Current Commercial Cases - Stellenbosch University

Current Commercial Cases

2013

ISBN 978-1-920569-39-6

A SURVEY OF THE CURRENT CASE LAW

written by

Mark Stranex BA (Natal) Hons LLB (Cape Town)Advocate of the High Court of South Africa

The Law Publisher CCCK92/26137/23

ContentsIndex .......................................................................................................................................................... 4................................................................................................................................................................... 4AG PETZETAKIS INTERNATIONAL HOLDINGS LTD v PETZETAKIS AFRICA (PTY) LTD .................... 7ENGEN PETROLEUM LTD v MULTI WASTE (PTY) LTD ......................................................................... 8INVESTEC BANK LTD v BRUYNS ........................................................................................................... 9GAFFOOR N.O. v VANGATES INVESTMENTS (PTY) LTD.................................................................... 10LA LUCIA SANDS SHARE BLOCK LTD v FLEXI HOLIDAY CLUB........................................................ 11BARNARD N.O. v IMPERIAL BANK LTD ............................................................................................... 13EXCELLENT PETROLEUM (PTY) LTD (IN LIQUIDATION) v BRENT OIL (PTY) LTD........................... 14HUANG v BESTER N.O. ......................................................................................................................... 15EDKINS v REGISTRAR OF DEEDS, JOHANNESBURG ........................................................................ 16MINISTER OF MINERALS AND ENERGY v AGRI SOUTH AFRICA ...................................................... 18INDWE AVIATION (PTY) LTD v PETROLEUM OIL AND GAS CORPORATION OF SOUTH AFRICA

(PTY) LTD (NO 1) ............................................................................................................................... 20TEB PROPERTIES CC v THE MEC FOR DEPARTMENT OF HEALTH & SOCIAL DEVELOPMENT,

NORTH-WEST .................................................................................................................................... 22NELSON MANDELA METROPOLITAN MUNICIPALITY v NGONYAMA OKPANUM HEWITT-COLEMAN

24DEMETRIADES v PERIVOLIOTIS .......................................................................................................... 25LIBERTY GROUP LTD v SINGH ............................................................................................................. 26ABSA BANK LTD v MKHIZE ................................................................................................................... 27BASIL READ (PTY) LTD v NEDBANK LTD ............................................................................................ 28HANNOVER REINSURANCE GROUP AFRICA (PTY) LTD v GUNGUDOO........................................... 29HASSAN v BERRANGÉ N.O. .................................................................................................................. 31NEDBANK LTD v BESTVEST 153 (PTY) LTD ........................................................................................ 33NYATHI v CLOETE N.O. .......................................................................................................................... 34BESTER N.O. v SCHMIDT BOU ONTWIKKELINGS CC ........................................................................ 35VILLAGE FREEZER v CA FOCUS CC .................................................................................................... 36STANDARD BANK OF SOUTH AFRICA LTD v DLAMINI ....................................................................... 37NEDBANK LTD v BINNEMAN ................................................................................................................. 38SEYFFERT v FIRSTRAND BANK LTD ................................................................................................... 39VOLTEX (PTY) LTD v SWP PROJECTS CC ........................................................................................... 40HANO TRADING CC v JR 209 INVESTMENTS (PTY) LTD.................................................................... 41NORTHERN METROPOLITAN LOCAL COUNCIL v COMPANY UNIQUE FINANCE (PTY) LTD .......... 42CITY OF CAPE TOWN v HENDRICKS ................................................................................................... 44TH RESTAURANTS (PTY) LTD v RANA PAZZA (PTY) LTD ................................................................... 46MOBILE TELEPHONE NETWORKS (PTY) LTD v SMI TRADING CC ................................................... 47BODY CORPORATE PINEWOOD PARK v DELLIS (PTY) LTD ............................................................. 48NATIONAL CREDIT REGULATOR v OPPERMAN ................................................................................. 49BALKIND v ABSA BANK......................................................................................................................... 50FIRSTRAND BANK LTD v OWENS ........................................................................................................ 51NATIONAL CREDIT REGULATOR v STANDARD BANK OF SOUTH AFRICA LTD .............................. 52COMMAND PROTECTION SERVICES (GAUTENG) (PTY) LTD v SOUTH AFRICAN POST OFFICE LTD

53MKHWANAZI v QUARTERBACK INVESTMENT (PTY) LTD ................................................................. 54MAKULU PLASTICS & PACKAGING CC v BORN FREE INVESTMENTS 128 (PTY) LTD ................... 55CROOKES BROTHERS LTD v REGIONAL LAND CLAIMS COMMISSION, MPUMALANGA .............. 56NORTJE v FAKIE .................................................................................................................................... 57SANDOWN TRAVEL (PTY) LTD v CRICKET SOUTH AFRICA .............................................................. 58ACL GROUP (PTY) LTD v QICK TELEVENTURES FZE ........................................................................ 60FINTECH (PTY) LTD v AWAKE SOLUTIONS (PTY) LTD ....................................................................... 61HENNIE LAMBRECHTS ARCHITECTS v BOMBENERO INVESTMENTS (PTY) LTD .......................... 62LIVING HANDS (PTY) LTD v DITZ .......................................................................................................... 63PROPSPEC INVESTMENTS (PTY) LTD v PACIFIC COAST INVESTMENTS 97 LTD ........................... 65STANDARD BANK OF SOUTH AFRICA LTD v R-BAY LOGISTICS CC ................................................ 67SCANIA FINANCE SOUTHERN AFRICA (PTY) LTD v THOMI-GEE ROAD CARRIERS CC ................. 68

ROESTORF N.O. v JOHNS ..................................................................................................................... 69UNION FINANCE HOLDINGS (PTY) LTD v BONUGLI N.O. .................................................................. 70BRIDON INTERNATIONAL GMBH v INTERNATIONAL TRADE ADMINISTRATION COMMISSION .... 71BRIGHT BAY PROPERTY SERVICE (PTY) LTD v MORAVIAN CHURCH IN SOUTH AFRICA ............. 73EX PARTE GORE AND OTHERS NNO ................................................................................................... 74CHETTY v ITALTILE CERAMICS LTD .................................................................................................... 75FOIZE AFRICA (PTY) LTD v FOIZE BEHEER BV................................................................................... 76KOPM LOGISTICS (PTY) LTD v PREMIER, GAUTENG PROVINCE ..................................................... 77SENTINEL MINING INDUSTRY RETIREMENT FUND v WAZ PROPS (PTY) LTD ............................... 78JOUBERT SCHOLTZ INC v ELANDSFONTEIN BEVERAGE MARKETING (PTY) LTD ........................ 79SOUTH AFRICAN CONGO OIL COMPANY (PTY) LTD v IDENTIGUARD INTERNATIONAL (PTY) LTD

80FIRSTRAND BANK LTD v LODHI 5 PROPERTIES INVESTMENT CC .................................................. 81ROERING N.O. v NEDBANK LTD ........................................................................................................... 82CORPORATE MONEY MANAGERS (PTY) LIMITED v KUFA TRADING ENTERPRISE CC ................. 83ABSA TECHNOLOGY FINANCE SOLUTIONS (PTY) LTD v MICHAEL’S BID A HOUSE CC ............... 84RODEL FINANCIAL SERVICE (PTY) LTD v NAIDOO ............................................................................ 85RHOODE v DE KOCK ............................................................................................................................. 86STEVE TSHWETE LOCAL MUNICIPALITY v FEDBOND PARTICIPATION MORTGAGE BOND MAN-

AGERS (PTY) LTD.............................................................................................................................. 87INGONYAMA TRUST v ETHEKWINI MUNICIPALITY ............................................................................. 88INVESTEC EMPLOYEE BENEFITS LIMITED v MARAIS ...................................................................... 89ABSA BANK LTD v COMPANIES AND INTELLECTUAL PROPERTY COMMISSION .......................... 91COMMUNICARE LTD v KHAN ................................................................................................................ 92LIVANOS N.O. v OATES.......................................................................................................................... 93SMM HOLDINGS (PVT) LIMITED v MAWERE ....................................................................................... 94FOURIE v FIRSTRAND BANK LIMITED ................................................................................................. 95AGRI SA v MINISTER FOR MINERALS AND ENERGY ......................................................................... 97BERG RIVER MUNICIPALITY v ZELPY 2065 (PTY) LTD ....................................................................... 98CITY OF JOHANNESBURG v CANTINA TEQUILA .............................................................................. 100CAPE EMPOWERMENT TRUST LTD v FISHER HOFFMAN SITHOLE ............................................... 102BANDA v VAN DER SPUY .................................................................................................................... 104COMWEZI SECURITY SERVICES (PTY) LTD v CAPE EMPOWERMENT TRUST LIMITED .............. 105SENTINEL MINING INDUSTRY RETIREMENT FUND v WAZ PROPS (PTY) LTD ............................. 106CASEY v FIRST NATIONAL BANK LTD ............................................................................................... 107CHILIZA v GOVENDER ......................................................................................................................... 108PRO-MED CONSTRUCTION CC v BOTHA .......................................................................................... 109ARNTZEN v NEDBANK LTD ..................................................................................................................110LORCOM THIRTEEN (PTY) LTD v ZURICH INSURANCE COMPANY SOUTH AFRICA LTD ..............112

AAgency

estoppel by representation 43Arbitration

whether compulsory or not 48Association not for gain

not subject to section 30, Companies Act 11Authority

of officials to represent state organ 43

BBanking

guarantee, payable despite dispute 28Business rescue

applicability of 65company owning property 33notice to affected parties 8surety 9

CClose Corporation

de-registration of, failure to lodge annual return 91deceased member, sale of interest 93

Companiesassociation not for gain 11corporate veil, lifting of 74deregistered, validity of acts performed 73personal liability for debts of 94, 95reckless trading 95security for costs 62winding up 67

Companyaction for damages by shareholders 69deregistration, acts done while deregistered 61directors, election of 92liquidation of, interrogation of directors 34reckless trading, personal liability of party 95register of members, rectification of 10

Competitiondisclosure of confidential information 71

Constitutiondeprivation of property 49property, expropriation of 18, 97unregistered credit provider 49

Construction guaranteepayable despite dispute 28

Contractagreement to agree 20

public body, fairness 77arbitrium bono viri 20breach, anticipatory 58breach, procedure for cancellation 41exceptio non adimpleti contractus 46foreign jurisdiction clause 76franchise agreement 75

interfering in contractual relations 55interpretation of 105

resolutive condition 105obligation to make payment, lapsing of 106

resolutive condition 106offer and acceptance 53reciprocity of obligations 25resolutive condition 106resolutive condition, interpretation of 105tender, when ineffective 25written agreement not signed 83

Credit Transactionscession in securitatem debiti 26debt review 39debtor illiterate 37notice in terms of s 129 27notice of default 50notice to consumer 51novation, acknowledgement of debt as 85s 129 of National Credit Act 50sale on credit 40unregistred credit provider 49

DDebt

attachment of, garnishee proceedings 80Delivery

proof of, under National Credit Act 38Director

election of 92Domicilium

compliance with 41

EEvidence

failure to contest witness statement 94inference drawn from failure to dispute 94

Executionattachment of debt 80garnishee proceedings 80

Expropriationmeaning of 18, 97

FFranchise

franchisee invoking recripocity of obligations 46franchisee selling goods without authorisation 75

IInsolvency

commercial, factual 67commercial insolvency, demand under s 69 68creditor retaining rights of ownership 82demand, claim payable 83disposition without value 109dispute of fact 83grounds for

factual and commercial 81interrogation of directors 34liquidated claim as basis for sequestration 31

Index

payments made by insolvent after application brought14

s 84 82sale in execution, purchaser’s claim 16voluntary surrender, disclosure requirements 110

Insuranceinsurable interest 112

Interestmora, distinguished from damages claim 56

Investment managerduty of care to client 63

LLease

damages for lost rentalholding over 101

failing to comply with tender requirements 22Lease agreement

applicability of National Credit Act 84Lien

improvement, how proved 86Liquidation

dispute of fact in application for 83Liquidator

how cited in actions for company 13

MMandate

agent paying to creditor 79Minerals

right to mine, meaning of 97right to mine, nature of 18

Municipalitybuilding regulations 98notice to comply with by-law 44rates clearance 87

NNational Credit Act

debt review 39, 51lease agreement, whether subject to the Act 84notice in terms of s 129 27notice to consumer 51proof of delivery 38sale on credit 40secured loan 26termination of agreement subject to 37

Negligent misstatementwrongfulness requirement 102

Novationacknowledgement of debt 85

OOwnership

of shares, invalid transfer 10rei vindicatio not requiring tender by owner 86transfer requirements 35

PPension

claim, prescription of 89Prescription

amendment of summons 13bank account, incorrect debit entry 70bank enforcing security 107claim for rectification 35debt due to deregistered corporation 36interruption of 89knowledge of facts giving rise to claim 89of claim under Pension Funds Act 89

Propertybuilding unlawful structures 98mistakenly transferred 35network operator’s right to use 47rates payable to municipality 87sectional title, resolution of dispute with Body C 48use as a hotel, meaning of 100zoning of 100

Public tenderfailing to comply with, effect on vailidity of lease 22

RReckless trading

personal liability of accountant 95Rei Vindicatio

prescription of 35

SSale

latent defectvoetstoots clause 104

Sale in executiondebtor surrendering insolvent estate 16void when close corporation de-registered 91

Sale of fixed propertydefault, mora interest 56payment of price 109

Sequestrationbona fide and reasonable defence to 29claim disputed 29service of provisional order on SARS 108

Shareholderduty of care to company 63

Sharesownership of 10sale of, counter-performance and 25value of as liquidated claim 31

Suretybusiness rescue proceedings 9

TTender

failure to comply with requirements for 22Trade

anti-dumping 71

UUnjust enrichment

impoverishment test 79

VVoluntary surrender

benefit to creditors 110

7

AG PETZETAKIS INTERNATIONAL HOLDINGS LTD vPETZETAKIS AFRICA (PTY) LTD

A JUDGMENT BY JP COETZEE AJSOUTH GAUTENG HIGH COURT6 FEBRUARY 2012

2012 (5) SA 515 (GSJ)

A court may not grant an order ofbusiness rescue unless it is satisfiedthat there is a reasonable prospectof rescuing the respondent companyor, that there is a prospect that thefuture rescue plan will achieve thealternative object of section128(b)(iii) of the Companies Act (no71 of 2008), ie a better result thanimmediate liquidation.

THE FACTSAG Petzetakis International

Holdings Ltd was the shareholderof Petzetakis Africa (Pty) Ltd. Thelatter was in financial troubleand unable to pay its debts. Itsassets amounted to some R60m.Its liabilities amounted to someR225m. It ceased trading in 2010,and from the middle of 2011, itceased paying its employees.

Petzetakis Holdings applied foran order placing Petzetakis Africaunder business rescue ascontemplated in ch 6 of theCompanies Act (no 71 of 2008).

Marley Pipe Systems (Pty) Ltdwas a creditor of PetzetakisAfrica. Their concurrent claimamounted to some R45m. Theywere not cited as a respondent inthe rescue application and soughtto intervene in the rescueapplication. Marley counter-applied for the liquidation ofPetzetakis Africa. The NationalUnion of Mine Workers (NUMSA)also sought to intervene in therescue application.

NUMSA based its position onsection 128(1)(b) of the Act. Interms of the definition in section128(1)(b) of the Act ‘businessrescue’ means proceedings tofacilitate the rehabilitation of acompany by providing for (i)temporary supervision; (ii) atemporary moratorium; and (iii)the development of a rescue planaimed at restructuring thecompany, to enable it (a) tocontinue its existence on a solventbasis; or (b) if that object cannotbe achieved, to result in a betterreturn for creditors orshareholders than would resultfrom immediate liquidation.

