by the assignment of theempowering provisions to otherfunctionaries, section 10(5)(d) ofthe Interpretation Act (no 33 of1957) provided the completeanswer to the trust’s contentions.

This section provides that anyaction taken under a law prior tothe date on which the administra-tion thereof was assigned shallremain in full force and effect as ifit had been taken by the personwho was, by virtue of that law,competent to take such action.

This provision, known as a‘savings clause’ meant that thezoning scheme had not lapsed orbecome unenforceable.

As far as the argument that thecourt ought to exercise its discre-tion in favour of the trust wasconcerned, the municipality hadshown that all of the requirementsfor an interdict had been met, andthere was no room for the courtexercising its discretion in favourof the trust, especially in view ofthe fact that the continuation ofuse of the property in violation ofthe municipal regulations consti-tuted a criminal offence.

The fact that the trust hadapplied for the rezoning of theproperty was insufficient reasonto postpone the granting of theinterdict.

The appeal failed.

Property

47

MICHAEL v CAROLINE’S FROZENYOGHURT PARLOUR (PTY) LTD

A JUDGMENT BY MARCUS AJWITWATERSRAND LOCALDIVISION3 OCTOBER 1997

1998 CLR (W)

A lease providing for thenomination of a close corporationas tenant by the person enteringinto the lease as nominee for aclose corporation to be formeddoes not necessarily require thatthe close corporation be inexistence at the time when theclose corporation is nominated astenant. Such as lease isambiguous as to whether the closecorporation need be in existence atthat time or at a later stage.

THE FACTSOn 30 July 1993, Caroline’s

Frozen Yoghurt Parlour (Pty) Ltdlet to Ms Michael in her capacityas nominee for a close corporationto be formed, Shop 112, Fisher-man’s Village, Bruma Lake. Theagreement was recorded in anagreement of sub-lease in terms ofwhich the provisions of the leasebetween Caroline’s and its land-lord (the main lease) were deemedto be included in the sub-lease. Inthe event of any inconsistencybetween the main lease and thesub-lease, the terms of the mainlease were to prevail. The sub-lease was deemed to have com-menced on 1 August 1993.

In terms of clause 13 of the sub-lease, Michael was to nominatethe full names and details of theclose corporation for whom shewas a nominee by 31 August 1993.Should she fail to do so, shewould be deemed to have enteredinto the contract in her personalcapacity. In terms of clause 10.9 ofthe main lease, where the agree-ment was entered into by a trusteeon behalf of a close corporation tobe formed, the trustee warrantedthat the close corporation wouldbe formed within 60 days of thedate of the agreement, and untilthe close corporation became thelessee, the trustee would be liablepersonally for all obligationsimposed on the lessee.

Caroline’s brought an action fordamages against Michael, allegingthat she had failed to pay arrearrental and ancillary charges. Italleged that Michael had failed tonominate the name of the closecorporation for which she enteredinto the sub-lease, alternativelyhad failed to comply with theprovisions of clause 10.9 of themain lease.

Michael admitted that she hadnot paid the arrear rental andancillary charges, but pleaded thata close corporation had been

nominated in a notification toCaroline’s on 19 August 1993, andit was liable for these claims. Shealso pleaded that in the event ofthe word ‘nominate’ as used inclause 13 being understood tomean ‘duly formed and incorpo-rated’ then clause 13 was incon-sistent with the terms of the mainlease. The terms of that lease werethen to prevail and she hadcomplied with them in that a closecorporation had been formedwithin 60 days of the date of theagreement, ie El Greco TakeAways CC, formed on 8 Septem-ber 1993.

Caroline’s excepted to the pleaon the grounds that Michael (i)failed to allege that the closecorporation was formed before 31August 1993, as required byclause 13 of the sub-lease, and (ii)alleged she had complied withclause 13 of the sub-lease bynominating a close corporationnot yet in existence as at the dateof nomination.

THE DECISIONWhen an exception is based

upon an interpretation of a con-tract, the excipient must show thatthe contract is unambiguous.

In the present case, clause 13 ofthe sub-lease was not unambigu-ous. It did not expressly state thatthe close corporation was to havebeen incorporated by 31 August1993. It therefore posited twopossibilities: that the close corpo-ration nominated by Michaelmight be a close corporation stillto be formed at the time of suchnomination, or that that closecorporation had to exist at thattime. In the face of such ambigu-ity, Caroline’s could not rely onthe latter possibility as the onlypossible interpretation of theclause. Caroline’s reliance on thisinterpretation was crucial to thesuccess of its exception toMichael’s plea.

Property

48

There was some force in theargument that it was impossible totransfer rights by nominating anentity not yet in existence—as wasthe case in respect of El GrecoTake Aways CC as at 19 August

1993. It had to be rememberedhowever, that while this was theposition under the common law,both the Companies Act (no 61 of1973) and the Close CorporationsAct (no 69 of 1984) had changed

this. The word ‘nominate’ itselfwas, according to the dictionary,capable of a number of differentmeanings.

In view of the uncertainty, theexception had to be rejected.

Property

DEEDAT v THE MASTER

A JUDGMENT BY THIRION JNATAL PROVINCIAL DIVISION4 JUNE 1997

1998 (1) SA 544 (N)

The Master is entitled, andsometimes obliged, to exercise adiscretion in authorising theappointment of a trustee who hasbeen duly elected as a trustee of atrust. Whether or not theappointment should be authorisedis a matter for decision of theMaster in the light of thecircumstances surrounding thetrust and the appointment of thetrustees.

THE FACTSDeedat and the second applicant

were trustees of the IslamicPropagation Centre International,as were the second and thirdrespondents. The applicantsconstituted a faction which heldcontinuing differences with thesecond and third respondents andthere was no co-operation be-tween these two factions.

On 5 February 1993, by a com-promise agreement between them,the trustees elected two furthertrustees, each of them supportingone of the two factions. Neitherelected trustee took office becausethey were unable to furnishsecurity to the satisfaction of theMaster. A further appointment ofthree trustees for the purposes ofensuring the end to deadlock thentook place, but none of these tookoffice because none was willing tofurnish security to the Master.Three years later, one of theseelected trustees, the fourth re-spondent, furnished security tothe Master and applied to theMaster for authorisation to act astrustee in terms of section 6 of theTrust Property Control Act (no 57of 1988). The Master granted theauthorisation requested.

Deedat and the second applicantthen applied for an order settingaside the Master’s authorisation.They contended that the appoint-ment of the fourth respondentwould result in the failure of animpartial judgment being brought

to bear on matters relating to theaffairs of the trust, the fourthrespondent being sympathetic tothe opinions and views of thesecond and third respondents.

THE DECISIONOrdinarily, the Master does not

need to call for representationbefore authorising a person to actas trustee of a trust.

However, the present circum-stances were not ordinary. Thefourth respondent had beenelected as a trustee as a result of acompromise entered into betweenthe two opposing factions. Thatcompromise envisaged the ap-pointment of two trustees whoseappointment was intended tobring about an equilibriumbetween the two factions. Thelater attempt to introduce threenew trustees was a further meas-ure introduced to bring about anend to this dispute. This objectcould not have been achieved bythe appointment of trustees whoseposition would have broughtabout an imbalance.

The Master was obliged to haveregard to these factors in authoris-ing a new trustee to act for thetrust. Since the Master had takenthe view that he had no discretionto refuse the authorisation of thenewly appointed trustee, he hadnot acted correctly and the deci-sion to authorise the appointmentof the fourth respondent wastherefore to be set aside.

Trusts

49

A JUDGMENT BY PAGE J(McCALL J concurring)NATAL PROVINCIAL DIVISION24 MARCH 1997

1998 (1) SA 538 (N)

A suretyship provisionincorporated in an Application forCredit Facilities form whichindicates in its heading that thedocument incorporates asuretyship provision which itselfis printed in bold type adequatelynotifies the signatory of theapplication that he is bound assurety by signing asrepresentative of the partyapplying for credit facilities. Sucha signatory bears of the onus ofshowing that he signed withoutthe intention of undertaking thesuretyship obligations if healleges that he agreed to thoseterms by mistake.

ROOMER v WEDGE STEEL (PTY) LTD

THE FACTSWishing to purchase goods on

credit from Wedge Steel (Pty) Ltd,Morningside Light Engineering(Pty) Ltd applied for credit facili-ties with Wedge Steel using aform headed Application forCredit Facilities. On the reverseside of the form, under the head-ing Terms and conditions ofagreement of sale and deed ofsuretyship were printed the termsand conditions of the facility.Clause 13 recorded that the partywho appended his signaturethereto on behalf of the purchaserbound himself as surety and co-principal debtor in favour of theseller in respect of all the obliga-tions of the purchaser.

Roomer signed the form forWedge Steel. He did not notice thesuretyship provision when he didso, but admitted that he wasaware of the practice of insertingsuch provisions when extendingcredit to small private companies.He did not intend to be bound bythe suretyship provision.

Morningside Light Engineeringwas placed in liquidation andWedge Steel brought an actionagainst Roomer as surety, depend-ing on the suretyship provision inthe Application for Credit Facili-ties form. Roomer defended theaction on the grounds that he didnot intend to be bound as surety.

THE DECISIONBy putting his signature to the

Application form, Roomer indi-cated his intention to be bound bythe suretyship provision. On thebasis of that indication, WedgeSteel entered into the contract sothat, whatever Roomer’s realintention might have been, theparties concluded the agreementwith provisions as reflected in theapplication form, including thesuretyship provision. If Roomerwas to show that the real agree-ment was different from this, theonus would be on him to showthat he had made a mistake andthe mistake was justified (justus).

When Roomer entered into thecontract with Wedge Steel, he wasnot activated by a justified mis-take. The fact that Roomer knewthat suretyship provisions such asthe one he had signed wereincorporated in agreements suchas the one he signed showed thatthe possibility of such a suretyshipprovision being there would havebeen present in the mind of areasonable man in the position ofRoomer. It was true that asuretyship agreement is normallymade the subject of a separateagreement, but the applicationform did state in its heading that itincluded a suretyship provisionand gave that provision in boldtype to draw the attention of thesignatory to it. The form couldtherefore not be said to be a trapand there was no obligation onWedge Steel to take any furthersteps to guard against the signa-tory overlooking the suretyshipclause in it.

The action succeeded.

Suretyship

50

NPC ELECTRONICS LTD v S TAITZ KAPLAN & CO

A JUDGMENT BY MACARTHUR JWITWATERSRAND LOCALDIVISION12 MARCH 1997

[1998] 1 All SA 390 (W)

An auditor of a company whichprepares financial statements forthe company cannot be liable to athird party which alleges that itrelied on the informationcontained in the financialstatements to extend credit to thecompany, thereby suffering loss,where the auditor does notreasonably foresee that the thirdparty will rely on the financialstatements for that purpose, ordoes not know that the thirdparty will rely on them.

THE FACTSS Taitz Kaplan & Co was the sole

auditor of a group of four compa-nies known as the Stan Group, forthe financial years ending Febru-ary 1990, 1991 and 1992. It wasaware that the results of the StanGroup would be consolidatedwith those of other companiescontrolled by Milstan HoldingsLtd, an investment holdingcompany listed on the Johannes-burg Stock Exchange. It added noqualified opinions to the financialstatements of the companies in theStan Group.

In the audit conducted by S Taitzfor the annual financial yearending February 1991, S Taitzfailed to detect an understatementof creditors in the Stan Groupamounting to some R2m. Thisomission was carried forward intothe audited results of MilstanHoldings for the year endedFebruary 1991. An over-valuationof the stock of Miltons (1987) (Pty)Ltd, a subsidiary of MilstanHoldings, was also carried for-ward into the audited results ofMilstan Holdings for this year andremained undetected.

In June 1992, S Taitz and KesselFeinstein, the joint auditors ofMilstan Holdings, published theaudited results for that companyfor the year ended February 1992.The financial statements for thecompany had not then beencompleted, and the publicationerroneously recorded thatMilstan’s results had been au-dited. In November 1992, revisedfinancial statements for thecompany were published. Theyshowed the company to be in anextremely poor financial position.The understatement of creditorsremained undetected at this stage,and it was only when doing theaudit for the financial year endedFebruary 1993, that the omissioncame to light.

NPC Electronics Ltd suppliedgoods to the four companies of the

Stan Group of companies oncredit. In September 1992, it madeavailable to them additional creditfacilities of R5,7m. It alleged that itextended credit facilities afterrelying on the unqualified reportsin the financial statements pub-lished by S Taitz. The Stan Groupof companies went into liquida-tion. NPC alleged that as a resultof this, and having relied on thefinancial statements produced byS Taitz, which were false andmisleading, it suffered damages. Itclaimed payment of these dam-ages from S Taitz.

THE DECISIONS Taitz did not conduct a proper

auditing procedure. It knew thatthe Stan Group did not haveproper accounting records and itdid not carry out its duties asprescribed in section 300 of theCompanies Act (no 61 of 1973).The inaccuracies and errors weresignificant and material and theygave a false and misleadingimpression of the financial posi-tion of Milstan.

There was no evidence to sug-gest however, that S Taitz hadbeen fraudulent. If NPC wished todepend on alleged negligence onthe part of S Taitz, it would haveto show that it was close enoughto S Taitz to be within the ambit ofthose to whom S Taitz could beliable in delict (the proximity test)and that S Taitz knew that NPCwould rely on the financial state-ments in giving credit to the StanGroup companies. NPC had notshown this. Prior to 1992, NPChad been willing to give creditwithout seeing the financialstatements of these companies. Ithad therefore not relied on them.S Taitz could not, in any event,have reasonably foreseen thatNPC would rely on the financialstatements. It was not liable toNPC in delict.

NPC had also attempted to showthat S Taitz was liable to it on the

Auditors

51

A JUDGMENT BY DANIELS JTRANSVAAL PROVINCIALDIVISION9 OCTOBER 1997

1998 (1) SA 556 (T)

A bond holder may not, withoutforeclosing in terms of theforeclosure provisions of a bond,take possession of the securedproperty which is subject to abuilder’s lien, even after the bondholder has secured a Waiver ofBuilder’s Lien in its favour.

grounds that section 20(9) of thePublic Accountants’ and Auditors’Act (no 80 of 1991) applied. Thesection provides however, that anauditor incurs no liability towardthird parties in respect of any

opinion expressed or certificategiven or report made in the courseof the auditor’s duties, unless suchopinion or report is given mali-ciously or pursuant to a negligentperformance of duties. It had notbeen shown that S Taitz fell

within the terms of this section.NPC had also not shown that

there was any causal link betweenthe financial statements preparedby S Taitz and the loss they hadincurred.

The claim was dismissed.

NBS BANK BPK v DIRMA BK

THE FACTSNBS Bank Bpk lent money to the

second respondent for the pur-poses of the development of asectional title scheme on propertyowned by the second respondent.In terms of clauses 5 and 9 of theloan, if in the opinion of NBS,building work was not beingproceeded with in a satisfactorymanner, or there was undue delayin carrying out the work, orinferior workmanship or materialwas put into the work, or work-men, contractors or supplierswere not regularly paid, theborrower would be deemed tohave committed a breach of theterms of the loan, and the NBScould in its discretion, refuse todisburse further money andremedy defective work in suchmanner as it might think fit,utilising funds available in termsof the loan. The loan also pro-vided that the borrower wouldsecure the renunciation of rightsof retention by any contractorsand builders in respect of theproperty.

The loan was secured by amortgage bond passed over theproperty in favour of NBS.Clauses 5 and 9 of the terms of theloan were not repeated in thebond. The terms of the bond didhowever, record that the capitalsum of the loan would immedi-

ately become due and repayablein the event of default in payingsums due in terms of the bondand in other circumstances, inwhich event, the NBS would beentitled to have the propertydeclared executable and eject anyoccupier from the property.

The second respondent enteredinto a building contract withDirma BK in terms of whichDirma was to attend to buildingwork on the property. A day afterthe passing of the mortgage bond,Dirma signed a Waiver of Build-er’s Lien in terms of which itagreed that the bond would takepriority to any lien or right ofretention available to it as build-ing contractor, would not enforceany such right against the NBSand would surrender possessionof the property to NBS whenrequested by the NBS to do so.

Dirma and the second respond-ent became involved in a disputebetween themselves in connectionwith the building operations at theproperty. Dirma refused to con-tinue with the work until paid forwork it alleged it had done, andthe second respondent refused topay for work which it alleged hadnot been done properly.

The NBS applied for Dirma’sejectment from the property,basing its claim on its rights interms of the bond.

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THE DECISIONClauses 5 and 9 of the loan

agreement were not part of theterms of the bond and weretherefore irrelevant to Dirma. Theterms of the Waiver of Builder’sLien did not constitute a generalabandonment of the builder’srights in favour of the rights of theNBS, but constituted a waiver ofthe builder’s rights as against therights of the NBS as recorded inthe bond, coupled with an under-taking not to enforce the builder’s

rights against the NBS to itsdetriment. The rights of the NBSto possession of the propertycould therefore follow only fromthe exercise by the NBS of itsrights in terms of the bond,specifically by the NBS calling forrepayment of its loan and havingthe property declared executable.

It was clear that if the NBS wereto have foreclosed on the bond inthis manner, it would have beenentitled to take possession of theproperty, and in such circum-

stances, Dirma’s right of retentionas builder would have fallen awayin terms of the Waiver of Builder’sLien. This abandonment of rightsby the builder would also operateonly in the event of NBS assertingits rights in this way, since thebuilder’s right of retention standsin priority to that of the bondholder and therefore subsists untilsuperseded by the exercise of aright specifically excluding it.


LIEBENBERG v ABSA BANK LTD

A JUDGMENT BY TRAVERSO JCAPE OF GOOD HOPE PROVIN-CIAL DIVISION24 MARCH 1997

[1988] 1 All SA 303 (C)

When a bank’s customer allegesthat a bank has paid a chequedrawn on its account withoutproper authority, its claimagainst the bank is not app-ropriately framed as a claim fordelictual damages, but a claim forbreach of the contract of mandatesubsisting between bank andcustomer.

THE FACTSLiebenberg brought an action

against Absa Bank Ltd, alleging thatin terms of an agreement betweenthe parties, he operated a bankingaccount with Absa and that thebank would pay out cheques prop-erly drawn on the account. Healleged that he drew a cheque,stating the amount in words as ‘onehundred and fifty rand’ and infigures ‘R150 000’, and that the bankpaid the sum of R150 000 uponpresentment of the cheque.

Liebenberg alleged that whereashe had intended to pay R150 000,the bank acted wrongly in payingthe cheque as it was under a duty toexercise reasonable care toward himin his capacity as a customer of thebank. In breach of this duty, and indisregard of section 7(2) of the Billsof Exchange Act (no 34 of 1964), thebank had paid the cheque withoutfirst seeking clarification from him.Had the bank done so, Liebenbergwould have countermanded pay-ment of the cheque because by then,the fact that Fundstrust, the payee,was facing imminent liquidation,would have been known to him.

The bank excepted to the claim onthe grounds that it was not clearwhether Liebenberg claimed incontract or in delict. Assumingcontract, no allegation was made ofany term breached by the bank.Assuming delict, there was no basisin law for delictual liability.

THE DECISIONLiebenberg’s allegations rested on

the allegation that the bank’s obliga-tion arose out of a contract betweenhim and the bank. This confined hisclaim to an action of debt arising outof the banker-customer relationship.

As the bank’s creditor—since thebank held funds belonging toLiebenberg—Liebenberg’s appropri-ate form of relief was to bring anaction against the bank for paymentof the debt due to him. If the fundswere not there, because the bankhad paid them in terms of thecontract of mandate subsistingbetween itself and Liebenberg, thiscourse however, would not be opento him, and the bank would have asufficient reason for not paying sucha debt. In the present context,having paid the money toFundstrust, the bank did have asufficient reason for not paying thealleged debt, and Liebenberg couldnot insist on payment of a debtwhich was not due.

Were Liebenberg to proceedagainst the bank in contract, hewould have had to allege thatpayment had been made by thebank contrary to the terms of themandate between him and the bank.This Liebenberg could not allege,because in paying the cheque, thebank had acted according to theterms of its mandate, and notcontrary to them.

Banking

53

TELEFUND RAISERS CC v ISAACS

A JUDGMENT BY THRING JCAPE OF GOOD HOPE PROVIN-CIAL DIVISION28 JULY 1997

1998 (1) SA 521 (C)

A customer list which containsconfidential information may beprotected from use by acompetitor since the informationcontained therein is considered tobelong to the party whichcompiled it. Whether or not itcontains confidential informationwill depend inter alia on whetherthe belief that it does contain suchinformation is reasonable andwhether or not the use of it by thecompetitor will give it anadvantage which it gains from theinformation compiled in it, even ifsuch information is obtainablefrom public sources such as atelephone directory. The fact thata person formerly engaged withthe person asserting the right tosuch confidential information wasengaged on a commission basisand as an agent does not precludethat person from obtaining aninterdict preventing its use by thecompetitor to whom the agent haschanged its allegiance.

THE FACTS Isaacs and two other respond-ents were employed by TelefundRaisers CC. While so employed,they signed acknowledgementsthat during the course of theirwork, they came into contact withtrade secrets, client lists and otherconfidential information used byTelefund. The confidential infor-mation they in fact came intocontract with consisted in, interalia, client lists being lists ofnames and telephone numbers ofTelefund’s customers, togetherwith such information as thecustomer’s contact person anddetails of sales concluded withthem.

Telefund’s business consisted inselling presentation basketscontaining beverages, fruit andother foodstuffs and allocatingpart of the proceeds to charity. Itbuilt up a clientele of 4000 cus-tomers over the years of itsoperations and acquired a certainamount of goodwill in the form ofrepeat business from its custom-ers.

Isaacs and the other two re-spondents left Telefund’s employ-ment and began work for thefourth respondent, which wasengaged in a similar business tothat of Telefund and competedwith it. They took with themTelefund’s client lists, and usedthem for promoting the businessof the fourth respondent, takingthe view that because they hadbeen engaged with Telefund on acommission basis and as inde-pendent contractors or agents,they were entitled to keep theclient lists and use them in theiremployment with the fourthrespondent.

Telefund then obtained an AntonPiller order entitling the sheriffand a supervising attorney toenter the fourth respondent’spremises in order to search fordocuments belonging to Telefundas well as certain relevant docu-

ments of the fourth respondent.Telefund also sought furtherrelief, ie that Isaacs and the othertwo respondents be restrainedfrom using or disposing or dis-closing to any person any ofTelefund’s confidential informa-tion, including the identity ofTelefund’s customers, and fromholding themselves out as beingemployed by or representative ofTelefund. After the Anton Pillerorder was executed, Telefundapplied for confirmation of therelief it sought.

THE DECISIONWhether or not what the re-

spondents did was lawful de-pended on the question whetherthe information they took withthem was confidential informa-tion. If it was, Telefund wasentitled to interdict them fromusing it in the manner in whichthey did.

Telefund always regarded itscustomer lists as confidential—somuch was clear from the fact thatit required its employees to signan acknowledgement that this wasso. Although it would not beconfidential information merelybecause Telefund stated that itwas, it was clear that the informa-tion did have ‘the necessaryquality of confidence about it’, iewas not something which waspublic property or public knowl-edge. The court was entitled toapply this definition, in the lightof the principles (as established inprevious judgments) for determin-ing whether or not informationwould be considered confidentialinformation.

Telefund’s belief that the infor-mation it considered confidentialwas confidential was not unrea-sonable. Its release to a competitorwould be injurious to it andadvantageous to the competitor.The customer list took time andeffort to compile. The customerswere likely to want to place

Competition

54

further orders for productsTelefund had sold them. Theytherefore represented a potentialmarket for those products.

The fact that the names of thecustomers could be obtained fromother sources, such as the tel-ephone directory did not make thecustomer list any the less confi-dential, since the informationcontained in that source wasuseless until it was known whothe customers were. The fact thatTelefund had extracted thatinformation in its own list consti-tuted a valuable resource whichwould save the person wantingsuch information much time andeffort in its compilation. Allowing

the competitor the use of it wouldallow it a springboard from whichto compete with Telefund. In anyevent, the customer list alsocontained other informationwhich could not be extracted froma public source such as a tel-ephone directory.

The information the respondentshad taken with them was not thekind of information that couldhave been taken as a mere inci-dent of the benefits of their em-ployment. It was information thatcould be useful to the fourthrespondent. It was confidentialinformation and to the advantageof the fourth respondent.

As far as the contention that therespondents were entitled to theinformation because they hadbeen engaged with Telefund asagents and not employees wasconcerned, this was no answer toTelefund’s claim. It was entitled toprotection of its confidentialinformation in respect of agents asmuch as in respect of employees.The customer list still belonged toTelefund and the customersrecorded on it were stillTelefund’s customers, even if therespondents had been its agentsand not its employees.

The interdict sought by Telefundwas granted.

JOUBERT v IMPALA PLATINUM LTD

WADDINGTON AJPBOPHUTATSWANA HIGH COURT12 JUNE 1997

1998 (1) SA 463 (B)

In proving that one is covered bythe terms of an insurance policywhich qualifies the person entitledto claim under the policy as anemployee of a certain type, it is notessential to allege that theclaimant is such a person, providedthat it is sufficiently clear what theclaimant is suing for and theclaimant has given sufficientparticularity for it to be seen thathe is an employee as qualified inthe policy. A claim based on afailure to perform obligationsimposed in a contract mayestablish delictual liability, even ifthe establishment of such liabilitydepends on the allegation that thedefendant failed to performcontractual its obligations.

THE FACTSJoubert was employed by Impala

Platinum Ltd. When so employed,Impala had entered into a policy ofinsurance with the Rand MutualAssurance Co Ltd in terms ofwhich Rand Mutual undertook topay certain benefits to an em-ployee of Impala in the event ofthe employee meeting with anaccident in the course of hisemployment.

In terms of the insurance policy,benefits claimable under the policywere restricted to employees whohad entered into an employmentcontract incorporating an agree-ment that benefits payable underthe policy would represent thetotal and entire claim of the em-ployee, and that any claim forcompensation other than thosepayable under the policy would bewaived. The policy also providedthat notice of any accident likely toinvolve a claim for compensationwas to be given by Impala to Rand

Mutual as soon as reasonablypossible after the accident.

Joubert met with an accident inthe course of his employment. Hebrought an action against Impalafor payment of damages of R513277, alleging that he was em-ployee who was covered by theinsurance policy, that he hadtimeously reported the accident toImpala and had furnished it withthe documentation necessary forbringing a claim under the insur-ance policy. The insurance policywas annexed to the particulars ofclaim. Joubert alleged that despiteImpala’s obligation to give noticeof the accident to Rand Mutualand transmit relevant documenta-tion to it without delay, Impalafailed to do so. He alleged that asa result of Impala’s negligence infailing to perform as required interms of the policy, his claimunder the policy had prescribedand he had suffered damages inthe sum claimed.

Insurance

55

Impala excepted to the claim onthe grounds that the particularsfailed to aver that Joubert hadbeen an employee who had beenemployed with Impala in themanner required by the insurancepolicy, ie incorporating an agree-ment that benefits payable underthe policy would represent thetotal and entire claim of theemployee, and that any claim forcompensation other than thosepayable under the policy wouldbe waived. It also excepted to theclaim on the grounds that theclaim failed to make out a casethat Impala had breached a dutyof care giving rise to delictualliability, because the claim wasbased on Impala’s failure tocomply with its contractualobligations. Its third exceptionwas that Joubert had not set outany basis for recovery of economicloss.

THE DECISIONThe point of the first exception

was that Joubert had to makeallegations that, if proved, wouldshow that he was at least coveredby the insurance policy. He had toallege that the risk insured againsthad eventuated.

Construing the policy as a whole,the restriction on the persons towhom the benefits of the policy

could be conferred as providedfor in the policy, ie those employ-ees whose contract of employmentincorporated the agreementregarding claims, was a qualifica-tion of the promise by RandMutual to pay, rather than anexception to its obligation to pay.The onus of proving that thequalification applied rested onJoubert. The question waswhether the allegations made inhis particulars of claim properlyplaced Joubert in a position todischarge this onus.

It was reasonably clear whatJoubert was suing for. The insur-ance policy had been annexed tothe particulars of claim, and thistogether with the averments madein the particulars of claim, made itclear to Impala why the claim wasbeing brought. On the basis ofthese averments, Joubert would beable to lead evidence to prove thathe had been covered by theinsurance policy.

The first exception to the particu-lars of claim was dismissed.

As far as the second exceptionwas concerned, the question waswhether the claim as formulated,adequately contained all of theessential elements for a delictualaction, ie that Impala’s omissionwas wrongful, that Joubert’s

interest was worthy of legalprotection, that the loss he sus-tained was foreseeable and thatImpala owed Joubert a duty ofcare.

The fact that the claim referred tothe terms of the contract betweenJoubert and Impala as the sourceof certain obligations arisingbetween these two parties, was nobar to establishing a delictualclaim by Joubert against Impala. Itwas necessary to refer to the termsof this contract in order to do so.Having established the existenceof these obligations, Joubert wasable to further allege that Impalahad negligently failed to honourthose obligations and make out acase that Impala was under a dutyof care to have done so. Anydelictual liability so establishedwould not be inconsistent withany contractual liability whichJoubert might also establish.

The second exception wasdismissed.

As far as the third exception wasconcerned, it had already beenestablished as a matter of princi-ple, that delictual liability couldgive rise to a claim for economicloss only. The loss alleged byJoubert was not indeterminate, itsamount having been set out in theparticulars of claim.

This exception was dismissed.

Insurance

53

BERZACK v NEDCOR BANK LTD

A JUDGMENT BY LOUW JCAPE OF GOOD HOPE PROVIN-CIAL DIVISION1 APRIL 1998

1998 CLR 169 (C)

A bank which negligently fails tocomply with statutory requirementslaid down in exchange controlregulations by not retaining custodyof certificates reflecting a non-resident customer’s holdings in SouthAfrican securities, is not liable to thecustomer for losses arising from thedishonesty of the customer’s agent inwhose custody the certificates havebeen left, merely because the bank hasfailed to comply with those statutoryrequirements.

THE FACTSBerzack emigrated from South

Africa in 1981. In terms of regula-tion 2(2)(a) promulgated undersection 9 of the Currency andExchange Act (no 9 of 1933), heleft in South Africa the balance ofhis assets after taking out of thecountry an amount as a settling-inallowance. His cash assets wereplaced in a blocked account heldwith Nedcor Bank Ltd and hisother assets were placed under itscontrol. The regulations providedthat all securities held in thismanner were to be endorsed withthe words ‘non-resident’.

In 1990, Berzack entered into ashare portfolio managementagreement with Table MountainTrust Co Ltd (TMT) in terms ofwhich he authorised TMT tomanage and administer hisportfolio of securities. Pursuantthereto, TMT purchased Escomstock with a nominal value ofR2m through its stock brokers.Payment of R1 525 354,80 wasmade from Berzack’s blockedaccount and a certificate wasissued by Escom reflecting thename of the registered owner,Table Mountain Trust Nominees(Pty) Ltd, TMT’s nominee share-holding company.

TMT received the certificate butfailed to submit it to Nedcor, as itwas obliged to in terms of theregulations and in terms of ageneral undertaking earlier givento the Reserve Bank. Nedcor failedto comply with standard bankingpractice in that it did not insist ondelivery of the certificate in orderto endorse it and take it into itscustody.

After Berzack entered into theshare portfolio managementagreement, TMT furnishedNedcor with a General Power ofAttorney given in its favour byBerzack and proof of its authorityto act as nominee for non-resi-dents. It confirmed that it ex-pected that future assets acquired

by blocked funds would beregistered in the name of Berzackand held at Nedcor. In subsequenttransactions, in which Nedcorsought and obtained Reserve Bankpermission for the adjustment ofBerzack’s assets, the Reserve Bankruled that Nedcor was to retaincontrol over Berzack’s blockedaccount.

From time to time, TMT remittedinterest on the Escom stock toNedcor, informing it that itsnominee company held thecertificate for the stock, andrequesting that the interest bedeposited in Berzack’s account,then transferred to Berzack. Inbreach of the regulations promul-gated under section 9 of theCurrency and Exchange Act (no 9of 1933), which provided that onlythe authorised dealer underwhose physical control a formerSouth African resident’s assetswere held could allow the remit-tance of current income earned inthe Republic.

Alleging that an employee ofTMT sold his Escom stock andstole the proceeds, Berzackbrought an action against Nedcor,claiming the loss he had therebysuffered. He founded his claim incontract and in delict.

THE DECISIONContract

Assuming (without deciding)that it was a term of the contractbetween Berzack and Nedcor thatNedcor was obliged to complywith all the conditions laid downin the regulations, it was clear thatTMT and Nedcor had acted inbreach of their contractual obliga-tions. However, the loss sufferedby Berzack as a result of thisbreach was too remote for Nedcorto be held accountable for it. It didnot flow naturally and generallyfrom the breach, and the loss wasnot foreseeable at the time whenthe contract was entered into. Theparties did not actually, or as a

Banking

54

matter of presumption, contem-plate that the loss would probablyresult from the breach.

The claim in contract couldtherefore not succeed.Delict

Berzack alleged that Nedcorowed him a duty to act in accord-ance with exchange controllegislation, and having negligentlyfailed to comply by failing toobtain custody of the Escom stock,he had suffered loss when theproceeds of the stock were stolenby TMT’s employee.

Nedcor did not however, oweBerzack a legal duty to complywith the exchange control legisla-tion. Mere infringement of thestatutory provision could not be

considered unlawful in the sensethat there had been an infringe-ment of Berzack’s interests, wherethe alleged infringement wasalleged to be in respect of eco-nomic interests, as opposed tophysical damage to property orthe person.

The requisites for proving thatthe breach of a statutory dutygives rise to a claim for damagesare that the statute was intendedto give an action and that thedamage was of the kind contem-plated by the statute. The object ofthe exchange control legislation isto regulate the flow of capital inand from the Republic in order toprotect the country’s foreignexchange reserves. It is not to

protect the assets of a personwhich are subject to that legisla-tion, against the unauthorisedconduct of the agent of thatperson. Nedcor’s failure to com-ply with the legislation wastherefore not unlawful in respectof Berzack.

Assuming that the loss wascaused by Nedcor, in the sensethat it was reasonably foreseeablethat its negligence could haveresulted in the loss which didoccur, policy considerations andconsiderations of fairness andjustice did not require that Nedcorshould be responsible for thedishonesty of Berzack’s ownagent.

Berzack’s claim was dismissed.

Banking

ESS KAY ELECTRONICS v FIRST NATIONAL BANK

A JUDGMENT BYBORUCHOWITZ JWITWATERSRAND LOCALDIVISION11 FEBRUARY 1998

1998 CLR 244 (W)

A bank is not responsible for theactions of its employee when thatemployee acts purely for his owngain and beyond the scope of hisauthority as employee

THE FACTSA departmental head at First

National Bank who was author-ised to deal and issue foreign bankdrafts, unauthorisedly took twoblank bank drafts from a strong-room at the bank and made themout in favour of Ess Kay Electron-ics Pte Ltd and Sugnomal Hold-ings Pte Ltd, for US$130 000 andUS$120 000 respectively. Headded his signature to the drafts,then handed them to a certain MrJ Clack who gave him R10 000 forthe drafts. The forged drafts werethen forwarded to their payeeswho delivered goods to SouthAfrican customers on the strengthof them. The forgeries werediscovered and Ess Kay andSugnomal suffered damages inthe amounts of the drafts. Theybrought an action against thebank, claiming that because of theemployment relationship betweenitself and the departmental head,it was vicariously liable foritslosses.

THE DECISIONThe bank as employer would be

vicariously liable for the wrongsdone by its employee if the em-ployee was engaged in the affairsof his employer when the wrongwas done. However, the bankwould not be so liable if in doingthe wrong, the employee hadexclusively promoted his owninterests and had completelydisengaged himself from theduties of his contract of employ-ment. The departmental head haddone just this: he had committedtheft and fraud solely for his ownfinancial benefit. He acted outsidehis authority, had not compliedwith internal procedures pre-scribed by the bank, did notadvance the interests of the bankand he had been aware that theforged documents were valuelessand would not be honoured onpresentation. The bank could notbe held vicariously liable for thewrongs done by the departmentalhead. The action was dismissed.

55

VAN ZYL N.O. v TURNER N.O.

A JUDGMENT BY BRAND JCAPE OF GOOD HOPE PROVIN-CIAL DIVISION27 OCTOBER 1997

1998 (2) SA 236 (C)

Money deposited into a bankingaccount is the property of theaccount holder, but it may also beproperty, in a wide sense of theterm, of one who has ultimatecontrol over the money. It maytherefore be considered property inrespect of which a disposition ismade which has the effect ofpreferring one creditor aboveanother, within the meaning ofsection 29(1) of the Insolvency Act(no 24 of 1936). Such propertyextracted from an insolventperson by unorthodox demandmay be considered to have beendisposed of by means other thanin the ordinary course of business.