NUMSA sought a postponementof the matter on the grounds thatfurther evidence of PetzetakisHoldings might demonstrate aprospect of continued existence ofPetzetakis Africa, alternatively abetter return for creditors orshareholders than would resultfrom immediate liquidation.

THE DECISIONIn terms of section 131(4)(a) the

prerequisites for a rescue orderare that (1) any one of therequirements of its three sub-sections* must be fulfilled, and (2)the court must be satisfied thatthere is a reasonable prospect ofrescuing the company concerned.

A proper application of thissection requires that a reasonableprospect of rescuing the companymust be present. Therequirements for the granting of asection 131 rescue order includethat the company underconsideration must have areasonable prospect of recovery.Once a company is underbusiness rescue, its rescue planmay be aimed at the alternativeobject, namely a better returnthan the return of immediateliquidation.

In the present case neither of thetwo objects referred to in s128(1)(b)(iii) was achievable. Thepapers certainly did notdemonstrate the existence of areasonable prospect thatPetzetakis Africa couldsuccessfully be rescued. Thefounding affidavit painted thepicture of a company which wasbeyond rescue unless it received alarge financial injection. Therewas no indication of a reasonableprobability that such a financialinjection would be received. Thepapers also did not demonstrate areasonable prospect of a rescueplan which would achieve abetter return than immediateliquidation.

On the evidence as presentedand the known evidence to bepresented in the event of apostponement as disclosed, thecourt could not be satisfied thatthere was a reasonable prospectof rescuing Petzetakis Africa or,that there was a prospect that thefuture rescue plan would achievethe alternative object of section128(b)(iii), ie a better result thanimmediate liquidation.

* (i) the company is financiallydistressed; (ii) the company has failed to payover any amount in terms of anobligation under or in terms of apublic regulation, or contract, withrespect to employment-relatedmatters; or (iii) it is otherwise just and equitableto do so for financial reasons andthere is a reasonable prospect forrescuing the company

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ENGEN PETROLEUM LTD v MULTI WASTE (PTY) LTD

A JUDGMENT BYBORUCHOWITZ JSOUTH GAUTENG HIGH COURT25 OCTOBER 2011

2012 (5) SA 596 (GSJ)

An application for business rescueshould not be brought on the shortform notice of motion but on thelong form, and should be brought onnotice to all affected parties.

THE FACTSThe business of Multi Waste

(Pty) Ltd was to purchase fuel tosupply to Multi Fleet Logistics(Pty) Ltd to enable it to conduct acargo- haulage business. Thecompanies were substantiallyindebted to Engen Petroleum Ltdin respect of fuel purchases, theirjoint indebtedness amounting toapproximately R8m.

To secure its position, Engenobtained a cession of the bookdebts of both companies and adeed of suretyship, and a writtenacknowledgment of debt infavour of Engen in which theyjointly undertook to dischargetheir outstanding indebtednessby means of instalments. Thisundertaking was breached.

Engen encountered difficulties incollecting the outstandingdebtors book. The parties met toreach agreement on ways inwhich Multi Waste and MultiFleet would overcome their cash-flow problems.

Ten days later, Engen receivednotice that a resolution envisagedin s 129 of the Companies Act (no71 of 2008) to voluntarily beginbusiness rescue proceedings hadbeen passed by the board ofdirectors of each of Multi Wasteand Multi Fleet. Engensuccessfully obtained an ordersetting aside the resolutions onthe ground that they had lapsedfor want of compliance withcertain procedural requirementslaid down in the Act.

Various employees and the soleshareholder and director of thecompanies, in their capacities asaffected persons in terms of s128(1)(a) of the Act applied, on anex parte basis using the shortform notice of motion, tocommence business rescueproceedings in terms of s 131(1) ofthe Act. Engen intervened tooppose the application.

THE DECISIONSection 131 of the Act provides

that unless a company hasadopted a resolutioncontemplated in section 129, anaffected person may apply to acourt at any time for an orderplacing the company undersupervision and commencingbusiness rescue proceedings. Anapplicant must (a) serve a copy ofthe application on the companyand the Commission, and (b)notify each affected person of theapplication in the prescribedmanner. Each affected person hasa right to participate in thehearing of an application in termsof the section.

It is clear from this section, thatnotice to interested parties isrequired. However, an ex parteapplication, or an applicationusing the short form notice ofmotion, is used either because it isnot necessary to give notice to therespondent, or the relief claimedis not final in nature. Such aprocedure is not consistent withthe requirements of section 131which requires notice. Anapplication brought on the shortform notice of motion and exparte, constitutes an irregularity.

An applicant must satisfy thecourt that all reasonable stepshave been taken to notify allaffected persons known to theapplicant, by delivering a copy ofthe court application to them.This the applicants in the presentcase had not done. There had notbeen compliance, or evensubstantial compliance, with thenotification requirements laiddown in the Act and Regulations.

The application was dismissed.

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INVESTEC BANK LTD v BRUYNS

A JUDGMENT BY ROGERS AJWESTERN CAPE HIGH COURT14 NOVEMBER 2011

2012 (5) SA 430 (WCC)

The defence to actions forenforcement of debts whichcompanies may raise underbusiness rescue proceedings interms of section 133(1) of theCompanies Act (no 71 of 2008) isnot a defence which a surety forsuch companies can raise against aparty seeking to enforce payment ofsuch debts against it.

THE FACTSInvestec Bank Ltd brought an

action against Bruyns based on aclaim for repayment of moneylent to Bruyns and variouscompanies for which Bruyns hadstood surety. The companies wereGolf Development InternationalHoldings (Pty) Ltd and Winners-Circle 111 (Pty) Ltd and theywere both in liquidation. It wasassumed that business rescueproceedings in respect of the twocompanies had commenced ascontemplated in s 132(1)(b) of theCompanies Act (no 71 of 2008).

In summary judgmentproceedings, Bruyns defended theaction brought against him assurety on the grounds that (a)section 133(2) prohibits claimsagainst parties who haveexecuted suretyships in favour ofa company undergoing businessrescue proceedings, (b) adefendant as surety can claim thebenefit of the moratoriumafforded to the companies bysection 133(1), and (c) the amountof the principal debt is rendereduncertain by the fact that it maybe compromised in terms of anapproved business rescue plan.

The court considered whetherthis constituted a sufficientdefence for the purposes ofsummary judgment proceedings.

THE DECISIONSection 133(2) provides that

during business rescueproceedings, a guarantee orsurety by a company in favour ofany other person may not beenforced by any person againstthe company except with leave ofthe court and in accordance withany terms the court considers justand equitable in thecircumstances.

The question whether adefendant as surety can raise as adefence the statutory moratoriumin favour of Golf DevelopmentInternational Holdings (Pty) Ltdand Winners-Circle 111 (Pty) Ltddepended on distinction betweendefences in rem and defences inpersonam. In the case of theformer - as opposed to the case ofthe latter - the defence would beavailable to the companies as theprincipal debtor as well asBruyns as surety.

The defence available to the twocompanies was a defenceavailable only to them. Themoratorium provided for in thesection was therefore notavailable to Bruyns as surety.

As far as the potentialcompromise of the principal debtwas concerned, it was pureconjecture as to whether thiswould happen at all. It was notknown whether an order placingthe companies under businessrescue would be granted. Withoutsuch an order, none of the furtherconditions which could result inthe compromising of claims byway of a business rescue plan hadany prospect of occurring.

Summary judgment wasgranted.

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GAFFOOR N.O. v VANGATES INVESTMENTS (PTY) LTD

A JUDGMENT BY VANHEERDEN, JA (MTHIYANE DP,LEACH JA, TSHIQI JA ANDNDITA AJA concurring)SUPREME COURT OF APPEAL30 MARCH 2012

2012 SACLR 139 (A)

An invalid transfer of shares from ashareholder does not divest theshareholder of ownership of theshares. A company’s register ofmembers may be rectified to reflectthe true owner of sharespurportedly transferred from thatmember by invalid transfer.

THE FACTSPrior to his death, Mr C.E.

Gaffoor was a shareholder inVangates Investments (Pty) Ltd.The company had beenestablished to develop a shoppingmall using land owned by themunicipality of Cape Town. Bythe time of his death in October2002, the development projecthad stalled, and was no longercontinuing.

In 2004, the other shareholdersof Vangates took steps to revivethe development project. Theyrequested the executors of thedeceased estate and the heirs, toeffect payment of the investmentamounts undertaken by theshareholders. No response wasforthcoming from either. Anoutside investor with expertise inproperty development, Zenprop,was brought into thedevelopment, and financing wasobtained from Barclays bank. Theexecutors in the deceased estateresigned their position.

The other shareholders thendetermined that as a result of thelack of participation of thedeceased estate, the shares it heldcould be transferred to them. InAugust 2004, the register ofmembers was amended to reflectthat transfer and the companysecretary signed the sharetransfer forms on behalf of thedeceased estate. The companypassed a resolution to take up thedeceased’s shares at a valuation ofR19 434 as determined by theauditors of the company as atdate of death.

In 2008, Gaffoor and the secondappellant were appointedexecutors in the deceased estate.They contended that the shareswere invalidly transferred fromthe deceased estate and claimedan order that the company’sregister of shares be rectified bydeleting the transfer of sharespreviously registered in the name

of Mr C.E. Gaffoor and reinstatingthe deceased estate with theshares.

THE DECISIONThe shares in the deceased estate

were invalidly transferred from itbecause there was neither anycontractual basis for the transfernor any intention on the part ofthe executors to relinquish theshares. The resolution to take upthe deceased’s shares was also notvalid because at that time, therewere no executors of the deceasedestate which meant that no noticeof the resolution could have beenproperly given.

In such circumstances, theargument that prescription hadrun against the claim for re-transfer of the shares could notprevail. Although the purportedtransfer of the shares from thedeceased estate had taken place inAugust 2004, and the claim fortheir reinstatement was made in2008, the claim being made wasnot for the shares themselvessince the deceased estate hadnever lost ownership of them. Theclaim was for rectification of theregister of shares so as toproperly reflect their ownershipby the deceased estate.

The executors claimed therectification of the register ofmembers in terms of section 115of the Companies Act (no 61 of1973). This section confers on thecourt a broad discretion to orderrectification of the register. Indetermining whether to grant orrefuse an application forrectification, the court makes ajudgment in the light of all therelevant considerations. In thepresent case, these considerationsincluded the financialcommitments made by both thedeceased and the othershareholders, the degree of riskeach undertook, the delay inbringing the application for

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rectification and the manner inwhich the shareholderspurported to transfer the sharesfrom the deceased estate.

Taking all of these factors intoaccount, justice and equitydemanded that the register ofmembers be rectified to reflect thedeceased estate as shareholder.

LA LUCIA SANDS SHARE BLOCK LTD v FLEXI HOLIDAY CLUB

JUDGMENT BY BORUCHOWITZAJA (MPATI P, HEHER JA,MALAN JA AND NDITA AJAconcurring)SUPREME COURT OF APPEAL30 MARCH 2012

2012 SACLR 163 (A)

An association which is formed forthe benefit of its members and notfor profit is not an associationreferred to in section 30 of theCompanies Act (no 61 of 1973) evenif the association forms part of agroup of companies which areengaged in profit-making activities.

THE FACTSFlexi Holiday Club was a

voluntary association whichoperated a property time-sharingscheme. It had some 60 000members. It was not operated asa profit-making enterprise butwas controlled by its twofounding members who alsocontrolled a group of companiesinvolved in the leisure andvacation industry which madeconsiderable profits in thatbusiness. Its constitution statedthat the objects of the Club wereto acquire holiday property forthe use and enjoyment of itsmembers.

The Club held shares in La LuciaSands Share Block Ltd. Theyentitled it to exclusive use of unitsin the share block scheme. LaLucia disposed of the Club’sshares when it refused to paycertain levies. The Club broughtan action against La Luciaclaiming return of the shares,alternatively damages.

La Lucia defended the action onthe grounds that the Club was

formed in contravention ofsection 30 of the Companies Act(no 61 of 1973) in that it had beenformed for the purpose of gain.Section 30 provides that nocompany, association, syndicateor partnership consisting of morethan twenty persons shall bepermitted or formed for thepurpose of carrying on anybusiness that has for its object theacquisition of gain by thecompany, association, syndicateor partnership, or by theindividual members thereof,unless it is registered as acompany under the Act.

THE DECISIONThe purpose of section 30 is to

prevent large tradingundertakings from being carriedon by large fluctuating bodies, sothat persons dealing with themdo not know with whom they arecontracting. The question waswhether this provision applied tothe Club on the grounds that theclub was formed or was carriedon for the purpose of conducting a

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business that had for its objectthe acquisition of gain by eitherthe club or the individualmembers thereof.

The fact that the Club held aportfolio of properties was noindication that it was formed forthis purpose. The fact that thevalue of the portfolio increasedover time was equally noindication of this. The members ofthe Club might have been able totrade in the points held by themas members of the Club, and evenmake a profit in their sale, butthis did not indicate that the Clubitself engaged in suchtransactions, nor that it couldmake a profit from them.

The Club was formed for thepurposes defined in itsconstitution. Its business was toacquire holiday accommodationand time-share interests for thebenefit of its members and inexchange for such acquisitions toissue members with points. Itwas purely a vehicle for theholding of holidayaccommodation which it madeavailable to its members. It didnot trade in the properties it held,and it was not the intention of theClub to sell the properties inorder to derive a profit or gain.

Section 30 of the Companies Acttherefore did not apply to theClub.

Companies

Reduced to its essentials, the business of the club is to acquire holidayaccommodation and time-share interests for the benefit of its members and inexchange for such acquisitions to issue members with points. The club is purelya vehicle for the holding of holiday accommodation or stock which it makesavailable to its members, and it does not trade in the properties held by it. It isclearly not the intention of the club to sell or dispose of the properties in order toderive a profit or gain. Members also do not join the club for the purpose ofmanaging its affairs but rather to secure holiday accommodation and to haveaccess to the club’s extensive portfolio of properties. As Mr Olsen put it for therespondents, the members associate in the club for the flexibility that itprovides. Nor do members join the club in order to sell their points at a profit orto trade-in points.

13

BARNARD N.O. v IMPERIAL BANK LTD

A JUDGMENT BY WEINER JSOUTH GAUTENG HIGH COURT1 NOVEMBER 2011

2012 (5) SA 542 (GSJ)

The liquidator of a company haslocus standi to sue on behalf of thecompany in liquidation and maybring an action on behalf of thecompany either by citing himself inhis capacity as liquidator or thecompany in liquidation.

THE FACTSBarnard and the other

applicants were the jointliquidators in the estate of ProMed Construction CC. They werecited in that capacity as theplaintiffs in an action theybrought against Imperial BankLtd.

They applied for an amendmentof their particulars of claim tosubstitute their citation as theplaintiffs with a citation of theplaintiff as ‘Pro Med ConstructionCC (in liquidation) (Pro Med)(Master’s Reference G27/50/04)duly represented herein byBarnard’ and the other jointliquidators.

Imperial Bank opposed theapplication on the grounds thatthe liquidators were not entitledto institute the actions in theirown names, they were not thecreditor as envisaged in terms of s15(1) of the Prescription Act (no68 of 1969), service of thesummons did not interrupt therunning of prescription, ProMed’s claim had becomeprescribed and the effect of theproposed amendment was to seeksubstitution of Pro Med as theplaintiff in the action.

The liquidators contended thatthe objection should not besustained because the liquidatorsdid not institute the action intheir own names but in arepresentative capacity for andon behalf of Pro Med (inliquidation).