THE FACTSMr H Sommerfeld invested R600

000 in a 31-day call account withMr M Felthun. Sommerfeld gavenotice for repayment of the R600000. Felthun was unable to repaythe money but, upon demandhaving been made on him bySommerfeld’s attorney, Felthunobtained a loan for R600 000which he arranged to have dis-bursed by means of a deposit tothe account of Citiprop CC, a realestate agency.

The money was so disbursed,and Citicorp then arranged for theissue of a bank cheque for R600000 by Citiprop’s bank in favourof Sommerfeld. Sommerfeldreceived payment. At this time,Felthun’s liabilities exceeded hisassets.

A little more than two monthslater, Felthun’s estate was seques-trated. His trustee brought anaction against the deceased estateof Sommerfeld, claiming that thepayment of R600 000 toSommerfeld was a voidablepreference within the meaning ofsection 29(1) of the Insolvency Act(no 24 of 1936).

Section 29(1) provides that everydisposition of property made by adebtor not more than six monthsbefore the sequestration of hisestate which has had the effect ofpreferring one creditor aboveanother, may be set aside by thecourt if immediately after makingthe disposition, the liabilities ofthe debtor exceeded the value ofhis assets, unless the person inwhose favour the disposition wasmade proves that the dispositionwas made in the ordinary courseof business and that it was notintended thereby to prefer onecreditor above another.

THE DECISIONIn establishing its case based on

section 29(1), Felthun’s trusteeshad to prove that the payment

made to Sommerfeld was adisposition of Felthun’s property.

The money deposited intoCitiprop’s bank account wasFelthun’s property in the widesense of the term. Although themoney was strictly the property ofCitiprop, in effect it held themoney as Felthun’s agent, andtherefore Felthun held the right ofdisposal over it. The arrangementsby which the money was given toSommerfeld showed that thisproperty had been transferred toSommerfeld and constituted adisposition of the property withinthe meaning of section 29(1). Itwas therefore clear that there hadbeen a disposition of property byFelthun in favour of Sommerfeld.

Sommerfeld’s executor con-tended that the disposition hadnot been made with the intentionto prefer one creditor aboveanother. Felthun’s intention hadbeen to protect himself against thedemands made by Sommerfeld’sattorney. His primary motive wastherefore not to prefer any credi-tor above another.

However, Sommerfeld’s execu-tor’s second contention, thatpayment was made toSommerfeld in the ordinarycourse of business, could not beaccepted. The demand made onFelthun by Sommerfeld’s attorneywas made at a time when it wasknown that Felthun could not paythe sum owing to Sommerfeld.The inference that could be drawnfrom this was that the demandwas made with the possibleforesight that Felthun could onlyobtain the money by dishonestmeans. The payment that fol-lowed such a demand could notbe considered to have beeneffected in the ordinary course ofbusiness. The method of paymentwas also unbusinesslike andsuggested that the payment wasnot made in the ordinary course ofbusiness.


Insolvency

56

GORE N.O. v ROMA AGENCIES CC

A JUDGMENT BY COMRIE J(BRAND J concurring)CAPE OF GOOD HOPE PROVIN-CIAL DIVISION5 NOVEMBER 1997

1998 (2) SA 518 (C)

When a liquidator decides tocomplete a contract for acompany in liquidation thedecision does not automaticallyinvolve a decision to complete anassociated contract, such as anagency agreement in terms ofwhich a commission becomespayable upon completion of theprinciple contract. A claim forsuch commission in thosecircumstances does not arise as acost in the administration of theinsolvent estate.

THE FACTSRoma Agencies CC agreed with

a company known as Sechic that itwould introduce orders fromcustomers which Sechic wouldthen be at liberty to fulfil. If it didfulfil the order, Roma would beentitled to a commission payable30 days after delivery of the goodsby Sechic to the customer.

Sechic was placed in liquidation.At that time, Roma had obtainedunfulfilled orders to the value ofat least R155 378,57. Sechic ex-ecuted the orders and Romaclaimed the full amount of thecommission of R6 732,21 whichthen became due. The liquidator,Gore, disputed the claim.

THE DECISIONWhen a party to an executory

(uncompleted) contract is placedin liquidation, performance underthe contract cannot be enforcedagainst the liquidator until theliquidator decides whether or notto continue with the contract.Only if the liquidator decides tocontinue with the contract, must

he perform all the obligations ofthe contract.

In the present case, the liquidatordecided to continue with thecontract for the supply of thegoods, but that decision did notnecessarily include a decision tocontinue with the agency agree-ment. The two contracts wereseparate and it could not be saidthat by deciding to fulfil the orderobtained by Roma the liquidatorhad decided to complete theagency agreement. Roma’s com-mission was therefore not payableon the grounds that the liquidatorhad decided to complete theagency contract.

It could also not be said that bythe nature of the agency agree-ment, Roma would not obtain anyclaim against Sechic until an orderwas fulfilled and that uponfulfilment, its claim would arise asa cost of administration in theinsolvent estate. No such claimcould arise without there havingbeen a prior contingent claim,which Roma could not assert thatit had.

The claim was dismissed.

Insolvency

57

BANK OF LISBON INTERNATIONAL LTD vWESTERN PROVINCE CELLARS LTD

A JUDGMENT BY GOLDSTEIN J(GOLDBLATT JA and FEVRIER Jconcurring)WITWATERSRAND LOCALDIVISION15 OCTOBER 1997

1998 CLR 27 (W)

The object of section 34(1) of theInsolvency Act (no 24 of 1936) isto prevent a trader from avoidingpayment of business debts bydisposing of the business to aperson who is not liable for suchdebts. A ‘trader’ for purposes ofthe application of section 34(1),includes a person who has tradedand who might have ceasedtrading as at the date of transferof the business referred to in thesection, but who has engaged inthose activities referred to in thedefinition of a ‘trader’ whichconstitute a person a trader.

THE FACTSThe Bank of Lisbon International

Ltd lent money to J C de Araujo,and held as security a notarialbond over assets of his business, aliquor store. The bank enforcedthe notarial bond by takingpossession of the business. West-ern Province Cellars Ltd thenpurchased the business from deAraujo, and paid the purchaseprice to the bank.

Western Province took transferof the business, but no publicationof the intention to transfer thebusiness was made in terms ofsection 34(1) of the Insolvency Act(no 24 of 1936). Section 34(1)provides that if a trader transfersany business belonging to him,except in the ordinary course ofthat business or for securing thepayment of a debt, and the traderhas not published notices of theintended transfer within stipu-lated periods before the date oftransfer, the transfer will be voidas against his creditors for aperiod of six months after thetransfer, and will be void againstthe trustee of his estate, if hisestate is sequestrated at any timewithin that period.

de Araujo was sequestratedwithin the stipulated period, andhis trustee applied for the sale tobe set aside on the grounds thatthe provisions of section 34(1) hadnot been complied with. The Bankof Lisbon opposed the applicationon the grounds that because deAraujo had ceased trading in thebusiness for a period of fourweeks before the sale, he was nota ‘trader’ as referred to in section34(1). An alternative ground wasthat the transfer fell within theexception ‘for securing the pay-ment of a debt’ as provided for inthe section.

THE DECISIONThe Act defines a trader as any

person who carries on any trade,business, industry or undertakingin which various stipulatedactivities are undertaken, includ-ing the sale of property. The bankargued that the carrying on oftrade as referred to in the defini-tion, being stated in the presenttense, was an activity intended tobe taking place at the time whenthe transfer of the business takesplace. However, the purpose ofthe definition was to set out thoseactivities which would constitutethe person a trader. This meantthat if a person fell within theterms of the definition, he wouldnot cease to be so simply becausehe ceased operating it.

The object of section 34(1) is toprevent a trader from avoiding hisdebts by selling and transferringhis business to a person whowould not be liable for such debts.If it were to be held that a personis not a trader merely because hehas not traded for a period of afew weeks before selling andtransferring his business, thisobject would not be achieved. deAraujo might have ceased trading,but he remained a trader.

As far as the bank’s alternativeground was concerned, thetransfer of the business did nottake place for securing payment ofa debt, but in order to pay a debt.The exception referred to insection 34(1) refers to a transfereffected in order to secure a debt,such as a pledge or in the perfec-tion of a notarial bond.

The trustee’s application wasgranted.

Insolvency

58

PATERSON N.O. v KELVIN PARK PROPERTIES CC

A JUDGMENT BY LEACH JEASTERN CAPE DIVISION10 JULY 1997

1998 (2) SA 89 (E)

A person will be considered a‘trader’ within the meaning of theterm in section 34(1) of theInsolvency Act (no 24 of 1936)even if he ceases to carry onbusiness, provided that hecontinues to trade in the broadsense of the term.

THE FACTSSchutte owned fixed property

and ran a butchery business onthe property. A portion of theproperty was also used as aresidence and for the running of ageneral dealership. In March 1994,following a fire at the property,Schutte ceased to trade as abutcher. On 26 April 1994, he soldthe property for R96 420, andvarious items of equipment usedin the butchery to Kelvin ParkProperties CC. Transfer of thefixed property took place on 9May 1994 and the moveable itemsin the same month.

On 9 June 1994, Schutte’s estatewas provisionally sequestrated.His trustee, Paterson, thenbrought an action against Kelvinbased on section 34 of the Insol-vency Act (no 24 of 1936) claimingretransfer of the fixed propertyand the value of the moveableassets. In January 1995, Kelvinhad sold the moveable assets to acertain Mr Krause. The value ofthese assets then was R46 400.

Section 34 provides that if atrader transfers any businessbelonging to him or any goodsforming a part of it, and the traderhas not published notices ofintended transfer within a speci-fied period before date of transfer,the transfer will be void as againstcreditors for a period of sixmonths after transfer and voidagainst the trustee of his estate, ifhis estate is sequestrated at anytime within the said period.

Paterson alleged that at the timeof the sales, Schutte had been atrader within the meaning of thissection, and that the fixed prop-erty and butchery equipment hadformed part of Schutte’s business.Kelvin denied that Schutte hadbeen a trader within the meaningof the section, since he had ceasedto carry on business as a traderfrom the time of the fire.

THE DECISIONCarrying on business is not the

same as actively continuing totrade: it is possible for a trader to

cease active trading while con-tinuing to carry on business. Thismight happen where, for example,a trader temporarily stops tradingin order to take a holiday, whilecontinuing with other aspects ofthe business, such as the collectionof debts and the payment ofcreditors. Section 34(1) however,is not restricted to a trader whoactively continues to trade. It alsoapplies to the trader who carrieson business in the wider sense, ieengages in activities including,but going beyond, those of normaldaily trade.

This interpretation of section34(1) is in keeping with thepurpose of the section, ie toprotect creditors and preventtraders who are in financialdifficulties from disposing of theirbusiness assets to third partieswho cannot be held liable forbusiness debts.

In the present case, Schutte hadtrade creditors at the time he soldthe fixed property and the busi-ness assets. He also had businessdebtors. These were facts indicat-ing that he did continue to tradein the broad sense, and wastherefore a ‘trader’ as envisaged insection 34(1).

Kelvin was obliged to payPaterson the value of the goods asit was when they were sold toKrause. This was the date onwhich the wrong had been doneof which Paterson complained. Onthis date, Kelvin had known ofPaterson’s claim.

As far as the sale of the fixedproperty was concerned, the fixedproperty itself was, properlyconsidered, an asset of the busi-ness. Although a part of it wasused for non-business purposes, ithad to be considered as whole.Given the use to which it was put,it could be considered a businessasset, and one to which section34(1) applied.

The sale of the fixed propertywas set aside and Kelvin orderedto pay the value of the moveableassets as at the date of their sale.

Insolvency

59

HÜLSE-REUTTER v HEG CONSULTINGENTERPRISES (PTY) LTD

A JUDGMENT BY THRING JCAPE OF GOOD HOPE PROVIN-CIAL DIVISION15 AUGUST 1997

1998 (2) SA 208 (C)

Opposition to an application forwinding-up of a company shouldsucceed where the opposition isshown to be both bona fides andbased on reasonable grounds fordisputing the application.

THE FACTSHülse-Reutter brought an appli-

cation for the winding up of HEGConsulting Enterprises (Pty) Ltd.HEG owned property in CapeTown, as well as shares in aproperty-owning company. Itsdirector was a person residentabroad. Prior to the application, acertain J Harksen was declared tobe the sole beneficial owner of allthe company’s shares.

Hülse-Reutter alleged that hehad lent some DM3m to HEG, andhad disbursed funds on behalf ofthe company, and that its result-ing claim against the companyamounted to R3 323 857,10.

The trustees of Harksen’s insol-vent estate intervened in theapplication. They disputed theclaims made by Hülse-Reutterand set out the undisputed evi-dence in the application declaringHarksen to be the sole beneficialowner of HEG’s shares. Thisindicated the transactions bywhich HEG became the owner ofcertain property in Cape Townand Harksen’s beneficial occupa-tion of the property from Novem-ber 1993. It also incorporated theallegation that Hülse-Reutter hadpaid the money alleged to beloans to the company, to Harksen,and this had constituted aninvestment with him.

Hülse-Reutter contended that thetrustees had failed to dischargethe onus of showing that therewere reasonable grounds fordisputing the existence of hisclaims against HEG.

THE DECISIONThe question was whether or not

the trustees had established thatthey had reasonable grounds fordisputing the existence of Hülse-Reutter’s alleged claims againstthe company. In other words, tosucceed in their opposition to theapplication, the trustees had onlyto show that their grounds ofopposition were reasonable.

Given this relatively easy test, itwas not necessary for the trusteesto set out fully the evidence onwhich they would rely in order tooppose the application. Providedthat they were bona fides in theiropposition, they had merely to setout facts which, if proved, wouldconstitute a good defence ifproved at a trial.

The facts set out by the trusteescontained hearsay evidence, beingreferences to matters alleged inother proceedings, however thisevidence could be admitted sinceit was intended merely to showthat the trustees’ grounds fordisputing Hülse-Reutter’s applica-tion was reasonable.

The facts as set out by the trus-tees gave reasonable grounds fordisputing Hülse-Reutter’s claimsagainst HEG. The inference thatcould be drawn from the trustees’allegations was that the moneypaid by Hülse-Reutter was notpaid to HEG but to Harksen—this,if proved, would show that Hülse-Reutter had no claim againstHEG. As far as the alleged pay-ments on behalf of HEG wereconcerned, there would be doubtabout this if it were shown thatHülse-Reutter had invested in theHarksen and not in the company.This would be a matter for deci-sion at trial.

The trustees’ dispute was bonafide and reasonable. The winding-up procedure was therefore notthe appropriate mechanism to usein order to enforce the allegedclaims by Hülse-Reutter. Theapplication for winding-up wasrefused.

Insolvency

60

MARAIS v ENGLER EARTHWORKS (PTY) LTD

A JUDGMENT BY ERASMUS JEASTERN CAPE DIVISION7 NOVEMBER 1997

1998 (2) SA 450 (E)

An unrehabilitated insolvent isentitled to enforce rights ofpossession in respect of propertyof which he has been dispossessed,in spite of his status as anunrehabilitated insolvent.

THE FACTSMarais possessed a motor

vehicle and a light deliveryvehicle. Engler Earthworks (Pty)Ltd asserted that it had the rightto possess the vehicles and de-manded return of them. Maraisfailed to return them. Conse-quently, Engler employed a firmspecialising in repossession ofvehicles to obtain the vehiclesfrom Marais. The firm did so, thecircumstances thereof being indispute between the parties.Marais alleged that the vehicleswere taken from him under threatof the use of force. The firmalleged that he was dispossessedof the vehicles with his consent.

Marais brought an applicationfor an order that Engler restore tohim possession of the vehicles.Engler opposed confirmation ofthe order on the grounds thatsince Marais was anunrehabilitated insolvent, he didnot have the right to bring theapplication, and had in any event,returned the vehicles to it will-ingly.

THE DECISIONPrior to the sequestration of his

estate, Marais had full capacity tosue. That was only affected by hissequestration to the extent pro-vided for by the Insolvency Act(no 24 of 1936). This Act however,

does not directly limit the insol-vent’s ability to sue. It does soonly to the extent that it vests theinsolvent’s estate in a trustee, whohas exclusive authority to exerciseall rights in respect of the propertycomprising the estate.

The extent to which that limita-tion goes did not have to bedecided in the present case,because the remedy upon whichMarais based his claim was that ofone who had been spoliated whilein peaceful and undisturbedpossession of his property. Being aremedy which purely protectspossession, it made no differencewhether the property sought to beprotected was that of Marais orthat of his trustee. Marais needonly assert that he had possessionof the vehicles, not that he hadany right to possession. Since hecould do this, he had the right toclaim return of the vehicles.

As far as the dispute regardingthe circumstances of the removalof the vehicle were concerned, itwas unlikely that Marais wouldhave parted with the vehicleswillingly, given the history of theattempts to obtain the vehicle. Theonly explanation for his havinggiven the vehicles to Engler wasthat he had been threatened tosurrender possession of them.

Marais was therefore entitled toreturn of the vehicles.

Insolvency

61

SANDDUNE CC v CATT

A JUDGMENT BY NEPGEN JSOUTH EASTERN CAPE LOCALDIVISION14 NOVEMBER 1997

1998 (2) SA 461 (SECLD)

A landlord may not bring anaction against a tenant for futurerentals payable to it,notwithstanding any anticipatedbreach by the tenant, since therentals will not be due andpayable at that point. Where thetenant has sold its business andhas failed to give proper notice ofthe sale in terms of section 34 ofthe Insolvency Act (no 24 of 1936)the landlord may not contend thatthe future rentals have becomeliquidated claims in terms of thatsection.

THE FACTSSanddune CC leased certain

premises to Catt for a period ofthree years. Catt conducted asecurity business from thepremises.

During the currency of the lease,Catt sold his security business toSimon Edwards Security CC. Hemade arrangements to relocate toEngland. Some six weeks after thesale and trasnfer of the business,Catt published a notice of sale ofthe business in a locally circulat-ing newspaper. Sanddune thennotified Catt that it had a claimagainst him for payment of R27120,60 in respect of future rentals,that this amount had become dueand payable forthwith and itdemanded payment.

Sanddune contended that it hada liquidated claim of R27 120,60against Catt because of the provi-sions of section 34(2) of the Insol-vency Act (no 24 of 1936). Thatsub-section provides that as soonas a notice of intended transfer ofa business is published as re-quired by sub-section 1, everyliquidated liability of the traderpublishing the notice shall fall dueforthwith, if the creditor demandspayment of such liability. Sub-section 1 provides that the transferof a business without prior noticeof transfer will be void as againstcreditors for a period of sixmonths after such transfer.

Sanddune applied for the se-questration of Catt’s estate and hisarrest pending the making ofsatisfactory arrangements for hiscompliance with his obligationsunder the Insolvency Act.

THE DECISIONIt was clear that no notice of

transfer of Catt’s business hadbeen given as required by section34(1). That section requires priornotice of the transfer of the busi-ness. However, the notice wasgiven after the transfer of thebusiness had taken place.Sanddune could therefore not relyon section 34(2), which assumedthat a proper notice in terms ofsub-section 1 had been given.

Sanddune contended that even ifsection 34(2) did not apply,section 9(2) of the Act did. Thatsection provides that a liquidatedclaim which has accrued butwhich is not yet due on the date ofhearing the petition for sequestra-tion, shall be reckoned as a liqui-dated claim.

Assuming that this section couldapply to the present situation, itcould not be said that Sandduneheld a claim against Catt whichhad accrued. Its claim for rentalswas dependent on it providingCatt with occupation of thepremises. If it did not do so,through for example, a refusal todo so or an inability to do so, Cattwould not be obliged to pay therent. Those future contingenciesmeant that Sanddune did not yethave an accrued claim in respectof the rentals. It therefore couldnot depend on section 9(2).

It followed that Sanddune didnot have any right upon which itcould base its application forsequestration: it lacked locusstandi to bring the application.

As far as the application forCatt’s arrest was concerned, therewas no evidence that Catt in-tended to leave the country inorder to avoid paying his debts.

The application failed.

Insolvency

62

JONES v WYKLAND PROPERTIES

A JUDGMENT BY KNOLL AJ(FRIEDMAN JP concurring)CAPE OF GOOD HOPE PROVIN-CIAL DIVISION22 OCTOBER 1997

1998 (2) SA 355 (C)

A sale of fixed property whichfails to record fully the terms ofagreement concluded between theparties is void, where the partiesto that agreeement considered theterms as imperfectly recorded inthat agreement, to be material tothe agreement and form part of it.

THE FACTSJones and another party signed a

deed of sale in respect of the saleof certain fixed property. In termsof the deed of sale, Jones wasobliged to pay estate agent’scommission to Wykland Proper-ties.

Clause 4 of the deed of saleprovided that ‘possession occupa-tion’ was to be given and takenon ‘as agreed’ when the risk ofownership would pass to thepurchaser and from which datethe purchaser would receive allbenefits of the property and beliable for payment of all rates andother levies thereon.

Clause 5 provided that shouldtransfer not be registered afterdate of occupation the purchaserwould pay occupational interestto the seller in the sum of ‘R N/A’per month from date of occupa-tion to date of registration oftransfer.

Clause 6 provided that transferwould be effected by the seller’sattorneys as close to date ofoccpuation/soon as possible. Theparties did not delete one of theseoptions.

Jones paid the estate agent’scommission as required in thedeed of sale. After having done so,she claimed repayment of theestate agent’s commission, con-tending that the deed of sale wasvoid because of a failure to com-ply with section 2(1) of the Aliena-tion of Land Act (no 68 of 1981).The section provides that noalienation of land shall be of anyforce or effect unless it is con-tained in a deed of alienationsigned by the parties thereto, ortheir agents. Jones contended thatclause 4 inadequately recorded amaterial term of the agreement,that relating to possession andoccupation, and that this repre-sented a failure to comply withsection 2(1) of the Alienation ofLand Act.

THE DECISIONSection 2(1) requires that all

material terms to a sale of fixed

property should be recorded inwriting. The first question wastherefore whether or not theprovision for possession andoccupation as referred to in clause4 was a material term of the sale.

Clause 4 itself was intended bythe parties to record that the dateof possession and occupation hadbeen agreed between them, notthat it was still to be agreedbetween them. The fact that itrecorded a matter already agreedupon was, however, not anindication that its terms were notmaterial to the agreement as setout in the deed of sale. Everyindication was that the terms ofpossession and occupation werematerial to that agreement, and itwas therefore necessary that thoseterms were recorded in full in thatagreement.

That the terms of possession andoccupation were material to theparties was clear from the fact thatthey had already reached agree-ment on them, and had insertedthe words ‘as agreed’ in clause 4.The further detail provided for inclause 5 regarding the payment ofoccupational interest also indi-cated that the terms of possessionand occupation were important tothe parties.

The fact that one of the optionsprovided for in clause 6 was notdeleted was no indication that theparties did not consider that thedate of possession and occupationwere important. It meant only thatthey both thought that transferwould take place within a reason-able time.

The parties therefore did intendclause 4 to contain terms materialto their agreement. They agreedthat the term should form part oftheir contract and that it should bebinding on them. Since it failed toachieve this, because it omittedessential terms, there had been afailure to comply with section 2(1)of the Act and the sale agreementwas accordingly void. The estateagent’s commission was accord-ingly repayable.

Property

63

WILLIAMS v HARRIS

A JUDGMENT BY MARAIS J(SMALBERGER JA, NIENABERJA, SCOTT JA and PLEWMAN JAconcurring)SUPREME COURT OF APPEAL29 MAY 1998

UNREPORTED

A property owner is obliged toallow the flow of water from aneighbour’s property to the extentthat the water flows naturally asa result of the location of the oneproperty in relation to the other.

THE FACTSHarris and Williams owned

property adjacent to each other inan urban area of Johannesburg.Harris’ property was subject to aservitude in favour of Williams,under which Harris was obligedto accept drainage of storm andspring water from Williams’property. The servitude waslimited to a strip of ground twofeet wide running along andparallel to the whole length of thesouthern boundary of Harris’property. Williams was entitled toenter Harris’ premises in order tobuild, maintain and repair thedrain which was to exist upon thedefined area and lead to themunicipal drain in an adjoiningpublic road.

Harris alleged that as a result ofthe change of natural contours ofWilliams’ property through theconstruction thereon of certainimprovements, a certain amountof storm water flowed onto herproperty.

Harris applied for an interdictrestraining Williams from allow-ing stormwater to flow from hisproperty onto her property,directing him to build a suitabledrain in the servitude area and cutback certain foliage encroachingonto Harris’ property.

THE DECISIONUnder the common law, the

owner of property is obliged toallow the flow of water from hisneighbour’s property where the

water flows naturally by reason ofthe respective situations of theproperties in relation to eachother. This obligation does notcontinue to apply where the waterhas been artificially diverted fromits natural course, or its volume orvelocity increased.

From the facts as given by theparties, it was not, however, clearwhether water was flowing fromWilliams’ property onto Harris’property. It was also not clearwhether the water was flowingbeyond the area of the servitude,and if so, whether the volume of itwas greater than would have to betolerated under the common law.These were questions whichwould have to be determined inorder to decide whether Harriswas entitled to an interdict pre-venting Williams from allowingthe flow of stormwater from hisproperty onto Harris’ property.Even if this was decided againstHarris, the question whetherWilliams was obliged to constructa drain which would have pre-vented the flow of water ontoHarris’ property would have to bedecided. All of these questionwere themselves subject to adetermination whether the respec-tive rights and obligations of theparties were fully provided for inthe servitude and not in thecommon law at all.

In view of the uncertainties, thematter was remitted to the court aquo for the hearing of oral evi-dence in relation to all relevantdisputes of fact.

Property

64

HENRY v R E DESIGNS CC

A JUDGMENT BY THRING JCAPE OF GOOD HOPE PROVIN-CIAL DIVISION30 MAY 1997

1998 (2) SA 502 (C)

In ordering that security for costsshould be furnished, it mustappear to a court that there isreason to believe that thecompany or close corporation willbe unable to pay the applicant’scosts. Such an order will be givenif it appears that the company hasfailed to give a full explanation ofits financial position whichshows that it is in fact able to paythe costs of an action in which itmight be unsuccessful.

THE FACTSR E Designs CC brought an

action against Henry to compeltransfer to it of certain fixedproperty sold to it by Henry.Henry applied for an order thatRE provide security for costs ofthe action.

In earlier proceedings, RE hadadmitted that it was in a weakfinancial position and unable tosatisfy a possible costs orderagainst it, but that its assetsexceeded its liabilities by R98 000.In response to Henry’s presentapplication, RE stated that itsassets amounted to R220 682 andthat its only liability was anamount of R52 000 which was dueto Bankfin. Its assets consisted offixed assets, cash of R24 874 in thebank and debtors, includingwork-in-progress, of R62 000. REstated that it was going fromstrength to strength and that itenjoyed a good relationship withits bank. It held two investmentsamounting to R23 000.

RE did not furnish its balancesheet, profit and loss account orany other financial statements.

THE DECISIONIn ordering that security for costs

should be furnished, it mustappear to a court that there isreason to believe that the com-pany or close corporation will beunable to pay the applicant’scosts. It is not necessary that thecorporation should be found to beinsolvent. Having satisfied itselfthat there is reason to believe thatthe corporation will be unable topay the applicant’s costs, the courtstill retains a discretion whetheror not to order the furnishing ofsecurity. This discretion will beexercised on the basis that thecourt will lean toward ordering

the furnishing of security, will notdeprive the applicant of such anorder unless special circumstancesexist and will consider what thecorporation’s financial position isand will be, without necessarilyenquiring fully into the merits ofthe action.

Henry bore the onus of establish-ing that there was reason tobelieve that RE would be unableto pay her costs. The evidencepresented by her discharged thatonus, particularly in that in thelight of the information given inthe previous proceedings, RE hadbeen less than candid about itspresent financial position. Thevaluations given against the assetsit had listed in its balance sheetswere unmotivated, and the itemwork-in-progress representedmerely a hope that paymentwould be made by unspecifieddebtors in respect of work whichwas not yet complete. The cash inthe bank was not a factor onwhich reliance could be placed,since that cash which was in thebank on one day could be with-drawn on another. It was alsoinconceivable that RE would haveno other liabilities than its debt toBankfin. It had not indicated whatits income and expenditure were,and had not been able to obtainfinancial assistance for the provi-sion of security for costs frombankers with whom it said it hada good relationship. Insufficientdetail was given in relation to thetwo investments it said it held.

There were no special circum-stances to suggest that the courtshould not exercise its discretionagainst ordering that security forcosts should be ordered againstRE. An order was accordinglymade that it provide security forcosts.

Corporations

65

CorporationsSHEPSTONE & WYLIE v GEYSER N.O.

A JUDGMENT BY HEFER JA(HOWIE JA, HARMS JA,SCHUTZ JA and FARLAM AJAconcurring)SUPREME COURT OF APPEAL28 MAY 1998

UNREPORTED

A liquidator of a company may beordered to furnish security for thecosts of an action be brings asliquidator of the company, evenwhere the liquidator acts in theexecution of powers given to himunder the Insolvency Act (no 24 of1936) or any other statutoryprovision. In exercising itsdiscretion whether or not to orderthe liquidator to furnish suchsecurity, a court may have regardto the public interest in thelitigation instituted by theliquidator.

THE FACTSThe liquidator of Shepway

Management Company (Pty) Ltd,Geyser, brought an action againstShepstone & Wylie and the otherappellants based on variouscauses of action. The causes ofaction were based on allegationsof breach of contract, negligence,breach of fiduciary duties andreckless trading as referred to insection 424(1) of the CompaniesAct (no 61 of 1973). The mainallegation was that the appellantsmismanaged Shepway in such away that those given control of thecompany’s operations had beenable to defraud the company.

The appellants applied for anorder that the liquidator furnishsecurity for their costs in terms ofsection 13 of the Companies Act.The section provides that where acompany or body corporate is theplaintiff in any legal proceedings,the court may require sufficientsecurity to be given for the costs ofthe proceedings, if it appears thatthere is reason to believe that thecompany or its liquidator will beunable to pay the costs of thedefendant if successful in thedefence.

The application was unsuccess-ful and the appellants appealed.

THE DECISIONThree preliminary questions had

to be decided before determiningthe merits of the application:1. Was the dismissal of theapplication appealable?

An application for security forcosts is not necessarily a prepara-tory or procedural step in theproceedings to which it relates.The refusal of such an applicationcould inure to the irremediableprejudice of the applicant. Theeffect would then be final. Becauseof this possibility, it is not correctto consider the application as

merely preparatory or procedural.The dismissal of such an applica-tion, if not the grant of it, istherefore appealable.2. Does section 13 apply to claimsbrought under statutory provi-sions?

There is no reason why liquida-tors should be exempt from theprovisions of section 13 of theCompanies Act. Even where theliquidator exercises powers vestedin him as liquidator, and notmerely the rights of the companyin liquidation, he may be orderedto furnish security for the costs ofsuch an action.3. May an appeal court interferewith the exercise of the firstcourt’s discretion?

Whether or not the first court hasa discretion, an appeal court isentitled to decide the matteraccording to its own views of themerits of the matter.

In the present case, the fact thatordering the furnishing of securityfor costs might result in an end tothe litigation was insufficientreason for refusing to give such anorder. The public interest might berelevant in deciding whether ornot to make such an order, but nosuch interest was discernible inthe action the liquidator wished tobring against the appellants in thiscase. His action was based onnegligence, not fraud, and hadbeen brought against those whowere not even alleged to havebeen the immediate cause ofShepway’s demise. The allegationthat they contributed to thedemise of the company wasrelevant, but not decisive enoughto justify exempting the liquidatorfrom furnishing security for thecosts of the action he broughtagainst them.

The liquidator was ordered tofurnish security for costs of theaction.

66

JOHNSON v BLAIKIE & CO (PTY) LTD

A JUDGMENT BY BOOYSEN J(PAGE J concurring)NATAL PROVINCIAL DIVISION14 NOVEMBER 1997

[1998] 2 All SA 38 (N)

A magistrates’ court hasjurisdiction to make a declarationin terms of sections 64 and 65 ofthe Close Corporations Act (no 69of 1984) that a person ispersonally liable for the debts of aclose corporation.

THE FACTSBlaikie & Co (Pty) Ltd sold and

delivered goods to RoofkingBuilding Supplies CC. The closecorporation failed to pay thepurchase price for the goods, andBlaikie brought an action againstit for payment. It obtained judg-ment against the close corporationfor payment of R33 165,70. Theclose corporation was put intoliquidation.

Blaikie then brought an actionagainst Johnson, a member of theclose corporation, to declare himpersonally liable for the debts ofthe close corporation in terms ofsections 64 and 65 of the CloseCorporations Act (no 69 of 1984).These sections provide that aperson who has carried on thebusiness of a close corporationrecklessly or has in incorporatingthe close corporation, grosslyabused the juristic personality ofthe close corporation, may bedeclared to be personally liable forthe debts of the close corporation.

Blaikie’s action succeeded in themagistrate’s court. Johnsonappealed on a number of grounds,one of them being that the magis-trate’s court had no jurisdiction tomake a declaration in terms ofsections 64 and 65.

THE DECISIONThe argument that the magis-

trate’s court lacked jurisdiction inthe action was based on an inter-pretation of section 29 of theMagistrates’ Courts Act (no 32 of1944) which sets out the jurisdic-tional limits of the magistrates’courts.

This section refers to ‘actions’ forwhich the magistrates’ courtshave jurisdiction. The word‘actions’ is not qualified. There istherefore no reason to suggest thatan action for a declaration such asis contemplated in sections 64 and65 of the Close Corporations Act isexcluded from the actions therereferred to. The magistrate’s courttherefore did have jurisdiction inthe action brought by Blaikie.

The appeal was however, upheldon other grounds.

Corporations

67

LE’BERGO FASHIONS CC v LEE

A JUDGMENT BY HOFFMAN AJCAPE OF GOOD HOPE PROVIN-CIAL DIVISION1 APRIL 1997

1998 (2) SA 608 (C)

A restraint of trade provisionlimiting a party’s right to engagein a business whether ‘directly orindirectly’ includes a limitationon that party using a company asa vehicle for engaging in such abusiness.

THE FACTSLe’Bergo Fashions CC (the close

corporation) bought a businessfrom Le’Bergo Knitting Mills (Pty)Ltd (the company). In terms of theagreement, Lee undertook not tobe engaged or interested, whetherdirectly or indirectly, in anybusiness similar to that of thepurchaser anywhere in SouthAfrica for a period of three yearsas from 1 October 1995. Lee wasthe owner of all the issued sharecapital of the company and its soledirector. She acted for the com-pany and carried on the businessof the company, and in her busi-ness activities treated the com-pany as identical with herself.

The parties were unable to agreeon a purchase price for certainstock held by the company, withthe result that the companyretained the stock and disposed ofit using the accounting documen-tation bearing the name Le’Bergoand bearing the close corpora-tion’s address.

The close corporation thenapplied for an interdict restrainingLee and the company frombreaching the restraint term of theagreement and from using theaccounting documentation in thesale of the remaining stock.

THE DECISIONThe words ‘directly or indirectly’

in the restraint provision could beinterpreted to include a restraintagainst Lee conducting the busi-ness through the vehicle of thecompany. In seeking relief againstthe company as well however, theclose corporation was seeking toestablish that it was none otherthan Lee, and that it should beseen as such, ie that its corporateveil should be pierced.

The company could properly beseen as none other than Leeherself. It was a façade behindwhich Lee engaged in business inbreach of the restraint undertak-ing. These were circumstances inwhich the corporate veil could bepierced and its activities seen asbeing those of Lee herself, alterna-tively as assisting in the breach ofthe restraint provisions.

The sale of the stock amountedto a breach of this provision as itcould be considered being en-gaged in ‘any business’ as referredto in it.


Corporations

68

TRUTH VERIFICATION TESTING CENTRE CC vPSE TRUTH DETECTION CC

A JUDGMENT BY CM ELOFF AJWITWATERSRAND LOCALDIVISION9 DECEMBER 1997

1998 (2) SA 689 (W)

A person which has passed itselfof as conducting the business ofanother by inserting its telephonenumber as that of the other maybe restrained from continuing torepresent itself as conducting suchbusiness by preventing it fromusing that particular telephone.

THE FACTSIn October 1996, PSE Truth

Detection CC expressed an inter-est in conducting a franchise to begiven by the Truth VerificationTesting Centre CC (the ‘Centre’).The Centre agreed to afford PSEsome experience in the lie detec-tion business and assist it inacquiring basic skills in order todevelop a potential client base.However, it would not give it anyanalysis skills until such time asPSE had acquired the equipmentnecessary to conduct the businessand develop a potential clientbase.

In the following months, theCentre gave PSE a certain amountof training and introduced it tosome of its clients. It made it clearto PSE that it was not entitled totrade under the name of the TruthVerification Centre until such timeas a franchise agreement had beenconcluded.

In March 1997, the Centreinformed PSE that no franchiseagreement would be concludedand it requested return of allstationery and promotionalmaterial which had been given toPSE in the course of the traininggiven by the Centre.

In December 1996, PSE hadgiven instructions to MaisterDirectories (1981) (Pty) Ltd toinsert the home telephone numberof one of its members at thetelephone directory entry for theCentre. Upon discovering that thishad been done, the Centre appliedfor an interdict preventing PSEand its member from using thename ‘Trust Verification Centre’and from using of having access tothe member’s telephone referredto in the directory entry.

PSE alleged that it had giveninstructions to Maister to insertthe member’s telephone numberat the Centre’s directory entrywith the consent of the Centre,seeing that the intention had beenthat PSE would conduct a fran-chise to be given by the Centre. Insupport of this allegation, PSEproduced a letter from the Centre

which stated that while PSE couldnot trade as the Truth VerificationCentre, it could insert the mem-ber’s telephone numbers on itsletterhead.

The Centre sought confirmationof the interdict.

THE DECISIONWhen the Centre consented to

the insertion of PSE’s after-hourstelephone number on its letter-head, it did not give its consent tothe insertion of that number in thetelephone directory entry. Therewas no reason why the Centrewould give its consent to such athing being done. Every indicationgiven by the Centre to PSE regard-ing its association with the nameof the Centre was that it could notgive the impression that there wasany association, until such time asa franchise agreement had beenconcluded. That agreement, beingdependent on PSE acquiring thenecessary machines, and themachines not having been ac-quired, there was no basis uponwhich it could be said that theCentre had consented to PSE’sinsertion of its telephone numberat its entry in the telephonedirectory.

Having inserted its telephonenumber at this entry, PSE hadmade an unlawful representationthat its business was connected tothat of the Centre. Being unau-thorised and false, it constitutedactionable passing off.

Even if PSE had thought that itcould cancel the entry up until thepoint where it became clear that itwould not obtain the franchisefrom the Centre, the telephonenumber still remained in thetelephone directory and as suchconstituted a continuing represen-tation that PSE’s business wasconnected with that of the Centre.It being possible to cancel thetelephone number, the continuingrepresentation could be endedimmediately by PSE being pre-vented from using the telephonerelating to that number.

The interdict was confirmed.

Competition

69

CompetitionGORDON LLOYD PAGE & ASSOCIATES v RIVERA

A JUDGMENT BY WUNSH JWITWATERSRAND LOCALDIVISION9 MARCH 1998

1998 CLR 190 (W)

A person alleging that another haswrongfully used confidentialinformation provided to it mustshow that the information sogiven is not information which iswithin the public knowledge andthat it has a significant element oforiginality, which the other couldnot easily have obtained by itsown efforts. Where informationhas been imparted to anotherwhich is not confidential in thissense, the party having given it isnot entitled to claim damagesagainst a party which proceeds tocomplete a proposal, such as aproperty development, for whosepurpose the alleged confidentialinformation was given.

THE FACTSGordon Lloyd Page & Associates

was a partnership informallyformed for the purposes of devel-oping certain property in Rivonia.The property was identified in1990. Thereafter, the partnershipbecame engaged in discussionsand investigations, the procure-ment of advice, the engagement ofprofessional services for thedrawing of plans and estimatesand the rezoning of the property,approaches to tenants, the prepa-ration of feasibility studies andproposals for the earning ofincome from the development ofthe site.

In 1992, a company owned bythe partnership purchased theproperty for R13½m. However,the sale was later cancelled whenthe company failed to deliver aguarantee required in terms of thesale agreement. Despite thecancellation of the sale, the part-nership continued to make effortsto have the property developed,continued with a rezoning appli-cation and engaged in discussionswith other parties which ex-pressed an interest in the develop-ment of the property as well aswith potential tenants, such asPick 'n Pay.

In 1994, Page, one of the partnersapproached Rivera in an effort tointerest him in the development. Itset out what was envisaged in thedevelopment, presented a shortfeasibility study and set out thehistory of the efforts to developthe property and suggestions as tohow best to achieve the develop-ment in the light of what had beenlearnt of this over the previousyears. Page reported to his partnerthat Rivera did not seem to beinterested in the project. Shortlythereafter, Rivera wrote to Pagestating that he had considered theproposal, had not found it to beviable and was not interested indiscussing it further.

The following year, Page discov-ered that Rivera had purchasedthe property through one of hiscompanies, and had completed ashop and office complex on theproperty. The development wasconsiderably larger than thatwhich had been suggested byPage and was different in archi-tectural style. One of the tenantswas Pick ’n Pay.

The partnership alleged thatthere had been a tacit agreementbetween itself and Rivera that thedevelopment proposal was put toRivera on a confidential basis, andhad been put, together with theconfidential information con-tained in it, for the sole purpose ofenabling Rivera to determinewhether a joint venture wasviable. It alleged that the tacitagreement included a term thatRivera would not use the informa-tion for his own ends and wouldnot disclose the proposal to a thirdparty. It claimed that Rivera’saction in developing the propertyfor himself constituted a breach ofthis agreement or a delict, andthat as a result, it had suffereddamages of R11 620 910. Itclaimed payment from Rivera.After presenting its evidence,Rivera applied for absolutionfrom the instance.

THE DECISIONIn deciding whether or not a tacit

term is part of a contract, the testis whether or not the term is ‘soself-evident as to go withoutsaying’, alternatively that the termis necessary in order to givebusiness efficacy to the contract.The partnership’s allegation thatsuch a term had been part of thecontract and that Rivera hadbreached the terms of that con-tract, assumed that, in the presentcontext, the information it hadgiven to Rivera in its discussionswith him was confidential. Itsallegation that a delict had been

70

committed was equally based onthe assertion that the informationimparted to Rivera had beenconfidential. It was necessary todetermine whether on the evi-dence presented, a reasonablecourt could find that the agree-ment as alleged had been provedor the delict committed.

In the present context, theconfidential information would bethe valuable compendium of ideasand plans, the documents andresults of negotiations and discus-sions which the partnership hadsecured by the investment of itstime, effort and expertise. Thepartnership alleged that theconfidential information consistedin such features as the ideas forarchitectural construction, thechoice of tenants, road accessproposals and rezoning efforts.

However, none of this could beconsidered confidential informa-tion. All of it could be consideredinformation within the knowledgeof any experienced propertydeveloper. It did not have anysignificant element of originalitynot already in the realm of publicknowledge. Furthermore, whatthe partnership contributed wasan incomplete rezoning applica-tion, a property to which they hadno rights, minimal financialinvestment in the project and anuncommitted anchor tenant.

The fact that progress had beenmade with the rezoning of theproperty was not an advantagefor which the partnership couldmake any claim against Rivera—the benefits of that work would beenjoyed by anyone who devel-oped the property since the

partnership lacked the right toacquire the property.

The effect of the partnership’scontention that by concluding thealleged agreement with Riveraincorporating the tacit term,Rivera was precluded from usingthe information for its own advan-tage, was that by imparting thisinformation to him, or to anyone,that party would be bound not todevelop the property as proposedby the partnership. It was unlikelythat anyone would have agreed tosuch a restriction merely becausethe partnership was presenting aproposal to it, and there was noevidence in any event, that Riverahad used its own investigationplans for the purposes of thedevelopment.

Absolution from the instancewas granted.

VERMEULEN v AFRICA STEEL & TIMBER

A JUDGMENT BY HANCKE JORANGE FREE STATE PROVIN-CIAL DIVISION6 NOVEMBER 1997

1998 (2) SA 543 (O)

An agreement to restrictcompetitive activity will not beenforced where the agreement doesnot protect the trading goodwillof the parties.

THE FACTSIn 1988, Vermeulen and his

father agreed with Africa Steel &Timber and the other respondentsthat the respondents would nottrade in competition with them.They agreed that Vermeulenwould not sell steel and therespondents would not sell paintand related products in competi-tion with each other. The agree-ment was concluded orally andnot reduced to writing.

In 1991, Africa Steel & Timbersecured a franchise from TimberCity, and in 1994, it secured afranchise from Mica Hardware.Vermeulen alleged that therespondents were acting contrary

to the terms of their agreementand applied for an interdictpreventing them from sellingpaint and related products withinthe area specified in their agree-ment.

THE DECISIONIn order to establish its right to

an interdict against Africa Steel &Timber, Vemeulen had to provethat it held a prima facie rightagainst it.

The agreement upon whichVermeulen depended in attempt-ing to establish this right was nineyears old. It had been entered intoinformally and as an arrangementto regulate matters between the

Competition

71

parties. It had not been enteredinto in an attempt to protect thetrading goodwill of either party. Itwas therefore not a basis uponwhich an interdict could be

granted. The right created in theagreement was also not clearlydefined and being of apparentlyunlimited duration, and attempt-ing to limit the choice of people

who might purchase paint andrelated products, it would beagainst the public interest toenforce it.


SNYMAN v ODENDAALSRUS PLAASLIKE OORGANGSRAAD

A JUDGMENT BY LOMBARD JORANGE FREE STATE PROVIN-CIAL DIVISION31 OCTOBER 1997

1998 (2) SA 297 (O)

In interpreting an agreement thatone party is excused from payingthe other in certain circumstances,the agreement must be interpretedagainst the background of thenormal rules applicable to theagreement.

THE FACTSOdendaalsrus Plaaslike Oor-

gangsraad instructed Snyman andother attorneys to collect amountsowing to it in respect of rates andservices supplied to people withinits area of jurisdiction. The councilexpressly stated that the attorneyswould not receive payment of feesin any matter in which the collec-tion of amounts due was unsuc-cessful, and instructions wereaccepted on that basis.

As a result of difficulties experi-enced in enforcing judgmentsobtained in the process of thesecollections, the council instructedthe attorneys to withhold furtheraction. The attorneys then drewtheir accounts in respect of each ofthe matters for which they hadbeen instructed to withholdfurther action and addressed themto the council.

The council’s attitude was that itwas not liable for payment of theattorneys’ accounts because of theterm of their agreement that feeswould not be payable in anymatter in which the collection ofamounts due was unsuccessful.

THE DECISIONThe agreement between the

parties did not define what anunsuccessful action would beconsidered to be. This was there-fore to be interpreted in the light

of the agreement as a whole andthe surrounding circumstances.

It was clear that the agreementhad been entered into in order tominimize costs. However, it wasalso clear that the attorneys hadundertaken the work in order toearn a fee and not merely toperform a gratuitous service. Thequestion was how the terminationof the instructions to the attorneysinfluenced this position.

The agreement provided for thenon-payment of fees in only twocases, ie where instructions werewithdrawn before the issue ofsummons and where the actionfor recovery of the debt wasunsuccessful. The attorneystherefore had a mandate toproceed to enforcement of anyjudgment received. It would onlybe at the stage of enforcement thatit would become clear that theaction had been unsuccessful. Itfollowed that non-payment of feescould only be allowed if it hadbecome clear that the action hadbeen unsuccessful.

In each case, whether or not theactions would be unsuccessfulwas unknown, the final enforce-ment procedure not having takenplace at the time the instruction towithhold further action was given.The council was therefore obligedto pay the attorneys’ accounts, theprovision for non-payment notbeing applicable to the case.

Contract

72

Shipping

UNION SHIPPING AND MANAGING CO SA vLINA MARITIME LTD

A JUDGMENT BY BOOYSEN J(HUGO J and McCALL J concur-ring)NATAL PROVINCIAL DIVISION13 AUGUST 1997

[1998] 2 All SA 254 (N)

In order to show that partiesagreed on a tacit term of theircontract, it must be shown thatthe parties must have intendedthat the suggested term shouldexist. The misuse of informationobtained in confidence mayconstitute a delict in the form ofunlawful competition, but no suchdelict will be shown to have beencommitted, where it is clear thatthe information was accessible toa number of different parties.

THE FACTSUnion Shipping and Managing

Co SA entered into negotiationswith Lina Maritime Ltd to con-clude a time charter of the MVLina. The negotiations wereconducted between Union’s agent,Clipper Shipping Ltd, and themanagers of the MV Lina,Minibulk Management. Duringthe course of the negotiations,Minibulk was informed thatUnion Shipping desired the timecharter so that it could conclude avoyage charter with SardamagSpa for the carriage of cargo fromSiracusa, Sicily, to Durban.

The negotiations culminated in afirm offer made by Minibulk toClipper to conclude the timecharter with Union Shipping, theoffer to remain open for accept-ance until 10am Paris time on 10May 1995 and subject to the‘lifting of all subjects’. The ‘liftingof all subjects’ made the conclu-sion of the contract subject to thesatisfaction of certain conditionsimposed by one or the other party.

Clipper notified Minibulk of thelifting of all subjects at 10.01amon 10 May 1995. At 10.26am,Minibulk notified Clipper thatLina could wait no longer and hadfound another party for a timecharter. That party was SardamagSpa, whose identity Lina hadlearned of during the negotiationswhich had earlier taken placebetween the parties.

Union Shipping alleged that thecontract concluded between Linaand Sardamag was a result of theuse of confidential informationconveyed by Clipper to Minibulkin the course of the negotiations. Italleged that there was a tacitagreement between the partiesthat Lina would not use informa-tion so obtained in order toconclude a contract withSardamag, alternatively that the

use thereof constituted the delictof unfair competition. It attachedthe MV Lina in order to foundjurisdiction in an action to beinstituted against Lina for dam-ages.

THE DECISIONThe existence of a tacit term has

to be found and ascertained withreasonable precision. It must beshown that, by necessary implica-tion, the parties must have in-tended that the suggested termshould exist. It is not enough toshow that it would have beenreasonable for the parties to soagree. Union Shipping had not inthis manner, shown that the tacitterm contended for existed. Theparties had not tacitly agreed thatif Clipper did not accept the offerwithin the time stipulated,Minibulk would be prohibitedfrom using the information it hadobtained in order to contractdirectly with Sardamag.

The tacit agreement contendedfor had not been proved.

As far as the allegation of unfaircompetition was concerned,whereas it was true that unfaircompetition in the form of misuseof confidential information wasnot limited to the misuse ofpredetermined categories ofinformation, the informationwhich Lina had used was notconfidential. Many other agentsand other parties might havebecome aware of Union Ship-ping’s interest in obtaining thetime charter. There was no evi-dence of collusion between any ofthe parties and no evidence thatanyone unlawfully impartedconfidential information.

Union Shipping was not entitledto attach the MV Lina on the basisof the action it proposed to insti-tute against Lina.

73

MV YU LONG SHAN v DRYBULK SA

A JUDGMENT BY MARAIS JA(SMALBERGER JA, EKSTEEN JA,NIENABER JA and VANCOLLER AJA concurring0SUPREME COURT OF APPEAL29 SEPTEMBER 1997

1998 (1) SA 646 (A)

An arbitration award resultingfrom a maritime claim cannotretroactively establish liabilityon the defendant.

THE FACTSOn 17 May 1991, Drybulk SA

chartered the MV Fei Xia Shanfrom Guangzhou Zhen HuaShipping Co under a time charter-party concluded between the twoparties. It was agreed that anydispute arising between theparties would be resolved byarbitration in London. Later in1991, a dispute did arise betweenthe parties, an arbitrator wasappointed, and on 10 June 1994,the arbitrator issued a final awardof US$335 400 in favour ofDrybulk.

Relying on the arbitration award,Drybulk then instituted an actionin rem against the MV Yu LongShan, alleging that this vessel wasan associated vessel by virtue ofboth it and the MV Fei Xia Shan,being ultimately owned by theState of China. In terms of section3 (6) of the Admiralty JurisdictionRegulation Act (no 105 of 1983),an action in rem may be broughtby the arrest of an associated shipinstead of the ship in respect ofwhich the maritime claim arose.

The Yu Long Shan excepted to theclaim on the grounds that it wasnot an associated ship, as the onlyprovision upon which Drybulkcould allege it was an associatedship—section 3(7)(c) of the Act asit was worded when the claimarose—referred only to a charterby demise. Drybulk had notalleged that the charter of the MVFei Xia was a charter by demise.Section 3(7)(c) of the Act, as it waswhen the dispute between theparties arose in 1991, providedthat if a charterer or subchartererof a ship by demise is alleged tobe liable in respect of a maritimeclaim, the charterer orsubcharterer shall, for the pur-poses of section 3(6), be deemed tobe the owner of the ship. Section3(7)(c) had been amended in 1992to refer to any charterer orsubcharterer of a ship.

THE DECISIONThe claim asserted by Drybulk

was founded on the arbitrationaward. A ‘maritime claim’ asdefined in the Act included anyclaim for the enforcement of anyarbitration award relating to amaritime claim. The claim whichDrybulk sought to enforce wastherefore a claim which had arisenafter the amendment of the Actand not one which had arisenbefore.

If the effect of this was however,to render the Yu Long Shan retro-actively liable in respect of anevent for whose consequences itwould not have been liable at thetime the event occurred, thequestion which arose was whetheror not the amendment was in-tended to have such retrospectiveeffect. There was no indicationthat the legislature intended theamendment to have retrospectiveeffect, and there was no justifica-tion for imputing any such retro-spective effect to the amendment.

While the implication of thisview of the amendment was thatDry Bulk was not seen to beenforcing a claim which hadarisen before the amendment, andtherefore not enforcing a newcause of action which had arisenearlier, it had to be rememberedthat the arbitration award gaveDry Bulk an entirely derivativecause of action, ie derived from aclaim which had arisen earlier.


Shipping

74

MDAKANE v STANDARD BANK OF SOUTH AFRICA LTD

A JUDGMENT BY CLOETE JWITWATERSRAND LOCALDIVISION8 MAY 1998

1998 CLR 255 (W)

A credit grantor which cancels acredit agreement on the groundsthat the credit receiver has failedto respond to demand given to itin terms of section 11 of the CreditAgreements Act (no 75 of 1980) isentitled to repayment of anyportion of the price already paidfor the goods, in the absence ofany indication of the value of thegoods as at date of repossession.

THE FACTSMdakane bought a vehicle from

the Standard Bank of South AfricaLtd in terms of an instalment saletransaction. The sale was subjectto the provisions of the CreditAgreements Act (no 75 of 1980).

Mdakane paid R20 176,50 of thecapital sum owing to the bank. Hefell into arrears and the bankrepossessed the vehicle. The bankthen gave Mdakane 30 days noticeto repay the arrears. Mdakanefailed to do so and the bankconsidered the sale agreementcancelled.

Mdakane claimed payment ofthe R20 176,50 paid by him interms of the agreement. Hecontended that by repossessingthe vehicle, the bank had repudi-ated the agreement, he hadaccepted the repudiation and theresulting cancellation entitled himto repayment of what he had paid.

THE DECISIONSection 12(1) of the Act provides

for the right of the credit receiverto return of goods repossessed bythe credit grantor without an

order of court. It does not how-ever, give the credit grantor theright to repossess the goods. Thecredit grantor may therefore notturn to this section to show thatbecause its repossession of thegoods was lawful, such reposses-sion was not a repudiation of theagreement.

When the bank gave notice toMdakane to pay the arrearamounts, after the vehicle hadbeen repossessed, it issued duedemand on him in terms ofsection 11 of the Act. Mdakane’sfailure to respond resulted incancellation of the agreement.Mdakane was then entitled torepayment of what he had paid:his right to repayment of what hehad paid remained unimpaired.The fact that he had possession ofthe vehicle for a year before thebank repossessed it did notderogate from this right. Therebeing no evidence of the value ofthe vehicle when repossessed, thebank could not argue that it wasentitled to retain any portion ofthe amounts paid by Mdakane.

The claim succeeded.

Credit Transactions

75

KATZEFF v CITY CAR SALES (PTY) LTD

A JUDGMENT BY NGCOBO JCAPE OF GOOD HOPE PROVIN-CIAL DIVISION26 SEPTEMBER 1996

1998 (2) SA 644 (C)

Unless an agent discloses the factthat he acts as an agent byinforming a third party that hedoes so, he will be liable to thethird party as if he were theprincipal on the basis of thedoctrine of the undisclosedprincipal. A purchaser of a thingwho is evicted from possession bythe owner of the thing is notobliged to give notice of thethreatened eviction to the sellerbefore being entitled to bring anaction based on breach ofwarranty against eviction againstthe seller. The purchaser who hasbeen evicted is normally entitledto repayment of the purchase pricein full, even after possessing theitem for a period of time in whichthe item has depreciated in value.

THE FACTSKatzeff bought a Mercedes Benz

motor vehicle from City Car Sales(Pty) Ltd for R29 150, after seeingthe vehicle at the premises of thatcompany. He took delivery of thevehicle, but two and a half yearslater, MLS Bank Ltd repossessedthe vehicle in terms of its rights ofownership of the vehicle. At thatstage, the value of the vehicle wasR12 000.

Prior to the sale to Katzeff, MLSBank had entered into an instal-ment sale transaction with MJedicke in terms of which the bankgave possession of a MercedesBenz motor vehicle to Jedickewhile remaining the owner of ituntil all amounts due to it hadbeen paid. MLS was entitled torepossess the vehicle if Jedickedefaulted in his payments to thebank. Jedicke had defaulted, andthe bank repossessed the vehiclein response.

Katzeff then brought an actionagainst City Car Sales for repay-ment of the purchase price of R29150, based on breach of warrantyagainst eviction. City Car Salesdefended the action on thegrounds that when selling thevehicle it acted as agent forJedicke, alternatively, if found thatit acted as principal, that Katzefffailed to give notice of the threatto his possession of the vehicle.City Car Sales also defended theaction on the grounds that Katzeffwas only entitled to the value ofthe vehicle at the time of reposses-sion.

THE DECISIONIn deciding whether or not City

Car Sales acted as agent in the saleof the vehicle to Katzeff, it wascrucial to decide whether or not itinformed Katzeff that it acted asagent. There was however, noevidence that it do so inform

Katzeff. The evidence was that atno stage did City Car Sales indi-cate that Jedicke existed. In thosecircumstances, even as agent, CityCar Sales would be liable toKatzeff on the basis of the doctrineof the undisclosed principal.

The evidence showed thatKatzeff did not give City Car Salesnotice of the threat to his posses-sion of the vehicle. However, theevidence also showed that whenMLS Bank repossessed the vehi-cle, it did so asserting its rights asowner. Its title to the vehicle wastherefore incontestable. In thosecircumstances, Katzeff was notobliged to give notice of thethreatened eviction.

As far as the amount payable byCity Car Sales was concerned, theevicted purchaser is ordinarilyentitled to repayment of thepurchase price and the paymentof damages, unless there areequitable reasons why the pur-chase price should not be restoredin full. The repayment of thepurchase price is normally theminimum amount of damages thepurchase is entitled to, the objectbeing restoration of the perform-ance originally made by thepurchaser. Because evictiondenies the purchaser the right touse and enjoy the object pur-chased in the future, the pur-chaser is entitled to reclaim thefull purchase price and claim anydamages which might have beensuffered. It would not be inequita-ble to award Katzeff less merelybecause he had the use of thevehicle until the date of reposses-sion. Not only would that giveCity Car Sales a benefit from itsown wrong, but it would also nottake into account that it had theuse of Katzeff’s money for thesame period.


Credit Transactions

76

NBS BOLAND BANK BPK v ONE BERG RIVER DRIVE CC

A JUDGMENT BYSOUTHWOOD JWITWATERSRAND LOCALDIVISION8 APRIL 1998

1998 CLR 222 (W)

Where a contract incorporates aterm which confers on one of theparties an unfettered discretion tovary a term without having to doso reasonably that term isunenforceable as between theparties.

THE FACTSOne Berg River Drive CC passed

two mortgage bonds over itsproperty in favour of NBS BolandBank Bpk. In the mortgage bonds,Berg River acknowledged itsindebtedness to NBS in a capitalsum of R200 000 and R2 362 400respectively, to be advanced uponregistration of the bond over theproperty, and acknowledged theobligation to repay the loan withinterest in monthly instalments.The bonds provided that themonthly repayments would beappropriated firstly to interestindebtedness, and then to thereduction of the capital sum.

The bonds then provided thatinterest at the specified rates of17¼% and 19½% per annumwould be calculated on the capitalsums, or at such rates as the NBSmight determine from time totime as provided in clause 14.Clause 14 provided that the NBScould vary the rate of interest onall amounts owing to it to the rateof interest determined by the NBSas payable for the class of bondinto which the bond fell, subject tothe limits imposed by any law.The NBS was also entitled toincrease the monthly repaymentsso as to ensure ultimate paymentof the whole bond within theperiod of the bond.

The NBS brought an actionagainst Berg River, claimingamounts outstanding in terms ofthe bonds. The parties agreed thatthe point of difference betweenthem was the legality and enforce-ability of clause 14. Subject to theirrespective rights of appeal, theyagreed that should the clause befound to be enforceable, BergRiver would pay the amountclaimed. Should the clause be

found to be unenforceable, BergRiver would pay the capital sumclaimed and interest at the ratesstated in the bonds. They ap-proached the court for a determi-nation of the enforceability ofclause 14.

THE DECISIONBerg River argued that clause 14

was void for vagueness, in that itleft the determination of theinterest rate completely within thediscretion of one party, the NBS.The NBS argued that the provi-sions of the clause should not berendered unenforceable on thisground because in interpretingany provision, an interpretationleading to enforceability ratherthan unenforceability should befollowed; furthermore, that itcould be implied that the NBS’sdiscretion was to be exercisedreasonably.

If NBS wished to rely on such animplied term, it should havepleaded that the term was to beimplied. Assuming however, thatit need not have pleaded theimplied term, it remained aprinciple of our law that when aterm of a contract depends en-tirely on the will of one of theparties to determine the extent ofperformance of either party, thecontract is void. The term in issuein the present case was a veryimportant one. While it was truethat a contractual term should beinterpreted so as to be enforce-able, rather than unenforceable,the provisions of clause 14 gavethe NBS an unfettered discretionto vary the interest rate. Thediscretion did not have to beexercised reasonably. Clause 14was therefore unenforceable.

Credit Transactions

77

NORTH AMERICAN BANK LTD v GRANIT

A JUDGMENT BY HEHER JWITWATERSRAND LOCALDIVISION5 DECEMBER 1997

[1998] 1 All SA 457 (W)

It is not against public policy fora South African court to enforce aforeign judgment which involvesthe payment of interest rates andcharges which might beconsidered exorbitant in SouthAfrica, where it is clear that thedebtor submitted to a jurisdictionin which such interest rates andcharges are legally permissible.Where a debt arose in a foreignjurisdiction before the date of thedebtor’s sequestration in SouthAfrica, the foreign creditor issubject to the provisions ofsection 129 of the Insolvency Act(no 24 of 1936) and may notenforce its claim in a SouthAfrican court in the event of thedebtor having becomerehabilitated before the date onwhich the foreign creditor bringssuch proceedings for enforcement.

THE FACTSNorth American Bank Ltd held a

judgment given against Granit bythe Jerusalem District Court forpayment of NIS*1 377 411, thebank’s usual interest on thisamount from 1 April 1989 as setout in the bank’s special manag-er’s affidavit including changesthereof until date of payment, trialcosts linked to an index from dateof expenditure until date ofpayment, legal interest andadvocates’ fees of 10% of theamount awarded as at date ofjudgment. The bank also held ajudgment given against Granit bythe Israeli Supreme Court forpayment of trial costs of NIS4000.

The bank brought an action forprovisional sentence based on thejudgments it held, annexing aschedule of interest calculations,and an affidavit of the bank’sspecial manager setting out thebasis of the bank’s interest chargesand the trial costs linked to theindex. It claimed the amountsawarded in the judgments, alter-natively the South African randequivalents of each.

Granit opposed the action on thegrounds that on the grounds ofpublic policy, enforcement of theforeign judgments should not beallowed. He also depended uponsection 129 of the Insolvency Act(no 24 of 1936) which providesthat the effect of rehabilitation ofan insolvent is (i) to put an end tohis sequestration, (ii) to dischargeall of his debts which were due, orthe cause of which had arisen,before the sequestration, and (iii)relieve the insolvent of everydisability resulting from thesequestration.

Grant was sequestrated in July1991, three months before thejudgment of the Jerusalem DistrictCourt was given against him, andrehabilitated in August 1994, threemonths after the judgment of theIsraeli Supreme Court was givenagainst him.

THE DECISIONThere was no basis for refusing

provisional sentence on thegrounds that to do so would becontrary to public policy. Theinterest rates and indexes accededto by Granit, by participating in asociety where such factors were apart of business life, could not beavoided simply by his relocationto a country where those factors intheir particular manifestations didnot exist.

The claim relating to trial costslinked to an index required proofof various relevant factors such aselements of the cost of living and‘linkage differentials’. This claimtherefore, could not be consideredliquid, and provisional sentencecould not be granted on it. Thetrial costs of NIS40 000 washowever, certain and did notrequire evidence for their proof,and provisional sentence could begranted on this portion of theclaim.

As far as the defence based onsection 129 of the Insolvency Actwas concerned, it had to berememberd that a foreign creditorhas the right to claim in an insol-vent estate. While the InsolvencyAct might not have extra-territo-rial effect, and its provisionsmight not encompass the interestsof foreign creditors, it was never-theless a statute governing theclaims of any creditors broughtagainst the insolvent estate withinthe South African jurisdiction.Wherever a debt has been con-tracted or wherever it is payable,when the enforcement of it issought in a South African court,the provisions of the InsolvencyAct become applicable to whichthe South African court itself isbound. A foreign debt is thereforedischarged in South Africa by therehabilitation of the debtor in thiscountry.

The fact that the judgment of theJerusalem District Court wasgiven after Granit’s sequestration,* NIS = New Israeli Shekels

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gave no ground for contendingthat the original cause of indebt-edness had become novated andtherefore arose after sequestration.

The underlying cause of actionupon which the judgment wasbased arose before sequestrationtook place. This made section 129

applicable. This however, did notapply to the judgment given bythe Israeli Supreme Court whichdid not form part of the debt dueat date of sequestration.

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INFO PLUS v SCHEELKE

A JUDGMENT BY VANHEERDEN DCJ(HEFER JA, EKSTEEN JA,NIENABER JA and HOWIE JAconcurring)SUPREME COURT OF APPEAL25 MARCH 1998

1998 (3) SA 184 (A)

A purchaser of goods may becomethe owner of the goods uponfulfilment of a condition reservingownership to the seller until suchfulfilment, even though thepurchaser is not in possession ofthe goods at the time offulfilment. Delivery of the goodsto the purchaser which isnecessary for the transfer ofownership, may take place beforefulfilment of the condition, andthere will be no need for anyfurther agreement that thepurchaser is to hold the goods asowner and not merely aspurchaser in order to satisfy therequirement that delivery of thegoods be made for ownership topass. Mere delivery of one’s goodsto a party is not a representationthat the party to whom the goodshave been delivered is owner ofthe goods or has the right todispose of them.

THE FACTSInfo Plus, a firm, entered into an

instalment sale agreement withWesbank for the purchase of amotor vehicle. The vehicle wasregistered in the name of InfoPlus, but Wesbank retainedownership, as in terms of theagreement, ownership was to passonly after all amounts due to itwere paid.

Some two years later, Info Plusrequested Sharman Motors (Pty)Ltd to find a buyer for the vehiclewilling to purchase the vehicle forR120 000. It delivered the vehicleto Sharman Motors for thatpurpose. An employee ofSharman Motors sold the vehicleto the second respondent for R87000, having effected registration ofthe vehicle in the name ofSharman Motors by means whichremained unclear. He exhibitedthe registration certificate to thesecond respondent prior to thesale. Within two weeks, thesecond respondent sold thevehicle to Scheelke and the vehiclewas then registered in Scheelke’sname.

When Info Plus discovered thatthe vehicle had been sold, itinformed Wesbank. Wesbankundertook to repossess the vehi-cle, but Scheelke paid Wesbankthe full amount owing to it interms of the instalment saleagreement and Wesbank aban-doned the proceedings for repos-session.

Info Plus then brought an actionagainst Scheelke for delivery ofthe vehicle, claiming that it wasthe owner of the vehicle. Scheelkeand the second respondent deniedthat Info Plus was the owner, andalso defended the claim on thegrounds that Info Plus wasestopped from alleging it was theowner of the vehicle.

THE DECISIONUnder our law, for ownership to

pass to Info Plus, the firm wouldhave had to have taken delivery ofthe vehicle. Its agreement withWesbank provided that it wouldacquire ownership upon fulfil-ment of a condition, ie payment ofall amounts due. Normally, uponfulfilment of this condition,ownership would pass, therequirement of delivery havingbeen satisfied at the time when thevehicle was earlier delivered toInfo Plus. There would have beenno need for a second agreement—entered into when the finalamount due was paid—that InfoPlus was now to hold the vehicleas owner.

The situation was different in thepresent case however, since thefulfilment of the condition tookplace when Info Plus was nolonger in possession of the vehicle.The question was whether thisdifference prevented the transferof ownership at that time. Therewas no reason why it should. Thedelivery which had been condi-tional when Info Plus first ob-tained possession of the vehiclemerely became unconditionalwhen Wesbank received paymentof all amounts due to it. Theintention of both Info Plus andWesbank had been that thiswould take place upon paymentof the full amount owing toWesbank, and there was noreason to require any secondagreement reflecting this inten-tion. Upon payment to Wesbankof the full amount due to it, InfoPlus became the owner of thevehicle, delivery having beeneffected at the earlier stage whenInfo Plus took possession of thevehicle.

The fact that the second respond-ent, and not Info Plus, paid thefull amount due to Wesbank didnot mean that payment of InfoPlus’s debt had not taken place.

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Even if the motive in paying thedebt was that the second respond-ent should acquire the vehicle foritself, the payment still dischargedthe debt.

Info Plus therefore became theowner of the vehicle when thesecond respondent paid theamount owing to Wesbank.

As far as the defence of estoppelwas concerned, in order to suc-

ceed in this defence, Scheelke andthe second respondent wouldhave to show, inter alia, that InfoPlus had in some way representedto the second respondent thatSharman Motors was the owner ofthe vehicle or had the right ofdisposal of it. However, there wasno evidence that any such repre-sentation had been made. Info

Plus had merely delivered thevehicle to Sharman Motors, andwhereas this might have assistedthe Sharman Motors employee inconcluding the sale with thesecond respondent, it did not initself, amount to a representationthat Sharman Motors was theowner of the vehicle or wasentitled to dispose of it.

The appeal succeeded.

Credit Transactions

WORLDWIDE VEHICLE SUPPLIES LTD vAUTO ELEGANCE (PTY) LTD

A JUDGMENT BY WUNSH JWITWATERSRAND LOCALDIVISION5 FEBRUARY 1998

1998 (2) SA 1075 (W)

An owner will not establish itsownership of an item where thereis doubt of its ownership by forexample, the record of agreementin terms of which the possessorholds the item reflects anotherparty as owner, albeit incorrectly.An owner will be estopped fromasserting its rights of ownershipwhere it has given the impressionthat another party has the right todispose of the item and a thirdparty has acted on the strength ofthat impression to its prejudice.

THE FACTSWorldwide Vehicle Supplies Ltd

supplied Auto Elegance (Pty) Ltdwith two vehicles in terms of anagency agreement entered intobetween the parties. Auto wasdissatisfied with the condition ofthe vehicles, but being a dealer insecond-hand cars, sold them toother parties, the second and thirdrespondents. It asserted that it hada claim for damages againstWorldwide arising from costs ithad incurred in rectifying thecondition of the vehicles.

Worldwide was a companyincorporated in the United King-dom. Its agreement with Auto wasrecorded in a Sales AgencyAgreement which provided that adirector of Worldwide was theowner of the vehicles and Autowas the proposed buyer, and thatWorldwide was appointed theseller’s agent to sell the vehicles.

Worldwide applied for thereturn of the vehicles. Its applica-tion was brought against Auto aswell as the purchasers of thevehicles, who had taken deliveryof them from Auto. The second

respondent opposed the applica-tion on the grounds that World-wide was not the owner of thevehicles, alternatively wasestopped from asserting that itwas the owner.