THE DECISIONLegal authority is divided as to

the correct manner of citation ofthe plaintiff in proceedingsbrought by the company or itsliquidator. In Fey N.O. v Lala GovanExporters (Pty) Ltd 2011 (6) SA 181(W) it was held that any action

brought by the liquidatorpursuant to his powers under s386(4)(a) must be brought in thename of the company and not bythe liquidator in hisrepresentative capacity.However, in KwaZulu-Natal, inShepstone & Wylie v Geyser 1998 (1)SA 354 (N) it was held that thecitation of the liquidator in hiscapacity as such does notrepresent a defect sufficient tonon-suit the plaintiff. And inFundstrust (Edms) Bpk (in Likwidasie)v Marais 1997 (3) SA 470 (C) it washeld that that a company couldnot sue in terms of s 424 and thatonly the liquidators had locusstandi.

Most of the authorities referredto deal with the statutory powersof the liquidator. There was astronger case, in that instance, forthe liquidator to be cited as theplaintiff, as it is clear from theparticular sections referred tothat the liquidator (as opposed tothe company in liquidation) isspecifically given such power.

In the present case, the courtwas dealing with the locus standiof the liquidator in terms ofsection 386(4)(a). The sectionempowers the liquidator to bringproceedings. That empowermentvests the liquidator with locusstandi. The requirementencompassed in section 386(4)(a)relates to the citation to be used. Ifthis is done incorrectly, this doesnot detract from the locus standiof the liquidator.

The citation of the plaintiffs,even based upon a strictinterpretation of s 386(4)(a), was amere misdescription. Since theliquidators in their capacity assuch had locus standi at theinception of the proceedings,prescription would not apply.

The amendment was granted.

Insolvency

14

EXCELLENT PETROLEUM (PTY) LTD (IN LIQUIDATION) vBRENT OIL (PTY) LTD

A JUDGMENT BY PRINSLOO JNORTH GAUTENG HIGH COURT22 MAY 2012

2012 (5) SA 407 (GNP)

A court may order that paymentsmade by a company after anapplication for its winding up havebeen made and up until itsprovisional liquidation should bevalidated.

THE FACTSFrom September 2005, Excellent

Petroleum (Pty) Ltd began doingbusiness with Brent Oil (Pty) Ltd.Excellent ordered diesel fuel andilluminating paraffin from BrentOil which it then distributed at aprofit. Brent Oil requiredpayment before delivery of thefuel.

During the period 3 April 2006to 8 June 2006 Excellent madepayments to Brent Oil in theaggregate sum of R4 091 974,66.Brent Oil supplied the fuel forwhich payment had been made.

On 3 April 2006, an applicationfor the winding up of Excellentwas made to court. On 31 May2006, the company was placedunder provisional liquidation,and later placed under finalliquidation, and liquidators wereappointed.

The liquidators took the viewthat the payments made byExcellent after 3 April 2006 werevoid because of the effect ofsection 341(2) of the CompaniesAct (no 61 of 1973). This sectionprovides that every disposition ofa company being wound-up andunable to pay its debts made afterthe commencement of thewinding-up, shall be void unlessthe court otherwise orders.

The liquidators brought anaction claiming payment of R4091 974,66. Brent Oil defended theaction on the grounds that inselling and supplying fuel toExcellent, it did so in the normalcourse of business and in thebona fide belief that Excellent wasconducting business in solventcircumstances. To the best ofBrent Oil’s knowledge and belief,Excellent retailed the fuel in the

open market, required the fuel tocontinue to operate its businessfor profit, and utilised theproceeds of the sale of the fuelsupplied during the period 3April 2006 to 8 June 2006 tofinance further purchases fromBrent Oil during this period.

Brent Oil contended that theproviso to section 341(2) shouldapply and the court should orderthat the dispositions were notvoid.

THE DECISIONThe undisputed evidence was

that Brent Oil had no idea ofExcellent’s financial difficulties orof the liquidation proceedingshaving been launched and aprovisional order having beengranted. On the probabilities, thebona fides of Brent Oil werebeyond question.

It could hardly be argued thatthe moneys now being reclaimedwere paid to the defendant to thedetriment of other creditors. Themoney was paid in the normalcourse of trade in exchange forcorresponding quantities of fuel.The company had been trading onthis basis for a considerableperiod of time, having conductedits business of purchasing fuel forthe sale to clients at a profit. Thisnormal commercial activity wasaimed at keeping Excellent afloatand swelling its cash resources,even if it turned out that by April2006 Excellent was commerciallyinsolvent.

In these circumstances, thepayments made up until 31 May2006 were made undertransactions which should bevalidated. An order to that effectwas made.

Insolvency

15

HUANG v BESTER N.O.

A JUDGMENT BY SATCHWELL J(MAYAT J and TSHABALALA Jconcurring)SOUTH GAUTENG HIGH COURT30 MAY 2012

2012 (5) SA 551 (GSJ)

The enquiry as contemplated in s423 of the Act can be delegated to acommissioner in terms of s 418thereof.

THE FACTSDerry Properties (Pty) Ltd, was

wound up in terms of s 344(h) ofthe Companies Act (no 61 of1973). Bester, the executor in thedeceased estate of a 50%shareholder in Derry Propertiesapplied for and was granted anorder for an enquiry to be heldbefore a commissioner in terms ofss 418 and 423 of the Act forpurposes of questioning Huang.Huang had been the financialmanager of the company.

The court was asked todetermine whether or not theenquiry as contemplated in s 423of the Act could be delegated to acommissioner in terms of s 418thereof.

Section 423 provides that wherein the course of the winding-up ofa company it appears that anyperson who has taken part in theformation or promotion of thecompany, or any past or presentdirector or any officer of thecompany has misapplied orretained or become liable oraccountable for any money orproperty of the company or hasbeen guilty of any breach of faithor trust in relation to thecompany the court may, on theapplication of the Master or of theliquidator or of any creditor ormember or contributory of thecompany, enquire into theconduct of the promoter, directoror officer concerned and mayorder him to repay or restore themoney or property or any partthereof, with interest at such rateas the court thinks just, or tocontribute such sum to the assetsof the company by way ofcompensation in respect of themisapplication, retention, breach

of faith or trust as the courtthinks just.

Section 418 provides that theMaster or the court may refer thewhole or any part of theexamination of any witness or ofany enquiry under the Act to acommissioner.

THE DECISIONSection 418 is stated in very

broad terms. The only limitationupon the type of enquiry to whicha commissioner may beappointed is that it must be‘under this Act’ and ‘inconnection with the winding-upof any company’.

Whatever the implications forthe admissibility of evidenceobtained at an enquiry underthese sections, a determinationthat the enquiry as contemplatedin s 423 of the Act can bedelegated to a commissioner interms of s 418 thereof merelyrequires that a judge, applying hisor her mind judicially, maydecide to delegate certain powersto a commissioner. Suchdelegation does not render morepersons vulnerable to these moreinformal procedures, does notcreate further inroads into theusual adversarial procedures,and does not deprive anindividual of rights torepresentation. Such delegationstill requires the court to retainoverall control of the process andthe report of the commissionerwill have to be dealt with by thecourt in accordance withappropriate procedure andevidential rules.

The enquiry as contemplated ins 423 of the Act can be delegatedto a commissioner in terms of s418 thereof.

Insolvency

16

EDKINS v REGISTRAR OF DEEDS, JOHANNESBURG

A JUDGMENT BY MOSHIDI JGAUTENG SOUTH HIGH COURT9 MARCH 2012

2012 (6) SA 278 (GSJ)

A purchaser of fixed property at asale in execution is entitled totransfer of the property into hisname despite the property ownerhaving given notice of his intentionto surrender his estate when theowner waits until the sale iscompleted before giving suchnotice.

THE FACTS Mr T Mthethwa owned certainfixed property. It was bonded toAbsa Bank for R1.1m. Mthethewafell into arrears in repaying thebond, in consequence of which thebank brought foreclosureproceedings against him. InFebruary 2010 the bank obtaineddefault judgment against him,and an order declaring the fixedproperty to be speciallyexecutable. In August 2010, theimmovable property was sold inexecution to Edkins by the sherifffor R530 000.

Three days later, Mthethwapublished in the GovernmentGazette and the local newspaper,a notice of his intention tosurrender his estate in terms ofthe provisions of s 4(1) of theInsolvency Act (no 24 of 1936). On3 October 2010 the voluntarysurrender of the insolvent estatewas accepted by the NorthGauteng High Court, Pretoria,and placed under sequestration inthe hands of the Master of theHigh Court.

The trustees of the insolventestate took the view thatnotwithstanding the sale inexecution, the ownership of theimmovable property sold inexecution vested in them upontheir appointment as trustees byvirtue of the provisions of s 20 ofthe Insolvency Act. They also tookthe view that Edkin’s right toclaim transfer of the propertyprior to sequestration was anunsecured personal right, andthat based on the principlespertaining to a concursuscreditorum, which came intoexistence upon sequestration,they would treat Edkin’s claim asone of the claims of creditors as ifexisted prior to sequestration.

Edkins claimed the right to taketransfer of the property.

THE DECISIONSection 20(1)(c) of the Insolvency

Act provides that the effect ofsequestration is that as soon asany sheriff or messenger, whoseduty it is to execute any judgmentgiven against an insolvent,becomes aware of thesequestration of the insolvent’sestate, to stay that execution,unless the court otherwisedirects. In the present casehowever, there was no evidencethat the estate of the insolventever vested in the master at thetime of the sale in execution beforethe appointment of the trustees.There was also no evidence thateither Edkins or the sheriff wasaware of the insolvent’s notice tosurrender his estate, whichoccurred after the sale inexecution.

There was also no evidenceregarding the circumstancesunder which the decision wasmade by Mthethwa to apply forthe surrender of his insolventestate. It was therefore to bereasonably accepted that he knewfull well about the attachmentand the imminent sale inexecution but waited until afterthe completion of the sale inexecution before he decided toapply for the surrender of hisestate, and prior to thepublication of the relevant noticesof surrender. In so doing, he wasnot bona fide. There was also noevidence that Edkins acted in badfaith when he purchased theproperty.

It followed that section 20(1)(c)did not apply in the presentcircumstances.

As far as the argument based onthe concursus creditorum wasconcerned, there was no evidenceof the claims of creditors otherthan that of the bank. Given theprice at which the property wassold, there would be no surplusavailable for any other creditors.

Property

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In the light of this, the trusteeshad not made out a case to justifytheir decision to reject the saleagreement concluded at the salein execution.

In the present case, thesurrender had been made tothwart the sale in execution.Mthethwa concealed the true

facts until well after the sale inexecution, when he published thenotices to surrender his estate. Inany event, in terms of s 5(1) of theInsolvency Act provision is madethat, in the event that a sale inexecution were to take placebefore publication of the notice ofvoluntary surrender, the transfer

of the property could still takeplace. The publication of the saidnotice can therefore effectivelystop a sale in execution that hasnot taken place, but not thetransfer of the property after thesale has taken place.

Edkins was therefore entitled totransfer of the property into hisname.

Property

The provisions of s 20 of the Insolvency Act (as do the provisions of s 5 of the same Act,which I deal with later herein) in the context of the present matter require that in theirconstruction the plain meaning of their language must be adopted, unless it leads to someabsurdity, inconsistency, hardship or anomaly. See Poswa v Member of the ExecutiveCouncil for Economic Affairs, Environment and Tourism, Eastern Cape2001 (3) SA 582(SCA) (2001 (6) BCLR 545) para 10. With this in mind, it is clear that the legislature couldnot have intended to nullify a valid sale in execution which occurs before an insolventsurrenders his estate in terms of the provisions of s 4(1) of the Insolvency Act. There is noevidence that the estate of the insolvent ever vested in the master at the time of the sale inexecution before the appointment as trustees of the third respondent and the fourthrespondent. There is no evidence that either the applicant or the sheriff was aware of theinsolvent’s notice to surrender his estate, which occurred after the sale in execution. If thesheriff was aware of the insolvency, he or she would probably have complied with theprovisions of s 20(1)(c) which provide, as stated above, that ‘as soon as any sheriff ormessenger . . . becomes aware of the sequestration of the insolvent estate, to stay thatexecution, unless the court otherwise directs’.

18

MINISTER OF MINERALS AND ENERGY v AGRISOUTH AFRICA

A JUDGMENT BY WALLIS JA(NUGENT JA, HEHER JA,MHLANTLA JA AND LEACH JAconcurring)SUPREME COURT OF APPEAL31 MAY 2012

2012 SACLR 215 (A)

The effect of the Mineral andPetroleum Resources DevelopmentAct (no 28 of 2002) was not toeffect an expropriation of theproperty of mineral rights holders,whether such persons were holdersof unused old order rights orholders of rights then beingexploited.

THE FACTSOn 1 May 2004, Sebenza Mining

(Pty) Ltd held the coal rightspertaining to a farm which itowned. These rights consisted inits common law mineral rightsfor which no prospecting permitor mining authorisation wasissued in terms of the MineralsAct (no 50 of 1991). On that day,the Mineral and PetroleumResources Development Act (no28 of 2002) (‘the Act’) came intoforce, superseding the MineralsAct.

The effect of the Act was tochange the position existingunder the Minerals Act byconferring on the Ministercustodianship of all mineralresources, and requiringindividuals who wish to obtainprospecting and mining rights toapply to her for them. The Actprovided for transitionalarrangements in regard to rightsalready existing when it cameinto force. In respect of ‘unusedold order rights’ - a categoryunder which Sebenza’s coalrights had fallen - these were tosubsist for a period of one year,but the holder had the exclusiveright to apply for a prospectingright or a mining right in terms ofthis Act, failing which the unusedold order right would cease toexist.

Sebenza did not apply for thecontinuation of its coal rightswithin the year of the Act’senactment. It ceded its coal rightsto Agri South Africa.

In March 2006, Agri claimedcompensation for the loss of theserights from the Department ofMinerals and Energy. TheMinister rejected the claim. Agriclaimed that the effect of thepassing of the Act was to depriveSebenza of its coal rights so as toamount to expropriation entitlingit to compensation. It contendedthat in terms of section 25(2)(b) of

the Constitution, it was entitledto compensation as a result of theexpropriation.

THE DECISIONSections 2 and 5 of the Act make

it clear that anyone who wishesto prospect for or mine mineralsin South Africa may only do so interms of rights acquired and heldunder the Act. In order todetermine whether their effect onSebenza was to expropriate itsproperty, it was necessary todetermine what an expropriationwas in terms of section 25(2) ofthe Constitution, what rightswere enjoyed by holders ofmineral rights prior to the cominginto force of the Act, and whetheror not those rights wereexpropriated in terms of theprovisions of the Act.

Acquisition of property by anexpropriating authority is acharacteristic of an expropriationin terms of section 25(2).However, in the case of propertytaking the form of mineral rights,the more important question iswhat the nature of those rightswas prior to the allegedexpropriation, since if they arefound not to be such that theywould have vested in the holderin the same way that commonlaw rights so vest, then it isquestionable whetherexpropriation could have takenplace. Historically, mineral rightshave been referred to as commonlaw rights, but this terminologyis a result of the role of the courtsand the changing legislativecontext in which they have beendefined, rather than an accuratecharacterisation of their truenature.

The applicable common lawprinciple is that the rights of theowner of immovable propertyextend up to the heavens anddown to the centre of the earth -expressed in abbreviated form as

Property

19

the cuius est solum principle.However, there is little indicationthat mineral rights find theirorigin here because frominception, their content has beenfounded upon their separationfrom the right of ownership inland. Upon a survey of all thelegislation governing mineralrights, from pre-Union times tothe present day, it appears thatthe underlying assumption wasalways that the right to mine wasa right which the State assertedfor itself and controlled. Inconsequence, the value of mineralrights has flowed from theholders’ entitlement to mine, asallowed under the applicablelegislation. Further, changes inlegislation governing the right tomine will affect those who havealready received authorisationsunder the current systemdifferently from those whomerely have the right to apply for

such authorisations, but have notyet done so.

The Act provides for the State toauthorise those who apply for theright to mine to exercise the rightto mine. Existing mineral rightsare relevant only in relation tothe transitional provisions of theAct. The effect of the Act was tovest the power to allocate theright to mine in the State. The Actwas therefore merely the latest ina long line of legislation andstatutory instruments in SouthAfrica affirming the principle thatthe right to mine is controlled bythe State, and allocated to thosewho wish to exercise it. The rightto mine remains under thecontrol of and vested in the State.It followed that the firstrequirement of an expropriation,namely that there be adeprivation of property, had notbeen established insofar as the

right to mine is concerned. Theright never vested in the holdersof mineral rights, but was vestedin the State and allocated to thoseholders in accordance with thelegislation applicable to it fromtime to time. It could not thereforebe expropriated although rightsflowing from the State’s allocationof the right to mine could.

The aim of the Act is to affordsecurity of tenure. This waslargely achieved by themechanism of translating existingmineral rights into old orderrights and providing for theirconversion. Whereas it is possiblethat instances of expropriationmay be proved to have takenplace in the implementation ofthis Act, given the nature ofSebenza’s right as it existed at thetime the Act was passed, noexpropriation of its right tookplace.

The appeal was upheld.

Property

20

INDWE AVIATION (PTY) LTD v PETROLEUM OIL AND GASCORPORATION OF SOUTH AFRICA (PTY) LTD (NO 1)

A JUDGMENT BY BLIGNAULT JWESTERN CAPE HIGH COURT21 JULY 2010

2012 (6) SA 96 (WCC)

It is possible to establish that anagreement to agree has beenconcluded by applying the test ofthe reasonable man (arbitrium bonoviri) to the actions of the partiesbetween whom the allegedagreement to agree has beenconcluded.

THE FACTS Petroleum Oil And Gas

Corporation of South Africa (Pty)Ltd operated two offshoreplatforms approximately 100nautical miles off the coast ofGeorge. The platforms wereinvolved in the drilling for andproduction of gas and crude oil.For a number of years, itregularly transported technicaland administrative personnel toand from the platforms byutilising helicopter servicesprovided by CHC Helicopters(South Africa) (Pty) Ltd. CHC alsoundertook to provide certainauxiliary services such asmanaging respondent’soperational base at GeorgeAirport and handling allpassengers. The agreementinitially endured for a period oftwo years but the term wasextended for two periods of sixmonths each. On 31 May 2008CHC assigned its rights andobligations under the agreementto Indwe Aviation (Pty) Ltd.

Petroleum Oil And GasCorporation of South Africa (Pty)Ltd was a wholly ownedsubsidiary of CEF (Pty) Ltd, acompany of which the state wasthe sole shareholder. Petroleumtowned, operated and managedthe state’s assets in the petroleumindustry.

On 11 March 2009 Indwe put aformal proposal to Petroleum fora two-year contract with anoption for another two years. Anamended proposal was notaccepted by Petroleum. On 22June 2009 Indwe agreed to afurther extension of theagreement to June 2010. Theparties continued in negotiationsbut on 30 June 2010 Petroleuminstructed Indwe to cease alloperations by midnight that day.It advised that Petroleum wouldnot extend Indwe’s contract anyfurther and that the South

African Air Force would betendering the service from 1 July2010. Indwe then ceased alloperations under the contractfrom 1 July 2010.

Indwe applied for an interiminterdict, pending the finaldetermination of relief, thatPetroleum be prohibited fromimplementing any formal orinformal agreement for theprovision of the aircraft andauxiliary services provided by itto Petroleum as at 30 June 2010,and ordering Petroleum to allowit to continue providing suchservices on the terms andconditions which pertained at 30June 2010.

THE DECISIONA standard such as the

reasonable man could be appliedto the conduct of a contractingparty who undertakes anobligation to negotiate a furtheragreement. Such a party would beobliged to act honestly andreasonably in the conduct of thenegotiations and a court would beable to determine whether itcomplied with such standards.Such a standard could apply inthe present case in respect of theagreement which Indwe allegedhad to be concluded between theparties. Indwe had established, atleast prima facie, that the allegedagreement to negotiate a furtheragreement was not too vague tobe enforceable.

It was not possible on the papersto determine finally whether suchan agreement was in factconcluded, as all the relevantevidence had not yet beenpresented. However, Petroleumhad attacked the allegedagreement mainly on the legalbasis that it lacked certainty, andnot on the ground that the factsalleged by Indwe were incorrect.It could therefore be accepted thatIndwe had established on a prima

Contract

21

facie basis that it concluded apreliminary agreement withPetroleum to negotiate a furtheragreement.

The agreement in question wasfor the acquisition by a publicauthority of goods or services byway of a tender or by way of acontract. In this case, publicmoney was being spent by a

public body in the public interest.Petroleum was not in this caseacting in terms of an existingcontract or the common law, andits actions constitutedadministrative action. As such,Indwe had a legitimateexpectation of continuation of theagreement.

The interdict was granted.

Contract

A second point of difference between the present case and United Group RailServices is the absence of an arbitration clause in the preliminary agreement in thiscase. The presence of such a clause appears to have played a role in the decision inUnited Group Rail Services.[30] In my view, however, the absence of an agreed reference of a dispute to anarbitrator is not a vital point of distinction. The arbitrator would in such a case beexpected to apply standards of reasonableness and good faith to the conduct of thenegotiating parties. It seems to me that the process of the application of suchstandards by a court would not in principle differ from that to be applied by anarbitrator.[31] It seems to me therefore that applicant has established, at least prima facie, thatthe alleged agreement to negotiate a further agreement is not too vague to beenforceable.

22

TEB PROPERTIES CC v THE MEC FOR DEPARTMENT OF HEALTH &SOCIAL DEVELOPMENT, NORTH-WEST

A JUDGMENT BY PETSE AJA(LEWIS JA AND BOSIELO JAconcurring)SUPREME COURT OF APPEAL1 DECEMBER 2011

2012 SACLR 123 (A)

A public officer deviating from therequirement of a process of invitingcompetitive bids may not depend onTreasury regulations 13.2.4 and 16A 6.4 when concluding a leasefollowing upon such a deviation ifit is not clear that thecircumstances of the lease’sconclusion warranted such adeviation. Section 217(1) of theConstitution provide no ground foravoiding such a competitive bidprocess if no rational reasons forthe conclusion of the lease can beoffered.

THE FACTS In 2008, the Department ofHealth and Social Development,North-West, was looking for newoffice accommodation for its headoffice personnel as its existinglease was to expire in August ofthat year. It entered intonegotiations with TEB PropertiesCC with a view to concluding alease which would provide itwith such accommodation. Theacting head of the Department,Ms Kgasi, invited the managingmember of TEB, Mr Bozwana, tosubmit a rental proposal to it.

After six months of negotiations,the parties concluded a lease interms of which the Departmenthired office accommodation fromTEB comprising 21612 squaremetres for a period of nine yearsand eleven months at a monthlyrental of R3 241 800 exclusive ofVAT. The lease was to begin on 1December 2009. Duringnegotiations, TEB was assured byKgasi that due to the urgency ofconcluding a lease, it was notpractical to procure the officeaccommodation required througha system of open tender. Despiteapproving the lease, theDepartment of Public Worksexpressed the view to TEB that ‘alease agreement of this magnitudeis normally subjected to an opentender process with a view ofmaximizing good value for thegovernment and ensuringeconomic and effective servicefrom the market’.

During the currency of the lease,the new head of the Departmentterminated the lease on thegrounds that it had beenconcluded irregularly because itfailed to comply with applicablestatutes, because TEB ‘knowinglyparticipated in an irregularacquisition of accommodationand/or office space’, and becauseTEB failed to provide any proof ofits participation in a public

bidding system for the officespace.

TEB brought an application foran order declaring that thetermination of the lease wrongful.The Department opposed theapplication on the grounds thatthe lease was invalid for failing tocomply with peremptoryprovisions of the Constitution,relevant Acts and TreasuryRegulations.

THE DECISIONThe applicable statutes were

section 217(1) of the Constitution,the Public Finance ManagementAct (no 1 of 1999) and theTreasury Regulations issued interms thereof and the North WestTender Board Act (no 3 of 1994).

Regulation 13.2.4 of the TreasuryRegulations provides that theaccounting officer of aninstitution may, for the purposesof conducting the institution’sbusiness, enter into leasetransactions without anylimitations provided that suchtransactions are limited tooperating lease transactions.Regulation 16 A 6.4 provides thatif in a specific case it isimpractical to invite competitivebids, the accounting officer oraccounting authority mayprocure the required goods orservices by other means,provided that the reasons fordeviating from invitingcompetitive bids must berecorded by the accounting officeror accounting authority.

TEB contended that these tworegulations provided the basis forthe deviation from the biddingprocess since Ms Kgasi hadexercised discretionary powerswhich were fair and inaccordance with the law andwith the requirements ofempowering legislation. Inconsequence there was a validconclusion of the lease. However,

23

in the circumstances of this case,these regulations provided noauthority for the deviation fromthe bidding process required forthe lease.

TEB also contended that in thelight of section 217(1) of theConstitution, taking into accountthe facts that Kgasi was, as theacting head of the department, itsaccounting officer; and in thatcapacity, had the authority todeviate from the bidding process,TEB was not obliged to enquire asto whether internal proceduralrequirements pertaining toprocurement of goods or serviceswithout any reference to abidding process had beencomplied with by Kgasi. Section217(1) provides that when an

organ of state in the national,provincial or local sphere ofgovernment, or any otherinstitution in national legislation,contracts for goods or services, itmust do so in accordance with asystem which is fair, equitable,transparent, competitive andcost-effective.

This argument could not besustained. If the head of adepartment, as the accountingofficer, deems it prudent todeviate from the requirements ofthe bidding system he would stillbe obliged to provide ‘rationalreasons for that decision’. As heldin Chief Executive Officer, SA SocialSecurity Agency NO v CashPaymaster Services (Pty) Ltd [2011] 3All SA 23 (SCA) para 15, this is a

material requirement.As far as the provisions of

section 4(1) of the North WestTender Board Act wereconcerned, they made it plainthat the exclusive power to, interalia, arrange the hiring andletting of anything on behalf ofthe Government vests in theProvincial Tender Board. Itfollowed that, as found in EasternCape Provincial Government 2001 (4)SA 142 (SCA), this disables aprovince from actingautonomously in that respect.

TEB also relied on the TurquandRule and estoppel. However,neither of these could assist it incircumstances where the leasehad been concluded in breach ofperemptory statutory prescripts.

The appeal failed.

Contract

When the head of a department, as the accounting officer, deems it prudent todeviate from the requirements of the bidding system he would nonetheless stillbe required to provide ‘rational reasons for that decision’ as this is a materialrequirement. The rationale for this requirement was described as ‘obvious’ inChief Executive Officer, SA Social Security Agency NO .

24

NELSON MANDELA METROPOLITAN MUNICIPALITY vNGONYAMA OKPANUM HEWITT-COLEMAN

A JUDGMENT BY MALAN JA(BRAND JA, BOSIELO JA, MAJIEDTJA AND BORUCHOWITZ AJAconcurring)SUPREME COURT OF APPEAL14 MARCH 2012

2012 SACLR 189 (A)

A mistaken payment by a partywhich is aware that the necessaryapproval for payment has not yetbeen given does not amount to anintention to pay irrespective ofwhether such approval will begiven. Such a payment may beconsidered excusable when bothparties are aware that finalpayment is dependent on suchapproval.

THE FACTSThe Nelson Mandela

Metropolitan Municipalitydecided to renovate the MatthewGoniwe Hostel in Kwazakhele,Port Elizabeth. It resolved that amanaging agent be appointed toprepare and motivate anapplication for funding and tosupervise completion of theproject..

The municipality did not havethe funds for the project, and so itresolved to apply for fundingfrom the Provincial HousingBoard (the PHB). The managingagent was directed to prepare andmotivate an application forfunding from the PHB. Followingthe appointment of the managingagent, in July 1996 NgonyamaOkpanum Hewitt-Coleman andthe other defendants wereappointed as primaryconsultants, ie as architects,quantity surveyors, consultingand electrical engineers, landsurveyors and town planners.Their fees were stated to besubject to PHB approval.

After 1996 and until 1999, thedefendants received payment fortheir services. During this period,the PHB gave its approval on anincremental basis and by meansof three resolutions, for paymentsto the defendants. A total of 102payments was made. Thedefendants were overpaid byR810 481,19. This figure wascalculated, having regard to thenature and extent of the workactually executed, the nature andextent of the services providedand the maximum amountspermissible in accordance withthe agreed ratios provided for intheir agreements with themunicipality. The payments weremade in accordance withstandard procedures followed bythe municipality and after themanaging agent certified therelevant claim made by one of thedefendants for it.

The municipality claimedrepayment of the amounts it had

overpaid. It alleged that theoverpayments had been made bymistake, and based its claim forrepayment on the condictioindebiti.

THE DECISIONThe defendants contended that

the municipality’s mistake inmaking the payments wasinexcusable. In the context of thecondictio indebiti, therequirement of excusability hasbeen called into question.However, it was not necessary toconsider this issue in the presentcase because it was possible toconclude that the mistakenoverpayments were excusable.

Since the PHB had not given aprior blanket approval for thepayment of the defendants’ fees,and their fees were subject to itsapproval, it was clear that themunicipality might makepayments which exceeded thatapproval, or were made withoutapproval having been given. Thiswas something which wasknown to all parties during theperformance of the agreements.The municipality made paymentin anticipation of the PHB’sapproval. It did not intend to paythe claims submitted whether ornot they were due. Although itmade payment withoutverification beyond the managingagent’s certificate, this did notmean that the municipality wasindifferent or reckless.

It was also clear that thedefendants, who knew that theirfees had to be approved, were notunder the impression that theywere entitled to the amountsclaimed, because it knew that themunicipality did not have themeans of verifying the true facts.The municipality’s failure to do socould not be construed as anindifference as to whether themoney was due or as an intentionto pay whether it was due or not.

In these circumstances themunicipality had shown that itsmistake was excusable.

Contract

25

DEMETRIADES v PERIVOLIOTIS

JUDGMENT BY MTHIYANE DP(BRAND JA, CLOETE JA,MHLANTLA JA ANDBORUCHOWITZ AJA concurring)SUPREME COURT OF APPEAL14 MARCH 2012

2012 SACLR 290 (A)

A party which must tenderperformance required in terms of acontract in order to assert its rightsagainst another party who isobliged to counter-perform, must doso prior to the other partyaccepting the repudiation of thecontract by that party.

THE FACTSPerivoliotis sold two hundred

shares in Thinamy EntertainmentLtd to Demetriades for R3.5m. Interms of the agreement, a balanceof R2.5m was payable in monthlyinstalments beginning on 7October 2003. The sharecertificates, cession of loanaccount, and all books documentsand records in the possession ofPerivoliotis relating to thecompany or the business were tobe delivered to Demetriades by 30September 2003.

Demetriades short-paid the firstinstalment, and failed to pay anyfurther instalments. Perivoliotissued for payment of the balanceoutstanding. Demetriadesdefended the action on thegrounds that the documentationto be delivered by 30 September2003 had not been delivered. Hecontended that this failureconstituted a repudiation of theagreement, and he accepted therepudiation.

Perivoliotis tendered delivery ofthe documentation, but laterwithdrew the tender. Hecontended that in view of theearlier tender, he was entitled topayment as claimed.

THE DECISIONThe tender made by Perivoliotis

came after Demetriades acceptedhis repudiation of the agreement.The agreement came to an endupon the acceptance byDemetriades of the repudiation.The tender could not revive acancelled agreement.