THE DECISIONThe Sales and Agency Agree-

ment on which Worldwidebrought its claim was inappropri-ate to a sale on consignment,which was the real basis uponwhich Worldwide and Auto hadcontracted. The use of an agree-ment inappropriate to the actualarrangement under which theparties had conducted their affairsresulted in inaccuracies in therecord of the Sales and AgencyAgreement, for example in itsdescription of the director ofWorldwide as the owner of thevehicles. This cast doubt onWorldwide’s claim to ownershipof the vehicles. The actual ar-rangement appeared to be one inwhich Worldwide acted as agentin the sale of vehicles for individu-als. The fact that Worldwide wasconstituted agent in this manner

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NEDCOR BANK LTD v ABSA BANK LTD

A JUDGMENT BY CLOETE JWITWATERSRAND LOCALDIVISION15 AUGUST 1997

1998 (2) SA 830 (W)

A pledge of an asset withoutdelivery thereof to the pledgor isunknown in South African lawand an agreement which attemptsto simulate such an arrangementby providing for the transfer ofownership of the asset to a partywithout delivery to that party,simultaneously with anundertaking to pay that party thepurchase price of the asset willnot effectively confer ownershipof the asset on that party.

THE FACTSOn 12 December 1994,

Verwoerdburg Motorland, amotor dealer, entered into aFloorplan Agreement with AbsaBank Ltd. In terms of this agree-ment, Motorland would requestAbsa to purchase goods eitherfrom itself or from another seller,the price being the price at whichMotorland had paid or wouldhave paid for the goods. After thesale of such goods to Absa,Motorland would retain the goodsbut transfer ownership thereof toAbsa. Motorland undertook tosimultaneously purchase the samegoods from Absa, the price beingthe same price as that paid by thebank. Absa would retain owner-ship of the goods until the fullpurchase price, and any interestthereon was paid. The full pur-chase price had to be paid upondelivery of the goods to a pur-chaser found by Motorland, or onthe expiry of 180 days (in the caseof new goods) or 90 days (in thecase of used goods) whicheverdate occurred first.

On 7 December 1995, Motorlandpurchased a vehicle from a firmknown as Car Deals. In terms ofthe Floorplan Agreement,Motorland requested Absa topurchase the vehicle. Absa did soand paid the purchase price of thevehicle to Motorland. Within aweek, Motorland sold the vehicleto Nedcor Bank Ltd. Nedcor soldthe vehicle to a Miss Bothma, theagreement of sale incorporating aterm reserving ownership of thevehicle to Nedcor.

After Absa obtained possessionof the vehicle, Nedcor claimed thevehicle, alleging that it was theowner. Absa resisted the claim onthe grounds that it was the owner,and became so in terms of theFloorplan Agreement, delivery ofthe vehicle having taken place byconstitutum possessorium.

THE DECISIONTo show that it was the owner of

the vehicle, Nedcor would have toshow that Motorland had been theowner of the vehicle, and had notparted with ownership to a third

was an indication that anotherperson, and not it, was the ownerof the vehicles. Worldwide hadtherefore not proved its owner-ship of the vehicles.

The second respondent basedher defence to Worldwide’sassertion of ownership on theallegation that Worldwide hadgiven the impression that Autowas entitled to dispose of thevehicle she had purchased. Byhaving given Auto the right to

dispose of the vehicle, Worldwidehad indeed given this impression,and it amounted to a representa-tion which could reasonably havemisled her into believing thatAuto was entitled to transferownership of the vehicle to her.The fact that Worldwide termi-nated the agency agreement didnot change this, since it shouldhave foreseen that a third party,such as the second respondent,might have been misled to her

prejudice in purchasing thevehicle, even after the terminationof the agreement. Worldwide hadnot taken prompt action to securereturn of the vehicle after theagreement was terminated and socontinued to make the representa-tion which resulted in the secondrespondent thinking that Autowas entitled to dispose of thevehicle with the rights of owner.


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party when it delivered thevehicle to Nedcor.

The Floorplan Agreement didnot show that Absa became theowner of the vehicle. This agree-ment was no more than an at-tempt to give Absa real securityfor the risk it accepted in lendingmoney to Motorland. Despite theprovision for the transfer ofownership to Absa, Absa did notwish to exercise any of the rightsof ownership, but had providedfor its ownership of the vehicle

only in order to protect its invest-ment. In this regard, it was signifi-cant that the agreement did notprovide for the valuation of thevehicle—this showed that Absawas not concerned if the price wasnot market-related. The agree-ment was a simulated transaction,ie one which attempted to arrangea loan against the security of themotor vehicle, without Absahaving to take possession thereof.

Although it was clear that byentering into the Floorplan Agree-ment, Absa desired an agreement

which would give it real securityin the form of a pledge, withouttaking possession of the vehicle,as would be required for a genu-ine pledge, it was not possible fora court of first instance to createsuch a right.

Absa did not become the ownerof the vehicle in terms of theFloorplan Agreement, and there-fore could not assert a right to thevehicle greater than that assertedby Nedcor. Nedcor’s claim wasupheld.

CHAIN v STANNIC CONTRACT HIRE (PTY) LTD

A JUDGMENT BY CAMERON JWITWATERSRAND LOCALDIVISION16 SEPTEMBER 1997

1998 CLR 59 (W)

A credit grantor is entitled torepossess goods which are thesubject of an instalment saleagreement without complyingwith section 11 of the CreditAgreements Act (no 75 of 1980)where the claim for repossessionis not a claim arising from acontractual right to possession. Aclaim free of the restrictions ofsection 11 might arise where thecredit receiver repossesses thegoods by asserting its right ofownership and this cannot be metby spoliation proceedings becausethe credit receiver has given uppossession of the goods.

THE FACTSChain entered into an instalment

sale agreement with StannicContract Hire (Pty) Ltd, in termsof which he purchased a motorcycle. The agreement reservedownership of the motor cycle toStannic until Chain had paid allamounts and complied with allobligations in terms of the agree-ment. After he had fallen intoarrears with payments to Stannic,he delivered the motor cycle to amotor cycle dealer with instruc-tions to sell the motor cycle.Tracing agents appointed byStannic located the motor cycle atthe dealer’s premises and retookpossession of it.

Chain contended that Stannic’srepossession of his motor cycleconstituted a repudiation of theiragreement in that it did notcomply with section 11 of theCredit Agreements Act (no 75 of1980). He accepted the repudia-tion and claimed repayment of allmonies paid in terms of theagreement.

Section 11 provides that a creditgrantor may not claim the returnof goods to which the credit

agreement relates unless the creditgrantor notifies the credit receiverthat he has failed to comply withhis obligations in terms of theagreement and has requiredcompliance.

THE DECISIONSection 11 limits a credit gran-

tor’s rights, but only where thecredit grantor takes judicial stepsto enforce a claim to possession. Itwas therefore inapplicable to thesteps taken by Stannic to gainrepossession of the motor cycle.When Stannic respossessed themotor cycle, Chain had alreadygiven up possession of the motorcycle, and Stannic was assertingits proprietary rights in terms ofits agreement with Chain. Asowner of the motor cycle, it wasentitled to possession of it. Itsclaim rested on this and not anyentitlement under the agreementto claim return of the goods byjudicial proceedings.

Section 11 therefore did notapply and Stannic was entitled torepossess the goods withoutrestriction. The application wasdismissed.

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SELBORNE CARPET WHOLESALERS CC vJ & S CARPETS CC

A JUDGMENT BY SCHABORT JWITWATERSRAND LOCALDIVISION14 NOVEMBER 1997

1998 CLR 65 (W)

A Credit Application Form whichspecifically refers to the specificreason for the credit requirementrestricts future indebtedness inrespect of which the terms of theForm apply, to debts arising fromthat reason. A surety for suchdebts is accordingly not a suretyin respect of any debts not referredto in the Form.

THE FACTSJ & S Carpets CC applied for

credit facilities with SelborneCarpet Wholesalers CC. It com-pleted an application form* forthis purpose, inserting detailssuch as its address, telephonenumber and bankers. The formincorporated the field ‘CreditLimit Required or ApproximateMonthly Requirement’, and anamount of R20 000 was inserted atthat point. Under ‘Trade Refer-ences’ was inserted ‘All ourpurchases are paid cash. Thisfacility is only needed for contractwork, and we will still continue topay cash for daily purchases andcash for the 30 days’.

Ms S Midgley signed the appli-cation form on behalf of J & S, andas surety for payment of thatcorporation’s debts to Selborne.She returned the form to Selborneand J & S began using the creditfacility, to the point that it eventu-ally owed R137 686,54 to Selborne.Of this R17 800 was attributable tocontract work which J & S haddone for two building contractors.

Selborne obtained a judgment forpayment of R137 686,54 from J &S. It claimed the same amountfrom Midgley as surety for thisdebt. Midgley paid R20 000 andrefused to pay any more, contend-ing that the insertion of the CreditLimit and the statement madeunder ‘Trade References’ limitedher liability to R20 000.

THE DECISIONThe credit facilities were given

on the understanding that theywere subject to the terms andconditions set out in the applica-tion form. In incorporating thesuretyship provision in the form,the intention was to providesecurity for the credit facilitywhich was therein established, iefor ‘contract work’ which hadbeen understood by the parties torefer to specific contracts.

The insertion made under ‘TradeReferences’ effectively circum-scribed the extent of the liabilitywhich J & S could incurr, andtherefore also limited the liabilityof its surety. Midgley was liableonly for the R17 800 outstandingin respect of contract work. Shehad paid more than this and wastherefore not liable to Selborne forany further payment.

The insertion of the R20 000figure under the Credit Limit fieldwas not decisive of this. Themeaning of ‘contract work’ was.The action against Midgley wasdismissed.

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MULLER v COCA-COLA SABCO (SA) (PTY) LTD

A JUDGMENT BY MPATI JSOUTH EASTERN CAPE LOCALDIVISION8 0CTOBER 1997

1998 (2) SA 824 (SECLD)

Where a deed of suretyshipdescribes the principal debtor asone entity, such as aproprietorship, evidence of thefact that that description gave thetrading name of another entity,such as a close corporation, willnot be admissible because thiswould represent an attempt tochange the identity of thecontracting parties as shown inthe deed of suretyship.

THE FACTSMuller signed a deed of

suretyship in favour of Coca-ColaSabco (SA)(Pty) Ltd securing thedebts of Convenient Wholesalers.Coca-Cola brought an actionagainst Muller based on the deedof suretyship, alleging that it wasowed R681 242,75 in respect ofgoods sold and delivered toConvenient Wholesalers CC.Muller excepted to the claim onthe grounds that he had boundhimself as surety to aproprietoryship, ConvenientWholesalers, and not a closecorporation, Convenient Whole-salers CC.

Coca-Cola contended that‘Convenient Wholesalers’ was thename under which ConvenientWholesalers CC had traded andthat this could be proved at trial.

THE DECISIONThe deed of suretyship itself was

valid in that it complied withsection 6 of the General LawAmendment Act (no 50 of 1956).Being the documentary record of acontract, evidence of its terms wasto be found in that documentaryrecord, and no extrinsic evidencewould be admissible except forsuch purposes as the identificationof parties.

Coca-Cola wished to lead evi-dence of the trading name ofConvenient Wholesalers CC forthe purpose of proving that at thetime the deed of suretyship wassigned, it traded as ConvenientWholesalers. However, thisevidence would be inadmissiblesince the principal debtor wasclearly and unambiguouslyidentified as the business, Con-venient Wholesalers, which wasnot a corporate entity. There wereno grounds for drawing theinference that it enjoyed the statusof corporate personality.

The issue was not what nameConvenient Wholesalers CCtraded under, but to which princi-pal debtor Muller bound himselfas surety. The evidence Coca-Colawished to introduce was in factdirected at identifying a differentprincipal debtor from that re-ferred to in the deed of suretyship,and was not directed at demon-strating the trading name underwhich the close corporationhappened to trade. Being evidencethat would effectively change aterm of the suretyship agreement,it would not be admissible, and socould not meet the exceptionpresently raised against the claim.


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EISER v VUNA HEALTH CARE (PTY) LTD

A JUDGMENT BY WUNSH JWITWATERSRAND LOCALDIVISION26 SEPTEMBER 1997

1998 (3) SA 139 (W)

An Anton Piller order may allowthe applicant access to thedocuments which are the subjectof the order because this isnecessary in order for theapplicant to identify thedocuments which are relevant tothe action it wishes to bringagainst the respondent. It ispreferable for an Anton Pillerorder to state the cause of actionwhich the applicant will dependon in the action to be broughtagainst the respondent, but if thisis not done, the order is notdefective.

THE FACTSEiser applied for, and was

granted, an order that VunaHealth Care (Pty) Ltd allow thesheriff, a supervising attorney andEiser’s attorneys, to enter itspremises for the purpose ofsearching for and delivering to thesheriff, certain documents andarticles listed in the order. Theorder required the supervisingattorney to make a list of all theitems removed by the sheriff andhand a copy to Eiser and Vuna.Paragraph 6 of the order author-ised Eiser and its attorneys toinspect the items taken intopossession by the sheriff, andcopy those necessary for attach-ment to any summons or found-ing papers in legal proceedings tobe instituted against Vuna. Para-graph 7 of the order requiredEiser to institute such legal pro-ceedings against Vuna in whichthe listed items were concerned,within 30 days of date of theorder.

After the order had been ex-ecuted, and prior to the date ofconfirmation of the order that thesheriff retain possession of theitems, Vuna raised preliminaryobjections to the confirmation ofthe order. The first preliminaryobjection was that the order hadbeen used to search for informa-tion rather than to preserveevidence, and that Eiser shouldnot have been allowed access tothe documents. The second wasthat the cause of action of the legalproceedings referred to in para-graph 7 was not defined.

Vuna asked that in view of theseobjections, the order not beconfirmed.

THE DECISIONAn Anton Piller order (essentially

the kind of order obtained byEiser in the present case) may begranted where the plaintiff has aprima facie cause of action and itis shown that evidence required toestablish an action may disappear.In order to control the possibleabuse of this procedure, the orderis granted subject to the conditionthat the applicant will not use anyof the information obtained underit except for the purpose of bring-ing the legal proceedings contem-plated by it.

In the present case, the purposeof allowing Eiser access to theinformation obtained in theexecution of the order, as pro-vided for in paragraph 6, was toensure compliance with thisstricture. It was also necessary forthe applicant to view the docu-ments which were the object of theorder in order to identify them asthose relevant to the action to beinstituted. Since these were theexpress purposes of the order, itcould not be said that the orderhad been granted merely in orderto allow Eiser to search for infor-mation which might assist theaction he intended to institute.Whether or not this included theright to copy the items to be usedin the proposed attachment to thesummons was a matter whichcould be decided more appropri-ately when the merits of theapplication were to be considered.

As far as the definition of thecause of action was concerned, itwould have been better if this hadbeen specified, but the fact that itwas not specified did not makethe order unacceptable—thedocuments which had to beattached to the summons in theaction which was to be com-menced would have to be relevantto that action.

The preliminary objections weredismissed.

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SUN WORLD INTERNATIONAL INC vUNIFRUCO LTD

A JUDGMENT BY VAN REENEN JCAPE OF GOOD HOPE PROVIN-CIAL DIVISION18 FEBRUARY 1998

1998 (3) SA 151 (C)

In applying for an Anton Pillerorder, the applicant must discloseall facts which may be relevant tothe application, its duty in thisregard being one of the utmostgood faith. The applicant mustshow that it has a well-foundedapprehension that the respondentwill destroy vital evidence beforethe trial and it will not besufficient for the applicant toshow only that it requires theevidence for the purposes ofcalculating the quantum of itsclaim.

THE FACTSSun World International Inc, a

United States company, held aplant breeder’s right in respect ofa white seedless table grapevariety known as ‘Sugraone’ interms of the Plant Breeders’sRights Act (no 15 of 1976). Theeffect of this registration was thatit held the exclusive right in SouthAfrica to import and exportpropagating material relating toSugraone until 20 October 2000. In1996, the Act was amended toinclude harvested material as thesubject of the plant breeder’sright.

Sun World alleged that UnifrucoLtd had infringed its plant breed-er’s right by exporting and sellinggrapes, which were indistinguish-able from Sugraone, under brandnames which would not attractthe royalties it was obliged to paySun World in respect of the sale ofSugraone grapes. Believing thatUnifruco would not discover thetrue exports of its grapes, itobtained an order that Unifrucoallow the sheriff, a supervisingattorney and its attorneys, to enterits premises for the purpose ofsearching for and delivering to thesheriff, certain documents andarticles listed in the order. Theorder required the supervisingattorney to make a list of all theitems removed by the sheriff andhand a copy to Sun World andUnifruco. Paragraph 6 of the orderauthorised Sun World and itsattorneys to inspect the itemstaken into possession by thesheriff in order to ensure that thelist made by the supervisingattorney correctly reflected theitems seized, and in order tocalculate the correct quantities ofgrapes of the Sugraone varietyexported by Unifruco. Paragraph7 of the order required Sun Worldto institute legal proceedingsagainst Unifruco in which thelisted items were concerned,

within 10 days of date of theorder.

Sun World supported its allega-tion that Unifruco would notreveal the true exports of itsgrapes because it had publishedexport figures which were demon-strably false, had denied that oneof its exported brands was avariety of Sugraone and had co-operated with nurseries to hideinfringements of its rights.

After the order had been ex-ecuted, Sun World applied forconfirmation of the order.Unifruco opposed this on thegrounds that (i) in applying forthe order, Sun World ought tohave stated that prior to 1996 itsrights pertained to propagatingmaterial only; (ii) Sun World hadfailed to show the existence of areal and well-founded apprehen-sion that Unifruco would hide ordestroy vital evidence; (iii) theorder was more widely framedthan was necessary to protect SunWorld’s interests.

THE DECISIONThe effect of the amendment of

1996 was to extend the protectiongiven to plant breeders to includerights in respect of harvestedmaterial. Until then, their rightspertained only to propagatingmaterial. Sun World therefore didnot have a cause of action inrespect of the import and exportof harvested grapes of theSugraone variety prior to 1996. Atthe time it applied for and ob-tained the order, Sun World,being under a duty of the utmostgood faith, should have disclosedthis as a material fact.

The essence of Sun World’smotivation for the application wasthat Unifruco had engaged indishonest or untrustworthyconduct, and that this suggested itwould also have acted in thismanner in regard to the informa-tion required for the royalties it

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had to pay Sun World. It wouldhowever, be permissible to drawthis inference only if it was con-sistent with all the proved facts.The facts as alleged by Sun Worldwere that Unifruco was still inpossession of the documentationwhich would show its infringe-ment of Sun World’s rights, but nofacts were alleged which wouldshow why Unifruco would nowdestroy the documents. Theinference was also countered bythe fact that Unifruco was acompany of long standing. Antici-pated recalcitrance on the part ofUnifruco when asked to discover

the relevant documents was noreason to secure the order, norcould the order be given merely toassist Sun World in computing thequantum of its claim. Calculationof the quantum of Sun World’sclaim might not be exact in anyaction it might bring, but thiswould not be a reason for thefailure of such action since thecourt would not require math-ematical precision in the calcula-tion of a damages claim.

As far as the ambit of the orderwas concerned, assuming that itwas necessary for Sun World to

have had access to the documentsobtained in the execution of theorder in order to compute itsclaim, there was no reason whyUnifruco should not have beengiven notice of this prior to theorder having been obtained.Granting access to the documentsby Sun World was however,contrary to the practice of thecourt division and should nothave been allowed. The docu-ments listed in the order weremore than were required by SunWorld.

The application for confirmationof the order was dismissed.

LOURENCO v FERELA (PTY) LTD

A JUDGMENT BYSOUTHWOOD JTRANSVAAL PROVINCIALDIVISION10 NOVEMBER 1997

1998 (3) SA 281 (T)

An Anton Piller order will not begranted when the applicant failsto show that it has a prima faciecause of action against therespondents or that therespondent hold documents whichconstitute vital evidence in thesubstantiation of the applicant’scase and might be hidden ordestroyed before an intendedaction against the respondentscomes to trial.

THE FACTSLourenco and the other appli-

cants obtained an order authoris-ing the sheriff to enter thepremises of Ferela (Pty) Ltd andthe other respondents and searchfor and seize financial recordspertaining to those parties. Theorder required the applicants toinstitute an action against therespondents within 120 days. Intheir application for the order, theapplicants stated that they wishedto bring about liquidation pro-ceedings against Ferela and theother respondents, as well as otherproceedings in terms of varioussections of the Companies Act (no61 of 1973) including section 252.They alleged that they were thebeneficial shareholders of therespondent companies, beingentitled to the shares in them byvirtue of their claim to them as

heirs, but not by virtue of theirexisting ownership of them, andthat the sixteenth respondent hadmismanaged the respondentcompanies and misappropriatedmoney owing to them.

When the order was put intooperation, the respondents in-formed their attorneys whoinstructed counsel to urgentlyapply for the setting aside of theorder. This application was madeon the grounds that the applicantshad had no grounds on which toobtain the order earlier granted,having established no prima faciecause of action against the re-spondents.

THE DECISIONThe applicants were not share-

holders in the respondents. Assuch they had no rights in termsof section 252 of the Companies

Competition

88

Act. That section provides forremedies to members of a com-pany where they complain ofunfairly prejudicial conduct by acompany. For action to be broughtin terms of it, the section requiresthat the relevant company hascommitted an act which is un-fairly prejudicial, unjust or inequi-table to the members of thecompany, or that the affairs of thecompany are being managed in amanner which is unfairly prejudi-cial, unjust or inequitable.

The applicants had not estab-lished any prima facie right in

terms of section 252. Their allega-tions were extremely vague and itwas clear they had not formulatedany relief which they would beseeking in any later proceedings.The applicants had shown thattheir object was to obtain evidencefor a claim which had not yet beenproperly formulated rather thanfor the purpose of preserving vitalevidence for an existing cause ofaction. The fact that the forensicauditors needed further informa-tion in order to complete theirreport on the companies providedno reason to grant the order.

The applicants had also notshown that any of the respondentshad a document which constitutedvital evidence in the substantia-tion of their case. No attempt hadbeen made to identify suchdocuments or show why theywere relevant to the action.Furthermore, the applicants hadnot alleged that whatever docu-ments were in the possession ofthe respondents would be hiddenor destroyed before the mattercame to trial.

The order should not have beengranted and it was set aside.

Competition

CTP LTD v INDEPENDENT NEWSPAPERS HOLDINGS LTD

A JUDGMENT BY CLOETE JWITWATERSRAND LOCALDIVISION

UNREPORTED

Where a court order interdicts arespondent from publishing anewspaper substantially similarin nature and circulation toanother newspaper, the similarityreferred to may be determined byascertaining the court’s purpose inmaking the order.

THE FACTSCTP Ltd and others brought

interdict proceedings againstArgus Holdings Ltd and associ-ated companies, to enforce anagreement restraining Argus frompublishing a separate free localnewspaper anywhere in SouthAfrica. Those proceedings re-sulted in an order by the Appel-late Division restraining Argusand its associated companies (oneof which was Independent News-papers Holdings Ltd) from pub-lishing certain specified newspa-pers, or any newspaper substan-tially similar in nature and circu-lation, in competition with CTPand its associated companies. Theorder also gave leave to Argus toapproach the court for a furtherorder amending or rescinding thatorder at a later date.

Two days after the order wasgranted, Independent Newspa-

pers applied for an order rescind-ing the order. The AppellateDivision refused to rescind theorder, holding that changes whichhad taken place in the ownershipof Argus Holdings and its associ-ated companies, and ArgusHoldings’ relinquishment ofownership of Argus Newspapers,had not rendered the continuedoperation of the restraint unen-forceable on the grounds that itwas contrary to public policy. TheAppellate Division held that theinterdict had been directed atpreventing the publication of localnewspapers, and that even if itwere shown that the newspaperswere not free (because part of thepayment made by a recipient ofthe regional newspaper withwhich these newspapers weredistributed was attributable to thenewspaper) the fact that theywere local newspapers was

89

sufficient reason to consider themaffected by the order. It however,declined to define what wasmeant, in the context of theproceedings, by a ‘local newspa-per’.

Independent Newspapers thenpublished newspapers in theWestern Cape. CTP alleged thatthey were newspapers againstwhich the restraint operated. Itbrought an application for aninterdict to prevent IndependentNewspapers from doing so.Independent Newspapers con-tended that because the newspa-pers it was publishing were notfree, and were distributed to-gether with its regional newspa-pers, they were not newspapersreferred to in the order madeagainst it by the Appellate Divi-sion.

THE DECISIONThe essential problem was what

was meant by ‘or any newspapersubstantially similar in nature andcirculation’ in the order firstgranted by the Appellate Division.Independent Newspapers arguedthat this was not a reference to anewspaper for which the recipienthad to pay, nor to a newspaperdistributed with a regional news-paper. Both of these were, itargued, features of the newspa-pers it had published and whichhad given rise to CTP’s interdictproceedings against it.

These arguments could not beaccepted. The Appellate Divisionhad intended to interdict thepublication of local newspapers,and had sought to give effect tothis by referring to them asnewspapers substantially similar

in nature and circulation tonewspapers which clearly werelocal newspapers. So much wasclear from the fact that it hadsubsequently explained that theinterdict was not directed at thepublication of free newspapers,but at the publication of localnewspapers.

The fact that the newspapers soreferred to by the AppellateDivision circulated in theWitwatersrand, as opposed to theWestern Cape, gave no ground forcontending that the order wasrestricted to newspapers circulat-ing in the Witwatersand and didnot affect those circulating in theWestern Cape. The order wasintended to apply throughoutSouth Africa, including theWestern Cape.


Competition

90

GHN OFFICE AUTOMATION CC v PROVINCIALTENDER BOARD, EASTERN CAPE

A JUDGMENT BY SMALBERGERJA(EKSTEEN JA, OLIVIER JA,STREICHER JA and FARLAMAJA concurring)SUPREME COURT OF APPEAL26 MARCH 1998

1998 (2) SA 45 (A)

A provincial tender board may notsuspend a contract validly enteredinto without ensuring that it actswithin the provisions ofregulation 3(2)(a) of theregulations promulgated under theProvincial Tender Board Act (no 2of 1994). A power to cancel acontract in circumstances otherthan those provided for in thoseregulations will not be implied.

THE FACTSGHN Office Automation CC

tendered for the supply of type-writers, desks and chairs to theEastern Cape Department ofEducation. The Provincial TenderBoard accepted the tender, butlater notified GHN that it hadsuspended the approval of itstender. It purported to do so interms of section 4(1) of the Provin-cial Tender Board Act (no 2 of1994).

GHN applied for an interdictrestraining the Board from unlaw-fully purporting to suspend thecontract.

THE DECISIONSection 4(1)(f) of the Provincial

Tender Board Act provides thatthe Board may, on behalf of theprovince, resile from any agree-ment concluded under the sectionand, in appropriate cases, claimdamages.

It is clear from the provisions ofthe Act that the Board acts as an

agent for the Province. Section4(1)(f) however, does not conferthe power to suspend an agree-ment once entered into. The rightto resile does not always includethe right to suspend.

The power of the Board tosuspend a contract are defined insection 4(1)(f) read with regula-tion 3(2)(a) of the regulationspromulgated in terms of the Act.Regulation 3(2)(a) provides thatthe Board may suspend a contractwhere the other contracting partyhas performed unsatisfactorily interms of the contract, or has actedin some improper manner inconnection with the contract. Itwas clear that the Board had notformed any opinion regarding thematters referred to in the regula-tion. It therefore followed that itcould not have acted in terms ofthe regulation when cancelling thecontract. The cancellation wasaccordingly ineffective.

The purported suspension of thecontract was set aside.

Contract

91

MIDWAY TWO ENGINEERING &CONSTRUCTION SERVICES v TRANSNET LTD

Contract

A JUDGMENT BY NIENABER JA(HARMS JA, MARAIS JA,SCHUTZ JA and PLEWMAN JAconcurring)SUPREME COURT OF APPEAL20 MARCH 1998

1998 (3) SA 17 (A)

In deciding whether or not a partyis (vicariously) responsible for theactions of another, the fact thatthat party formally employed theother party is not decisive of thequestion. Whether or not thatparty is vicariously responsiblewill depend on such questions aswhether the party could exercisecontrol over the other and theextent of that control.

THE FACTSMidway Engineering & Con-

struction Services providedTransnet Ltd with forty lorrydrivers for the purposes of con-veying goods in the course ofTransnet’s business as a transportcontractor. The lorry drivers hadbeen required because of strikesbeing experienced by Transnet.

In terms of clause 3.5.5 of theagreement then entered intobetween Midway and Transnet,the drivers were to be under thecontrol, authority and supervisionof Transnet. Clause 3.5.1 providedthat the drivers were to begin andend their daily tasks as instructedby Transnet supervisors. In termsof clause 8.2 of the agreement,Midway retained supervisionover the service given to Transnet,but in terms of clause 3.2, al-though Midway retained suchsupervision, the drivers wereobliged to observe and performwithin Spoornet’s regulations,rules and procedures. Clause 3.4provided that the drivers were toperform their services under thecontrol and authority of Transnetand in terms of its operatingmethods, but that they were notemployees of Transnet.

While performing servicesprovided for in the agreement,one of the drivers caused damageto a building, the amount of thedamages being assessed at R29850. Transnet settled the claimthen arising from the buildingowner and took cession of theclaimant’s rights. It brought anaction against Midway for pay-ment of the damages, claimingthat Midway was vicariouslyresponsible for the driver’s ac-tions.

THE DECISIONThe question was whether the

lorry driver was acting within thescope of his employment and inthe exercise of his duties with

regard to Midway, when hecaused the damages. The legal testfor whether a servant will beconsidered to have been actingwithin the course and scope of hisduties as servant has not beenprecisely defined, but in thecircumstances where one partyhires the services of an employeefrom another party, and thatemployee causes damage, theemphasis is placed on whether ornot the hirer had the power toexercise control over how theemployee was to perform theservice.

Since Transnet was suing ascessionary of the claim arising bythe owner of the damaged build-ing, its position had to be assessedas would the position of theclaimant. The contract enteredinto between Transnet and Mid-way was therefore relevantbecause it provided evidence ofthe driver’s status as employee,not because it provided evidenceof the relationship betweenTransnet and Midway.

When looking at the substance ofthe contract entered into by theparties, it was clear that Midwayhad intended to provide theservices of qualified drivers, butnot the actual transportationwhich the drivers would perform.Midway had no control over whatthe drivers would do whenperforming these services, andTransnet itself expected them todo precisely what its other drivershad done before going on strike.

The terms of the agreemententered into between Midway andTransnet showed that Transnetwas to have control over thedrivers once they began theirduties under it. Midway mighthave been the formal employer,but it was Transnet which exer-cised the control over the driverwhich made it responsible for thedriver’s actions.

Transnet’s claim was dismissed.

Contract

92

TWEEDIE v PARK TRAVEL AGENCY (PTY) LTD

A JUDGMENT BY CLOETE JWITWATERSRAND LOCALDIVISION5 APRIL 1998

[1998] 3 All SA 57 (W)

A party to a contract will not beentitled to depend on superveningimpossibility of performancewhen faced with a claim on acontract in respect of which thatparty has failed to perform due toits breach of contract when thebreach occurred before thesupervening impossibility ofperformance. A party claimingrestitution as a result of thecancellation of a contract due tobreach may claim repayment ofwhat that party has given interms of the contract, as well asrepayment of all expenses incurredin performing its side of thecontract, taking into accounthowever, the economicadvantages of the contract as awhole.

THE FACTSTweedie and Park Travel

Agency (Pty) Ltd entered into anagreement in terms of which ParkTravel undertook to transportTweedie from Johannesburg toTwickenham, England, andprovide Tweedie with tickets tosee the Springbok rugby teamplay England on 18 November1995. Clause 9 of the agreementprovided that Park Travel actedon the condition that it would notbe liable for any injury or damageoccasioned by an Act of God, orfor carrying out thearrangementsof the tour. Tweediepaid the tour price of R5 066 aswell as the expenses of insurance,airport tax and a visa.

In terms of the agreement,Tweedie flew to England but,despite demand having beenmade on it, Park Travel failed tosupply the tickets for the rugbygame. Park Travel was unable todo so because it had been unableto obtain them from its usualsource of supply.

Tweedie claimed repayment ofthe tour price as well as theexpenses incurred in travelling toEngland. Park Travel contendedthat the agreement had beenterminated due to superveningimpossibility and that in anyevent, Tweedie could not claimmore than the cost of a ticket tothe rugby game.

THE DECISIONPark Travel was in breach of

contract when it failed to respondpositively to the demand made onit. Being then under an obligationto perform in terms of the agree-ment, supervening impossibilitywould not release it from thatobligation. The result of its breachwas that Tweedie was entitled tocancellation of the agreement andrestitution of what had been givenin terms of the agreement.

The restitution which ParkTravel was obliged to make wasrefund of the price of the tour andreimbursement of the expenditureincurred in connection with it. Thefact that Tweedie had received thetransportation to England and thebenefits of the expenditure inconnection therewith did notdisentitle him from receivingrepayment in respect thereof.Tweedie received no value forwhat he had paid and was there-fore entitled to a full refund of thetour price. As far as the expendi-ture was concerned, Tweedie wasentitled to this since it was ex-penditure incurred in reliance onan expected performance whichhad never materialised.

As far as clause 9 was concerned,it could not be interpreted asexonerating Park Travel fromliability and entitling it to retainthe tour price despite a fundamen-tal breach of contract. The partiescould not have intended soimprobable a consequence.

Tweedie’s claim was granted.

Contract

93

HATTRICK PROPERTIES v NORTH CENTRAL LOCALCOUNCIL OF THE CITY COUNCIL OF DURBAN

A JUDGMENT BY ALEXANDER JDURBAN AND COAST LOCALDIVISION16 MARCH 1998

[1998] 2 All SA 629 (D)

A local authority is bound to actreasonably, with due regard tochanges which might take place inthe future and which might affectits present decision to proceedwith some action. Should thelocal authority change itsdecision to proceed in a particularmanner, it is not however, theprerogative of the court tointerfere with that variationmerely because it is of the opinionthat a better decision might havebeen made.

THE FACTSOn 17 March 1994, the City

Council of Durban issued a noticein terms of section 47(bis) of theTown Planning Ordinance (no 27of 1949) (Natal) the effect of whichwould be to develop the Pointarea of the city. The developmentinvolved the partial acquisition ofHattrick Properties’ propertywhich adjoined a street which wasto be upgraded and extended.

As a result of this notice,Hattrick did not proceed with theconclusion of leases in respect ofits property since it expectednegotiations with the council toconclude with the council acquir-ing its property for the purpose ofthe development.

The City Council issued thenotice after considerable examina-tion of the technical and financialfeasibility of the developmentproject. It was however, issuedjust before political electionswhich were expected to resultalmost certainly in a newlyconstituted City Council withpriorities different from those heldby the existing Council. Officialsof the City Council who causedthe notice to be issued consideredthat the development was suffi-ciently desireable that any newlyconstituted City Council.

On 12 October 1995, the CityCouncil issued a notice that it wasnot proceeding further with thedevelopment of the area. Had itdone so, Hattrick would havereceived compensation.

Hattrick alleged that it hadsuffered damages as a result of theCity Council’s negligence inhaving issued the first noticeprematurely and in having with-drawn the notice later. It claimedpayment of its damages.

THE DECISIONA City Council is expected to

have reasonable foresight inregard to matters falling within itsjurisdiction. With regard to peoplelikely to be affected by its deci-sions, it has a duty to act reason-ably and with an awareness ofwhat might eventuate in thefuture. If it knows that legislationis proposed which would affect itsdecision to proceed with a project,it might be considered precipi-tous, and therefore unreasonable,for it to proceed with the imple-mentation thereof.

In the present case, there were noindications that the project pro-posed by the City Council couldnot proceed as a result of thedifferent priorities adopted by thenew City Council. It was notunreasonable to assume that whathad been decided about thedevelopment would have laterbeen accepted by the new CityCouncil as a worthwhile contribu-tion to the public as a whole.

The notice issued on 17 March1994 was therefore not prema-turely issued.

As far as the notice of 12 October1995 was concerned, the questionwas whether or not the Councilacted irresponsibly or unreason-ably, thereby exceeding the limitof its powers.

The Council had decided not toproceed with the developmentproject as a result of a recognitionof the different priorities it had toaccept following the election. Thatdecision was reasonably made,and whether right or wrong, itwas not for the court to substituteit with a decision of its own. Thedecision had been lawfully madeand had to be accepted.

Hattrick’s action was dismissed.

Property

94

SOUTHERN LIFE ASSOCIATION LTD v KHAYZIFAMUSEMENT MACHINES CC

A JUDGMENT BY LEVINSOHN JDURBAN AND COAST LOCALDIVISION12 MARCH 1998

1998 CLR 212 (W)

A provision in a lease requiringthe tenant to continue payingamounts due in terms of the leaseafter cancellation, if the partiesare in dispute as to the right tocancel, prevents the lessor fromcancelling the lease on groundsdifferent from those originallydepended upon for cancellationwhile the dispute remainsundetermined.