In any event, the effect of thewithdrawal of the tender was todeny Perivoliotis the right todepend on such tender. It was notpossible for him to rely on atender that was withdrawn andretroactively enforce rights whichmight have existed prior to thecancellation of the agreement.

The claim failed.

Contract

26

LIBERTY GROUP LTD v SINGH

A JUDGMENT BY SWAIN JKWAZULU NATAL HIGHCOURT, DURBAN7 JUNE 2012

2012 (5) SA 526 (KZD)

The cession of a claim for paymentfrom a creditor as security forindebtedness which might arise isnot a ‘secured loan’ as defined inthe National Credit Act (no 34 of2005).

THE FACTSLiberty Group Ltd and Singh

concluded a broking agreement interms of which the Singh, tradingas KwaZulu-Natal FinancialServices, would submit proposalsfrom clients for various contractsto be issued by Liberty. Singhwould be paid commissions onpremiums received by Libertyduring the currency of thecontracts.

Clause 10 of the agreementprovided that any advances madeto the brokerage at any timeagainst commission to be earnedor amounts advanced to it for anyother purpose whatsoever, wouldconstitute debts owed by thebrokerage to Liberty, whichLiberty could call upon to be paidat any time. As security for anypresent or future indebtedness toLiberty the brokerage ceded toLiberty its claim to all amounts towhich it might from time to timebecome entitled. Liberty wasentitled to set off any amountsowing to it by the brokerage fromany cause whatsoever, againstany indebtedness of Liberty to thebrokerage.

Liberty alleged that Singh owedit R466 780.77 in respect ofadvances made to it in terms ofthe agreement. It alleged that ithad advanced unearnedcommission to the brokerage inrespect of contracts issued by iton proposals submitted by thebrokerage prior to Libertyreceiving any premiums inrespect thereof. The contracts inrespect of which unearnedcommission was advanced to thebrokerage lapsed or went out offorce, with the result thatunearned commission that waspaid in advance to the firstdefendant had become repayable.

Singh defended Liberty’s actionfor payment on the grounds thatthe debt it sought to recover wasa ‘secured loan’ as defined in theNational Credit Act (no 34 of2005) and that Liberty had failedto allege that the demand

required in section 129 of that Acthad been complied with.

THE DECISIONA ‘secured loan’ as defined in the

National Credit Act is anagreement, irrespective of itsform but not including aninstalment agreement, in termsof which a person (a) advancesmoney or grants credit toanother, and (b) retains, orreceives a pledge or cession of thetitle to any movable property orother thing of value as securityfor all amounts due under thatagreement.

What Singh ceded to Libertywere the commissions whichLiberty was liable to pay toSingh. The debts, the payment ofwhich Liberty sought to secureby the cession, were advancesmade by Liberty to Singh inrespect of these commissions.Consequently, in terms of thecession, Singh ceded his claim forpayment of commission againstLiberty to Liberty as security forthe loan made by Liberty toSingh.

The crucial issue was whetherthis particular type of cessionwas one included in the definitionof a ‘secured loan’ in the Act. TheAct requires a cession of an ‘otherthing of value as security for allamounts due under thatagreement’. It is clear that the‘thing of value’ has to besomething other than the‘amounts due under thatagreement’, and not simply a‘thing of value’ other than ‘anymovable property’. What wasdue by Singh under theagreement was advances ofunearned commission by Liberty,and the ‘thing of value’ whichhad been ceded was Singh’s claimto payment of that verycommission when it became dueand payable. The cession wasaccordingly not one which fellwithin the definition of a ‘securedloan’ in terms of the NationalCredit Act.

Credit Transactions

27

ABSA BANK LTD v MKHIZE

A JUDGMENT BY OLSEN AJKWAZULU NATAL HIGHCOURT, DURBAN6 JULY 2012

2012 (5) SA 574 (KZD)

A notice to a debtor in terms ofsection 129 of the National CreditAct (no 34 of 2005) must come tothe attention of the debtor. A creditprovider may employ whatevermeans necessary to achieve thisand must give proof of having doneso.

THE FACTSAbsa Bank Ltd sent notices in

terms of section 129 of theNational Credit Act (no 34 of2005) to Mkhize and other of itsdebtors. In each case, a track andtrace report stated that the letterhad reached the correct postoffice, but that the registered itemhad been returned unclaimed.

The court raised the questionwhether sufficient notice to thedebtors had been given, asrequired by Sebola v Standard Bankof South Africa Ltd 2012 (5) SA 142(CC), and if not what ordershould be given under s130(4)(b)(ii) of the Act as to thesteps to be taken to obtainjudgment

THE DECISIONAbsa argued that what Sebola

determined was that the credit

provider need do no more thanprove that it took reasonablemeasures to ensure that thenotice reached the debtor’saddress so that, if the debtoracted reasonably, the noticeshould have come to his or herattention.

However, Sebola does not allow acourt to ignore the evidence thatthe notice has not in fact reachedthe debtor. Actual notice to thedebtor is required. In the presentcase, evidence that the debtorshad not received the section 129notice was before the court.Accordingly, the court could notgive judgment in favour of Absa.

The appropriate order wastherefor that Absa give notice tothe debtors by whatever meanswould achieve that object,whether by despatching a letterto them by ordinary post orotherwise.

Credit Transactions

In the case of Mkhize, service was effected on the daughter of the two defendants atthe address selected for service. In the case of Chetty, the summons was served onthe defendant’s father at the selected address.[75] In the case of Mlipha, service was effected by affixing a copy to the outer orprincipal door of the premises at the chosen address. But, Absa engaged the servicesof a tracing agent, whose evidence is before me on oath, and whose investigationsrevealed that the defendant, who is self-employed, continues to reside at the selectedaddress but that he is doing his very best to avoid his creditors, apparently inparticular because he owes arrear levies with respect to his property of about R80000.[76] It accordingly appears that in each of these cases, if a letter is sent by ordinarypost to the selected address, as long as it arrives there it is likely to come to theattention of the consumer. And, of course, in each of those cases Absa may be able toidentify other addresses to which it is worth sending a notice by ordinary mail.

28

BASIL READ (PTY) LTD v NEDBANK LTD

A JUDGMENT BY SALDULKER JSOUTH GAUTENG HIGH COURT13 APRIL 2012

2012 (6) SA 514 (GSJ)

A bank is obliged to make paymentin terms of a payment guarantee ifall conditions for payment havebeen met and there is no evidence offraud. It must do so irrespective ofany dispute between the parties tothe contract associated with theguarantee provisions.

THE FACTS Basil Read (Pty) Ltd sought and

obtained an urgent interdictpreventing Nedbank Ltd frompaying African Minerals Ltdsome $13m provided for inpayment guarantees given by thebank. The guarantees had beengiven in relation to a constructioncontract concluded by asubsidiary company of BasilRead, and that company claimedpayment from African Mineralsin terms of that contract. Theparties had entered intonegotiations for the paymentclaimed to be due, but while thesewere still pending, Basil Readpresented the claim for paymentin terms of the guarantees toNedbank without notice toAfrican Minerals.

When African Minerals learntthat the interdict had beengranted, it applied to court for areconsideration and setting asideof the interdict. It contended thatBasil Read’s failure to join it, andto provide for service of theapplication and the order on it,rendered the application that wasgranted fatally defective.

THE DECISIONThe advance payment

guarantees contractuallyobligthebankto pay Minerals according totheir terms. Thobligationindependent of the contract

between Read’ssubsidiary andMinerals. existence of an allegeddispute between the subsidiaryand Minerals wasno bar to thepaying the guarantee uponproper demand being made it.Furthermore, the existence of sucha dispute provided no reasonwhy theinterdict cnotbe grantedrestraining the from paying interms of the guarantee.contractual dispute betweenMineralsand the subsidiary,which not a party to theguarantee, wholly irrelevant tothe ‘sobligation to make payment.dispute not relate to the advancepayments that the subject-matterof the guarantees.

The conditions of paymentunder the guarantees had beenmet and there was no suggestionthat any fraud had taken place.

Basil Read was seeking tointerdict the performance of anestablished contractualobligation and therefore had toallege and prove that it had sucha right. It had failed to establishthis on a prima facie basis. Thepayment of a demand onguarantee — in the absence offraud — is valid, enforceable andlawful. African Mineral’s conductappeared to have been lawful.Basil Read had not made out acase of fraud on the part ofAfrican Minerals.

The interdict was set aside.

Banking

29

HANNOVER REINSURANCE GROUP AFRICA (PTY) LTD vGUNGUDOO

A JUDGMENT BY CACHALIA JA(MTHIYANE DP, NUGENT JA,MHLANTLA JA and NDITA AJAconcurring)SUPREME COURT OF APPEAL30 MAY 2012

2012 (6) SA 537 (SCA)

An application for sequestrationshould succeed even if the claim onwhich it is based is disputed unlessthe debtor can show that thedispute is raised on bona fide andreasonable grounds.

THE FACTSGungudoo was employed as a

senior investment manager byHannover Reinsurance GroupAfrica (Pty) Ltd. While soemployed he effected investmenttrades with a stockbroking firm,Barnard Jacobs Mellet. These wereshort trades, being the sale ofsecurities not then held byHannover, with a view to theirlater purchase at a lower price inorder to make delivery in terms ofthe sale.

As the short trades wereunsuccessful, the securities nothaving fallen in price beforedelivery was required,substantial losses were incurred.These amounted to R10 840 000.Hannover caused a forensic auditto be carried out. This concludedthat Gungudoo was personallyresponsible for this loss.Hannover alleged that Gungudoohad, with the co-operation of aclose corporation which hecontrolled, committed fraud ortheft against it. It brought anapplication for the sequestrationof Gungudoo’s estate. Gungudooopposed the application on thegrounds that he had beenauthorised to effect the shorttrades and that the lossesresulting from them should beborne by Hannover.

After the application had beenstarted, Hannover continued itsinvestigation of Gungudoo’sactivities, and concluded that as aresult of all of the transactions hehad initiated, Gungudoo wasindebted to it in the sum of R41m.Gungudoo contended that thetransactions he had effected wereauthorised and that the methodby which he had effected theminvolved a short term loan ofshares to another party, and werenot short sales as alleged.Gungadoo also contended thatbecause the application for hissequestration had not been served

on his employees - one securityguard, two other security guardswho were also drivers, threedomestic workers and abookkeeper-administrator - itfailed to comply with sections9(4A), 11(2A) and 11(4) of theInsolvency Act (no 24 of 1936).

THE DECISIONIt was clear that Gungudoo

transferred shares to the otherparty to offset the negativebalance in the accounts ofHannover. Assuming that he wasauthorised to engage in short saletransactions, he produced noproof that the recipient was thebeneficial owner of the shares inquestion. The transaction wastherefore an unlawful transfer ofshares to that party.

In any event, Gungudoo’sassertion that he executed thetransactions in issue with theauthority and knowledge ofHannover was also inherentlyimprobable. Furthermore,Hannover had demonstrated thatGungudoo had engaged in anelaborate subterfuge to make thistransaction between his closecorporation and Hannover’ssubsidiary appear to belegitimate. Gungudoo producedno evidence to show that theparty to which the shares hadbeen transferred had been thebeneficial owner of these sharesat any stage. He had therefore notbeen able to reasonably and ingood faith dispute Hannover’sclaim that he misappropriatedthe shares to the value of R10 840000.

As far as the opposition to theapplication based on the failure tocomply with the Insolvency Actwas concerned, the purpose of therelevant provisions of therelevant provisions was to ensurethat where a debtor conducts abusiness, notice of sequestration

Insolvency

30

or winding-up proceedings mustbe given to employees of thebusiness. In the present case noneof the Gungudoos’ employeeswere employed in a business

operation. The consequence of thiswas that Hannover did not carryany obligation to notify them ofthe sequestration proceedings.

I turn to consider whether Mr Gungudoo disputes the claims against him onreasonable and bona fide grounds — the second ground of appeal. It was not in issuethat the claims against the appellants involving the misappropriation of shares 2 and cash were all liquidated claims. Mr Gungudoo was therefore required, in goodfaith, to adduce facts which, if proved at trial, would constitute good defences toeach of the claims against him. 3 For their part, all that the respondents needestablish before us is a single claim in excess of R100, as s 9(1) of the Insolvency Act24 of 1936 requires, which the appellants are unable to contest on reasonable andbona fide grounds.

Insolvency

31

HASSAN v BERRANGÉ N.O.

A JUDGMENT BY ZULMAN JA(MPATI DP, FARLAM JA, LEWISJA and MAYA AJA concurring)SUPREME COURT OF APPEAL31 MAY 2006

2012 (6) SA 329 (SCA)

An application for sequestrationbased on a liquidated claim againstthe respondent may rely on theallegation that the respondent hasmisappropriated shares whosemarket value is determinable byreference to the ruling price of theshares at some stage followingtheir misappropriation.

THE FACTSHassan was the controlling

shareholder in NRB Holdings Ltd(NRBH), a bank which had beenregistered as such in 1970. Ittraded under the name NewRepublic Bank. That bank wasplaced under curatorship, andthen a scheme of compromise wasconcluded and two receiverswere appointed.

In 1998, the New Republic Banklent R32 658 649,35 to NRBH, thepurpose being to acquire sharesin Mitrajaya Holdings Berhad, aMalaysian company. By June1998 NRBH had acquired 14 000000 ordinary shares and 6 666666 warrants in Mitrajaya. Theshares and warrants wereregistered in the name of OSKNominees (Asing) Sdn Bhd, a firmof stockbrokers in Malaysia andwas subject to South AfricanReserve Bank conditions. Theseconditions included permission toacquire a 26% interest inMitrajaya and the transfer of upto an amount of MalaysianRinggit (RM) 24 133 333 in respectof the purchase consideration,and a restriction on the disposalor expansion of its interest inMitrajaya without its specificapproval.

In June 2000, Hassan becameengaged in negotiations with L &M Group Investments Ltd to takeover the Mitrajaya shares. InApril 2002, he procured aresolution from the board ofdirectors of NRBH in terms ofwhich the board authorised anytwo of the directors to giveinstructions orally or in writingto OSK Securities Malaysiaregarding the sale of securities. InJuly 2002 NRBH addressed aletter to OSK Securities, the letterbeing signed by Hassan andanother NRBH director,authorising OSK to execute a‘married deal’ between NRBHand Khidmas Capital Sdn Bhd of

22 400 000 Mitrajaya shares atRM1,15 per share. The letterinstructed OSK Securities tocredit the net proceeds of the saleto the buyers trading account aspart payment for its purchase ofthe shares. The shares were soldon 29 July 2002. The purchaserwas Khidmas Capital. Hasan wasa director of Khidmas Capital andhe held 99 999 issued shares inthat company.

In its financial statements for theyear ending 30 June 2003,Khidmas recorded that it ownedmarketable securities valued atRM17 388 000. It noted that theaforesaid shares were pledged toa financial institution for arevolving credit facility of RM20000 000 granted to Hassan. Thesame financial statementsshowed that in the year 2002, adirector owed the company RM19140 820. In 2003 this indebtedness- the indebtedness of Hassan toKhidmas - was shown as havingbeen discharged.

During 2002 Khidmas pledged22 400 000 Mitrajaya shares toSouthern Bank. The pledge wassecurity for a loan of some RM20000 000 granted by SouthernBank to Hassan, who used theproceeds of the loan to purchaseshares in a company known asSeacera Tiles. Its shares wereregistered in Hassan’s name.Thereafter, 9 500 000 of thepledged Mitrajaya shares weresold on the instruction ofSouthern Bank which receivedthe proceeds of the sale. Khidmassold more of the Mitrajaya shareson the open market.

In May 2003, the receivers ofNew Republic Bank Ltdinstituted winding-upproceedings against NRBH. It wasplaced under provisionalwinding up later that year. At thesame time, the liquidator,Berrangé, instituted proceedingsin Malaysia. He sought an urgent

Insolvency

32

interlocutory injunction anddiscovery order from the HighCourt at Kuala Lumpur, whichresulted in an order that theregistered holder of 22 400 000shares in Mitrajaya, wasrestrained from transferring,selling or disposing of theseshares.

Berrangé brought an applicationfor the sequestration of Hassan onthe grounds that NRBH had aliquidated claim against himarising from hismisappropriation of the shares inMitrajaya, and arising from himhaving appropriated money fromthe company’s bank accountwithout giving consideration.Hassan opposed the application.

THE DECISIONSection 228 of the Companies

Act (no 61 of 1973) provides thatthe directors of a company shallnot have the power, save with theapproval of a general meeting ofthe company, to dispose of thewhole or substantially the whole

of the undertaking of thecompany; or the whole or thegreater part of the assets of thecompany. No such resolution waspassed by the shareholders ofNRBH to dispose of substantiallythe whole of NRBH’s undertaking,and no such resolution wasplaced before the board ofdirectors of NRBH for theirapproval.

It was clear that Hassan hadmisappropriated the Mitrajayashares and that the proceeds oftheir sale ultimately vested inhim. The question was whetherthis meant that the liquidator,Berrangé, acquired a liquidatedclaim against him in consequence.The Insolvency Act (no 24 of 1936)provides that a liquidated claimis a claim whereof the amount isfixed either by agreement or byan order of court, or otherwise.The intention is that there shouldbe certainty in connection withthe amount of the claim. The legalbasis and the nature thereof donot affect a claimant’s locus

standi to apply to court to securepayment of that claim.

The Mitrajaya shares weremarketable securities whichtraded freely on the KualaLumpur stock exchange. As such,their market value was readilyavailable on any given day. Themeasure of the NRBH’s loss wastherefore the market value of themisappropriated shares. Theinescapable inference was thatHasan’s attempt to transferUS$100 000 from South Africa toMalaysia, without the knowledgeand consent of the respondent,was made with the intent toprejudice his South Africancreditors, in particular NRBH, orat least to prefer one creditorabove another.

The respondent thereforeestablished a claim as referred toin s 9(1) and Hassan committtedan act of insolvency in terms of s8(d). There was reason to believethat it would be to the advantageof creditors if Hasan was finallysequestrated

Insolvency

33

NEDBANK LTD v BESTVEST 153 (PTY) LTD

A JUDGMENT BY GAMBLE JWESTERN CAPE HIGH COURT12 JUNE 2012

2012 (5) SA 497 (WCC)

In exercising its discretion whetheror not to grant a business rescueapplication, a court should takeinto account that the interests ofthe creditors, as opposed to that ofthe company carry more weightwhen there is no business of thecompany to be rescued, as mightoccur when the company ownsproperty but does not trade.

THE FACTSBestvest 153 (Pty) Ltd owned

commercial property in CapeTown. It embarked on thedevelopment of the property byerecting on it a building known as‘360 Degrees’. The building wasfinanced by the company withmoney borrowed from ImperialBank Ltd , the sum of R26,1m andfrom Structured MezzanineInvestments (Pty) Ltd, a sum ofR6,5m. Both loans were securedby mortgage bonds.

The company was under-capitalised for the project and bymid-2010 it ran into cash-flowproblems. It renegotiated theloans, but by October 2011,Nedbank decided that the projectcould not survive. It applied forthe liquidation of Bestvest.

Bestvest accepted that it wascommercially insolvent butopposed the application, and alsoapplied for the appointment of abusiness rescue practitionerunder chapter 6 of the CompaniesAct (no 71 of 2008). Bestvestcontended that its short-termcash flow and liquidity issueswere a result of the economicrecession and that the company’sbalance sheet was strong andthat it had ‘the clear ability totrade out of its difficulties,alternatively to achieve a muchbetter return and result for [its]creditors than would result from .. . immediate liquidation’.

THE DECISIONThe two factors which a court

must consider in exercising itsdiscretion whether or not to grantbusiness rescue are that thecompany in question isfinancially distressed and thatthere is a reasonable prospectthat the company will be rescued.In the present case, it was clearthat Bestvest was financiallydistressed. The only question waswhether or not there was areasonable prospect that it could

be rescued.It was argued that an

application for business rescueshould contain a summary of theproposed business rescue plan inorder to place a court in a positionwhere it could decide whetherthere was a reasonable prospectof the company being saved frominsolvency. However, it should beleft up to the business rescuepractitioner to formulate therescue package once that personhas had an opportunity toproperly assess the company, itsprospects going forward and thereasons for its commercialdistress. This does not mean thata party can approach the courtfor the appointment of a businessrescue practitioner with flimsygrounds in the hope that thepractitioner will provide thepanacea to its problems. Theapplication must set out sufficientfacts, if necessary augmented bydocumentary evidence, fromwhich a court is able to assess theprospects of success beforeexercising its discretion. Thisshould, in the present case,include brief reasons for thecompany finding itselfcommercially insolvent, what thereasonable cost will be ofbringing the building tocompletion in order that it can becommercially viable, what theprospects are of raising thefinances required to so completethe building, and how best thebuilding, when completed, canattain commercial viability.

In the present case, the interestsof the creditors, as opposed tothat of the company, should carrymore weight, because there wasno business of the company to berescued. The benefit of placing thebusiness of the company on itsfeet again did not arise in thiscase. Having regard to all therelevant factors, the applicationfor business rescue could not begranted.

Insolvency

34

NYATHI v CLOETE N.O.

A JUDGMENT BY VAN OOSTEN JSOUTH GAUTENG HIGH COURT7 SEPTEMBER 2012

2012 (6) SA 631 (GSJ)

An examination of witnesses interms of section 417 of theCompanies Act (no 61 of 1973) notbe by way of written interrogatoryin circumstances when the companyin question has been placed inliquidation as a resultmismanagement or where fraud andtheft on the part of the directorsand other officers of the companyappear to have led to the demisethereof.

THE FACTSNyathi was a director and

majority shareholder of acompany which was placed inliquidation. The liquidatorsapplied to the Master for theholding of a commission ofenquiry into the affairs of thecompany in terms of section 417of the Companies Act (no 61 of1973). Cloete was appointed thecommissioner.

The liquidators were unable toobtain information and financialrecords and documents,concerning the company inliquidation. No such documentscould be found despite a diligentsearch. The liquidators statedthat such information wasnecessary to enable them, interalia, to recover substantial sumsof moneys owed to the company.In the report of the liquidators forpurposes of the second meeting ofcreditors, the estimated value ofthe assets of the company wasstated as R705 000. Its liabilitiesamounted to some R91,8m. Thereport further stated that theliquidators were unable tomeaningfully report on the affairsof the second respondent due tothe non-availability of thenecessary documents and otherinformation.

At the first hearing, Nyathi andthe other applicants were calledas witnesses. They applied for anorder that they be examined bywritten interrogatories ratherthan orally. Cloete refused theapplication. Nyathi and the otherapplicants then applied for anorder that they be examined inthat manner.

THE DECISION Given the circumstances of the

company’s liquidation, anenquiry was called for and was

rightly ordered by the Master.A written interrogatory would

be appropriate in circumstanceswhere the information sought ismerely formal in nature. Awritten interrogatory as aprecursor to oral examinationmight also, in certaincircumstances, be appropriate.But where the liquidation of acompany is prima facie the resultof mismanagement or wherefraud and theft on the part of thedirectors and other officers of thecompany appear to have led tothe demise thereof, thesubmission of written questionswill undoubtedly undermine theobject and purpose of the enquiry.The directors and other officers ofthe company are the ‘only eyes,ears and brains of the companyand often the only persons whohave knowledge of the workingsof the company’, and theliquidators, not having any priorknowledge thereof, are strangersto the affairs of the company andtherefore reliant on the oralexamination and cross-examination of witnesses to delvefor and hopefully discover thetruth concerning the affairs of thecompany.

Nyathi had failed to advanceany reasons for a preference forthe submission of writteninterrogatories. The sole reasonadvanced was that the writteninterrogatories would havesubstantially shortened theenquiry proceedings. However,given the circumstances of thecase this contention could not beaccepted.

The commissioner’s refusal ofthe request was fully justified. Itfollowed that the application for areview of his decision had to fail.

Insolvency

35

BESTER N.O. v SCHMIDT BOU ONTWIKKELINGS CC

A JUDGMENT BY BRAND JA(SNYDERS JA, LEACH JA,THERON JA and WALLIS JA )SUPREME COURT OF APPEAL21 SEPTEMBER 2012

2013 (1) SA 125 (A)

A claim for rectification of a deed oftransfer which mistakenly recordstransfer of property to a particularperson is not the enforcement of adebt as defined in the PrescriptionAct (no 68 of 1969).

THE FACTSIn October 2003, Bou

Ontwikkelings CC sold a portionof erf 3117, Sedgefield to InnovaLtd. The attorney attending totransfer of the propertymistakenly transferred to Innovaboth the portion of the erf and theremainder.

Innova passed a mortgage bondover the remainder of theproperty in favour of Absa BankLtd. This took place at the sametime as the registration of otherbonds in favour of the bank overother properties owned byInnova.

When Schmidt Bou discoveredthat the remainder of theproperty had been transferred toInnova, it claimed an orderdeclaring that it was the owner ofthe property, rectifying the deedof transfer and cancelling thebond passed in favour of Absa.

THE DECISIONSince the transfer of ownership

requires both delivery and anunderlying agreement, and thelatter requires intention totransfer, no transfer of ownershiptook place in the present case. Theintention to transfer was absent.Innova’s liquidators however,contended that Schmidt’s claimhad become extinguished becauseit had prescribed in terms of thePrescription Act (no 68 of 1969).

A claim for rectification is not aclaim for enforcement of a debtbecause it does not alter the rightsand obligations of the parties. Theliquidator argued that in the

present case, such an alterationwould take place becauserectification would entailregistration of the property in anew name, that of Schmidt Bou,and symbolic transfer of theproperty to it. However,rectification would not alter therights and obligations of theparties. It would only correct anincorrect memorial of theagreement between them. neverbecame the owner of theremainder of the property,despite the entry in the deedsregistry. Schmidt Bou remainedthe owner. In consequence, thedeed of transfer did not correctlyreflect the underlying agreement.The rectification sought wouldnot constitute any delivery,symbolic or otherwise, of theproperty, and it would notchange the rights and obligationsof the parties. It would simplycorrect the erroneous memorial ofthose rights.

There was therefore nodifference, in the present context,between rectification of acontract, and rectification of adeed of transfer. Hence, SchmidtBou’s claim for rectification of thedeed of transfer did not constitutea claim for delivery of property inthe form of a rei vindicatio, andwhat Schmidt Bou claimed didnot rely on any obligation byInnova to do, or to refrain fromdoing, anything. As in the case ofrectification of a contract, ittherefore had no correlative‘debt’, as contemplated by thePrescription Act, which could beextinguished by prescription.

The claim succeeded.

Prescription

36

VILLAGE FREEZER v CA FOCUS CC

A JUDGMENT BY MAKAULA J(GRIFFITHS J concurring)EASTERN CAPE HIGH COURT3 APRIL 2012

2012 (6) SA 80 (ECG)

The effect of deregistration of aclose corporation is to prevent thevalid issue of summons by such aclose corporation. The consequenceof this is that prescription of a debtwill not be interrupted by the issueof such a summons, even if the closecorporation is later re-registered.

THE FACTSIn November 2007, CA Focus CC

was deregistered as a closecorporation. In March 2008, itissued summons against VillageFreezer for payment in respect ofservices rendered in the periodApril to September 2006.

In March 2010, CA Focus was re-registered.

Village Freezer raised a specialplea to the claim to the effect thatCA Focus was not in existencewhen summons was issued andits claim against Village Freezerhad prescribed. It contended thatthe effect of section 26(7) of theClose Corporations Act (no 69 of1984) is not to createretrospective judicial personalityto perform judicial acts and tovalidate or revive proceedingswhich were commenced duringthe period of deregistration. CAFocus contended that whateverdefects existed by virtue of CAFocus’ deregistration, these wereretrospectively cured by its re-registration during March 2010when its claim against VillageFreezer had been revived.

Section 26(7) provides that theRegistrar shall give notice of therestoration of the registration of acorporation and the date thereofin the prescribed manner and asfrom such date the corporationshall continue to exist and bedeemed to have continued inexistence as from the date ofderegistration as if it were notderegistered.

THE DECISIONThe provisions of s 26(7) of the

Act and the equivalent provisionin the old Companies Act (no 61 of1973) are distinguishable, in thatthe latter Act provides for a morestringent and strict process forrestoration. It required that anapplication for restoration bemade in court and that notice begiven to third parties who may beprejudiced by the restorationorder. Section 26(7) of the Act, onthe other hand, empowers theregistrar to restore a corporationon application by an interestedperson if he is satisfied that thecorporation was carrying onbusiness or was in operationwhen it was deregistered or thatrestoration is just.

A summons issued by acompany after deregistration is anullity. There is no reason toconclude that the effect of thiswould be to change the rules ofprescription as provided for inthe Prescription Act (no 68 of1969). The effect of section 26(7) ofthe Act was therefore not torevive a debt due to the closecorporation, which hadprescribed during the course ofthe deregistration period.

The special plea was upheld.

Prescription

37

STANDARD BANK OF SOUTH AFRICA LTD v DLAMINI

A JUDGMENT BY D PILLAY JKWAZULU NATAL HIGHCOURT23 OCTOBER 2012

2013 (1) SA 219 (KZD)

A credit provider is obliged toensure that a person to whom itgives credit understands thetermination procedures of theagreement in terms of which creditis given.

Credit Transactions

THE FACTSDlamini bought a Toyota Corolla

for R85 745,02 at Starlight AutoSales, a second-hand cardealership in Pinetown. He paid adeposit of R15 000, and thebalance was financed byStandard Bank of South AfricaLtd which in terms of thefinancing arrangement becamethe seller of the car.

After leaving the dealershipwith the car, Dlamini noticed thatthe vehicle was jerking andsmoking. He consulted a mechanicwho test-drove the car. After hetest-drove the car, he predictedthat it would not last for morethan 30 km. He discovered thatthe vehicle had been rebuiltfollowing an accident. Aspredicted, the car did breakdown, and Dlamini had it towedback to the dealership.

Dlamini did not notify the bankof the termination of theagreement by fax as prescribed inthe agreement. When the banksought payment of the balanceoutstanding under the agreement,it contended that because theagreement had not beenterminated as required in clause10.6 of the agreement, thetermination constituted avoluntary surrender as providedfor in section 127(5)-(9) of theNational Credit Act (no 34 of2005). It claimed payment of anyshortfall after sale of the vehicle toa third party.

The issue in dispute between theparties was whether or notDlamini knew and understood theterms of the agreement. Dlaminiwas illiterate and did notunderstand English.

THE FACTSDlamini terminated the

agreement by returning thevehicle because it was so defectivethat it could not be driven. Therewas no evidence to suggest that

Dlamini was unable to pay for thevehicle, or that he returned it forany reason other than it beingincapable of being driven. TheBank failed to establish a factualbasis for any finding that thetermination was a voluntarysurrender: a voluntary surrenderis usually triggered by aconsumer’s inability to complywith the credit agreement.

Dlamini’s mere non-compliancewith the procedural formality offaxing a notice of termination didnot lead to the inference that heterminated the agreement byvoluntarily surrendering thevehicle.

The bank and its agent causedDlamini to enter into a creditagreement without reading,interpreting and explaining thematerial terms to him, which hedid not know and understand.The question was whether hecould nevertheless in law be heldto have assented to the agreementby virtue of his signature.