THE FACTSSouthern Life Association Ltd

leased certain premises to KhayzifAmusement Machines CC. South-ern Life alleged that Khayzif hadbreached certain provisions of thelease, and brought an action for itsejectment from the premises.

Khayzif entered an appearanceto defend. Southern Life appliedfor summary judgment, but theapplication was refused andKhyazif was granted leave todefend the action. Some twoweeks later, on the 18th August1997, Southern Life delivered anotice of bar on Khayzif’s attor-neys. They failed to react to thenotice, and on 28th August,Southern Life’s attorneys appliedfor and obtained default judgmentagainst Khayzif. Upon executionof the writ, Khayzif applied for anorder interdicting its ejectmentfrom the premises pending anapplication for an order settingaside the notice of bar as anirregular proceeding. It allegedthat the application for summaryjudgment had the effect of inter-rupting the period within which ithad to deliver its plea. That periodis 20 days after the date of deliv-ery of a declaration or combinedsummons.

Southern Life brought a counter-application to Khayzif’s applica-tion. In the counter-application, itsought ejectment of Khayzif fromthe premises, basing this counter-application on a letter of cancella-tion sent to Khayzif on 26 August1997. In the letter, Southern Lifecited Khayzif’s failure to payrentals due in terms of the lease asthe reason for its cancellation ofthe lease and required immediatevacation of the premises.

Clause 30.3 of the lease providedthat in the event of Southern Lifecancelling the lease and Khayzifdisputing the right to cancel, andremaining in occupation of thepremises, Khayzif would beobliged to continue paying the

rent and other sums payable interms of the lease which wouldhave been due but for the cancel-lation, and Southern Life wouldbe entitled to accept an recoversuch payments without prejudiceto its cancellation of the lease.

THE DECISIONSummary judgment proceedings

place a moratorium on the deliv-ery of a plea pending the court’sdecision as to whether leave todefend should be granted. Thenotice of bar was therefore prema-ture and default judgment shouldnot have been granted againstKhayzif. In any event, good causeexisted to rescind the judgmentwhich had been granted. Thereasons for Khayzif’s defence hadbeen set out in its opposition tothe summary judgment applica-tion, and these had been acceptedby Southern Life as sufficient toallow a rejection of that applica-tion.

As far as the counter-applicationwas concerned, Southern Life hadpurported to engineer a secondcancellation of the lease agree-ment, now based on a failure topay rent. The first cancellationhad not been withdrawn. South-ern Life therefore continued todepend on that while seeking toachieve Khayzif’s ejectment fromthe premises by other means. Inthe light of clause 30.3, this wasnot permissible. That clauseprovided for the continuation ofpayments after cancellation of thelease in circumstances where thecancellation of the lease was indispute. These were the circum-stances of the present case. Theresult was that Southern Life wasrequired to abide by the provi-sions of clause 30.3 and forejectment of Khayzif from thepremises, would have to dependon its earlier cancellation of thelease.

The appication was granted andthe counter-application dismissed.

Property

95

JACANA EDUCATION (PTY) LTD vFRANDSEN PUBLISHERS (PTY) LTD

A JUDGMENT BY SCHUTZ JA(HARMS JA, SCOTT JA,PLEWMAN JA and ZULMAN JAconcurring)SUPREME COURT OF APPEAL27 NOVEMBER 1997

1998 (2) SA 965 (A)

Proof of anonymity of authorship,as required when depending on thepresumptions contained in section26 of the Copyright Act (no 98 of1978) requires proof that the workdoes not attribute authorship to aparticular person, as would bedone where the work is said to becreated by a particular person orrecords the identity of the possiblecopyright holder by means of a ©followed by the name of anauthor.

THE FACTSJacana Education (Pty) Ltd

created a map of the KrugerNational Park. The map includeda grid setting out the campssituated in the Park, and theservices and facilities provided ateach of them. It recorded that itwas ‘created’ by ‘Jacana Educationand the Kruger National Park’.Jacana also created a leafletshowing gate opening and closingtimes, the trading hours of shopsand restaurants, and the Rules ofthe Kruger National Park. Theleaflet recorded ‘© Jacana Educa-tion’.

Frandsen Publishers (Pty) Ltdalso created a map of the KrugerNational Park. It exhibited anumber of differences whencompared to Jacana’s map. Itincorporated the details includedin Jacana’s leaflet. It also incorpo-rated a grid showing the detailsgiven in Jacana’s grid, but unlikeJacana’s, its grid was not dividedinto two parts. The classificationof camps given in Jacana’s gridwas repeated in Frandsen’s grid.

Jacana claimed that it heldcopyright in the map as an artisticwork and in the grid and Rules asliterary works. It alleged thatFrandsen’s work infringed itscopyright, and it applied for afinal interdict preventingFrandsen from continuing theinfringement. Frandsen defendedthe action on the ground that thesubsistence of copyright had notbeen proved because Jacana’swork was not original, and on theground that it had not copiedJacana’s work. For proof of itscopyright, Jacana depended onthe presumptions contained insection 26 of the Copyright Act(no 98 of 1978).

THE DECISIONSection 26(3) of the Copyright

Act provides that where, inrelation to an anonymous or

pseudonymous work, it is estab-lished that the work was firstpublished in the Republic withinfifty years of the bringing of anaction for infringement of copy-right in the work, and the name ofthe publisher appeared on copiesof the work as first published,copyright shall be presumed tosubsist in the work, and to vest inthe publisher whose name soappeared on copies of the work.Section 26(5) of the Act providesthat where a work has beenpublished anonymously or undera name alleged to be a pseudo-nym, and has not been shown tohave been published under thetrue name of the author, the workshall be presumed to be originalunless the contrary is proved.

The presumptions contained inthese sub-sections depend on itbeing shown that the author isanonymous. However, the mapcreated by Jacana was stated to becreated by ‘Jacana and the KrugerNational Park’. The author wasnamed, and whether or not acompany can be the author of acopyright work, the anonymitysought by Jacana did not exist. Asfar as the leaflet was concerned,the words ‘© Jacana Education’could refer to its author. Thismeant that in this case too, theauthor was not anonymous.Jacana was therefore not entitledto rely on the presumptionscontained in section 26.

Even if Jacana had attempted toprove originality without depend-ing on these presumptions, thisattempt would have failed, giventhe fact that visually, it couldnever be said that the one maphad been copied from the other.The overall impact of both maps,as well as the particular dissimi-larities between them left theimpression that the one map wasnot a reproduction of the other.The same could be said of the gridand the Rules.


Copyright

96

KNYSNA HOTEL CC v COETZEE N.O.

A JUDGMENT BY EKSTEEN JA(FH GROSSKOPF JA, NIENABERJA, OLIVIER JA and VANCOLLER AJA concurring)SUPREME COURT OF APPEAL1 DECEMBER 1997

1998 (2) SA 743 (A)

When the registration of transferof property is effected formallycorrectly in terms of the DeedsRegistries Act (no 47 of 1937)prescription in respect of anyclaim then subsisting in favour ofone of the parties to thattransaction begins to run asagainst the other party from dateof transfer. This will be so evenwhere the transfer itself is fatallydefective as at date of transfer.

THE FACTSCoetzee, the trustee in the

insolvent estate of Mr P CBarnard, sold fixed propertywhich formed part of the insol-vent estate, to Knysna Hotel CC.Barnard was then divorced,having been married in commu-nity of property. The propertywas however, transferred toKnysna Hotel after Coetzeeaverred that he was also thetrustee of Barnard’s wife’s insol-vent estate and that that marriagecontinued to subsist. The sale tookplace in August 1990, and thetransfer was effected in September1990. Clause 8 of the sale agree-ment provided that with effectfrom registration of transfer, allthe benefits and risks of owner-ship of the property would pass tothe purchaser.

The trustee of Barnard’s wife’sinsolvent estate brought an actionagainst Coetzee for rectification ofthe registration of transfer of theproperty. This action was settledin May 1993 with an undertakingby Coetzee to pay the net value ofMrs Barnard’s half share in theproperty.

In August 1994, Coetzee claimedfrom Knysna Hotel payment ofthe balance outstanding of thepurchase price, an amount of R80163,71. Knysna Hotel raised thespecial plea that the claim hadprescribed in terms of the Pre-scription Act (no 68 of 1969) threeyears after September 1990, whenthe debt had become due upontransfer of the property. Coetzeecontended that because the trusteeof Mrs Barnard’s insolvent estatehad not consented to the transfer,the transfer had been fatallydefective at that date, and hadonly become effective in May 1993when Mrs Barnard’s trustee hadratified it. He contended thatprescription began to run fromthis date and not September 1990.

THE DECISIONFormally, the transfer to Knysna

Hotel was in order. Coetzee haddone everything which wasrequired of him in terms of theagreement of sale, his obligationbeing merely to register theproperty in the name of KnsynaHotel. In terms of our system ofproperty law, such a registrationof transfer could be contested ongrounds such as prescription, anddid not constitute irrebutableproof that the transferor was theproperty owner. Coetzee wasrequired to do no more than hehad undertaken to do in theagreement of sale, ie registertransfer of the property in thename of Knysna Hotel, not trans-fer ownership of the property to it,and had done so. It could not besaid that clause 8 imposed theobligation to transfer ownershipof the property to Knysna Hotel.

Section 20 of the Deeds Regis-tries Act (no 47 of 1937) providesthat deeds of transfer shall beexecuted by the owner of the landdescribed therein or a convey-ancer authorised to act on behalfof the owner. This provisionhowever, does not mean that theonly person who can confer thepower to register transfer of theproeprty is the registered ownerof the property. Section 102(1) ofthe Act includes in the definitionof ‘owner’ the trustee in an insol-vent estate. The effect of section 20is therefore that in the executionof a deed of transfer, only theowner’s participation is required.It could not be said that thesection had not been compliedwith, thereby rendering thetransfer defective.

All of the formalities for transferhad been complied with andaccepted by the Registrar ofDeeds, and transfer was thereaftereffected by the Registrar. Whilethat transfer might have beencontestable, it remained a validregistration until set aside by anorder of court. That transfer hadtaken place in September 1990.Coetzee’s claim had prescribed.

Prescription

97

LAVERS v HEIN & FAR BK

A JUDGMENT BY HEFER JA(EKSTEEN JA, HOWIE JA,SCHUTZ J and FARLAM AJAconcurring)SUPREME COURT OF APPEAL25 MARCH 1998

1998 (3) SA 195 (A)

Prescription begins to run inrespect of a debt when the creditorknows that the debt exists andknows the identity of its debtor,even if the identity of a partyholding rights to an item relevantto the debt, such as the owner ofthe item, is not known to thecreditor at that point.

THE FACTSIn March 1988, Hein & Far BK

purchased a motor vehicle fromLavers. In May 1988, acting interms of section 20(a) of theCriminal Procedure Act (no 51 of1977), the police took the vehicleinto their custody. In November1988, the police informed Hein &Far that the true owner of thevehicle had identified the vehicleas its vehicle and that the vehiclewould be returned to it. After thepolice had conducted furtherinvestigations in order to identifythe person who had sold thevehicle to Lavers, they returnedthe vehicle to the true owner inJanuary 1992. The police theninformed Hein & Far who the trueowner was and of the fact that thevehicle had been returned to it.

In July 1992, Hein & Far broughtan action against Lavers forrepayment of the purchase price.Lavers defended the action interalia on the grounds that the actionhad prescribed in terms of thePrescription Act (no 68 of 1969)three years after May 1988. Hein& Far contended that prescriptionhad not run from this date be-cause from this date, the debt hadnot been due. Section 12(3) of thePrescription Act provides that adebt is not due before the creditorhas knowledge of the identity ofthe debtor and the facts fromwhich the debt arises, providedthat a creditor will be consideredto have had such knowledge if hecould have obtained such knowl-edge through the exercise ofreasonable care.

THE DECISIONAfter the police took the vehicle

into their custody, they wereobliged (in terms of the CriminalProcedure Act) to return it to theperson from who they removed itif that person was lawfully enti-tled to possession of the vehicle.Because no-on is lawfully entitledto possession of stolen goods,Hein & Far could not contend thatthe police were obliged to returnthe vehicle to them after it hadbeen taken into their custody.Prescription would thereforebegin to run not from the date onwhich Hein & Far was dispos-sessed, but from the date onwhich it became clear that thevehicle would not be returned toit.

In November 1988, the policeinformed Hein & Far that thevehicle would not be returned toit. In the light of the fact that thevehicle had been stolen andwould not be returned to Hein &Far, it followed that prescriptionbegan to run against the corpora-tion from that point. The period ofprescription had run before Hein& Far brought its action againstLavers. The action was thereforedismissed.

Prescription

98

WARD v SMIT

A JUDGMENT BY SCOTT JA(MAHOMED CJ, EKSTEEN JA,ZULMAN JA and STREICHER JAconcurring)SUPREME COURT OF APPEAL23 MARCH 1998

1998 (3) SA 175 (A)

A South African can may orderthat an external company bewound up locally and appoint aliquidator to wind up thecompany, when that company hasbeen placed in liquidation in itscountry of incorporation.

THE FACTSZambia Airways Corporation

Ltd was incorporated in Zambiaand registered in South Africa asan external company. The com-pany was voluntarily wound upin Zambia, and Ward and thesecond appellant were appointedthe liquidators.

The following month, an applica-tion for the winding up of thecompany was brought in Johan-nesburg in terms of section 344(g)of the Companies Act (no 61 of1973). The application wasgranted, and Smit and the secondrespondent were appointedliquidators.

Six months later, Ward and thesecond appellant applied for anorder recognising the appellant’sappointment as liquidators of thecompany and declaring themempowered to administer theSouth African estate of the com-pany in accordance with theInsolvency Act (no 24 of 1936) andthe Companies Act. They alsosought an order authorising themto transfer any surplus assets fromSouth Africa with the consent ofthe Master and setting aside theorders of liquidation of the com-pany granted in South Africa.

The application was dismissed.Ward and the second appellantappealed.

THE DECISIONThe appointment of a liquidator

to an external company in itscountry of incorporation does notempower the liquidator to dealwith the assets of the companyoutside of that country. However,as a matter of comity and conven-ience, such a liquidator’s appoint-ment may be recognised outsideof that country upon an order tothat effect being granted by a

court in its discretion.In the present case, Ward might

have been entitled to such anorder had he acted timeously.However, by the time the localapplication for liquidation waslaunched, six weeks had passed,and the company had ceased todo business in this country. Thefinal order was granted withoutopposition, despite the provi-sional order having been servedon the appellants.

The appellants sought to dependon section 354(1) of the Compa-nies Act which provides that acourt may on the application ofthe liquidator, make an orderstaying or setting aside the con-tinuance of a voluntary windingup. The section requires that it beshown that there are special orexceptional circumstances whichjustify the setting aside of thewinding up order, and that therebe a satisfactory explanation ofwhy there was no opposition tothe granting of the final order orappeal against it. The appellantshad shown no special or excep-tional circumstances and hadgiven no explanation.

The appellants contended thatsection 344(g) did not apply to anexternal company which is subjectto winding up in its country ofincorporation. Section 344(g)provides that an external com-pany may be wound up if thecompany is dissolved in thecompany in which it was incorpo-rated. Assuming that ‘dissolved’meant ‘existence terminated’, aSouth African court had jurisdic-tion to order the liquidation of thecompany in terms of this section.The court a quo had so exercisedits discretion and there were nogrounds to overturn its order.

The appeal failed.

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STANDARD BANK OF SA LTD vONEANATE INVESTMENTS (PTY) LTD

A JUDGMENT BY ZULMAN JA(MAHOMED CJ, VANHEERDEN DCJ, HARMS JA andPLEWMAN JA concurring)SUPREME COURT OF APPEAL14 NOVEMBER 1997

1998 CLR 85 (A)

Where a bank makes a mistake inits entries to a customer’saccount, it is entitled to reversethe entries where the reversalmore accurately accords with theunderlying transactions.Prescription in respect of a debtdue to a creditor is interrupted bythe issue of a summons in whichthe creditor sets out its cause ofaction; a later amendment to thesummons in which further detailsof how the debt arose are set outdoes not nullify the interruption.A bank is entitled to capitaliseinterest charged against to a loan,but this does not mean that theinterest so added to the capitalsum loses its identity as interest.

THE FACTSIn February 1988, Standard Bank

of SA Ltd agreed to lend OneanateInvestments (Pty) Ltd R1,2m byway of an overdraft facility. Inthat month, the bank advancedR1,2m to Oneanate in two pay-ments, debiting its account in thatsum.

In the same month, Onenanteand another party sold to JH andKI Lurie shares in Agserv Ltd.Oneanate’s controller, G Lubner,introduced the Luries to the bank,and informed the bank of theshare-sale agreement. The bankopened an account in the name ofMooi River Vally Farm (Pty) Ltdfor the Luries, and afforded it anoverdraft facility of R600 000.

In May 1988, Lubner instructedthe manager of the bank’s branchwhere Oneanate kept its accountto debit the Mooi River account,and credit Oneanate’s accountwith R600 000. The bank did so. InJuly 1988, it reversed the transfer,on the grounds that it had had noauthority to make the initialtransfer.

Between January 1989 and April1990, the bank passed threefurther debits to Oneanate’saccount, being three furtheradvances to Oneanate. WhileOneanate continued its accountwith the bank, it calculatedinterest on the daily balance of theaccount, and added the amount socalculated to be due at monthlyintervals to the balance of theaccount. Deposits made to theaccount were deducted from thebalance as and when the depositswere made.

In November 1990, the bankissued summons against Onenatefor payment of R1 011 010,65being the balance due in conse-quence of the R1,2m advanced inFebruary 1988. In June 1993, thesummons was amended byalleging that pursuant to theparties’ agreement of February

1988, the bank had lent toOnenanate on different dates,different amounts.

Oneanate defended the action onthe grounds that even if theR600 000 credit which had beenpassed to its account in May 1988had been done in error, the bankwas not entitled to reverse thetransfer, but was obliged to bringan action against Oneanate forrecovery based on a claim ofunjustified enrichment. Oneanatealso raised the special plea that inrespect of the three advancesmade between January 1989 andApril 1990, prescription had runbefore the bank’s claim for repay-ment of them—as set out in itsamendment of June 1993—wasinstituted. Oneanate also con-tended that in any event, the bankhad not been entitled to capitalisethe interest which had beencharged against the principaldebt, and should have appropri-ated payments made into theaccount firstly to the earliest debtsarising in the account, howsoeverarising.

THE DECISIONReversal of the Credit Entry

Even if it could be said that thebank’s manager had made amistake in crediting Oneanate’saccount and debiting Mooi River’saccount in May 1988, it wasobvious from the conduct of theparties that the credit to theOneanate account was conditionalupon a recognition of the corre-sponding debit to the Mooi Riveraccount. Once it became clear thatMooi River did not recognise thedebit from its account, there couldhave been no payment by it toOneanate, and consequently nopayment by Oneanate to the bank.

The entries in the bank’s books ofaccount were in themselvesmerely prima facie evidence of thetransactions which they recorded,but it was still possible that those

Banking

100

underlying transactions were notwhat those entries might havesuggested. The fact that the entriesin the bank’s accounts showedthat Oneanate’s account had beencredited with R600 000 thereforedid not prove uncontrovertiblythat it had extinguished its over-draft with the bank to that extent.

In the light of the underlyingtransactions, the bank had beenentitled to reverse the credit it hadmade to Oneanate’s account inMay 1988.Prescription

The summons which com-menced the bank’s action set outthe bank’s cause of action—aclaim for an amount due andpayable in respect of monies lentand advanced by way of over-draft. This set out sufficientparticularity for Oneanate to beaware of what was being claimed,and it was sufficiently clear for acourt to have decided whether ornot to grant judgment on it. Therewas no inconsistency betweenwhat the bank claimed in itsamendment of June 1993 andwhat it claimed in its initialsummons. It followed that theclaim as formulated in June 1993had been made when the sum-mons was first issued in Novem-ber 1990, in spite of the fact that ithad been made insufficiently orimperfectly at that stage. Prescrip-tion in respect of the three claims

made pursuant to the debtsarising between January 1989 andApril 1990 had therefore beeninterrupted by the issue of thesummons in November 1990. Thebank’s claim had not becomeprescribed.Capitalisation

The bank was under no duty toapply payments made into theOneanate account to the earliestdebts arising in the account.Payments made into the accountwere to be appropriated firstly tointerest charged by the bank onsums advanced by it, even if suchinterest arose later than anotherdebt becoming due fromOneanate to the bank, such as aloan made by way of an advancefrom the account. Provided thatthe bank abided this rule, itspractice of adding interest toOnenanate’s capital indebtednesswas unexceptional.

These conclusions did not implythat the practice of adding interestto the capital indebtedness hadthe effect of destroying the iden-tity of the interest so added.Capitalisation of interest meantsimply that the bank was entitledto charge interest on the sum ofthe capital and interest earlierincurred, but it did not mean thatthe interest earlier incurred lost itscharacter as interest. To allowsuch an implication to be drawnwould be to allow the bank to

avoid the in duplum rule, as wellas the provisions of the Prescrip-tion Act (no 68 of 1969) and theUsury Act (no 73 of 1968).Date from which interest was torun

A question that had to be de-cided was whether interest onOneanate’s debt ceased to run if,during the course of the litigation,it reached the same amount as thecapital sum, ie whether the induplum rule was to be appliedduring this period. Although therewas authority to the effect thatthis should happen, it was out ofkeeping with modern conceptionsof the financial significance ofinterest. The creditor can exercisea certain control over the progressof its litigation against a debtor,but cannot control delays whichmight become a part of suchlitigation. The in duplum rule istherefore suspended during thecourse of litigation by the creditoragainst the debtor. After judgmentis granted however, the induplum applies and interestcannot exceed the capital sumoutstanding in terms of a judg-ment.

The bank was entitled to theamount outstanding as at the dateof issue of summons (R987 612,03)plus interest thereon at the inter-est rate agreed between theparties.

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ABSA BANK LTD v DE KLERK

A JUDGMENT BY LEVESON JWITWATERSRAND LOCALDIVISION22 MAY 1998

1998 CLR 337 (W)

When a bank allows awithdrawal from an account inthe common but mistaken beliefthat there are funds in the accountto meet the withdrawal, thewithdrawal cannot be considereda loan, even if it later transpiresthat the funds in the account werenot available due to a depositedcheque having been dishonoured.The bank may however, claimrepayment of money sowithdrawn on the basis ofunjustified enrichment arisingfrom a mistake, common to theparties, that the deposited chequehad been cleared.

THE FACTSOn 29 November 1996, R376

178,70 was credited to De Klerk’saccount with Absa Bank Ltd as aresult of a deposit of a chequedrawn by a foreign bank in favourof De Klerk. De Klerk inquired ontwo occasions in December as towhether he could draw on thestrength of the cheque. On the firstoccasion, the branch manager ofthe bank informed De Klerk thathe could not do so; on the secondoccasion, he informed De Klerkthat he could do so. De Klerk thendrew a cheque for R376 178 andwithdrew this amount in cash. Hepaid the money so obtained to acreditor.

It later transpired that theforeign cheque had not been met.The bank then claimed paymentof R376 178 on the grounds that atthe time of the payment of thismoney, it had mistakenly thoughtthat the foreign cheque had beenmet and there were funds to coverthe withdrawal. An alternativebasis for its claim was that interms of the contract between theparties, the bank was entitled todebit De Klerk’s account when-ever a cheque was dishonoured,and recover any outstandingamount from him.

De Klerk defended the bank’saction to enforce its claim on thegrounds that the bank wasestopped from making its claimbecause De Klerk had relied onthe bank’s advice that the foreigncheque had been cleared whenwithdrawing the funds andpaying them to a third party.

THE DECISIONWhen De Klerk drew the money

from his account, he did so in thebelief that there were sufficientfunds to enable the withdrawal.He was therefore not requesting aloan, nor did the bank considerthe withdrawal as, in effect, aloan. The basis of the bank’s claimcould therefore not be that itclaimed repayment of a loan.

The only possible basis of itsclaim was that it sought repay-ment of an amount paid bymistake, ie unjustified enrichmentas formulated in the condictioindebiti. The evidence showedthat the bank had indeed paid themoney to De Klerk by mistake,both it and he mistakenly thinkingthat the foreign cheque had beenmet. That claim therefore had tosucceed, unless the defence ofestoppel was good.

The defence of estoppel, de-pended on showing that the bankhad been negligent in informingDe Klerk that he could withdrawfrom his account. However, therewas no evidence that the bank hadbeen negligent. This defencetherefore could not prevail againstthe bank’s claim. De Klerk had, inany event, not shown that he hadrelied on the bank’s advice to hisprejudice. De Klerk had used themoney to pay a debt. Havingextinguished one debt and raisedanother in the same amount, hehad lost nothing.


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OWNERS OF THE CARGO LATELY LADEN ONBOARD THE MT CAPE SPIRIT v MT CAPE SPIRIT

A JUDGMENT BY LEVINSOHN JDURBAN AND COAST LOCALDIVISION28 NOVEMBER 1997

1998 (2) SA 952 (D)

An action may lapse in terms ofsection 3(10)(a)(ii) of theAdmiralty JurisdictionRegulation Act (no 105 of 1983)within one year of thecommencement of action, whereproperty has actually beenarrested in order to begin theaction.

THE FACTSOn 18 January 1995, MT Cape

Spirit was arrested following theissue of a warrant at the instanceof the plaintiffs. Letters of under-taking were furnished and secu-rity was established for the releaseof the ship. The ship sailed toRichards Bay, and in February1995, it was released.

In February 1997, the plaintiffsbegan an action in rem against theship. The defendant objected tothe continuation of proceedingson the grounds that the securityput up and the issue of the actionin rem had lapsed in terms ofsection 3(10)(a)(ii) of the Admi-ralty Jurisdiction Regulation Act(no 105 of 1983). The sectionprovides that an admiralty actionshall lapse if process is not servedwithin 12 months of issue thereof,or if property deemed to havebeen arrested and attached isreleased and discharged becauseno further step in the proceedingshas been taken within one year ofthe giving of the security orundertaking.

The defendant contended thatthe reference to property beingdeemed to have been arrested wasnot a reference to circumstances

Shipping

where property had in fact beenarrested and attached, but areference to circumstances whereproperty had not been arrestedand attached. Since in the presentcase, the ship had in fact beenarrested, the deeming provisionwas not applicable and the admi-ralty action therefore had notlapsed.

THE DECISIONThe words ‘deemed to have been

arrested’ in section 3(10)(a)(ii)cover the situation where securityhas been given to prevent thearrest of property or to obtain therelease of property. In either case,property is deemed to have beenarrested and the consequences arethe same as if the property hasactually been arrested. There istherefore no reason to distinguishbetween the situation whereproperty has actually been ar-rested and the situation where it isdeemed to have been arrested.

There being no reason to distin-guish the actual arrest of propertyfrom the deemed arrest of prop-erty, the action commenced by theplaintiff lapsed one year after thefurnishing of security in 1995, ashad the security furnished by it.

103

TERBLANCHE N.O. v BAXTRANS CC

A JUDGMENT BY SELIKOWITZ JCAPE OF GOOD HOPE PROVIN-CIAL DIVISION3 FEBRUARY 1998

1998 (3) SA 912 (C)

An action under section 26 of theInsolvency Act (no 24 of 1936)may allege that value wasreceived in respect of a dispositionreferred to in that section butshould allege that such value wasso nominal or illusory as toamount to no value at all.

THE FACTSMalo Transport CC was placed

under a final liquidation order inMay 1994. Terblanche was ap-pointed the liquidator. He broughtan action against Baxtrans CCalleging that in November 1993,Baxtrans had agreed with Malothat it would take delivery ofcertain tractors and trailers inreturn for payment of a purchaseprice equal to the amount owingto two hire-purchase creditors,Boland Bank Ltd and Nedfin BankLtd, and an amount allocated toanother party. The banks hadfinanced the assets for Malo,reserving ownership to them-selves in terms of the hire-pur-chase agreements. The agreementbetween Malo and Baxtransprovided that ownership of theassets would be transferred to thesecond defendant against pay-ment of the purchase price.

Terblanche further alleged thatthe assets were transferred toBaxtrans and that Baxtrans en-tered into a financing agreementwith the second defendant interms of which the second defend-ant paid the balances outstandingto the two banks, then totallingR383 539, and R116 460 allocatedto the other party. It then tooktransfer of ownership of theassets.

Terblanche alleged that at thetime of the transfer of the assets,their value was not less thanR1 276 000 and that the only valuereceived for them was the pay-ment made in settlement of thebalances outstanding to the twobanks. He alleged that the transferof ownership constituted a dispo-sition without value within themeaning of section 26 of theInsolvency Act (no 24 of 1936) andthat the second defendant col-luded with Malo in regard to thealleged disposition of Malo’sassets. He brought an action for anorder setting aside the allegeddisposition.

Baxtrans and the second defend-ant excepted to the claim on thegrounds that whereas section 26requires that the disposition be‘not made for value’, Terblanchehad alleged that some value hadbeen received. A second groundof exception was that the allega-tions made by Terblanche did notspecify to whom the purchaseprice of the assets was to be paid.

THE DECISIONThe ‘value’ referred to in section

26 need not be a monetary ortangible asset but can be equiva-lent to some benefit. In applyingthe section, the test is whether ornot any value at all has beengiven. The section could applywhere no value has been given, orwhere inadequate value has beengiven in the sense that what wasgiven was either illusory ornominal. It would not however,apply merely because what wasgiven was less than the true valueof the asset. Nor would it applyonly when there is a total absenceof value.

The section would apply wherewhat was given was given wasillusory or nominal and thereforeamounted to no value at all. Therewas however, no allegation in thepresent case that this was so, northat the value received was to betreated as equivalent to no valueat all.

The first exception was upheld. As far as the second exception

was concerned, because theallegation that payment of thepurchase price had omitted tostate to whom the payment wouldbe made, it was unclear how Malowas to obtain ownership of theassets prior to the second defend-ant acquiring ownership. Thesecond exception was also upheld.

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InsolvencyBEINASH & CO v NATHAN (STANDARDBANK OF SA LTD INTERVENING)

A JUDGMENT BY FLEMMINGDJPWITWATERSRAND LOCALDIVISION14 NOVEMBER 1997

1998 (3) SA 540 (W)

Whereas a court may becircumspect in assessing theevidence adduced in support of anapplication for sequestrationwhere the application is a‘friendly’ sequestration, it cannotinfer that there is collusionbetween applicant and respondentwithout evidence of collusion andmust grant the application wherethe requirements for theapplication have been satisfied.

THE FACTS Beinash & Co brought an appli-cation for the provisional seques-tration of Nathan’s estate. Italleged that Nathan was indebtedto it in the sum of R6 000 arisingfrom accounting services havingbeen rendered to him, and thatNathan had stated in a letter thathe was unable to pay the firm orany of his creditors.

The Standard Bank of SA Ltdwas also a creditor of Nathan. Itcontended that the applicationwas a ‘friendly’ sequestration andhad to be assessed with circum-spection. When so assessed, thebank contended that it wassignificant that a balance sheetfurnished in support of the appli-cation failed to disclose assets—three motor vehicles—whichformed part of Nathan’s estate.The balance sheet was given byNathan in response to a requestfor it from Beinash & Co but theexistence of the assets wasbrought to light in the course ofthe application proceedings.

The bank also contended thatbecause its claim and that ofanother creditor represented thegreater portion of Nathan’s debts,the advantage to creditors wouldbe better served by the enforce-ment procedures of the magis-trates’ court.

The bank opposed the applica-tion.

THE DECISIONThe mere fact that an applicant

in sequestration proceedingswishes to assist the respondent isnot a reason to conclude that thereis collusion between the applicantand the respondent. When facedwith a ‘friendly’ sequestration, acourt may be circumspect becauseof the risk of collusion, but itcannot simply dismiss the applica-tion on the grounds that theapplication is nothing other thanan application for voluntarysurrender.

A court may consider whether ornot the claim alleged by thecreditor in a ‘friendly’ sequestra-tion is real, and may requirefurther evidence of the claim. Itmay refuse an extension of thereturn day where there is inad-equate evidence that this shouldbe granted. And it may scrutinisethe allegation that there is advan-tage to creditors in granting theapplication.

In the present case, the failure todisclose the relevant assets inNathan’s balance sheet was notbrought about by the applicant.Proper disclosure had eventuallybeen made, in any event. Thebank’s contention that there wereinsufficient assets to achieve anon-negligble dividend was amatter that could be dealt with onthe return day. As far as thecontention that the enforcementprocedures of the magistrates’court were more appropriate wasconcerned, the bank was in effectasking for preferential treat-ment—the court however, had tolook to the interests of the generalbody of creditors and should notallow the enforcement proceduresto be chosen by majority vote.


105

DE LANGE v SMUTS N.O.

A JUDGMENT BY ACKERMANN J(CHASKALSON P, LANGA DP,MADALA J, DIDCOTT J,KRIEGLER J, O’REGAN J andSACHS J concurring, MOKGORO Jdissenting)CONSTITUTIONAL COURT28 MAY 1998

1998 (3) SA 785 (CC)

Section 66(3) of the InsolvencyAct (no 24 of 1936) isconstitutionally invalid to theextent that section it authorises apresiding officer who is not amagistrate to issue a warrantcommitting to prison an examineeat a creditors’ meeting.

THE FACTSDe Lange was the only member

of three close corporations whichhad been wound up. At a meetingof creditors, an application wasmade for his committal to prisonon the grounds that he had failedto produce books and documentswhich he had been ordered toproduce, and that he had failed toanswer fully and satisfactorilyquestions which had been law-fully put to him.

The provision under which itwas contended he had beenobliged to do these things wassection 66(3) of the Insolvency Act(no 24 of 1936). The sectionprovides that if a person sum-moned to an interrogation underthe Act fails to produce any bookor document which he wasordered to produce or refuses toanswer any question lawfully putto him, the presiding officer at theenquiry may issue a warrantcommitting the person to prisonwhere he shall be detained untilhe has undertaken to do what isrequired of him.

The presiding officer, Smuts,granted the application. De Langeundertook to do what was re-quired of him, and the warrant forhis arrest and detention wassuspended. De Lange thenbrought an application reviewingthe decision to commit him toprison and seeking an order thatsection 66(3) of the Insolvency Actwas unconstitutional.

In the Cape of Good HopeProvincial Division, the sectionwas declared to be constitution-ally invalid and that order wasreferred to the ConstitutionalCourt for confirmation.

THE DECISIONSection 12(1) of the Constitution

provides that everyone has theright to freedom and security ofthe person, including the right notto be deprived of freedom arbi-

trarily or without just cause andnot to be detained without trial.This confers on the individual theright to freedom when there hasbeen either a deviation fromprocedural requirements or adenial of substantive rights. Thequestion was whether section66(3) deviated from this or not.

Section 66(3) was enacted inorder to ensure that the legitimategoals of the insolvency laws areachieved and creditors protected.The purpose of the section is toassist in determining what assetsare in an insolvent estate, whathas happened to them and inrecovering them. The publicinterest is served by compellingthe furnishing of informationaimed at achieving this purpose.

Section 12(1) of the Constitutionwas to be applied upon thisunderstanding of the section. Thesection requires that there be nodeprivation of freedom without afair trial. This means that thehearing at which the order ismade depriving the person of hisfreedom be presided over by ajudicial officer in the court struc-ture established by the Constitu-tion. The presiding officer mustpossess the judicial independencerequired for the discharge of ajudicial function in a constitu-tional democracy. He may there-fore not be an officer in the publicservice answerable to higherofficials in the executive branch ofgovernment. To the extent thatsection 66(3) allows such a personto deprive a person of his liberty,the section is unconstitutional. Aperson who is not a magistratemay therefore not properly orderthe committal of a person toprison under the authority of thissection. A magistrate may do so,even if in doing so he derives hisauthority from the Insolvency Actitself, since when doing so he actsin a judicial capacity and not anadministrative capacity.

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The section is also inconsistentwith the Constitution in that ithad not been shown that it did notoffend section 36(1) by limitingthe rights conferred in the Bill ofRights in a manner which was

reasonable and justifiable in anopen and democratic societybased on human dignity, equalityand freedom.

To the extent that section 66(3)authorised a presiding officer who

was not a magistrate to issue awarrant committing to prison anexaminee at a creditors’ meetingheld under section 65, the sectionwas constitutionally invalid.