Given the importance of thenotice to the bank of the basis forthe termination, the bank shouldhave mandated its agent to assistconsumers like Mr Dlamini to faxthe notices. Even if the bank andits agent provided this service ata fee, it would have been farcheaper than litigating todetermine the basis of thetermination. Imposing such aduty on the agents would alsoacknowledge the potentialconflict of interest between anagent that sells defective vehiclesand the consumer. Although thelegal obligation to notify the bankrested on Dlamini, the bank couldnot absolve Starlight of its dutyto act in good faith to notify thebank in the ordinary course ofcommercial practice. The bankshould hold its agent accountablefor not reporting immediatelythat the vehicle was towed backand that it could not be driven.

The claim was dismissed.

38

NEDBANK LTD v BINNEMAN

A JUDGMENT BY GRIESEL JWESTERN CAPE HIGH COURT21 JUNE 2012

2012 (5) SA 569 (WCC)

Proof that a notice of intention torecover a debt has been given to aconsumer will be sufficient when itis shown that the notice wasdelivered to the post office relatingto the address given in thedomicilium clause of the creditdocument.

THE FACTSNedbank Ltd brought an action

against Binneman for repaymentof a loan secured by a mortgagebond. Prior to doing so, itdespatched by registered post anotice to her that it intended tobring the action.

In terms of the domiciliumclause recorded in the bond anynotice or other document or legalprocess to be given, sent ordelivered under it would beregarded as sufficiently given,sent or delivered to the Binnemanif delivered at the mortgagedproperty or sent by prepaidregistered post to the mortgagedproperty, in which latter case itwould be presumed to have beenreceived on the third dayfollowing the date of postingunless the contrary was proved.

The notice sent to Binneman wasdelivered at the post officerelating to the domiciliumaddress. This was recorded in thetrack-and-trace report given bythe post office. Binneman did notdefend the action. The bank thensought default judgment againsther.

THE DECISIONIn the judgment handed down in

the matter of Sebola v Standard Bank2012 (5) SA 142 (CC) it was heldthat a credit provider must takereasonable measures to bring itsnotice to the attention of theconsumer, and make avermentsthat will satisfy a court that thenotice probably reached theconsumer, as required by section129(1) of the National Credit Act(no 34 of 2005). This wouldordinarily mean that the creditprovider must provide proof thatthe notice was delivered to thecorrect post office.

The bank had sufficientlycomplied with the requirementsof this judgment in the presentcase. Accordingly, defaultjudgment could be grantedagainst Binneman.

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SEYFFERT v FIRSTRAND BANK LTD

THE FACTSFirstrand Bank Ltd brought an

action against Seyffert forrepayment of a loan. Seyffertdefended the action on thegrounds that he had applied fordebt review in terms of theNational Credit Act (no 34 of2005) and that section 130(3) ofthat Act applied. Seyffert’sfinancial position had beenreferred to a debt counsellor whohad proposed that the monthlyrepayments on his loan bereduced for the present, andproportionately increased in thefuture. The effect of this proposalwas that the capital debt wouldnot be reduced. Firstrandterminated the debt review.

In summary judgmentproceedings, Seyffert contendedthat the effect of section 130(3)was to prevent the court fromdetermining the matter and forthat reason, judgment againsthim should be refused. Firstrandcontended that as it had givennotice to terminate the debtreview process in terms of section86(10), this defence was notavailable to Seyffert.

THE DECISIONIf a debtor has applied for debt

review, the debtor and the creditprovider are obliged not only tocomply with any reasonablerequest by the debt counsellor tofacilitate an evaluation of thedebtors’ indebtedness and theprospects for responsible debt-restructuring, but also toparticipate in good faith in thereview and negotiations. Theduty to negotiate in good faith

A JUDGMENT BY MALAN JA(CLOETE JA, MALAN JA, LEACHJA, WALLIS JA and NDITA AJAconcurring)SUPREME COURT OF APPEAL30 MAY 2012

2012 (6) SA 581 (SCA)

In determining whether a creditprovider’s notice to terminate debtreview processes is sufficient todeny a consumer a bona fide defencein summary judgment proceedings,a court should take into account allfactors indicating whether or notthe parties have attempted toresolve the default situation whichhas given rise to the creditprovider’s legal action against theconsmer.

does not terminate on the debtcounsellor’s proposal beingreferred to the magistrates’ court,nor when it is postponed.

The court considering theenforcement of a credit agreementmay decide whether there is anybenefit in postponing theapplication for summaryjudgment in order to determinethe advantages of a resumption ofthe debt review. The conduct ofboth parties will be relevantinmaking such determination.Moreover, the terms of a proposedrearrangement will then also berelevant to assess whether it islikely to lead to the satisfaction ofall responsible consumerobligations, if implemented. It isat this stage that a balance mustbe struck between the interests ofthe consumer and those of thecredit provider.

Given the fact that the debtcounsellor’s proposal would notreduce the capital indebtedness,and would have left a substantialpart of the debt unpaid, Firstrandhad been entitled to terminate thedebt review in terms of section86(10). It was argued in thealternative that an order in termsof section 85 should have beenmade. However, a court should beslow to exercise its discretion tomake either of the ordersenvisaged in s 85 where thematter has been dealt with by adebt counsellor, or a debt reviewhas justifiably been terminated,and where no material change incircumstances has beendemonstrated.

Summary judgment wasconfirmed.

Credit Transactions

40

VOLTEX (PTY) LTD v SWP PROJECTS CC

A JUDGMENT BY BHIKA JSOUTH GAUTENG HIGH COURT11 AUGUST 2010

2012 (6) SA 60 (GSJ)

A sale on credit is not subject to theNational Credit Act (no 34 of 2005)unless it falls within the definitionof a credit facility or incidentalcredit agreement as defined in theAct.

THE FACTSVoltex (Pty) Ltd sold goods on

30-days credit to SWP ProjectsCC. It brought an action againstSWP for payment of the goods.

Section 8(3) of the NationalCredit Act (no 34 of 2005) definesa ‘credit facility’ as an agreementin terms of which a creditprovider undertakes to supplygoods or services or to pay anamount or amounts, as chosen bythe consumer, and either defer theobligation to pay or repay anypart of the cost or bill theconsumer periodically for thegoods or services supplied; andprovide for any charge, fee orinterest payable on any deferredamount or an amount billed andnot paid within the timeprovided in the agreement. Anincidental credit agreement is anagreement, irrespective of itsform, in terms of which anaccount was tendered for goodsor services that have beenprovided to the consumer, orgoods or services that are to beprovided to a consumer over aperiod of time and either or bothof the following conditions apply: (a) a fee, charge or interestbecame payable when paymentof an amount charged in terms ofthat account was not paid on orbefore a determined period ordate; or (b) two prices were quoted forsettlement of the account, thelower price being applicable ifthe account is paid on or before adetermined date, and the higherprice being applicable due to theaccount not having been paid bythat date.

The court considered whether ornot the claim was subject to theNational Credit Act.

THE DECISIONAll the elements referred to in

section 8(3) must be presentbefore an agreement can bedefined as a credit facility. Thetype of credit agreementcontemplated by the Act relatesnot only to facilities such as creditcards or bank overdrafts, where acredit facility may be used at thediscretion of the consumer, butalso other types of transactions.

The agreements of sale betweenthe parties did not fall withinsubparas (a) and (b) of thedefinition of an incidental creditagreement, in that subpara (a) ofthe definition refers to a fee orinterest which becomes payablewhen payment of an amountcharged in terms of that accountis not paid on or before adetermined period or date. Sinceno fee or charge became payableat any time, the transactionbetween the parties was not anincidental credit agreement. Theinterest payable by SWP was notinterest that became payable interms of the agreement ‘whenpayment of an amount charged interms of that account was notpaid on or before a determinedperiod or date’, but becamepayable as a consequence of thebreach of the agreement, asdamages payable pursuant tosuch breach.

Subpara (b) was clearly notapplicable, as there was noquestion of two prices beingquoted as the purchase price ofgoods sold.

The sales were therefore notsubject to the Act.

Credit Transactions

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HANO TRADING CC v JR 209 INVESTMENTS (PTY) LTD

A JUDGMENT BY ERASMUS AJA(MTHIYANE DP, VAN HEERDENJA, MHLANTLA JA and BOSIELOJA concurring)SUPREME COURT OF APPEAL21 SEPTEMBER 2012

2013 (1) SA 161 (SCA)

In order to validly cancel anagreement, the provisions of abreach clause must be adhered to,and there must be proper noticegiven to the party alleged to be inbreach.

THE FACTSHano Trading CC sold land to JR

209 Investments (Pty) Ltd forR7.5m. Clause 2.3 of theagreement provided that thebalance of the deposit being R750000 payable in cash or bankcheque or bank transfer directly was to be paid on 12 June 2009.

JR failed to pay the balance ofthe deposit on due date, but on 23October 2009, a company on itsbehalf indicated to Hano’sattorneys that it wished todeliver to them a cheque for R750000 which it had drawn in favourof Hano. The attorneys respondedby stating that Hano was notproceeding with the sale and thesale agreement was null and void.JR then tendered the same chequeto the attorneys and contendedthat the agreement was not nulland void as Hano had notinvoked the right to cancel theagreement as provided for inclause 14.

Clause 14 provided that ‘in theevent of the purchasercommitting a breach of any of theterms of this agreement andfailing to remedy such breachwithin a period of fourteen daysafter receipt of a written noticefrom the seller calling upon thepurchaser to remedy the breachcomplained of, then the seller shallwithout further notice cancel theagreement and the purchasershall forfeit all moneys paid as adeposit to the seller, and the sellershall claim and recover alldamages from the purchaser.’

Hano’s attorney inquiredwhether by tendering the cheque,JR was rectifying the breach, andthen despatched a letter to JRnotifying it of its breach andrequiring compliance withinfourteen days failing which theagreement would be cancelled.The letter was addressed to JR 29Investments (Pty) Ltd andomitted the name of the office

park which ws given in thedomicilium citandi clause of theagreement. JR’s attorney thenrepeated its contention that theagreement was not null and voidfor the reason earlier given.Hano’s attorney made noreference to its letter notifying ofthe breach, but inquired what JRintended doing as the agreementhad been cancelled due to breachby JR.

JR then brought an applicationfor an order that the agreementremained of full force and effect.

THE DECISIONClause 2.3 of the agreement

required payment in one of threeforms - cash or bank cheque orbank transfer. The cheque drawnon the account of the companyacting for JR did not qualify as oneof these. The question waswhether JR’s failure to strictlycomply with the mode ofpayment warranted cancellationof the agreement by Hano.

Hano was not entitled to relysolely on this fact to validlycancel the agreement for at leasttwo reasons. First, if thisamounted to a breach, theprovisions of clause 14 had to befollowed. Second, at the timewhen the Hano’s attorney gave itsfirst response, he could not havebeen aware that the cheque wasnot a ‘valid tender’ in terms of theagreement, and in fact at thatstage he was not even aware thatthe balance of the deposit wouldbe paid by cheque, as his viewwas that the agreement was ‘nulland void’.

In any event, Hano had notcomplied with the provisions ofclause 14 in that its letter ofcancellation had been incorrectlyaddressed, and had failed tospecify the breach complained of.

The agreement thereforeremained of full force and effect.

Contract

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NORTHERN METROPOLITAN LOCAL COUNCIL vCOMPANY UNIQUE FINANCE (PTY) LTD

A JUDGMENT BY MPATI P(CLOETE JA, SNYDERS JA,BOSIELO JA and NDITA AJAconcurring)SUPREME COURT OF APPEAL21 MAY 2012

2012 (5) SA 323 (SCA)

A principal will not be estoppedfrom the denying the authority of aperson purporting to act on itsbehalf in circumstances where ithas made a representationindicating that that person hassuch authority but it is clear thatthe party depending on thatrepresentation should have knownthat it was made without properauthority

THE FACTSMr J J Du Plessis signed three

agreements on behalf of theJohannesburg NorthernMetropolitan Local Council. Onewas for the lease of a copier for atotal rental of R971 703,96, andthe other two were for the lease ofradiophones for a total rental ofR6 272 032,80 each. Du Plessiswas an acting seniorsuperintendent: support services,within the council's securitysubcluster, and was described inthe agreements as 'executiveofficer (acting) security'. He signedeach under that title. The lessorunder the agreements wasCompany Unique Finance (Pty)Ltd. He did so with the knowledgeof his superior, a certain Mr VanWyk. All three contracts werepreceded by a resolution on acouncil letterhead and signed byan individual who describedhimself as head of security.Representatives of CompanyUnique attended the offices of thecouncil to obtain assurances thatthe council confirmed theagreements.

Within a few months ofsignature, the council notifiedCompany Unique that Du Plessisdid not have the authority to signthe agreements on its behalf, as aresult of which the agreementswere null and void. CompanyUnique treated the notification asa repudiation of the agreementsand brought an action fordamages.

THE DECISIONThe only issue was whether

Company Unique proved its caseagainst Northern Metropolitanbased on the ostensible authorityof Du Plessis and Van Wyk. Thisissue resolved into the questionwhether Northern made anyrepresentation, by word orconduct, which inducedCompany Unique to act to its

detriment by concluding theagreements with Du Plessis.

Van Wyk and Du Plessis werelowly ranked officials in anelaborate administrativestructure where authority belowthe full council was exercised bydelegation. Van Wyk and DuPlessis were given offices, butthese were not even in the mainbuilding and there was noevidence that they were providedwith secretaries, or withletterheads or stamps. It was notknown where the letterhead onwhich the resolution wascontained came from, so also thestamp whose imprint appears onit. But the fact that the twoofficials were given offices andmight even have had letterheadsand stamps did not mean theyhad authority to bind NorthernMetropolitan. What matteredwas their seniority in the overallstructure of NorthernMetropolitan.

There was no evidence of whatnormally went with the positionof Van Wyk as seniorsuperintendent and Du Plessis assuperintendent. In the overalladministrative structure ofNorthern Metropolitan, theyranked very low. There was noevidence that the certification ofany official document of NorthernMetropolitan was done by thesecurity subcluster, which couldhave given the impression thatVan Wyk had authority to certifya resolution of council. Nor wasthere any evidence that thetransactions in issue fell withinthe category of what may betermed the security subcluster’s‘usual business’. It followed that,other than their mereappointments and the fact thatthey occupied offices and mighthave had access to letterheadsand stamps, and the fact thatoutsiders such as CompanyUnique’s representatives had

Contract

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access to them, there wasinsufficient evidence of a façade ofregularity. It followed thatagency by estoppel (ostensibleauthority) on the part ofNorthern Metropolitan had notbeen established on the evidence.There was no representation byit.

The acceptance, by CompanyUnique’s officials, of theresolution was also unreasonable.

Furthermore, the resolutionpurported to confer authority onDu Plessis to bind NorthernMetropolitan as and when hewished and to concludeagreements for any amount andin respect of any item which mayhappen to be recorded on atransaction schedule. Noreasonable businessman knowingthe operations of an entity such

as Northern Metropolitan,relating to decision making couldbe satisfied with such an open-ended resolution. To do so wouldbe unreasonable. CompanyUnique’s officials dealt verycasually and superficially withthe question of Du Plessis’authority. Their acceptance of theresolution was not reasonable. The action was dismissed.

One of the factors mentioned by the court a quo as contributing to the creation of afaçade of regularity is that the appellant provided its employees with originalletterheads, which allowed Van Wyk to use an original letterhead when certifyingthe existence of a non-existent resolution. The court also observed that theappellant provided its employees with official stamps and allowed these to be usedfor its official documents. That may be so, but surely were an institution like theappellant to provide one of its employees at its receiving department, where lettersand parcels are received, with an official stamp so as to indicate the date on whichcorrespondence was received, it could not be held liable, without more, if anotheremployee were to borrow or steal the stamp for nefarious purposes. Similarly, I donot believe that the law would require a manager in a bank to keep letterheadsunder lock and key and to take out one for his secretary every time he or she wantsthe secretary to type a letter, so as to avoid unforeseen fraudulent acts by thesecretary. And where a secretary uses letterheads in his or her possession to commitfraud and purports to bind the employer it does not follow that the manager or theinstitution should be held liable.