ABSA BANK LTD v MASTER OF THE SUPREME COURT

JUDGMENT BY MARNEWICK AJ(NICHOLSON J andCOMBRINCK J concurring)NATAL PROVINCIAL DIVISION28 APRIL 1998

[1998] 3 All SA 189 (N)

Whereas an incorrect claimsubmitted in an insolvent estatemay be corrected at a later stage,the mere fact that the claim issubmitted under a mistakenconception of the law isinsufficient reason to hold thatthe claim so submitted is anincorrect claim. A secured creditorwhich relies solely on themortgage bond for the satisfactionof its claim against the insolventestate waives its right toparticipate in the proceeds of anyasset which becomes available fordistribution amongst unsecuredcreditors.

THE FACTSUnited Bank, a division of Absa

Bank Ltd, lent money to DPFProperties (Pty) Ltd. The debtamounted to R2 645 000 by 24April 1992 when a final windingup order was granted against thecompany. The bank had been thepetitioning creditor in the applica-tion to wind up.

The debt was secured by amortgage bond but the bank’sclaim exceeded the value of theproperty secured by this bond.When the bank submitted anaffidavit in proof of its claim tothe liquidator, it stated that itrelied solely on the mortgagebond for the satisfaction of itsclaim against the insolvent estate.The bank official who made thisaffirmation on behalf of othe bankdid so in accordance with astanding instruction that if therewas a danger of a contribution tothe costs of winding up, theaffidavit in proof of claim was tomake it clear that the bank reliedsolely on its security for its claim.This instruction had been givenbecause of section 89(2) of theInsolvency Act (no 24 of 1936)which provides that if a securedcreditor (other than a securedcreditor upon whose petition theestate has been sequestrated)

states in its affidavit in support ofits claim that it relies for thesatisfaction of its claim solely onthe proceeds of the propertyconstituting its security, it will notbe liable for the costs of sequestra-tion other than certain specifiedcosts.

After the affidavit had beenprepared in accordance with astandard policy laid down by thebank and it must have been awarethat implementation of that policymeant that the balance of its claimwould be abandoned. If the bankthought that in return for aban-doning its claim to that extent itwould enjoy an immunity fromthe costs of winding up, it waswrong, but this did not make itsclaim incorrect. The intention ofsection 89(2) was to ensure thatthe burden of a contribution fellon those creditors in whoseinterests costs were being incurredin the administration of the estate,and not to offer the immunitythought to be available to thesecured creditor who abandons itsclaim to payment out of unse-cured assets in the estate.

The claim as submitted expresslyabandoned the bank’s right toparticipate in the residue of theestate. This might have been doneas a result of an error of law—the

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107

bank being the petitioning creditor,it could not enjoy the immunityoffered by section 89(2) in anyevent—but a mere error of motive,as opposed to a fundamentalmistake, would not be sufficient tovitiate a waiver of its rights. Itappeared however, that the bankhad waived its rights. Waiver,being a unilateral act, it can beeffected by a deliberate intention toabandon rights whether affected by

a misunderstanding or not.Even if the bank mistakenly

thought it was protecting itselffrom the danger of having tomake a contribution to the costs ofthe liquidation, this did not affectits clear abandonment of its rightswhen it stated in its affidavit thatit relied solely on its security forthe satisfaction of its claim. Itsmistake was one of motive and itswaiver was unaffected by this

mistake. Once it indicated that ithad waived its rights in thismanner, the other creditorsdecided to try to recover the assetthey believed might be availableto them. They might not havedecided to do so, had they knownthat the bank might participate inthe asset so obtained withouthaving shared the risk of notobtaining it.

The application was refused.

Insolvency

FIRST NATIONAL BANK OF SA LTD v COOPER N.O.

A JUDGMENT BY ROUX JWITWATERSRAND LOCALDIVISION14 NOVEMBER 1997

1998 (3) SA 894 (W)

A trustee of an insolvent estate’srole as trustee ends when theliquidation and distributionaccount is confirmed by theMaster. Should the trustee wish toact again after that point, he mustapply to the court for leave to doso.

THE FACTSThe second respondent was

finally sequestrated on 18 August1992 and Cooper was appointedhis trustee. Cooper decided thatthe second respondent’s half-share in a certain property had nofinancial value and he thereforeomitted it from the liquidationand distribution account. Thataccount was confirmed by theMaster. No dividend was payableto creditors, and the only creditorwhich proved a claim, Absa BankLtd, was required to pay a contri-bution.

In 1996, the second respondentwas rehabilitated. Cooper thenrequested First National Bank,which was then in possession ofthe title deeds relating to theproperty, to forward them to him.Later, he obtained a search war-rant requiring surrender to thetitle deeds.

The bank applied for the suspen-sion of the warrant, contendingthat Cooper no longer had theright to act as trustee.

THE DECISIONSection 112 of the Insolvency Act

(no 24 of 1936) provides that afterthe Master has confirmed anaccount, the confirmation will befinal, save against a person whomay have been permitted by thecourt before any dividend hasbeen paid to reopen it. This meansthat the matters dealt with in theaccount are finally disposed ofand the account cannot be reo-pened. The effect of this is that therole of the trustee is also disposedof and ended when the liquidationand distribution account is con-firmed. Should he wish to actagain, he must have the leave ofthe court to do so, as provided forin section 112.

Cooper had not applied to thecourt for leave to act again. Hewas therefore not empowered toact as trustee and require surren-der of the title deeds. The applica-tion was granted.

108

PARUK v GLENVAAL DEWAR RAND NATAL (PTY) LTD

A JUDGMENT BY LEVINSOHN J(HOWARD JP and McLAREN Jconcurring)NATAL PROVINCIAL DIVISION23 FEBRUARY 1998

UNREPORTED

Where an insurance broker hasbeen negligent in failing todisclose facts which are relevantto the risk an insurer is asked toaccept, the insurer’s laterrepudiation of the policy on thegrounds of a failure to disclosedoes not entitle the insured toclaim against the broker, wherethe insurance cover would nothave been given by any otherinsurer had proper disclosure beenmade.

THE FACTSWhen Paruk had been insured

by Mutual & Federal, he madeseveral claims under that policy.On 4th October 1993, Mutual &Federal gave thirty days notice ofits intention to cancel all policiesissued in his favour. Paruk thenattempted, through Dhooma, anemployee of Glenvaal DewarRand Natal (Pty) Ltd, to obtainnew insurances from S.A. Eagleand Protea Insurance. Bothcompanies declined to quote.

On 9th December 1993, GeneralAccident Insurance Co Ltd wasapproached. Through Dhooma’snegligence, it was not told ofParuk’s claims history, nor of thefact that SA Eagle and ProteaInsurance had declined to quote.If General Accident had beeninformed of Paruk’s claims historyand of Mutual & Federal’s cancel-lation of its insurance policieswith Paruk, it would not haveagreed to quote.

Paruk contended that if disclo-sure had been made to GeneralAccident, he would have obtainedinsurance cover from that com-pany and it would not haverepudiated a claim he subse-quently made following loss ofstock-in-trade in a fire. GeneralAccident repudiated on thegrounds that Paruk had failed tomake the disclosures regardinghis past claims history and the fact

Insurance

that the other insurance compa-nies had declined to quote. Parukbrought an action againstGlenvaal alleging damages as aresult of Dhooma’s negligence.

Underwriters from neither of theinsurance companies indicatedthat if they had been faced withthe truth about Paruk’s claimshistory and attempt to obtainother insurance, they would havedeclined to quote. Others statedthat they would have examinedthe request for cover more closelyand might have given cover oncesatisfied with further factors.

THE DECISIONParuk had to discharge the onus

of showing that he would haveconcluded an insurance contractwith another insurer. The evi-dence however, showed thatGeneral Accident would not haveaccepted the insurance risk inrelation to Paruk had it beeninformed of Paruk’s insurancetrack record. The evidenceshowed that five major insurerswould have refused to insure.

It followed that there was notcausative nexus between theadmitted negligence of Dhoomaand General Accident’s repudia-tion of the policy. If all the disclo-sures had been made, Parukwould not have succeeded inobtaining insurance.


109

BARNARD v PROTEA ASSURANCE CO LTD

A JUDGMENT BY KING JCAPE OF GOOD HOPE PROVIN-CIAL DIVISION27 JUNE 1997

1998 (3) SA 1063 (C)

An ambiguous term in aninsurance policy must beinterpreted liberally and in favourof the insured so as not to defeat aclaim to indemnity under thepolicy.

THE FACTSBarnard concluded a contract of

insurance with Protea AssuranceCo Ltd in terms of which Proteainsured Barnard’s life. An acci-dental benefit clause provided fora benefit to be payable to thebeneficiary, Barnard’s wife,provided that accidental deathwas not caused by, inter alia,active participation in skin diving.Permanent total disablementbenefit cover excluded deaththrough scuba diving.

While the policy was in force,Barnard enrolled on a scuba-diving course. He participated inan exercise which required that heundertake a breathhold dive, iedescend below the surface of thesea, obtain a fist full of sand andresurface. He was wearing adiving suit, a weight belt and amask, but not a snorkel or buoy-ancy compensator. He descendedbelow the surface but did notresurface. It was discovered thathe had died by asphyxiation as aresult of drowning.

Barnard’s widow claimed

against Protea under the policy ofinsurance but Protea repudiatedon the grounds that Barnard hadbeen participating in skin divingas referred to in the policy.

THE DECISIONThe policy recognised a distinc-

tion between scuba diving andskin diving. The former involvesthe use of air from an outsidesource and the latter the use of asnorkel. The use of the words‘skin diving’ in the policy mighthave been ambiguous, but thisdistinction gave some indicationof the intended meaning of thewords.

The policy had not intended toexclude every activity involvingrisk. In including skin diving, ittherefore did not include anactivity which involved merely abreathhold dive. This was not anactivity which required the use ofa snorkel and so could not beconsidered skin diving. The use ofa snorkel is necessarily involvedin the activity of skin diving.


POLVERINI v GENERAL ACCIDENT INSURANCE CO SA LTD

A JUDGMENT BY HORWITZ AJWITWATERSRAND LOCALDIVISION18 NOVEMBER 1997

1998 (3) SA 546 (W)

An insurer may not vary aninsurance contract by insistingthat a payment in settlement of aclaim be accepted in fullsettlement of the claim where theinsured disputes the quantum ofthe offer made by the insurer.

THE FACTSGeneral Accident Insurance Co

SA Ltd insured Polverini’s prop-erty against damage. The propertywas extensively damaged by fireand Polverini submitted a claimfor the cost of repairs amountingto R120 168,40.

General Accident applied aver-age to the claim, alleging that theproperty had been underinsured,and offered R101 931,53 in settle-ment. In making the offer, itrequired that Polverini sign an

agreement of loss in that amountin full and final settlement of hisclaim.

Polverini claimed payment of thefull amount of R120 168,40. Hebrought an application for pay-ment of the admitted amount ofR101 931,53 reserving his right toclaim the balance in a separateaction in the magistrates’ court.

THE DECISIONPolverini could not in motion

proceedings claim the full amount

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110

which it contended was owed toit, since the dispute between theparties could not be resolvedwithout leading evidence, aprocedure inappropriate inmotion proceedings. The questionwhich remained was whether hecould claim the balance. In respectof this amount, General Accidentwas liable to Polverini, havingadmitted liability in its offer ofsettlement.

Polverini was however, notentitled to claim payment of aportion of a debt which it was

admitted was owed to him whilereserving his right to claim thebalance in different proceedings.General Accident’s acceptance ofliability did not give Polverini acause of action against GeneralAccdient which was independentof his cause of action against itbased on the insurance contractthe two parties had entered into.Any assertion of his right topayment depended on the sameoriginal cause of action and couldnot therefore be separated into

two for the purposes of enforce-ment.

Since there would be disputesbetween the parties in any legalproceedings for such enforcement,the appropriate procedure wouldbe to institute an action and not anapplication. Having done so,Polverini would be able to bringan application for immediatepayment of the amount admit-tedly due. The matter was there-fore postponed in order to affordPolverinin the opportunity to dothis.

Insurance

I do not know of any provision of law which entitles aparty who has made an unqualified and uncondi-tional admission of liablity toward another party toclaim that the admission cannot be used against thefirst-mentioned party.

111

BECK v PREMIER, WESTERN CAPE

A JUDGMENT BY ROSE-INNES JCAPE OF GOOD HOPE PROVIN-CIAL DIVISION12 DECEMBER 1996

1998 (3) SA 487 (C)

A removal of restrictions on atitle deed effected under theRemoval of Restrictions Act (no84 of 1967) will be invalid whereproper notification of the removalhas not been effected prior to theremoval

THE FACTSMr E Diekmann owned erf 1483,

Vredehoek, in Cape Town. Theholding title contained the restric-tive conditions that the propertywas not to be subdivided and thatno more than one dwellingtogether with outbuildings andappurtenances was to be erectedon the erf and no more than halfthe area of the erf was to be builtupon. These restrictions had beenimposed on the property in 1936by the Administrator of the CapeProvince under the TownshipsOrdinance (no 13 of 1927).

On 19 May 1995, Diekmannapplied for the removal of therestrictions. In the application, thepurpose of the removal was statedto be the erection of townhouses,and the reason for the removalthat this would bring the titledeed into line with the zoning (ofgeneral residential) by the localauthority. Objections to theapplication were lodged byinterested parties, after notice ofthe application had been given tothem. The City Planner, however,supported the application andsubmitted a report to the UrbanPlanning Committee of the localauthority expressing its reasonsfor supporting the application.The report contained inaccuraciesregarding the zoning of theproperty and those affected by it,as well as regarding the nature ofthe neighbouring properties. Theobjectors were not given sight ofthe report. The Urban PlanningCommittee was presented with adraft plan showing a two-storeydevelopment proposed for theproperty. The Urban PlanningCommittee supported the devel-opment proposal and adopted therecommendation of the CityPlanner. It resolved that thePremier of the Western Cape beadvised that the Council sup-ported the removal of the titledeed restrictions.

When the application wasbrought before the Minister ofAgriculture, Planning and Tour-ism in the Western Cape, hisDirector-General requested thathe be furnished with a develop-ment plan. Such a plan wassubmitted to him. It showed abuilding accommodating a park-ing garage at floor level, threefloors of flats above that and afourth floor of flats with dormerwindows in the roof of the build-ing. In a report, the Administra-tive Head of the Minister’s depart-ment recommended the approvalof the plan. The report referred tothe objections which had beenbrought against the developmentand gave the answers to themwhich had been given by theapplicant in its responses beforethe Urban Planning Committee. Itrepeated the inaccuracies made bythe City Planner in its report tothe Urban Planning Committee.

On 29 March 1996, the restrictiveconditions were rescinded by anotice given in the ProvincialGazette, following a decision tothat effect given by the Minister.This was done in terms of section2(1) of the Removal of RestrictionsAct (no 84 of 1967).

After building operations began,Beck brought an applicationreviewing and setting aside theremoval of the restrictive condi-tions of title.

THE DECISIONThe purpose of notification of an

application such as that made byDiekmann was to inform inter-ested persons of the application,and give them an opportunity toascertain the extent to which theirrights might be affected by theapplication and then protect theirrights by making appropriateobjections to the applicant’sproposals. The question wastherefore whether this purposehad been served by the notifica-

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tion which was given.It was clear that the notification

that was given was of the pro-posal to construct townhouseswith two storeys, not flats havingfive floors. That notification wastherefore for something com-pletely different from what wasfinally approved, and as such itwas inadequate. It could not beaccepted that the notificationcould merely be that an applica-tion had been made, withoutdetail of the nature of the pro-posed development. The pre-scribed form required to becompleted in terms of the Actitself provided for a statement ofthe purpose for which the prop-erty would be used if the applica-tion was successful. Furthermore,since the exercise of the right toremove a title deed conditionmight affect the rights of others,they would be entitled to propernotice of the application. A properconsideration of the removal ofthe restrictive conditions wouldrequire full information of theproposed usage of the property.This means that an application forthe removal of such restrictionswould need to furnish such

information in order to inform theauthorities and the public of theextent to which this would affectthe neighbourhood and thepersons living there.

The respondents contended thatonce the removal of restrictionshad taken place, an applicant orhis successors in title coulddeviate from the developmentproposals submitted in order toachieve the removal. However,whether or not an applicant couldso deviate from the developmentproposals was irrelevant to thepresent inquiry which waswhether proper notification of theapplication had been given.Without proper notification, theapplication itself would have beenirregular and the very removal ofrestrictions improper–with theresult that the restrictions wouldhave remained effective as againstthe applicant and his successors intitle.

Since the application approvedby the Minister was different fromthat proposed by the applicantand considered by those to whomnotification was given, the Minis-ter’s decision to remove theconditions was irregular and had

to be set aside. Apart from thefailure of proper notification, theeffect was that the decision madeby the Minister was not madeafter proper compliance withprocedures, such as consideringnecessary recommendations,provided for in the Act, and thisrendered the decision ultra viresthe Act.

It was also clear that the Ministerdid not properly apply his mindto the application. He was notgiven sight of the application assubmitted to the Urban PlanningCommittee, and he had approvedthe removal subject to the condi-tion that the flats be erected, inspite of the fact that the Adminis-trative Head of the Minister’sdepartment had reported to himon the townhouse developmentproposals which had beenbrought before the Urban Plan-ning Committee.

There were also defects in thenotice in the Gazette giving noticeof the approval. This had beengiven incorrectly by the Premier,not the Minister, and had failed toindicate the conditions which hadbeen attached to the removal.

The application succeeded.

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NEW GARDEN CITIES INC v ADHIKARIE

A JUDGMENT BY ROSE-INNES JCAPE OF GOOD HOPE PROVIN-CIAL DIVISION20 FEBRUARY 1998

1998 (3) SA 626 (C)

The failure by a local authority toenforce zoning regulations maynot be understood as acquiescencein the contravention of suchregulations. A township ownerwhich is not permitted to insertconditions of title in respect ofproperties which it sells mayinsert conditions in theagreements of sale of suchproperties. Such insertedconditions may includerestrictions on the use to whichthe property may be put wherethis is in the interests of allproperty owners in the township.

THE FACTS New Garden Cities Inc appliedfor the establishment of a town-ship in Brackenfell, Western Cape.In approving the establishment ofthe township, the Administratorof the province recorded that noconditions of title could be im-posed by the owner in respect ofthe township. After approval forthe establishment of the township,Garden Cities sold erf 5411,Brackenfell, to Adhikarie. Clause13 of the sale agreement providedthat the property sold would beused for residential purposes onlyand for the housing of not morethan one family.

After building a garage on theproperty, Adhikarie started ageneral dealer’s shop where hesold groceries, cigarettes andconfectionary. New Garden Citiesaddressed a demand to Adhikariethat he stop trading from theproperty. In the same month,Adhikarie applied for a temporarydeparture from scheme regula-tions to enable him to operate ahouse shop from the property.The application was refused andAdhikarie appealed against thatrefusal.

Prior to the outcome ofAdhikarie’s application, NewGarden Citites brought an appli-cation for a final interdict restrain-ing Adhikarie from carrying onthe business on his property. Itbased its application on the termsof clause 13 of the sale agreement.Adhikarie opposed the applica-tion on the grounds that (i) thelocal authority had informallyapproved his trading because ithad not instructed him to ceasetrading, (ii) the terms of clause 13were contrary to the restrictionimposed on Garden Cities by theAdministrator when approvingthe establishment of the township,and (iii) clause 13 was illegal andunenforceable since it deprivedthe owner of property the freeright to deal with his property.

THE DECISIONAdhikarie was contravening the

zoning regulations by conductingthe business from his property. Ifunsuccessful in his appeal againsthis application for a temporarydeparture from the schemeregulations, he would not beentitled to continue conductinghis business. The local authorityhad not permitted him to tradefrom the property, neither for-mally nor informally.

As far as the second ground ofdefence was concerned, the use ofthe property was determined bythe town planning scheme regula-tions, which zoned the propertyfor single residential purposes.The terms of clause 13 did notconflict with that determination.They had been inserted in theagreement of sale as a condition ofthe sale and this had not beentranslated into a condition of titlewhen transfer of the property toAdhikarie took place. Since it wasnot a condition of title, it was notcontrary to the restriction imposedby the Administrator when theestablishment of the township wasapproved.

As far as the third ground wasconcerned, clause 13 was in theinterests of all property owners inthe township, ensuring that theresidential nature of the area waspreserved, without interferencefrom business or industry. It wastherefore not illegal.


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SUNMORE INVESTMENTS CC v EASTERNMETROPOLITAN SUBSTRUCTURE

A JUDGMENT BY FEVRIER AJWITWATERSRAND LOCALDIVISION17 JUNE 1998

1998 CLR 382 (W)

A local authority may not imposea condition under the powersgiven to it in section 92(3) of theTown-planning and TownshipsOrdinance (no 15 of 1986) wherethe effect of this is to expropriatethe property, or a portion thereof,of the person applying forapproval of a subdivision of theproperty.

THE FACTSSunmore Investments CC ap-

plied for and obtained a rezoningof its property, which abutted theWilliam Nichol Drive, from‘residential 1’ to ‘residential 2’ interms of the Sandton TownPlanning Scheme, which providesfor use categories for propertysubject to its jurisdiction. Ap-proval of the application wasgiven subject to the condition thatbefore the submission of buildingplans, Sunmore was to submit asite development plan to the localauthority for approval.

Sunmore submitted a site devel-opment plan to the local authority,the Eastern Metropolitan Sub-structure (EMS), complying withthe conditions for such a plan aslaid down in the Scheme.Sunmore was required to show onthis plan, subdivisional lines inrespect of any proposed subdivi-sion and proposed access to andfrom the property. EMS requiredan area 10m long for entry park-ing at the access point. Sunmorecomplied with this condition andthe EMS approved the site devel-opment plan.

Sunmore then applied for thesubdivision of the property. TheEMS responded that it would notconsent to the subdivision ‘unlessthe mid-block road is given off interms of the Bryanston Mid-BlockPlan’. The mid-block plan was apolicy decided upon by theSandton Town Council in 1986 inregard to subdivisions and roadconstructions, and held thatpanhandles were preferable tocul-de-sacs, and that propertiesabutting the William Nichol Driveshould take their access from themid-block road system and notthat road. A portion of the pro-posed mid-block road referred toby the EMS was situated onSunmore’s property.

Sunmore objected to the intro-duction of this condition. Itapplied for an order that thecondition imposed was ultra viresthe powers of the EMS and of noforce or effect, and that the EMSapprove the subdivision under thesame conditions as the approvalof the site development plan.

THE DECISIONHaving approved the site devel-

opment plan, the EMS had noright to enforce the mid-blockplan in respect of it. It could assertthe right to enforce that scheme inrelation to Sunmore’s propertysome time in the future, if itproceeded in terms of the Expro-priation Act (no 63 of 1975) andexpropriated Sunmore’s propertyfor that purpose. It was notentitled to take advantage ofsection 92(3) of the Town-plan-ning and Townships Ordinance(no 15 of 1986) and impose acondition authorised by thatsection for the purposes of expro-priation.

The EMS clearly intended toexpropriate Sunmore’s property,when it stated that it required it to‘give off’ the mid-block. Thisintention could not be achievedusing the provisions of the Ordi-nance, but had to be achievedunder the Expropriation Act. Ifthe EMS did wish to impose acondition in terms of the Ordi-nance, it would have to do so inthe proper exercise of its discre-tion as to what was consideredexpedient in the particular case.

The imposition of the conditionwas therefore ultra vires thepowers of the EMS and was of noforce or effect. The court could nothowever, order that the EMSapprove the subdivision as ap-plied for by Sunmore, as this wasa matter which had to be dealtwith by the EMS under the condi-tions imposed on it by the Ordi-nance.

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BAILES v HIGHVELD 7 PROPERTIES (PTY) LTD

A JUDGMENT BY NICHOLSON JNATAL PROVINCIAL DIVISION28 APRIL 1998

[1998] 3 All SA 205 (N)

Although an agreement for thesale of land may be created by theexchange of letters between buyerand seller, the complete termsthereof must appear therefrom inorder for there to be compliancewith the statutory requirementthat a sale of land be recorded inwriting. There is no repudiation ofan agreement where one partyincorrectly insists on compliancewith an alleged amendedagreement which was not in factentered into between the parties,unless that party shows a clearand unequivocal intention not tobe bound by the originalagreement.

THE FACTSHighveld 7 Properties (Pty) Ltd

bought immovable property fromBailes. The purpose of the acquisi-tion was to enable the establish-ment of a golf course estate.

After the sale, in response to anrequest from Highveld, Bailesindicated his willingness to enterinto an addendum to the agree-ment of sale in a letter written toHighveld. This addendum relatedto further land identified by a firmwhich had been engaged toprepare a development plan witha view to obtaining town planningapproval for the golf course estate.Highveld responded with acounter-proposal as to the precisearea of the extra land it wished toobtain, and a lower price. In aletter written in reply to Bailes, itstated that it had been agreed thatthe size of the site was to beincreased but it required that it beentitled to an increase in thenumber of stands to be purchasedon the site.

Subsequently, Highveld statedthat as a result of a failure to agreeon the terms of the acquisition ofthe extra land, the original agree-ment be adhered to. Bailes dis-puted that there had been a failureto agree and called uponHighveld to comply with theamended agreement, failingwhich he would invoke the breachprovisions of the agreement.Highveld stated that by hisbehaviour, Bailes appeared tohave no intention of proceedingwith the original agreement andappeared to require it to complywith the terms of a new agree-ment. It considered this a repudia-tion of the original agreement andit accepted the repudiation.

Bailes denied that he had repudi-ated the agreement, and broughtan application for an order thatthe original agreement asamended, alternatively the origi-nal agreement alone, was of fullforce and effect.

THE DECISIONThough evidence of the circum-

stances surrounding the enteringinto of the amended agreementwas admissible, there beingambiguity as to the terms of thatagreement, those circumstances—in relation to the two lettersexchanged between the partiesafter the original agreement hadbeen entered into—did not indi-cate that the parties had con-cluded a further agreement.

Section 2(1) of the Alienation ofLand Act (no 68 of 1981) providesthat no alienation of land shall beof any force or effect unless it iscontained in a deed of alienationsigned by the parties thereto ortheir agents acting with theirauthority. This section applies toamendments to agreements asmuch as to agreements and mustbe strictly complied. The purposeof the Act is to obviate uncer-tainty, disputes and possiblemalpractices in connection withcontracts for the sale of land. Tothis end, it requires that theparties record their agreement indocumentary form. It was clearthat in the present case, theamended agreement did notcomply with the provisions of thissection.

As far as the original agreementwas concerned, the question waswhether or not it had been repudi-ated. The test was whether or notthe conduct alleged to amount to arepudiation exhibited a deliberateand unequivocal intention not tobe bound to the agreement.

Bailes had not shown a deliber-ate and unequivocal intention notto be bound to the agreement.When faced with the allegationthat he had repudiated, he deniedthat he had repudiated. Hisinsistence on compliance with theamended agreement had to beseen in the light of the fact that theamendment did not significantlyvary the original agreement.

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116

Furthermore, Bailes had neverindicated that he wanted compli-ance with the amended agreementor no deal at all. Every disputeconcerning an agreement already

entered into does not necessarilyinvolve a repudiation of theagreement, nor does an intentionto be bound by obligations asrecorded in a purported amended

agreement. In the present case,there had been no repudiation.

The original agreement was offull force and effect.

MUNNIKHUIS v MELAMED N.O.

A JUDGMENT BY WUNSH J(CAMERON J and FEVRIER AJconcurring)WITWATERSRAND LOCALDIVISION6 OCTOBER 1997

1998 (3) SA 873 (W)

When a party repudiates anobligation created in a contract,the other party’s right to enforceperformance arises as at the dateon which the obligation was tohave been performed. When theother party seeks to enforceperformance of the obligation anddoes not cancel the contract andclaim damages, the period ofprescription in relation to theclaim therefore begins on the datewhen performance was to takeplace, and if the party obliged toperform later expressly deniesthat it was obliged to perform,this does not interrupt the runningof prescription.

THE FACTSJoan Munnikhuis and her

brother, Nick, were beneficiariesin two separate trusts formed bytheir father in Jersey in 1983. Nickbrought an action againstMunikhuis related to their respec-tive interests in the trusts. InDecember 1986, the action wassettled. It was agreed in clause 18of the settlement that Munnikhuiswould procure that HaddonFidelity Corporation would nolonger be a trustee of the trust inwhich she was a secondarybeneficiary and Nick a primarybeneficiary (the ‘Nicola’ trust),and that all things required to bedone in the settlement would bedone before 31 March 1987.

In terms of the settlement, Nicktransferred his shares in Haddonto Munnikhuis. Haddon then tooksteps to resign as trustee, but aletter of resignation sent in Janu-ary or February 1990, was ineffec-tive because the Royal Trust ofCanada (CI) Ltd of Jersey whichHaddon had appointed to takeoffice in its place, declined toaccept the appointment. Nick wasaware of the fact that the letter ofresignation had been sent, but inFebruary 1990, his attorneyreceived a letter from Royal Trustindicating that it could not sign aninstrument of discharge as part ofHaddon’s resignation due tocertain defects in it. Article 15(3)of the Trusts (Jersey) Law of 1984provides that a resignation by a

trustee which would result inthere being no trustee shall haveno effect.

Nick died in 1992 and Melamedwas appointed his executor. In1994, Melamed became aware thatHaddon’s resignation had beenineffective.

In September 1994, Munnikhuisbrought an action againstMelamed alleging that assets hadbeen unlawfully transferred fromthe Nicola trust to another trustestablished by Nick, the Den Haagtrust, in 1990, and that this hadbeen done without the authorityof Haddon which had not retiredas trustee. The purpose of thelitigation was to gain control ofthe Nicola trust throughMunnikhuis’s control of Haddon.

In defending the action,Melamed depended on clause 18and sought enforcement of it todefeat this purpose. Munnikhuisreplied to this defence by contend-ing that the right to enforcementhad lapsed by effluxion of time, iehad prescribed, three years after31 March 1987.

THE DECISIONThe obligation to secure

Haddon’s resignation arose froma contract, which was concludedby the settlement following Nick’saction. The application of thePrescription Act (no 68 of 1969)should therefore be to a period ofprescription of three years, asprovided for in section 11(d), from

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117

the date on which the obligationfell due.

In the present case, it was al-leged that Munnikhuis repudiatedher obligation as recorded inclause 18 when she joined withHaddon in instituting the pro-ceedings in September 1994.However, in so doing, she did notnecessarily incur a new debt. Thatshe would have done hadMelamed then cancelled thecontract and claimed damages.But Melamed did not do so, withthe consequence that the originalobligation remained, in spite ofthe breach of contract, andMelamed’s choice had been torequire specific performance of

the original obligation.Section 12(3) of the Act provides

that a debt shall not be deemed tobe due until the creditor hasknowledge of the identity of thedebtor and of the facts from whichthe debt arises, provided that acreditor shall be deemed to havesuch knowledge if he could haveacquired it by exercising reason-able care. This may affect thedetermination of when prescrip-tion begins to run. However, inthe present case, in February 1990Nick knew that Royal Trust hadrefused to accept the nominationin place of Haddon, even if he didnot know that as a result of article15(3), Haddon’s resignation had

no effect.When Munnikhuis later denied

that she was obliged to complywith clause 18, a new debt wasnot created. Her attempt tocomply in January or February1990 did not amount to a tacitacknowledgement of liabilitywhich interrupted the running ofprescription. Even if this wasconsidered an interruption, therunning of prescription wouldhave recommenced at that point,and even with Nick’s death in1992, would have been completedbefore Melamed’s assertion of theright to enforce clause 18.

The defence of prescription wasupheld.

Contract

McCULLOCH v KELVINATOR GROUP SERVICES OFSA (PTY) LTD

A JUDGMENT BY CAMERON JWITWATERSRAND LOCALDIVISION23 JUNE 1998

1998 CLR 343 (W)

A contract will not be renderednull and void merely because theparties contracted on the basisthat if a commonly heldassumption were to fail, thecontract would not have beenentered into, and that assumptionlater fails.

THE FACTSMcCulloch was employed by

Kelvinator Group Services of SA(Pty) Ltd. The company had notbeen profitable for some yearswhen, in 1996, it informed itsemployees, including McCulloch,that because it had been unable tobecome profitable, it intended todiscontinue operations. Thecompany informed employeesthat it had been in negotiationwith a potential purchaser of itsbusiness, but it considered that thenegotiations would not be suc-cessful.

On 27 November 1996,Kelvinator addressed a letter toMcCulloch in which it terminatedher services due to the discontinu-ation of the business. It offeredbenefits amounting to R147 759

and requested confirmation ofacceptance. McCulloch signed heracceptance of these terms.

On 13 December 1996,Kelvinator issued a notice toemployees that negotiations forthe sale of the business of thecompany had been successful andthat the business would notdiscontinue. The terms of redun-dancy agreements previouslyentered into would be honouredwhere the redundancy wasconfirmed.

McCulloch took the view thather retrenchment benefits couldnot be retracted and insisted thatKelvinator perform its obligationsin terms of its letter terminatingher services. Kelvinator re-sponded that both parties hadbeen aware of the negotiations for

118

the sale of the business, and it hadbeen entitled to revoke the termi-nation letter were these negotia-tions to prove successful.

THE DECISIONA proper interpretation of the

agreement did not require anyevidence of the backgroundcircumstances relevant to theconclusion of the agreement. Theagreement was unambiguous.Although the agreement referredto redundancy, this was evidenceof Kelvinator’s motive in termi-nating McCulloch’s services andwas not a suspensive condition onwhich the operation of the agree-ment was to be dependent.

There was nothing in the LabourRelations Act which would renderthe agreement of no force oreffect. The Act regulates thetermination of employment, but

makes no provision for a termina-tion agreement which is enteredinto for reasons which laterappear to be incorrect. Its purposeis to introduce a more equitablebalance between the respectivepositions of employer and em-ployee, but McCulloch did not actcontrary to the spirit of equity onwhich the Act was based.

Kelvinator argued that theagreement incorporated a tacitterm that it would lapse if theretrenchment fell away. Thishowever, had not been proved.The test for a tacit term was that itwould have been agreed to hadthe parties considered the aspectat the time of contracting. In thepresent case, the parties mighthave considered this aspect, butthere was no indication of whattime period they would have

considered acceptable for the saleof the business.

Kelvinator also argued that sincein concluding the agreement, bothparties assumed that the discon-tinuation of the business wouldnot be reversed, the agreementwas rendered null and void by theactual continuation of the busi-ness. This argument, based on thedoctrine of the failed commonassumption, could not succeed.That doctrine is too widely statedif it states that a contract is ren-dered null and void by the failureof an assumption commonly heldbetween the parties which, if ithad not been held at the time,would have resulted in no agree-ment having been entered into.Having relied on this doctrine sostated, Kelvinator could notsucceed.


Contract

GENCOR SA LTD v TRANSITIONAL COUNCIL FORRUSTENBURG AND ENVIRONS

A JUDGEMENT BY KIRK-COHEN JTRANSVAAL PROVINCIALDIVISION21 MAY 1997

1998 (2) SA 1052 (T)

Where a person has a legitimateexpectation that a publicfunctionary will consider it forthe acquisition of certain rights, acontract granting these rights to athird party, in contravention ofthe legitimate expectation may beset aside.

THE FACTSThe Transitional Council for

Rustenburg (the council) invitedtenders for the purchase of certainmineral rights. Gencor SA Ltdsubmitted a tender, as did thesecond respondent. No othertenders were submitted.

Some time after the submissionof the tender (during which timethe parties had on-going tel-ephonic contact) Gencor receiveda letter from the council. Thisletter indicated that, the councilhad decided not to accept anytender, that further negotiationswould be suspended until certain

investigations had been com-pleted and the matter would berevisited at a later stage. Gencorresponded to this letter with aletter stating that it was stillinterested in acquiring the rightsand requesting that this interest beborne in mind when the matterwas reconsidered.

The council later negotiated andconcluded a contract with thesecond respondent. The secondrespondent began execution of thecontract, incurring costs of someR2,5m in exploration work.

Gencor applied for an order thatthe council’s alienation of the

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mineral rights to the secondrespondent and its conclusion of anotarial prospecting contract withthe second respondent be declarednull and void.

THE DECISIONEven before the receipt of the

letter suggesting that the matterwas not finally closed, Gencor hadhad a ‘legitimate expectation’ thatits tender would be affordedproper consideration. The letterdid nothing to disabuse Gencor ofthis expectation but rather rein-forced it by suggesting thatconsideration of the matter had

merely been suspended, andGencor would be given theopportunity to tender by way of afresh tender or resubmission of itsoriginal tender at a later stage. Itcreated a reasonable expectationof further communication whichwas to be equated to a legitimateexpectation. This legitimateexpectation was infringed by thecouncil when it contracted withthe second respondent.

The court has a discretion indeciding whether to set asidecontracts of this nature and willconsider factors such as whetherwork under the contract had

commenced and whether unduehardship would result if it was setaside. In the present case, al-though the second respondenthad already incurred costs pursu-ant to the contract awarded to it,the contract had to be set aside toprotect Gencor’s legitimateexpectation. Second respondentwould probably be entitled torecover these costs from thecouncil.

The protection thus affordedGencor arose from its legitimateexpectation, a protection whichdid not owe its existence to eitherthe Constitution.


Contract

GOODMAN BROS (PTY) LTD v TRANSNET LTD

A JUDGMENT BY BLIEDEN JWITWATERSRAND LOCALDIVISION21 APRIL 1998

1998 CLR 405 (W)

A tender to supply an organ ofstate susceptible to theConstitution

THE FACTSGoodman Bros (Pty) Ltd ten-

dered to supply wrist watches toTransnet Ltd. Clause 10(a) of theconditions of tender provided thatTransnet did not bind itself toaccept the lowest or any tender,nor would it assign any reason forthe rejection of a tender.

Transnet is a company whoseshares are wholly owned by theState and whose board of direc-tors is appointed solely by theMinster of Transport.

Goodman’s tender was notaccepted by Transnet. Goodmanthen applied for an order declar-ing that the provision of clause10(a) entitling Transnet not toassign any reason for the rejectionof a tender was in conflict with theprovisions of section 33 or section217 of the Constitution of theRepublic of South Africa Act (no108 of 1996) and for orders thatTransnet was to supply written

reasons for the rejection of itstender and provide copies of allother tenders it received withsupporting documentation.

THE DECISIONTransnet was an ‘organ of state’.

It was ultimately controlled by theState, and it was not a free agentin the conduct of its business. Interms of the Legal Succession tothe South African TransportServices Act (no 9 of 1989) it wasrequired to provide a service inthe public interest and could bedirected by the Minister not to actcontrary to the strategic or eco-nomic interests of the country.Being an organ of state, it wassubject to the provisions of theConstitution.

In deciding whether or not toaward the tender, Transnet hadcommitted an administrative actwhich was within the ambit of themanagement of Transnet’s affairs.

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It was therefore an act which wassubject to the Constitution.

As far as the disputed provisioncontained in clause 10(a) wasconcerned, it was contrary to thespirit of the Constitution and theterms of sections 217, 32 and 33 ofthe Constitution. They weretherefore to be considered no partof the contract between the partiesand could be struck out.

It also followed from this thatTransnet was obliged to furnishreasons for its rejection of the

tender. Because of the right ofeveryone to be furnished withreasons in writing for administra-tive actions which affects any ofhis rights, as provided for insection 33 of the Constitution,Transnet could be compelled tofurnish its reasons for rejecting thetender.

As far as the information con-tained in competing tenders wasconcerned, there was no basisupon which Goodman couldobtain this. The Constitution did

not allow it and the confidentialinformation contained in thetenders, if disclosed, could causeprejudice to the other tenderers.

The provision of clause 10(a)entitling Transnet not to assignany reason for the rejection of atender was in conflict with theprovisions of section 33 or section217 of the Constitution of theRepublic of South Africa Act (no108 of 1996), and Transnet was tosupply written reasons for therejection of its tender.

Contract

SA METAL MACHINERY CO LTD v TRANSNET LTD

A JUDGMENT BY HEHER JWITWATERSRAND LOCALDIVISION22 MARCH 1998

1998 CLR 484 (W)

Influence of the Constitution intender for supply to State organ

THE FACTSSA Metal Machinery Co Ltd

tendered for the purchase of scrapmetal from Transnet. In terms ofclause 10(a) of the conditions oftender, Transnet did not binditself to accept the lowest or anytender, nor would it assign anyreason for the rejection of atender.

Transnet awarded the tender toanother party. SA Metal thenrequested information as to theprice of the successful tender.Transnet refused to supply thisinformation.

SA Metal then applied for anorder that Transnet providewritten reasons for the rejection ofits tender and that it providecopies of all tenders received byTransnet, reports and minutes ofmeetings at which tenders wereconsidered, and a copy of thecontract concluded with thesuccessful tenderer.

THE DECISIONThere was no evidence of impro-

priety in the award of the tender,and therefore no suggestion thatSA Metal’s right to lawful admin-istrative action had been violated.The fact that Transnet refused togive reasons for its award of thetender to the successful tendererdid not allow the inferrence that ithad failed to act properly in soawarding the tender.

SA Metal, like anyone else, didnot have an unrestricted right toinspect documents in the posses-sion of a public body. Access tosuch documents should be or-dered only if it was shown thatthis was necessary in order todetermine whether a right needsto be protected.

Since SA Metal had not shownthat it had reason to believe thatits right to lawful administrativeaction was threatened by itsinability to obtain access to thedocumentation it required, it wasnot entitled to such documenta-tion.

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CATERHAM CAR SALES & COACHWORKS LTD vBIRKIN CARES (PTY) LTD

A JUDGMENT BY HARMS JA(SMALBERGER JA, MARAIS JA,SCHUTZ JA and PLEWMAN JAconcurring)SUPREME COURT OF APPEAL28 MAY 1998

1998 (3) SA 938 (A)

Business reputation may exist in aparticular locality other than thatin which the business sells itsproduct. It must be shown to existin the locality in which the holderalleges a passing off misrep-resentation has been made, whenthe holder seeks an interdictrestraining the alleged representorfrom passing off its product forthat of the holder.

THE FACTSCaterham Car Sales & Coach-

works Ltd, a United Kindgomcompany, held the exclusive rightto manufacture, sell and distributethe Lotus Seven sports car in theUnited Kingdom and certainEuropean countries. It also heldthe exclusive right to manufac-ture, sell and distribute spareparts for the Lotus Seven sportscar and use the Lotus symbol inconnection therewith. It obtainedthese rights from the holder ofthem, the Lotus group of compa-nies (‘Lotus’), which had since1973 ceased manufacturing theLotus Seven sports car. Underagreements concluded with Lotusbetween 1985 and 1988, Caterhamwas assigned the copyright andgoodwill in the unregistered trademarks ‘Seven’, ‘Super Seven’ and‘Super 7’.

During the 1908s, Birkin Cars(Pty) Ltd manufactured and soldin South Africa a replica of one ofthe models of the Lotus Sevensports cars, under the name BirkinSeven or Super Seven, therebyusing the distinctive shape andappearance of the sports car. Atthat point, and thereafter, Lotushad not conducted any business inSouth Africa.

Caterham claimed that Birkinwas passing off its product as thatof Caterham’s and sought aninterdict restraining Birkin frommanufacturing and selling asports car having the same shapeas the Lotus Seven. It contendedthat the goodwill in the sports carwas its by virtue of the assign-ment to it of the goodwill in 1988.

THE DECISIONThe essence of a passing off

action is to protect a businessagainst the misrepresentation thatthe business, goods or services ofthe representor are those of theplaintiff. It is designed to protectthe goodwill of a business asregards the element of reputationmaking up that goodwill.

The goodwill thus sought to beprotected must exist in the area ofjurisdiction of the court in whichthe plaintiff sues, but this does notmean that the plaintiff’s businesshas to be conducted within thatarea. What has to be shown is thatthe reputation exists within thatarea and that the misrepresenta-tion complained of causes actualor potential harm to the goodwillof the plaintiff’s business.

Given the fact that Lotus hadceased manufacturing the LotusSeven sports car by the timeBirkin began manufacture inSouth Africa, and that Caterhamhad hardly any market presencein the country, no reputation inthe distinctive shape of the carexisted in South Africa. There wastherefore no goodwill whichCaterham could allege it hadobtained by its assignments fromLotus and no basis for the inter-dict it sought against Birkin.

Competition

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NINO’S COFFEE BAR & RESTAURANT CC v NINO’SITALIAN COFFEE AND SANDWICH BAR CCNINO’S ITALIAN COFFEE & SANDWICH BAR CC vNINO’S COFFEE BAR & RESTAURANT CC

JUDGMENT BY ROSE INNES AJCAPE PROVINCIAL DIVISION 8 APRIL 1998

1998 (3) SA 656 (C)

Where a person has acquired theexclusive right to the use of atrading name it will be entitled touse that name notwithstandingthe possibility of resultingconfusion of that name withanother similar to it which isbeing used by another person. Adefence in terms of s 34(2) (a) ofthe Trade Marks Act (no 194 of1993) to the effect that a trademark is not infringed by the bonafide use by a person of his ownname will only be upheld wherethe defendant has used his fullname and where the use is thereofis bona fide and consistent withfair practice. Section 36(1) of theAct is intended to protect thecommon law rights of a personwho has continuously and bonafide used a mark which wassubsequently registered byanother.

THE FACTSIn 1989 a certain Mr Korkorris

purchased a coffee shop andrestaurant business conductedunder in the name of ‘Nino’sCoffee and Sandwich Bar’ inJohannesburg. Kokorris thenexpanded the business by estab-lishing a franchise operationwithin Gauteng. He later incorpo-rated Nino’s Italian Coffee &Sandwich Bar CC (`the respond-ent’) which became the owner ofthe franchise operation.

After the sale of the business toKorkorris, the sellers establishedtwo restaurants in Cape Town,both of these restaurants incorpo-rating the word ‘Nino’ in theirnames, one of the members beingknown personally as `Nino’. Theyincorporated Nino’s Coffee Bar &Restaurant CC (the applicant) asformal owner of the businesses.

In 1995 the respondent registereda trade mark ’ in respect of Nino’sItalian Coffee & Sandwich Bar,and extended its operations intoCape Town. It admitted that theresult of this was some confusionin the mind of the public of thename of the respondent’s businesswith that of the applicant. Theapplicant sought an interdictrestraining the respondent fromusing the name ‘Nino’ as atrading name in relation to arestaurant business at or near twolocations in Cape Town where therespondent conducted its busi-ness. This claim was based on theallegation that the use of the name‘Nino’ in Cape Town amounted topassing off the respondent’sbusiness as that of the applicant.

In a separate application, therespondent applied for an inter-dict restraining the applicant frominfringing its trade mark. Itbrought this application becausethe applicant had established arestaurant in Camps Bay using theword ‘Nino’s’ after it had becomeaware of the respondent’s trade

mark rights. The applicant raisedthe defences provided by sections34(2)(a) and 36(1) of the TradeMarks Act (no 194 of 1993).Section 34(2)(a) provides that aregistered trade mark is notinfringed by any bona fide use bya person of his own name, pro-vided that such use is consistentwith fair practice. Section 36(1)provides that the proprietor of aregistered trade mark shall not bepermitted to restrain the use byany person of a trade markidentical with or resembling thatof such proprietor, where thatperson has made continuous andbona fide use of the mark prior tothe use of the mark by the propri-etor or prior to the registration ofthe mark. The two applicationswere considered together.

THE DECISIONThe effect of the sale of the

business was to transfer thegoodwill of the business, includ-ing the exclusive right to the useof the name ‘Nino’s Coffee andSandwich Bar’. The applicantcould therefore neither use it itselfnor transfer it to anyone else. Therights to the name vested with therespondent. The mere fact that therespondent may have been awareof the fact that the applicant hadestablished a restaurant using thename ‘Nino’ did not mean that hehad, with full knowledge of hisrights, completely abandonedthem. The use of the name ‘Nino’by the respondent, within theCape Town region was thereforenot unlawful, notwithstanding theproof of confusion by somemembers of the public.

Given the different nature of therestaurants conducted by theapplicant and the respondent itwas, in any event, unlikely thatthe applicant would suffer harm,even though the members of thepublic did believe that the restau-rants were associated. The re-

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spondent was not competingunlawfully with the applicant andthe applicant was therefore notentitled to the interdict sought.

The applicant failed to establishthe defence provided for insection 34(2)(a) since it was notusing its full name but rather partof one of its member’s names.Furthermore, the use of the name‘Nino’ was neither bona fide norconsistent with fair practice since

the applicant was aware that therespondent had obtained the rightto use the name, had registered atrade mark using the name andhad extended his operations intothe Western Cape.

As far as the defence based onsection 36(1) was concerned, thissection was intended to preventthe proprietor of a trade markfrom exercising his rights merelyon the basis of priority of registra-

tion. This defence would onlyavail a person who had madecontinuous and bona fide use ofthe trade mark from a time earlierthan its registration. Since thetrade mark only originated whenthe business was sold, the appli-cant failed to establish such prioruse. This defence could thereforealso not succeed.

The applicant’s interdict was notgranted. The interdict sought bythe respondent was granted.

Competition

The legal position in regard to the sale of the goodwill and name of abusiness is clear. In the absence of any term to the contrary, a sale andtransfer of goodwill confers upon the transferee the exclusive right tocarry on the business transferred and the exclusive right to representhimself as carrying on such business. It also confers on him the exclusiveright to use the name under which the business has been conducted.

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PHEIFFER v FIRST NATIONAL BANK

A JUDGMENT BY HARMS JA(SMALBERGER JA and ZULMANJA concurring, NIENABER JAand MARAIS JA dissenting)SUPREME COURT OF APPEAL28 MAY 1998

1998 CLR 362 (A)

A surety’s liability to pay intereston the capital debt of theprincipal debtor is to becalculated by reference to thecapital debt actually owing by theprincipal debtor and not byreference to a maximum capitalsum for which the surety may beliable in terms of the deed ofsuretyship.

THE FACTSPheiffer signed a deed of

suretyship in favour of FirstNational Bank, securing thepayment of the debts of a certainWilson who enjoyed overdraftfacilities with the bank. Thesurety’s liability, excludinginterest liability, was limited toR175 000. Over and above herliability on the capital sum,Pheiffer was liable for interest onthe R175 000 as might become anddue and payable by Wilson.

Wilson’s indebtedness to thebank first exceeded R175 000 on25 October 1990. It continued torise, though credits were passed toWilson’s account at various times.The last of the credits was passedon 22 October 1991. On 19 April1993, the bank demanded pay-ment from Pheiffer as surety. Inresponse, on 1 September 1993,Pheiffer paid R175 000 and con-ceded her liability to pay interestfrom 19 April of that year until 1September.

Pheiffer contended that theprinciple that payments shouldfirst be appropriated to interestand then the oldest capital debtshould have been applied indetermining her liability, and thather liability for interest due assurety only arose when demandwas made on Wilson, alternativelywhen demand was made on her.

The bank contended that Pheifferwas liable as surety for all interestarising on R175 000 from 25October 1990 until 1 September1993. In calculating the sum sodue, it applied no credits whichhad been applied to Wilson’saccount in that period.

THE DECISION(per Harms JA (Smalberger JAand Zulman JA concurring)

As long as the balance owing byWilson was less than R175 000,Pheiffer’s liability was identical tohis. Once the balance owing by

Wilson exceeded R175 000, aseparate accounting exercisewould have to be undertaken inorder to determine Pheiffer’sliability. To determine that liabil-ity, it would be necessary todetermine the balance owing byWilson, taking into accountamounts paid by him in reductionof his indebtedness to the bank.

In terms of the common law ofappropriation of payments, thosepayments were to be appropriatedfirstly to interest. This was to bedone, irrespective of the capitali-sation of the interest by the bank.Until 22 October 1991, the amountWilson had paid exceeded theinterest raised in respect of hisaccount. Consequently, afterappropriating his payments tointerest, the capital amount owingby Pheiffer as at that date couldnot have exceeded R175 000.Thereafter, because Wilson madeno further payments, Pheiffer’sliability to pay interest, in terms ofthe wording of the deed ofsuretyship, was to be calculatedon the maximum capital sum forwhich she could be liable, ie R175000.

Pheiffer was therefore liable topay interest on R175 000 from 22October 1991.(per Nienaber JA (Marais JAconcurring))

As long as the balance owing byWilson was less than R175 000,Pheiffer’s liability was identical tohis. However, once the balanceowing by Wilson exceeded R175000, their respective liabilitieswould not be identical. That thiswas so was illustrated by the factthat if the balance owing didexceed R175 000, any reduction inthis sum by a payment by Wilsonwould not reduce Pheiffer’sliability so long as the reductiondid not bring the balance owing(after first applying such paymentto interest) to an amount less thanR175 000. Pheiffer’s liability was

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to be assessed differently from theassessment of Wilson’s liability.

The question was whether,despite the fact that the respectiveliabilities of Wilson and Pheifferwere not identical, the credits toWilson’s account were to beapplied in reduction of Pheiffer’sliability. The common law rule isthat a payment by a debtor is firstappropriated to the interestportion of the debt, and then tothe capital. The ‘capital’ consistsof those debits passed to theaccount, by virtue of cheques metand other charges and costs

having been imposed, as well asthe interest which is capitalised atthe end of the applicable period.For the purposes of appropriationof payments, once capitalisationhas taken place, any payment thenmade is applied to the capital andnot interest.

While that is the rule applicableto Wilson’s debt to the bank, thepayments he made could notsimply be applied directly toPheiffer’s debt, since they weretwo separate debtors. Becausetheir respective inebtednesses wasgoverned by two separate con-

tracts, it would be incorrect to takeeach credit passed to Wilson’saccount and apply it to Pheiffer’s.The credits passed to Wilson’saccount were to be treated aspayments in reduction of hisindebtedness to the bank, andapplying the common law rule ofappropriation of payments inrespect of that indebtedness alone.Having done so, as long as hisindebtedness exceeded R175 000,any credits passed to his accountwould have no effect on Pheiffer’sindebtedness to the bank.

Credit Transactions

MARLBORO TRANSPORT SERVICES CC v GOGLE

A JUDGMENT BY ELOFF AJWITWATERSRAND LOCALDIVISION9 DECEMBER 1997

1998 CLR 29 (W)

An acknowledgement of debtwhich incorrectly states theidentity of the debtor does notprevent the creditor fromobtaining provisional sentence onthe instrument, where thedefendant which is sued as debtor,is unable to give an explanationwhy it is not liable on theinstrument.

THE FACTSIn 1995, Marlboro Transport

Services CC bought a truck fromMammoth Truck Co (Pty) Ltd.The truck was to be manufacturedby Western Star Trucks Inc, aCanadian company, imported intoSouth Africa and delivered toMarlboro upon payment of thepurchase price of R432 500.

In 1996, Marlboro bought a truckfrom Gogle. The truck was also tobe manufactured by Western StarTrucks Inc. Marlboro paid R423593 for the truck, and then learntthat Western Star had cancelledthe order for the truck because ithad not received payment of aletter of credit. It obtained repay-ment of R80 000 of the amountpaid for the truck, and obtainedGogle’s signature to an acknowl-edgement of debt for payment of abalance of R312 592.

Gogle alleged that the 1996 salewas a sale between Mammoth andMarlboro and that both partieshad intended that payment of thepurchase price would be effectedby the removal of the fundsoutside of South Africa in contra-vention of Exchange Controlregulations and as part of ascheme to evade customs dutiesand import taxes. He alleged thata certain Mr Kahn had been giventhe money paid by Marlboro, andhad disappeared with it.

Marlboro brought an action forprovisional sentence based on theacknowledgement of debt. Gogledefended the action on thegrounds that this misstated theunderlying cause of debt in that itincorrectly stated the debtor ashimself and not Mammoth, andthat based on the true cause ofdebt, he was not liable toMarlboro.

126

THE DECISIONAssuming that the true debtor

was not Gogle, but Mammoth,and that the acknowledgement ofdebt misstated the true debtor, thequestion was whether this de-stroyed the liquidity of the instru-ment.

A defendant faced with a claimbased on such a document wasnot entitled to successfully resist

the claim upon the ground onlythat it incorrectly states theidentity of the debtor. The defend-ant who is sued on the instrumentmust also state why he is notliable for the amount in respect ofwhich he admitted his indebted-ness. Gogle was obliged to explainwhy he was not liable for theamount claimed by Marlboro,notwithstanding the assumption

in his favour that he was incor-rectly cited as debtor in theacknowledgement of debt.

The explanation that Gogle didgive in respect of the transactionsgiving rise to the acknowledge-ment of debt was, by comparisonwith the explanation given byMarlboro, unacceptable.

Provisional sentence was grantedin favour of Marlboro.

ABSA BANK LTD v DEEB

A JUDGMENT BY THIRION JNATAL PROVINCIAL DIVISION8 JUNE 1998

1998 CLR 421 (N)

An interest rate variation clausein a contract is not necessarilyinvalid merely because thedetermination of the interest rateis given to one of the parties tothe contract. It will be invalid ofthe determination of the interestrate is given to one of the partiesin its absolute an unfettereddiscretion, but such invaliditywill not follow if it can be shownthat the interest rate variationmust be determined in accordancewith an implied term which isboth reasonable and necessary,and can be formulated clearly andexactly.

THE FACTSAbsa Bank Ltd passed a mort-

gage bond over Deeb’s property.The bond recorded that Deeb wasindebted to Absa in the sum ofR2m in respect of money lent andto be lent. Clause 3 of the bondprovided that all amounts owingto the bank would bear interest atthe rate of 15,25% per annum.Clause 21 provided that, subject tothe provisions of the Usury Act(no 73 of 1968), during the cur-rency of the bond, the bank wasentitled to increase the rate ofinterest payable on all amountsowing to it.

The bank alleged default byDeeb in paying instalments dueunder the bond and claimed thefull amount of capital and interestowing to it. It claimed its entitle-ment to an interest rate of 20% perannum as a result of an increase inthe interest rate after inception ofthe bond.

Deeb defended the action. Theparties submitted to the court foradjudication the question whetheror not clause 21 of the bond wasvalid. Deeb contended that theclause was void for vagueness inthat it left the variation of theinterest rate in the absolutediscretion of the bank.

THE DECISIONThe rule is that a contract is

invalid when the determination ofthe extent of a party’s obligation ismade to depend on the meredecision of one of the parties. Thisrule does not result from the factthat such a contract is vague, butfrom the principle that the lawdoes not permit the unfettereddetermination of contractualrights and obligations by one ofthe parties to the contract. Anenforceable contract must expressthe consensus of the parties in allits material terms, or should fixsome standard by which certaintyin regard to that which is leftunexpressed may be obtained.

In applying this rule in thepresent case, it had to be decidedwhether clause 21 conferred onthe bank an absolute discretion infixing the interest rate, or whetherit was implied in the clause thatthe bank’s right to fix the interestrate was subject to certain limita-tions. Such a term could beimplied if the implication wasboth reasonable and necessary,and if the term could be formu-lated clearly and exactly.

It was clear that the parties didnot intend that clause 21 wouldconfer on the bank an absolutediscretion to vary the interest rate.

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127

In clause 3, the parties providedfor a specific interest rate. Havingdeliberately specified the interestrate at inception of the bond, itwas improbable that they wouldchange their intentions in regardto the applicable interest ratethereafter and allow it to bespecified merely at the absolutediscretion of the bank. Clause 21could therefore not be understoodas conferring on the bank such adiscretion.

The difficulty with formulatingthe alternative, an implied term,was that it had to be determined

what the parties had intended inregard to future increases in theinterest rate—when they could beeffected, to what extent they couldbe effected, and the standard bywhich they would be effected. Inmaking this determination, theclause had to be interpretedbearing in mind its object asintended by the parties. Thisobject was to allow the bank toadjust its interest rate in accord-ance with the market rate ofinterest. The implied term wastherefore that the bank couldincrease the interest rate in the

ordinary course of its business asa financial institution and as aresult of a general increase ininterest rates. For such an impliedterm to have efficacy, it wouldhave to be shown that in deter-mining an interest rate increasethe bank acts according to anexternal, objective standard.

For the purposes of proving thatthe bank did increase interestrates in accordance with such animplied term, evidence would benecessary. The matter was there-fore postponed for this purpose.

Credit Transactions

MV SNOW DELTA: DISCOUNT TONNAGE LTD v SERVA SHIP LTD

A JUDGMENT BY THRING J(KING DJP and VILJOEN AJ)CAPE OF GOOD HOPE PROVIN-CIAL DIVISION11 MARCH 1998

1998 (3) SA 636 (C)

A time charterer enjoys rights asagainst the disponent owner of a shipand may enforce them by an action inpersonam against the ship within acourt’s jurisdiction provided that thecourt’s jurisdiction has been properlyfounded by the necessary attachment.Those rights are then situated withinthe area of jurisdiction of the courtand may themselves be attached inorder to found jurisdiction in anaction against the time charterer.

THE FACTSServa Ship Ltd was the charterer

of the MV Snow Delta under a timecharterparty concluded with thedisponent owner, Blue Star LineLtd. Serva time chartered the shipto Universal Reefers Ltd.

Discount Tonnage Ltd, aperegrinus of the court, brought aclaim against Serva for breach ofcontract. Thinking that Serva wasa demise charterer, it applied forthe attachment of Serva’spossessory right, title and interestin the Snow Delta, after the shipentered the court’s jurisdiction offCape Town, in order to found thecourt’s jurisdiction in an action inpersonam for damages for breachof contract.

A rule nisi was granted attachingthe ship and the ship was at-tached. Thereafter, the rule wasdischarged, on the grounds thatDiscount Tonnage had not estab-lished that the property it hadattached was within the area ofjurisdiction of the court, and theship left the court’s jurisdiction.Discount Tonnage appealed thedischarge of the rule.

THE DECISIONThe fact that the ship had al-

ready left the jurisdiction of thecourt did not make the appeal ofmere academic interest. If the rulehad been incorrectly discharged,the original attachment wouldhave been effective and the courtwould retain its jurisdiction in thematter. Furthermore, if costs werethe only issue undeterminedbetween the parties, because theobject of Discount Tonnage’sclaim had left the court’s area ofjurisdiction, this would still be amatter for the court to determine.

As far as the misconception ofDiscount Tonnage’s part wasconcerned—that Serva was thedemise charterer of the ship—thisdid not render the order for theship’s attachment a completenullity. That order had referred toServa’s possessory right and title,but Serva, not being a demisecharterer, had no such right.However, the order was for theattachment of all Discount Ton-nage’s interest in the ship, and thiscould be understood to include its

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interest as time charterer. Such aninterest would encompass itsrights as against the disponentowner of the ship.

The rule had been dischargedbecause it had been found that theproperty attached was not withinthe jurisdiction of the court,Serva’s rights being situatedwhere it was situated and notwithin the jurisdiction of thecourt. The place where incorpo-

real rights are normally to befound is where the debtor exists.In the present case, this would bewhere the disponent owner was,ie London. However, if thedisponent owner’s ship enteredthe jurisdiction of the court, Servacould proceed by an action inpersonam against the owner,provided it had founded jurisdic-tion by attachment of the ship inorder to do so. Serva’s rights

under the charterparty would beenforceable in Cape Town. Conse-quently, they constituted incorpo-real property belonging to Servawhich could be effectively dealtwith within the jurisdiction of thecourt. Serva’s rights being withinthe court’s jurisdiction, they wereattachable within it.

The rule should therefore nothave been discharged. The appealwas upheld.

CAPRI ORO (PTY) LTD v COMMISSIONERFOR CUSTOMS AND EXCISE

A JUDGMENT BY MACARTHUR JTRANSVAAL PROVINCIALDIVISION11 MARCH 1998

1998 (3) SA 571 (T)

Goods brought into anunrestricted area of the Republicare subject to the controllingprovisions of the Customs andExcise Act (no 91 of 1964).Whether intended for ultimatetransportation to another countryor not, a failure to declare theentry of the goods into theRepublic will entitle the customsauthorities to seize the goods.

THE FACTSCapri Oro (Pty) Ltd entered into

an agreement with Pentagold SRL,a company in Italy, in terms ofwhich Capri was to obtain jewel-lery for sale at a jewellery shop inNamibia. Capri would be entitledto a 10% commission on sales.

Capri, through its representative,D Mazor, booked a flight toWindhoek via Johannesburg.After arriving in Johannesburg,Mazor passed through customscontrol without declaring hispossession of some of the jewel-lery obtained from Pentagold, hisintention being to visit his fatherwho lived in Johannesburg. Heentered an unrestricted area andwas then approached by thepolice. The police removed thejewellery then in his possession.

The jewellery was seized interms of section 87(1) of theCustoms and Excise Act (no 91 of1964) which provides that anygoods imported or otherwise dealtwith contrary to the provisions ofthe Act shall be liable to forfeiture.Section 15(1) of the Act providesthat any person entering orleaving the Republic shall declarall goods upon his person or in hispossession which he brought withhim into the Republic which werepurchased or acquire abroad.

Capri brought an action forreturn of the jewellery.

THE DECISIONThere were situations in which

goods might enter the Republicand yet not be subject to thecontrolling provisions of theCustoms and Excise Act. Thesemight be situations where thegoods are in transit, their ultimatedestination not being the Republicbut some other country. The Actwill not apply to the entry of suchgoods since the purpose of theAct—the enforcement of thepayment of customs and exciseduties—will not be served byextending the control of the Act tothem.

However, in the present case, thejewellery was brought into theunrestricted area. It could there-fore not be considered to havebeen goods in transit. Thisbrought into operation the provi-sions of section 15(1) of the Act.By failing to declare his posses-sion of the jewellery, Mazorcontravened the Act. Mazor’sintention, whether to import thejewellery or transfer it on toNamibia, was not relevant. Theownership of the jewellery,whether that of Pentagold orCapri, was also not relevant.

The jewellery had been lawfullyseized by the customs authorities.Capri was therefore not entitled toreturn of it.

Shipping

129

VISION PROJECTS (PTY) LTD v COOPER CONROYBELL & RICHARDS INC

A JUDGMENT BY SCOTT JA(VIVIER JA, EM GROSSKOPF JA,NIENABER JA and PLEWMANJA concurring)SUPREME COURT OF APPEAL10 SEPTEMBER 1998

[1998] 4 All SA 281 (A)

In proving a claim for damagesagainst a person alleged to havecaused a wrong, it must be provedthat the damages were caused bythat person in the sense that butfor that person’s action, thedamages would not have occurred.

THE FACTSIn September 1991, Time Hous-

ing (Pty) Ltd purchased 17 prop-erties from Allied Development(Pty) Ltd. In March 1992, Mr BMackay acting as trustee for acompany to be formed, purchasedTime Housing’s business includ-ing its rights in terms of thepurchase agreement with Allied.Vision Projects (Pty) Ltd was thenformed, and it assumed thoserights by adopting the agreementconcluded by MacKay.

Vision instructed Cooper ConroyBell & Richards to attend to thetransfer of the properties to itself.Cooper prepared a deed of salefor the purchase of the propertiesalone, by Vision Projects fromTime Housing. This was signed,and the transfer of the propertiesin terms of the first sale agreementwas then attended to. Beforetransfer of the properties to VisionProjects, Time Housing wasplaced in provisional liquidation.

Vision Projects claimed transferof the properties from the liquida-tor. The liquidator refused and thematter was referred to arbitration.The arbitrator refused to order theliquidator to transfer the proper-ties to Vision Projects, reasoningthat the liquidator was entitled toeither abandon or enforce theagreement and had elected toabandon it.

Vision Projects then claimeddamages against Cooper, allegingthat it had instructed that firm toensure that there was a simultane-ous transfer of the properties fromAllied to Time Housing and toitself. It alleged that Cooper hadbreached its mandate in notensuring that this was done, withthe result that it had sustaineddamages in an additional sum ithad to pay the liquidator in orderto secure transfer of the proper-ties.

THE DECISIONThe arbitrator’s decision was in

fact wrong. An insolvent whichbuys property and then resells itprior to its insolvency is bound totransfer the property to thepurchaser against payment of thepurchase price. Time Housing hadceded its rights to Vision Projectsprior to its insolvency. Conse-quently, Vision Projects had beenentitled to transfer of the prop-erty.

If the properties had not beentransferred from Allied, VisionProjects would have been in thesame position as it had been afterthe actual transfer from Allied. Inthat case, the liquidator’s co-operation would still have beenrequired for the ultimate transferto Vision Projects and this wouldhave been refused in the sameway as it had been refused afterthe actual transfer from Allied.Vision Projects therefore had notshown that the failure to effectsimultaneous transfers of theproperties had resulted in thedamages it alleged it had suffered.

It was argued that the failure tolink the transfers of the propertiestogether was the direct cause ofthe loss suffered by VisionProjects. However, this wouldhave avoided loss to VisionProjects only if the provisionalorder of liquidation had not cometo the notice of the Registrar ofDeeds prior to the transfer of theproperties. There was no certaintythat this would have happened.

Accordingly, it had not beenshown that Cooper’s failure tolink the transfers was the cause ofVision Projects’ loss. The claimwas dismissed.

Property

130

PropertyTOWNHOUSE ESTATES CC v BERRANGE N.O.

A JUDGMENT BY COMBRINCK JDURBAN AND COAST LOCALDIVISION17 APRIL 1998

[1998] 4 All SA 189 (D)

An agreement of sale whichprovides for the payment ofagent’s commission from thedeposit paid by the purchaser andwhich clearly states that thedeposit is not held by the seller’sconveyancer as agent for eitherparty entitles the agent topayment of the commissiondespite the sequestration of theseller prior to transfer.

THE FACTSTownhouse Estates CC was

appointed the agent of 10109Durban Trust to sell individualsectional title units in a propertywhich had been purchased fordevelopment by the Trust.Townhouse was entitled to acommission on sales. In terms ofthe sale agreements, the partiesthereto authorised and instructedthe conveyancer appointed toattend to transfer of a unit to paythis commission to the agent outof funds paid as a deposit inrespect of the purchase price.Payment thereof could be madeupon Townhouse furnishing thepurchaser a guarantee for com-mission in terms of section 26(3) ofthe Alienation of Land Act (no 68of 1981). Clause 5.3 of the agree-ment provided that the Trust’sconveyancer was to hold thedeposit as a stake holder for thebenefit of the purchaser or seller,dependant upon which of the twobecame entitled thereto but asagents for neither.

Townhouse marketed and sold anumber of the units. Its mandatewas later terminated. A fewmonths after that, the Trust wassequestrated. Berrange wasappointed the trustee of the Trust.

At the time of the sequestrationof the Trust, the conveyancerappointed in terms of the salesagreements held money in trustwhich had been paid as depositson the various sales arranged byTownhouse. Townhouse con-tended that it was entitled to bepaid from this money, the com-missions it had earned. It claimedpayment of the amount it con-tended was owed to it. Berrangealleged that after sequestration ofthe Trust, the sales agreementswere either terminated and thedeposits forfeited, or finallyexecuted and the deposits placedin separate interest-bearingaccounts. He contended thatownership of the money remained

with the purchasers. The convey-ancer contended that ownershipof the money vested in the Trust.

THE DECISIONThe agreement of sale expressly

stated that the conveyancer was tohold the money paid as a depositas a stakeholder and not an agent,thus indicating that he did nothold the money for either seller orpurchaser. This suggested thatTownhouse was to be consideredthe party entitled to this money.However, there were indicationsto contrary in other parts of theagreement.

The agreement of sale however,also indicated that the Trust orTownhouse could obtain paymentof the money held in depositwhen it referred to the applicationof the provisions of section 26(3)of the Alienation of Land Act. Interms of that section either partycould obtain payment from thedeposit upon furnishing theguarantees referred to therein, theTrust however obtaining suchpayment only after payment ofthe agent’s commission. At thatpoint, the conveyancer holdingthe money could not be said to bethe Trust’s agent for the purposesof receiving part payment of thepurchase price.

Because the money paid asdeposits had been paid into abank account, the bank was theowner of the funds. Between theTrust and Townhouse, it was theTrust which would then have anyright to that money. This wasbecause it was never envisagedthat the Trust would have anyright to the portion of the moneyconstituted by the deposit. Even ifpurchasers had forfeited thedeposits they had paid, the Trustwould not have acquired anyright to the money greater thanthat of Townhouse.

Townhouse was thereforeentitled to payment of the com-mission due to it in terms of theagreements of sale.

131

MINISTER OF LAND AFFAIRS v RAND MINES LTD

A JUDGMENT BY FARLAM AJA(SMALBERGER JA, ZULMAN JA,STREICHER JA and MELUNSKYAJA concurring)SUPREME COURT OF APPEAL15 MAY 1998

1998 (4) SA 303 (A)

A reference to ‘minerals’ in acertificate of mineral rights mayinclude a reference to dimensionstone including granite andmarble in economicallyexploitable quantities.

THE FACTSRand Mines Ltd held a certificate

of mineral rights, which wasregistered in its name, giving itthe sole and exclusive right toprospect, exploit and mine forminerals, mineral substances andmetals, precious stones, oil andcoal located on certain propertysituated near Rustenburg. Theowner of the property was theMinister of Land Affairs.

Rand Mines applied for an orderthat its rights as defined in thecertificate of mineral rightsincluded the right to all forms ofgranite which was suitable fordimension stone. Dimension stoneincludes granite and marble, bothof which are often of a qualitywhich is economically exploitable,though not necessarily so.

The Minister contended that themineral rights held by RandMines did not include dimensionstone and opposed the applicationbrought by Rand Mines.

THE DECISIONThe parties intended ‘minerals’

to have a wide meaning. This wasapparent from the fact that RandMines had the right to buy backany land transferred to the Minis-ter at the value of the land asassessed as agricultural land. Thiswould mean that whatever thevalue of the minerals on the land,Rand Mines had the right to itupon payment of a price whichmight be substantially less thanthe market value of the land.

Foreign judgments indicate thatmarble and granite suitable foruse as dimension stone could becovered by the expression ‘miner-als’. This interpretation could beaccepted as the correct interpreta-tion of the word in the presentcase, in the light of the clearintention of the parties to conferon the word a wide meaning.

Dimension stone was thereforeincluded in the meaning of ‘min-erals’ as used in the certificate ofmineral rights.

Property

132

SWEETS FROM HEAVEN (PTY) LTD vSTER KINEKOR FILMS (PTY) LTD

A JUDGMENT BY MALAN JWITWATERSRAND LOCALDIVISION5 OCTOBER 1998

1998 CLR 642 (W)

Although a lessor is obliged togive the lessee free andundisturbed use and enjoyment ofthe premises let, a lesseecomplaining that the lessor hasfailed to do so must show thatthat failure results from the lessorhaving breached a term, express ortacit, of the lease.

THE FACTSSweets from Heaven (Pty) Ltd

held rights of occupation of a shopin an entertainment complex interms of a lease entered intobetween it and Ster Kinekor Films(Pty) Ltd. In terms of the lease, itwas entitled to use the leasedpremises for the business of theoperation of a shop relating tosweets and confectionary andrelated products excluding pop-corn. The lease was a five-yearlease beginning on 11 November1994.

Ster Kinekor intended to leasepremises to Cosmic Candy (Pty)Ltd which that company was touse for conducting the business ofanother confectionary shop whereit would compete with Sweetsfrom Heaven’s franchisee. Thosepremises were situated 17 metresaway from Sweets from Heaven’spremises, the two premises beingseparated by a fast food restau-rant.

Sweets from Heaven brought anapplication for an interdict toprevent Ster Kinekor from givingoccupation of the premises toCosmic Candy.

THE DECISIONThere was no basis upon which

it could be held that Ster Kinekorowed a general duty of caretoward Sweets from Heaven’sfranchisee. Its right to occupy thepremises and conduct its businessfrom those premises did notoblige Ster Kinekor to refrain fromgiving occupation of premises inthe near vicinity to Cosmic Candy.

Sweets from Heaven contendedthat by entering into a leaseagreement with Cosmic Candy,Ster Kinekor was not permitting itthe free and undisturbed use andenjoyment (commodus usus) itwas entitled to as lessee of thepremises. A landlord does have aduty to afford its lessee free anundisturbed use and enjoyment ofthe leased premises, but whetheror not the landlord has breachedthe duty is determined by refer-ence to the lease agreement itself.In showing that the landlord hasnot permitted the tenant free andundisturbed use and enjoyment ofthe premises, it must be shownthat the landlord has breached anexpress or tacit term of thatagreement.

In the present case, the compre-hensive provisions of the lease leftlittle ground for implying a terminto the agreement obliging SterKinekor not to enter into a leaseagreement of the kind it intendedto enter into with Cosmic Candy.Such a tacit term, as contended forby Sweets from Heaven, could notbe readily formulated with suffi-cient precision. Even assumingthat the effect of entering into thelease with Cosmic Candy wouldbe to disturb the commodus ususof Sweets from Heaven, the termwas not justified by any of theother terms of the lease.


Property

133

AUGUSTO v SOCIEDA DE ANGLOANA DECOMMERCIO INTERNATIONAL

A JUDGMENT BY HANNAH JNAMIBIA HIGH COURT17 SEPTEMBER 1997

1998 (4) SA 124 (NmHC)

Where a share sale transactioninvolves a company facilitatingthe sale of its own shares but theeffect of which is merely tosubstitute share capital for loancapital, the company will nothave provided financialassistance for the purchase of itsown shares.

THE FACTSIn an application for attachment

ad fundandam jurisdictionembrought against Socieda deAngolana de Commercio Interna-tional, Augusto alleged that hehad lent Angolana N$3,6m toenable it to purchase 45 shares inJA Group Holdings (Pty) Ltd.Simultaneously, Augusto hadhimself purchased 55 shares in thecompany. The loan was effectedby way of a debit againstAugusto’s credit loan accountwith the company, and it wasagreed that the loan would berepaid within six months.Augusto alleged that Angolanahad defaulted in repaying the loanand sought attachment of theshares as well as of a money claimAngolana had against himselffollowing an arbitration award.

Angolana opposed confirmationof the interim order attachingthese assets on the grounds thatAugusto had not shown that hehad a prima facie cause of actionagainst it. It contended that thetransaction in terms of which theshares were sold to it involved acontravention of section 38(1) ofthe Companies Act (no 61 of 1973)because the debit to Augusto’sloan account constituted, in effect,a payment by the company to himenabling him to make the loan toAngolana for the purchase of theshares. The section provides thatno company shall give financialassistance for the purpose of or inconnection with the purchase ofits own shares.

Companies

THE DECISIONThere was no evidence that

when the debit was made toAugusto’s loan account, thataccount was insufficiently incredit to ensure that the companyitself did not pay money for thepurposes of the transaction.Angolana could therefore notassert that the payment made byJA was a payment made by thatcompany.

Angolana’s allegation that thetransaction fell within the scope ofsection 38 of the Companies Actwas based on the contention thatthe payment made by JA was notmade in the ordinary course ofbusiness and to advance its owninterests, but as part of a schemeto facilitate the purchase of itsown shares. However, evenassuming that a transactionamounts to financial assistancewhen it has no independentcommercial purpose other than toprovide finance for the purchaseof its own shares, this could not besaid of the share sale agreement inthe present case. The effect of thetransaction was the substitution ofshare capital for loan indebted-ness—something which couldhave been in the commercialinterests of the company.

Since Augusto had shown thathe had a prima facie case againstthe company and had showncompliance with all the otherrequirements for the confirmationof an attachment ad fundandamjurisdictionem, the interim orderwas confirmed.

134

THERON v PHOENIX MARKETING (PTY)LTD (HEYMAN INTERVENING)

A JUDGMENT BYSOUTHWOOD JWITWATERSRAND LOCALDIVISION16 FEBRUARY 1998

1998 (4) SA 287 (W)

A provision of a shareholders’agreement requiring a shareholderto offer to sell his shares to othershareholders as a pre-conditionfor bringing an application toliquidate the company isindependently enforceable as sucha pre-condition notwithstandingthe fact that the provision iscontained within a clauseproviding for such a pre-emptiveright in the event of theshareholder merely wishing to sellhis shares.

THE FACTSThe shareholders of Phoenix

Marketing (Pty) Ltd entered into ashareholders’ agreement. Theagreement incoporated a clause 10which required shareholders tooffer their shares for sale toanother shareholder should theywish to dispose of their shares.The same clause included aprovision (clause 10.4(iv)) that noshareholder was entitled to takesteps to liquidate the companyuntil such time as such share-holder had offered to dispose ofhis entire shareholding and claimon loan account in the company tothe other shareholders, and theother shareholders had declinedto acquire the shareholding andclaim so offered.

Because the company did notfare well financially, a meeting ofshareholders unanimously re-solved that shutdown proceduresbe implemented with a view tothe liquidation of the company.Before this resolution was imple-mented, a concern known as MecsAfrica offered to purchase themajority of the assets from Phoe-nix prior to its closure. Heyman,one of the shareholders, wished toaccept the offer, but the majorityshareholders did not wish to do sobecause they hoped to continuethe business of the company fortheir own account after its liquida-tion.

One of the directors, Theron,then brought an application forthe liquidation of the company onthe grounds that it was just andequitable that the company bewound up. Heyman opposed theapplication on the grounds thatthe terms of the shareholders’agreement had not been complied

with in that no offer to dispose ofthe entire shareholding of theapplicant had been made. Hecontended that on this groundalone, the application should bedismissed.

THE DECISIONThe resolution which was passed

by the shareholders could not beunderstood as an amendment tothe shareholders’ agreement. Itcould also not be understood asconstituting a waiver of theconditions laid down in theshareholders’ agreement. Therewas no evidence that anyone evenconsidered the relevant provision.

The clause within which theprovision was set dealt with twomatters: the disposal of shareswhere one shareholder wished todo so, and the prohibition againsttaking steps to liquidate thecompany. The latter provision didnot fit within the whole clause,and if an interpretation of theprovision was given to it whichforced it to fit therein, it would notbe meaningful. Accordingly theprovision had to be interpreted asmeaning that there was an abso-lute prohibition on liquidating thecompany, unless the proper stepsas outlined in the provision werefollowed. It was unqualified bythe introductory words in theclause and therefore did not haveto have anything to do with aprior intention to dispose of theshares in the company.

The provision did not deny ashareholder the right to liquidatehis company. It merely delayedthe enforcement of those rights. Itwas therefore not contrary tostatute.


Companies

135

BANTJIES v KUNTZE

A JUDGMENT BY FRIEDMAN JP(TRAVERSO J and CHETTY Jconcurring)CAPE OF GOOD HOPE PROVIN-CIAL DIVISION11 FEBRUARY 1998

1998 (4) SA 201 (C)

A person who shows an intentionto abide by a contract which thatperson may be entitled to cancelon the grounds of vagueness of anessential term waives his right toavoid performing his obligationsunder the contract.

THE FACTSBantjies bought from Kuntze a

business known as the ‘BavarianKitchen’ for R85 000. Clause 6 ofthe sale agreement, which washeaded ‘suspensive condition’,provided that the agreement wassubject to (i) the landlord grantinga sublease from the seller to thepurchaser and (ii) ‘the turnover tobe not less than R15 000 monthlyon aggregate’.

Bantjies paid R40 000 of thepurchase price and furthermonthly instalments, but failed topay a balance of R29 250. Hisattorney addressed Kuntze withthe complaint that the businesswas not achieving a turnover ofR15 000 and claimed a reductionin the purchase price. Bantjiesthen sold the business to a thirdparty and later sought to engageKuntze’s co-operation whenenforcing his rights as against thethird party.

Kuntze brought an action forpayment of the balance. Bantijesdefended on the grounds that inthe first year of operation, themonthly turnover had been lessthan R15 000 monthly on aggre-gate, alternatively that clause 6.2was vague, meaningless andunenforceable entitling him tocancel the whole agreement.

On appeal, Bantjies relied onlyon the second defence.

THE DECISIONIt was common cause that clause

6.2 was too vague and uncertainto be enforced. Whether or not itwas severable from the contract,thus ensuring the survival of thecontract, it was clear that it wasinserted for the benefit of Bantjies.Even if unenforceable on thegrounds of vagueness therefore,Bantjies could waive his right torely on its unenforceability indefending the action broughtagainst him.

The evidence showed thatBantjies had indeed so waived hisrights. The fact that he had firstclaimed a reduction of the pur-chase price and then sold thebusiness to a third party showedthat Bantijes intended to continuethe contract irrespective of theenforceability of clause 6.2.

Bantjies’ appeal was dismissed.

Contract

136

STELLENBOSCH FARMERS WINERY LTD v VLACHOS

A JUDGMENT BY SOLOMON AJWITWATERSRAND LOCALDIVISION21 SEPTEMBER 1998

1998 CLR 585 (W)

A seller of a business who hassecured credit terms in the nameof the business is under a duty onthe seller to inform its creditor ofthe sale where the creditor willcontinue to give credit on thestrength of those terms, but inorder to establish liability on thepart of the seller, it will benecessary to show that thecreditor was induced by themisrepresentation to continue togive credit on those terms.

THE FACTSVlachos signed a form headed

‘Customer Information/CreditApplication’ in which he fur-nished information regardinghimself and gave his trading nameas ‘Liquor Den’. The form in-cluded an application for creditfacilities, and a warranty (clause4(b)) that the information givenwas true and correct and that hewould notify Stellenbosch Farm-ers Winery Ltd (SFW) of anychange of ownership of thebusiness, failing which he wouldbe responsible for all amountsowing to SFW by the new owner.SFW, to which the form wasaddressed, then granted creditfacilities to Vlachos, and LiquorDen made orders for the purchaseof liquor from time to time.

Some five years later, Vlachossold Liquor Den to Baron Prod-ucts CC, subject to a reservation ofownership clause pending fullpayment of the purchase price.Orders continued to be placed byLiquor Den with SFW which soldand delivered the liquor in ac-cordance with them. BaronProducts failed to payR205 485,88. SFW then brought anaction against Vlachos for pay-ment of this sum. It alleged that ithad sold and delivered goods tothis value to him, alternativelythat by a tacit or implied term oftheir agreement, he had indemni-fied SFW for payment of sumsowing by a purchaser of hisbusiness if he failed to notify SFWof the disposal of such business,alternatively that the agreementshould be rectified to includenotification of a change of posses-sion of the business.

Vlachos defended the action onthe grounds that ownership of thebusiness had not passed to BaronProducts because it had not paidthe full purchase price and thataccordingly clause 4(b) was notapplicable. He also contended thathe signed the form in error on the

assumption that it was merelyrequired to give information toSFW to consider an application forcredit and that it therefore did notrecord any agreement betweenthem. In a replication to thisdefence, SFW pleaded anestoppel.

THE DECISIONThe first question was whether

or not the credit application formconstituted an agreement.

When Vlachos signed the creditapplication form, he knew that itcontained terms to which hewould be bound. Having done so,it was to be presumed that heknew what it contained.

The second question waswhether or not Vlachos wasbound to pay the debts incurredby Baron Products by virtue of theterms of clause 4(b). Those termsreferred to a transfer of owner-ship, something which had nottaken place in the present casebecause the full purchase pricewas not paid. Vlachos couldtherefore not be held liable to paythe debts of Baron Products byvirtue of this clause.

The third basis on which SFWsought to hold Vlachos liable wasthat he had been under a legalduty to inform it of the sale of thebusiness, and having failed to doso caused SFW to act to its detri-ment in affording credit to BaronProducts. Vlachos was under alegal duty to inform SFW that hehad sold the business. However,the breach of this duty wasinsufficient to establish liability onthe grounds of estoppel. This wasbecause it had not been shownthat SFW had been induced by themisrepresentation—that Vlachoscontinued its ownership of thebusiness—to give credit to BaronProducts. The failure to informSFW of this had not been thecause of it having continued to doso.

The action was dismissed.

Contract

137

HOTELS, INNS AND RESORTS SA (PTY) LTD vUNDERWRITERS AT LLOYDS

A JUDGMENT BY HLOPHE JCAPE OF GOOD HOPE PROVIN-CIAL DIVISION3 APRIL 1998

1998 (4) SA 466 (C)

A party to a contract whichrequires that party to providesecurity services for the other isliable for the actions of itsemployees where they cause theharm which the security serviceswere designed to prevent, even if itcan be said that the employee thenacts beyond the course and scopeof his employment contract.

THE FACTSHotels Inns and Resorts SA (Pty)

Ltd engaged Fend Security Serv-ices (Pty) Ltd to provide securityservices for it at its hotel in CapeTown. Fend undertook to mini-mise the risk of loss through fire.Clause 5.3 of their agreementprovided that Fend would not beliable for loss or damage sustainedfrom whatsoever cause. One ofFend’s employees started fires inthe hotel building on three occa-sions causing damage to theextent of R267 671,56.

Hotels brought an action againstFend for payment of these dam-ages. It contended that it was atacit or implied term of its agree-ment with Fend that Fend wouldnot cause damage to its propertywhile performing security servicesin the buildings.

Fend was placed in liquidation.Hotels then brought an actionagainst Fend’s insurer, againstwhom it was entitled to bring itsaction in terms of section 156 ofthe Insolvency Act (no 24 of 1936).The insurer defended the actionon the grounds that when hestarted the fires, Fend’s employeewas not acting within the courseand scope of his employment withFend.

THE DECISIONWhen Fend undertook to mini-

mise the risk of loss through fire,it undertook to reduce to thesmallest degree this risk. It couldhardly have been intended that itwould be exonerated if it causedfires itself.

The tacit or implied term whichHotels contended subsistedbetween the parties was a termwhich could be implied into theiragreement, notwithstanding thefact that it was in conflict with theexpress terms of clause 5.3. It wascertainly the intention of bothparties that Fend would be liablefor loss arising from fires inten-tionally started by one of itsemployees. It could therefore beaccepted that this was a tacit orimplied term of the agreement.

As far as clause 5.3 itself wasconcerned, it had to be restric-tively interpreted as it was anexemption clause which might beapplied to the detriment of one ofthe parties. The clause formedpart of a contract in which Fendwas burdened with a duty toprovide security services forHotels. It could therefore not beinterpreted as excluding liabilitywhere a fire was deliberatelystarted by one of Fend’s employ-ees.

The claim was allowed.

Contract

138

VENTER N.O. v EASTERN METRO SUBSTRUCTURE OF THE GREATERJOHANNESBURG TRANSITIONAL COUNCIL

A JUDGMENT BY FLEMMINGDJPWITWATERSRAND LOCALDIVISION9 MARCH 1998

1998 (3) SA 1076 (W)

A municipality is not entitled topreferential payment of any itemsother than assessment rates andinterest upon transfer of aproperty of a company inliquidation.

THE FACTSA company in liquidation owned

fixed property which the liquida-tor, Venter, sold in the course ofthe winding up. The company hadnot paid assessment rates, interest,a rezoning fee and charges forservices to the Eastern MetroSubstructure of the GreaterJohannesburg Transitional Coun-cil. The total amount due to themunicipality was R353 616,74 asat the date on which transfer wasrequired. The municipality re-fused to issue a clearance certifi-cate unless this amount was paid.

The company’s attorneys wroteto the municipality informing itthat they would issue a guaranteeto cover the full amount requiredby the municipality under protestin order to bring the matter tofinality and secure the clearancecertificate immediately. This waspaid to the municipality andtransfer was passed.

It applied for repayment of therezoning fee and charges forservices.

THE DECISIONA payment under protest could

indicate that the payor merelyregisters an objection to paying, orthat he reserves the right to relyon the condictio indebiti, or thathe reserves the right to bringproceedings later to establish theright to repayment. In the presentcase, the company had followedthe last-mentioned course. It had

Insolvency

not merely recorded dissatisfac-tion but indicated that it waspaying in order to overcome themunicipality’s refusal to allowtransfer without receiving pay-ment. It was therefore appropriateto determine whether the amountsreclaimed were payable to themunicipality when payment wastendered.

The municipality was entitled topayment of the amounts itclaimed in terms of section 50 ofthe Local Government Ordinance(no 17 of 1939). This however, didnot render its claims preferentialclaims, unless they could bebrought within the terms ofsection 89 of the Insolvency Act(no 24 of 1936). That sectionprovides that certain costs, such asthe costs of maintaining, conserv-ing and realizing property, shallbe paid out of the proceeds of theproperty. The claim of R86 000 forrezoning could not be said to beone such cost and could thereforenot be said to be an amountpayable to the municipality inpreference to other creditors. Ithad therefore not been entitled toput itself in a preferential positionvis-a-vis other creditors by insist-ing on full payment for thisamount. It was accordingly not anamount payable to the municipal-ity when payment was tendered.

The company was entitled torepayment of all amounts paidother than assessment rates andinterest thereon.

139

COOLS v THE MASTER

A JUDGMENT BY PRISMAN AJCAPE OF GOOD HOPE PROVIN-CIAL DIVISION15 APRIL 1998

1998 (4) SA 212 (C)

A late claim against an insolventestate may be lodged after a finalliquidation and distributionaccount has been lodged and atany time thereafter until theinsolvent has been rehabilitated.

THE FACTSThe third respondent obtained

judgment against Cools in theUnited States of America forpayment of US$701 534. Fouryears later, Cools’ estate wassequestrated in South Africa. Thethird respondent did not prove aclaim against the estate and in duecourse, a first and final liquidationaccount was confirmed by theMaster of the High Court.

The third respondent thenrequested the Master to allow himto lodge a claim against theinsolvent estate. He stated that hehad not submitted a claim at anearlier stage because he fearedthat he might have to make acontribution to the estate and hadbeen investigating the possibilityof Cools holding assets abroad.The Master acceded to the requestand at a special meeting of credi-tors, the third respondent’s claimwas submitted and proved.

Cools was then required toappear for a hearing in terms ofsection 152(2) of the InsolvencyAct (no 24 of 1936).

Cools brought an application foran order reviewing and settingaside these decisions of theMaster.

THE DECISIONA claim against an insolvent

estate need not be proved beforethe final distribution of the estate.An insolvent estate includes allproperty of the insolvent as at thedate of the sequestration andwhich may be acquired during thesequestration, and it is onlyrehabilitation which puts an endto the sequestration. Because ofthe possibility of the inclusion offurther assets in the insolventestate until that point, there istherefore no such thing as a ‘final’distribution of assets until then.This means that any further claimsagainst the estate may be provedafter the completion of a ‘final’liquidation and distributionaccount provided that the provi-sions for the late proof of claimsare complied with as provided forin section 104 of the InsolvencyAct.

The Master’s decision to allowthe late proof of claim had beenmade upon acceptable grounds,the explanation given by the thirdrespondent for its late claim beingperfectly acceptable in itself.

The fact that it had not beenshown that there were actuallyassets in the estate did not preventthe admission of late claims.Claims were permissible andprovided for at the first meeting ofcreditors, when it was not knownif there would be assets availablefor distribution, and the sameprinciple would allow the submis-sion of late claims in similarcircumstances.


Insolvency

140

EX PARTE MARX

A JUDGMENT BY LEVESON JWITWATERSRAND LOCALDIVISION3 SEPTEMBER 1998

1998 CLR 537 (W)

An application for rehabilitationmust frankly state all materialfacts relevant to the applicant’ssequestration and must fullyexplain relevant facts such aswhether the applicant continuesto reside at the same propertywhich he owned at the time of hissequestration.

THE FACTSWhen Marx was sequestrated,

there had been total claims againsthis estate of R670 850. Fixedproperty valued at R340 000 wasan asset in his estate. It was soldand the mortgagee receivedR315 507,66 from the proceeds ofthe sale. A dividend of R16 080,36was paid to concurrent creditors.

Some five years after the seques-tration, Marx continued to live inthe fixed property which had beensold, the property then beingowned by his wife.

Marx applied for his rehabilita-tion. In his application he de-scribed the circumstances of hissequestration, but failed to indi-cate what had become of theclaims of concurrent creditorswho had not proved a claimagainst his estate. He did notdisclose that he was still residingat the property which had been anasset in his estate, but in a supple-mentary affidavit did so. In thataffidavit it was not explained howthe wife was able to buy theproperty at the time of his seques-tration. It was affirmed that anamount of R6 000 was paid to themortgagee in respect of themortgage bond over the property,the effect of this being that hehired the property from hisspouse to whom he paid a rental.In the earlier affidavit foundingthe application for rehabilitation,an amount of R4 600 had beenlisted under monthly expenses asa rental.

THE DECISIONThe discrepancies between the

two affidavits deposed to by theapplicant indicated a lack ofcandour on his part.

Explanations of why concurrentcreditors had not proved claimsagainst the insolvent estate shouldhave been given and the fact thatthe applicant was still living in thesame house as that in which helived prior to his sequestrationshould have been disclosed.Explanation of how the spousecould have purchased the prop-erty when she and the applicantwere in straightened circum-stances should have been given.The discrepancy between therental figure initially given andthe higher figure paid to themortgagee had also not beenexplained.

In view of these inadequacies,the application for rehabilitationwas refused.

Insolvency

141

KING PIE HOLDINGS (PTY) LTD v KING PIE(PINETOWN) (PTY) LTD

A JUDGMENT BY MAGID JDURBAN AND COAST LOCALDIVISION21 AUGUST 1998

1998 CLR 628 (D)

A court has a discretion to setaside voluntary winding upproceedings commenced after acreditor’s winding up has begun.

THE FACTSOn 19 February 1998, King Pie

Holdings (Pty) Ltd broughtapplications to wind up King Pie(Pinetown) (Pty) Ltd and King Pie(Durban) (Pty) Ltd (the ‘respond-ents’). On 28 May 1998, themembers of the respondentspassed special resolutions interms of section 351 of the Compa-nies Act (no 61 of 1973) for theirvoluntary winding up. Therespondents registered the resolu-tions with the Registrar of Compa-nies and notified King Pie of them.They withdrew their defence toKing Pie’s applications.

Orders provisionally winding upthe respondents were thengranted. On the return day, theprovisional liquidator applied forthe discharge of these orders andan order that the voluntarywinding up proceed.

THE DECISIONSection 359(1)(a) of the Compa-

nies Act provides that when aspecial resolution for the volun-tary winding up of a company hasbeen registered in terms of theAct, all civil proceedings by oragainst the company shall besuspended until the appointmentof a liquidator. Section 359(2)(a) ofthe Act provides that legal pro-ceedings against a companywhich have been suspended by awinding-up may be continued

after the appointment of a liquida-tor upon giving the liquidatorthree weeks notice of such con-tinuation.

The civil proceedings referred toin section 359(1)(a) did not includeprovisional winding up proceed-ings such as those which had beenbrought against the respondents.Section 346(1)(e) of the Act ex-pressly envisages the bringing ofsuch proceedings in circumstanceswhere the company in question isbeing wound up voluntarily.Furthermore, the use of the phrase‘legal proceedings’ in section359(2)(a) did not connote a changeof intention and the permissiongranted in that sub-section was anindication that provisional wind-ing up proceedings could proceeddespite the voluntary winding upinitiated by the members.

While it was undesirable to havetwo winding up proceedingspersisting simultaneously, thecourt had a wide discretion insuch a case. A court need not setaside voluntary winding upproceedings before provisionalwinding up proceedings can takeplace. Having regard to the factthat the provisional winding upproceedings began on 19 Febru-ary, it was in the interests ofcreditors that these proceedingsresult in the confirmation of theprovisional order and that thevoluntary winding up be setaside.

Insolvency

142

LORDAN v DUSKY DAWN INVESTMENTS (PTY) LTD

A JUDGMENT BY HORN AJSOUTH EASTERN CAPE LOCALDIVISION17 JUNE 1998

1998 (4) SA 519 (E)

Creditors who object to theconfirmation of a compromiseproposed between a company andits creditors in terms of section311 of the Companies Act (no 61of 1973) may not object thereto onthe grounds that the company wasmismanaged and the directorsrequire interrogation in order toinvestigate the mismanagement.Though remedial steps may betaken in the case of suchmismanagement having takenplace, this is not a reason torefuse confirmation of thecompromise especially where theoverwhelming majority ofcreditors have voted in favour ofthe compromise.

THE FACTS Dusky Dawn Investments (Pty)Ltd was placed in liquidation. Theliquidator then made applicationin terms of section 311 of theCompanies Act (no 61 of 1973) forthe adoption of a compromise orscheme or arrangement.

The compromise proposed thatthe offeror would provide a loanto the company which would besubordinated to the claims ofother creditors.

The application resulted in acourt order that meetings ofcreditors be held to consider thecompromise. The meetings werethen called and the liquidatormade his report in terms ofsection 312(1) of the Act. In it, theliquidator used a form that hadbecome much used over the yearsand did not deal adequately withthe financial state of the company.

Of the nineteen creditors, fifteenvoted in favour of the compro-mise, two abstained and twoopposed the compromise. The twowho voted against the compro-mise opposed the confirmation ofthe order.

THE DECISIONThe main objection to confirma-

tion of the compromise was that itwould prevent the institution ofinterrogation proceedings into theaffairs of the company in terms of

section 415 of the Act. This sectionhowever, may be utilised onlywhere the enquiry is directed atfacts which may lead to thefinancial benefit of creditors. Thereal complaint of the opposingcreditors was that the directorshad been involved in irregularitiesand mismanagement of the affairsof the company. They couldpursue that complaint by employ-ing the provisions of such sectionsas section 424 of the Act.

As against this, the fact that themajority of creditors supportedthe compromise was important.This was an indication that theoffer was fair and reasonable. Theobjections of the minority share-holders being based on dissatis-faction with the management ofthe directors prior to liquidation,there was insufficient reason toreopen the enquiry which hadalready been completed in termsof section 311. That section is notthere to constitute a forum for theinvestigation into the activities ofthe directors. Whether the provi-sions of the section were com-pletely applied or not, the dissatis-fied creditors could still apply theremedial provisions of section 424.

The liquidator’s report in termsof section 312(1) was not an idealreport. However, it was sufficientfor the present purposes. Thecompromise was confirmed.

Insolvency

143

CLIFFORD v COMMERCIAL UNIONINSURANCE CO OF SA LTD

A JUDGMENT BY SCHUTZ JA(VAN HEERDEN DCJ,NIENABER JA, HOWIE JA andMARAIS JA concurring)SUPREME COURT OF APPEAL22 MAY 1998

1998 (4) SA 150 (A)

A ‘new for old’ clause in aninsurance policy may indicatewhat is considered material to theassessment of the risk on the partof the insurer so that inaccuraciescontained in the proposal formgiving rise to the insurancecontract may entitle the insureraffected by them to repudiate aclaim.

THE FACTSClifford submitted a proposal

form to Commercial UnionInsurance Co of SA Ltd with theintention of insuring a motorvehicle which she had purchasedin November 1993.

When completing the form, herauthorised agent stated that theyear of manufacture of the vehiclewas 1993. In fact, the vehicle hadbeen manufactured in 1991 andhad since then exchanged hands anumber of times between partieswho had been interested in thevehicle as an investment pur-chase. They had not registered thevehicle in order to defer theregistration date to as late a dateas possible.

The proposal form also statedthat the registration number of thevehicle was AGP434T. This wasthe number given on the tradeplates which had been used in thevehicle until that point but it wasnot a registration number.

The proposal form stated that thevehicle was registered inClifford’s name, although at thatpoint it had not yet been trans-ferred into her name.

An insurance policy was thenissued. It incorporated a ‘new forold’ clause in terms of whichCommercial Union undertook toindemnify to the extent of thecurrent cost of a new motor carshould the vehicle be stolen.

The vehicle was stolen. Cliffordclaimed under the insurancepolicy which had followed thesubmission of the proposal form.Commercial Union repudiated onthe grounds that the proposalform had contained inaccuracieswhich entitled it to repudiate.

THE DECISIONSection 63(3) of the Insurance

Act (no 27 of 1943) provides thatan insurance policy will not beinvalidated nor the insurer’sobligation excluded or limited onaccount of any representationmade to the insurer which is nottrue, whether or not the represen-tation has been warranted to betrue, unless the incorrectness ofthe representation is of such anature as likely to have materiallyaffected the assessment of the riskunder the policy at the time of itsissue or reinstatement or renewal.

This section was introduced tolimit the insurer’s right to repudi-ate on the grounds of a warrantyincorrectly given. Whereas previ-ously the insurer had been enti-tled to do so merely because awarranty had been given, whethermaterial to the insurer’s assess-ment of the risk or not, the sectionrequired that any representationupon which the insurer relied inassessing the risk had to bematerial.

The ‘new for old’ clause wasdecisive of the question whetheror not Commercial Union’sassessment of the risk was of sucha nature as to have been materi-ally affected by the inaccuracies inthe proposal form. The impor-tance of that clause lay in the factthat it was inserted in order todetermine the amount of indemni-fication without regard to thevalue of the vehicle. As a determi-nant of that amount its effect wasto exclude any assessment basedon the actual value of the vehicle,and therefore indicated what wasconsidered material to the assess-ment of the risk for CommercialUnion. In accepting that thevehicle was new, as stated in theproposal form, Commercial Unionwas materially affected in itsassessment of the risk, and hadtherefore been entitled to repudi-ate the claim.

Clifford’s action was dismissed.

Insurance

144

SANTAM BPK v CC DESIGNING BK

A JUDGMENT BY COMRIE J(FAGAN J and DESAI J concur-ring)CAPE OF GOOD HOPE PROVIN-CIAL DIVISION13 AUGUST 1998

[1998] 4 All SA 70 (C)

An insurance policy whichprovides that the insured isobliged to take all reasonablesteps to prevent loss requires thatthe insured does not act recklesslyin circumstances where a claimmay arise. It is not a provisionwhich allows the insurer anexclusion from liability

THE FACTSCC Designing BK insured a

motor vehicle with Santam Bpk.In terms of clause 5 of the agree-ment, it was provided that theinsured was obliged to take allreasonable steps and preventativemeasures to prevent accidents andloss of the vehicle.

CC’s representative, Cloete,advertised the vehicle for sale. Inresponse to the advertisement, hewas contacted by a person naminghimself ‘Solly’ and the two partiesagreed to the sale of the vehicle atthe price of R150 000 in cash. Sollyagreed to pay for the vehicle bydepositing the R150 000 intoCloete’s bank account. Solly sentby fax a copy of the relevantdeposit slip indicating the pay-ment, and Cloete then arrangedfor the vehicle to be delivered toSolly. Cloete inquired of his bankwhether or not the deposit hadbeen made in cash, but the bankwas unable to confirm whetherthe deposit had been by cash orcheque. The faxed copy of thedeposit slip was unclear and itindicated amounts of paymentsboth at the section provided forcash deposits and for chequedeposits.

After delivery of the vehicle, itwas discovered that the depositmade into Cloete’s account hadnot been in cash but by cheque,and that the cheque had beendishonoured. Cloete was unableto locate Solly and claimed againstSantam under the insurancepolicy. Santam repudiated on thegrounds that a loss sustained inthe course of a commercial trans-action was not covered by thepolicy, but (in view of the judg-ment De Wet v Santam Bpk 1996 (2)SA 629 (A)) later defended anaction for payment in terms of thepolicy on the grounds that Cloetehad, in breach of clause 5, failed totake all reasonable steps andprecautions to avoid the loss ofthe insured vehicle.

THE DECISIONThe cover given by the policy

was widely stated. It includedevents arising from the negligenceof the insured, qualified by theprovisions of clause 5. That clauseshould not be interpreted as anexclusion of liability.

In order to repudiate liabilityunder the clause, Santam had toshow that Cloete acted recklesslyin the sense that he failed to takereasonable precautions to preventthe loss which had occurred. Ithad therefore to show that Cloeterecognised the dangers to whichhe was exposed, that he tookmeasures to deal with them whichhe knew were inadequate or aboutwhich he did not care. In short, ithad to show that he had beenreckless.

The objective facts of the case didnot show that Cloete had taken achance when deciding to deliverthe vehicle on the strength of thedeposit slip which had been faxedthrough to him. He had assessedthe evidence of the deposit asreported to him by his bank andas given by the faxed copy of thedeposit slip and had made adecision based on that, as towhether or not to deliver thevehicle. He did not foresee thatSolly might be intending todefraud him.

In view of Cloete’s perception ofthe situation, it could not be saidthat he had acted recklessly. Theclaim was upheld.

Insurance

145

THE MT TIGR v BOUYGUES OFFSHORE

A JUDGMENT BY KING J(SELIKOWITZ J and FARLAM Jconcurring)CAPE OF GOOD HOPE PROVIN-CIAL DIVISION18 MARCH 1997

1998 (4) SA 206 (C)

A court will not order the sale of aship following its attachment ifthe owner of the ship shows thatthe ground for arrest does notconstitute a good cause of action.

THE FACTSThe Tigr was one of a fleet of

seven vessels and the only one ofthem operating outside of theCaspian Sea. As such, it was theonly earner of foreign exchangewhich was probably essential tothe continuation of its owner’sbusiness.

The ship was arrested byBouygues Offshore in an applica-tion in which it was shown thatthat company had made out aprima facie case against its own-ers. Later, an order authorisingthe sale of the ship was given forthe purpose of creating a fund fordistribution to creditors.

The ship appealed against thisorder.

THE DECISIONWhere a claim is contested, a

court will be reluctant to order thesale of the property if there is areasonable prospect that the

Shipping

owner will be able to show thatthe ground for arrest or attach-ment is not a good cause of action.

In the present case, little wasknown of the validity ofBouygues’ claims and it could notbe asserted that they had beenseriously made. Defences raisedagainst the claim had been seri-ously raised and could constitutegood defences if successful. Thecourt was however, in no positionto assess the merits of claim anddefence, and this was an indica-tion that the court should not yetmake a final order for the sale ofthe ship.

There was confusing evidence asto the value of the ship and itspotential for deterioration prior toits sale and the cost of preserva-tion, which was being borne byBouygues was a neutral factor.

In view of these factors, the saleof the ship could not be ordered.The appeal was upheld.

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