Contract

44

CITY OF CAPE TOWN v HENDRICKS

JUDGMENT BY SOUTHWOOD AJA(NUGENT JA, VAN HEERDEN JA,SNYDERS JA and MHLANTLA JAconcurring)SUPREME COURT OF APPEAL31 MAY 2012

2012 (6) SA 492 (SCA)

A municipality’s notice to complywith by-laws does not constituteadministrative action for thepurposes of Promotion ofAdministrative Justice Act (no 3 of2000).

THE FACTSHendricks and the second

respondent were informal traderswho conducted businesses fromlarge, sturdy, temporarystructures erected on pavementsin Mitchells Plain. A portion ofeach structure encroached onto aneighbouring property where theWestgate Mall was situated. Theowner of the property objected tothis encroachment and requestedHendricks and the secondrespondents to remove theirstructures.

The City of Cape Town was theowner of the property where thestructures stood. The structureswere erected there without theCity’s consent or authorisationand contravened the City’s by-laws. The respondents did nothave the City’s consent orauthorisation. On 23 April 2010, amember of the City’s SpecialisedLaw Enforcement Unit, issuedand handed to each respondent awritten notice in which each wasinformed that the structureplaced on the City’s property wasthere without the necessaryconsent or authorisation of theCity, that the respondents wereinstructed to immediatelyremove the offending structurefrom the City’s property, andthat, in the event of therespondents failing to complywith the instruction by 10 May2010, a fine could be imposed andthe offending structure removedby the City at their expense.When serving the notices, therespondents were informed thatthe notices did not prohibit themfrom trading on the property andthat the respondents could erecttemporary structures at thebeginning of the day, but thatthey would have to dismantlethem at the end of the day. Therespondents would becomeentitled to erect such structuresonly if the City ganted permission.

After receiving the notices therespondents did not seek theCity’s consent or authorisation,but urgently sought and weregranted a rule nisiinterdicting and restraining theCity from removing theirstructures or interfering with therespondents’ right to trade fromthose structures. The order waslater confirmed.

The City appealed.

THE DECISIONThe City had not taken a

decision that the respondents hadto remove and rebuild theirstructures daily, and the issueand delivery of the notices did notconstitute administrative actionfor the purposes of the Promotionof Administrative Justice Act (no3 of 2000), but merely constitutednotification to the respondents ofits intention to enforcecompliance with the by-law. Theissue and service of the noticewere not reviewable as thenotices do not constitute a finaldecision, did not adversely affectthe rights of any person, and hadno direct, external legal effect.

Furthermore, the City did nottake a decision that therespondents were obliged toremove and rebuild theirbusiness structures daily ontheir trading sites. The noticescould not reasonably beconstrued to mean that, becausethey simply informed therespondents that they had tocomply with the law andinformed them of theconsequences should they fail todo so. This was notadministrative action as definedin the Promotion ofAdministrative Justice Act.

By issuing and delivering thenotices to the respondents, theCity’s conduct did not have directand immediate consequences forthe respondents; it was a

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preliminary step by the City (anotification or warning that itwould enforce the bylaws)anddid not adversely affect therespondents’ rights or have any

direct or external legal effect. TheCity was doing no more than itwas entitled to do in terms of thesection of the relevant Act.

The appeal succeeded.

It is clear that the City did not take a decision that the respondents are obliged to remove andrebuild their business structures daily on their trading sites, and that the notices cannotreasonably be construed to mean that. The notices simply informed the respondents that theymust comply with the law (ie remove the structures which contravene the bylaws and theOrdinance) and informed them of the consequences should they fail to do so. This was notadministrative action as defined in PAJA. [11] As contended by the City, by issuing and delivering the notices to the respondents, theCity’s conduct did not have direct and immediate consequences for the respondents; it was apreliminary step by the City (a notification or warning that it would enforce the bylaws); anddid not adversely affect the respondents’ rights or have any direct or external legal effect. TheCity was doing no more than it was entitled to do in terms of the section of the relevant bylaw

Contract

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TH RESTAURANTS (PTY) LTD v RANA PAZZA (PTY) LTD

A JUDGMENT BY YEKISO JWESTERN CAPE HIGH COURT8 JUNE 2012

2012 (5) SA 378 (WCC)

A claim based on a cancelledcontract to interdict a party fromenjoying the rights conferred underthat contract may be answered byinvoking the rule that where theobligations of a contract arereciprocal, a claimant wishing toenforce its rights must havehonoured its own obligations underthat contract.

THE FACTSTH Restuarants (Pty) Ltd as

franchisor concluded a restaurantfranchise agreement with RanaPazza (Pty) Ltd as franchisee.

In terms of the agreement, THwas obliged to give advice on theinitial opening, advertising andpromotional campaign for thebusiness and the supply of point-of-sale and promotional material,advice on initial staffingrequirements and staffrecruitment; advice andassistance on merchandising ofproducts and general initialadvice to enable the franchisee tooperate the business efficiently.Rana was obliged to payfranchise fees monthly, withoutdeduction or set off. It was alsoobliged to attend to the securingof the right to occupy thepremises by lease or otherwise,the purchasing or otherwiseacquiring and installing of allnecessary equipment, obtainingall statutory licences required toconduct the relevant businessand obtaining the necessarystationery, promotional literatureand signage as stipulated by thefranchisor.

TH alleged that for the periodMay 2010 to August 2011, Ranabecame indebted to it in theaggregate amount of R446 750,24in respect of unpaid royalty andfranchise fees and advertisingcosts. TH sued for payment, andlater cancelled the agreement.

TH brought an application foran order that Rana ceaseoperating the restaurantfranchise, and pay it outstandingfranchise fees. Rana opposed theapplication on the grounds thatTH had failed to fulfil its ownobligations in terms of thefranchise agreement.

THE DECISIONIn bilateral contracts the

exceptio non adimpleti contractusis available as a defence in thosecircumstances where the parties’obligations are reciprocal. In thepresent case, the issue todetermine in relation to thequestion as to whether Ranacould invoke the exceptio as adefence, is whether, based on aproper interpretation of thecontract, the parties’ obligationsare so closely linked with oneanother as to justify a finding thatthe one obligation has to beundertaken in return for theother. In short, the question waswhether or not the parties’obligations were reciprocal. Thisinvolved an analysis of theparties’ obligations in terms of thefranchise agreement.

The payment due from Ranawas payment in consideration forthe granting of a licence and thosecontinuing obligations which THundertook to perform at all timesduring the term of the agreement.TH argued that Rana was notentitled to both withholdpayment and continue thefranchise. However, the point atissue was whether TH’sobligations and Rana’s obligationto pay royalty and advertisingfees in consideration of thoseservices were reciprocal. Theparties’ obligations with regardto the issue of rendering servicescontemplated in the franchiseagreement and payment for suchservices, based on theinterpretation of the franchiseagreement, were reciprocaldespite there being a ‘withoutdeduction or set-off’ clause in thefranchise agreement.

It was therefore not possible toconfirm that the franchiseagreement had been validlycancelled. There was no basis foran order that Rana ceaseoperating in terms of thatagreement.

Contract

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MOBILE TELEPHONE NETWORKS (PTY) LTD v SMITRADING CC

A JUDGMENT BY MALAN JA(MTHIYANE DP, TSHIQI JA,PILLAY JA AND PLASKET AJAconcurring)SUPREME COURT OF APPEAL28 SEPTEMBER 2012

2012 (6) SA 638 (SCA)

In order to assert rights given to itin terms of section 22 of theElectronic Communications Act (no36 of 2005), a network operatormust make a decision to invokesuch rights.

THE FACTSIn 1998, Mobile Telephone

Networks (Pty) Ltd concluded anagreement for the lease of a sitefor the positioning of a basestation with SMI Trading CC’spredecessor in title. Transfer ofthe property to SMI wasregistered on 31 March 2008. Thelease expired on 31 January 2008.

The parties entered intonegotiations for continuation ofthe lease but these wereunsuccessful. MTN’s base stationremained on the property afer theexpiry of the lease. It contendedthat it was entitled to keep itsbase station there because it wasauthorised to do so in terms ofsection 22 of the ElectronicCommunications Act (no 36 of2005). The section provides thatan electronic communicationsnetwork service may enter landand maintain communicationsfacilities thereon.

SMI brought an application foran order that MTN remove itsbase station from its property.

THE DECISIONSection 22 of the Electronic

Communications Act (no 36 of2005) does not empower anetwork operator to appropriatesignificant portions of land andallow it to construct installationsfor its network.

Because the lease had expired,MTN’s continued occupation ofthe base station was unlawfuland could only be justified bysection 22. However, section 22 is

concerned with public power, theexercise of which must not bearbitrary. After expiry of the leaseMTN unilaterally remained inoccupation. There was noevidence that the objects of theAct could not be achievedwithout depriving SMI of itsproperty. There was nointimation to SMI that MTN wasno longer negotiating in order toreach agreement on the rental,but was enforcing its statutoryright. It was only whenthreatened with evictionproceedings that MTN sought toinvoke section 22 and, againunilaterally, determined that itcould remain in occupationwithout paying compensation.This was an abuse of a statutorypower and constituted arbitraryconduct.

More importantly, MTN’soriginal entry upon the site, itsconstruction and maintenance ofthe base station took place undera commercial lease. Section 22came into force only thereafter.These actions at that time couldtherefor not have amounted to adecision as envisaged in the Act.The question was whether MTN,after expiry of the leaseagreement, took a decision toinvoke its statutory rights tojustify its continued occupation ofthe base station. There was noevidence that it did so.

MTN’s continued occupation ofthe property was thereforeunlawful. It was obliged toremove its base station.

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BODY CORPORATE PINEWOOD PARK vDELLIS (PTY) LTD

A JUDGMENT BY MPATI JA(BRAND JA, MHLANTLA JA,TSHIQI JA BORUCHOWITZ AJA )SUPREME COURT OF APPEAL1 JUNE 2012

2013 (1) SA 296 (SCA)

Rules of a sectional title schemewhich provide for resolution ofclaims by arbitration, which areconsensual rather than compulsory,do not compel parties to a disputeto proceed to resolution byarbitration.

THE FACTSThe Body Corporate, Pinewood

Park, issued summons againstDellis (Pty) Ltd for payment ofarrear levies in the sum of R123101, alleging that Dellis had failedto pay this amount despite itbeing due, owing and payable tothe body corporate. Dellisadmitted that it was obliged topay levies imposed in accordancewith the Sectional Titles Act (no95 of 1986), as read with the rulesgoverning the Scheme, but deniedthat it was obliged to pay theamount claimed. It pleadedfurther that any entitlement toclaim the levies would havearisen more than three yearsprior to the institution of theaction.

At a pre-trial conference, Delliscontended that the jurisdiction ofthe high court to determine theclaim was ousted by virtue of thejudgment handed down in thematter of Body Corporate ofGreenacres v Greenacres Unit 17 CC2008 (3) SA 167 (SCA). Delliscontended that the effect of thisjudgment was to compelresolution of the claim by meansof arbitration becausemanagement rule 17 of theScheme Rules provided for this.The parties agreed to have thisissue argued before the trial courtas a point in limine. The trialcourt answered the point infavour of Dellis. It held thatDellis’s denial of liabilityconstituted an arbitrable disputewhich should in light ofthe Greenacres judgment bedetermined by arbitration.

The Body Corporate applied forspecial leave to appeal against thedecision, which had also beenconfirmed by the full court.

THE DECISIONThe Sectional Titles Act and the

regulations made under it do notprescribe a procedure for dispute

resolution. Section 35(1) of the Actprovides that the sectional titlescheme shall be controlled andmanaged by means of rules andsection 35(2) directs that the rulesshall provide for the control,management and enjoyment ofcommon property and that theymay be substituted, added to,amended or repealed by thedeveloper. The fact that the rulesmay be rejected in part or in totoby a developer, and otherssubstituted for them, byunanimous resolution of a bodycorporate, indicates clearly thatthe legislature intended the rulesto be of a contractual nature.

The rules were not intended todefine or limit the ownership ofindividual owners of sections,units or common property. Therules, read with the provisions ofthe Act, contained theconstitution of the bodycorporate and could therefore beproperly construed as containingthe terms of an agreementbetween owners inter se andbetween owners on the one handand the body corporate on theother hand. When a purchaserpurchases a unit in a sectionaltitle scheme after a sectional titleregister has been opened, he orshe would be deemed to haveconsented, or agreed, to be boundby the existing rules relating tothat scheme and to futurechanges to them introduced byunanimous resolution of thatscheme’s body corporate.Therefore, the arbitrationprocedure provided for inmanagement rule 71 could beseen to be consensual and did notprovide for compulsoryarbitration.

On this basis, the BodyCorporate had reasonableprospects of success on appealand should therefore be givenspecial leave to appeal.

Property

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NATIONAL CREDIT REGULATOR v OPPERMAN

A JUDGMENT BY VAN DERWESTHUIZEN J(MOGOENG CJ, MOSENEKE DCJ,KHAMPEPE J, NKABINDE J andSKWEYIYA J concurring,CAMERON J, FRONEMAN J andJAFTA J dissenting)CONSTITUTIONAL COURT21 AUGUST 2012

2013 (2) SA 1 (CC)

Section 89(5)(c) of the NationalCredit Act (no 34 of 2005) isunconstitutional and cannot beapplied so as to deny anunregistered credit provider theright of restitution of money lent.

THE FACTSOpperman, who was not a

registered credit provider, lentBoonzaier R7m. Boonzaaier wasunable to repay the loan.Opperman applied for thesequestration of Boonzaaier’sestate. At the hearing of theapplication, the high court raisedthe question whether or notsection 89(5)(c) of the NationalCredit Act (no 34 of 2005) wasconsistent with the right not to bearbitrarily deprived of property,recognised in section 25(1) of theConstitution.

The high court decided that itwas not, and declared theprovision unconstitutional.

The National Credit Regulatorappealed.

THE DECISIONSection 89(5) provides that if a

credit agreement is unlawful interms of that section, acourt must order that-(a) the credit agreement is void asfrom the date the agreement wasentered into; (b) the creditprovider must refund to theconsumer any money paid by theconsumer under that agreementto the credit provider, (c) all thepurported rights of the creditprovider under that creditagreement to recover any moneypaid or goods delivered to, or onbehalf of, the consumer in termsof that agreement are either-(i) cancelled, unless the courtconcludes that doing so in thecircumstances would unjustlyenrich the consumer; or(ii) forfeit to the State, if the courtconcludes that cancelling thoserights in the circumstances wouldunjustly enrich the consumer.

Section 25(1) of the Constitutionprovides that no-one may bedeprived of property except interms of law of generalapplication, and no law maypermit arbitrary deprivation ofproperty.

Section 89(5)(c) provides that inthe circumstances described, therights of a credit provider torecover money paid or goodsdelivered to the consumer musteither be cancelled, or forfeited tothe state if the consumer wouldbe unjustly enriched, regardlessof turpitude or other factorsrelevant in a fairness or publicpolicy inquiry. Upon thisinterpretation, section 89(5)(c)would differ substantially fromthe common law by taking awaya credit provider’s right torestitution. Money paid by thecredit provider to the consumerunder the unlawful and voidagreement stays with theconsumer, because all the‘purported rights’ of the creditprovider to recover money are‘cancelled’, unless cancellationwould ‘unjustly enrich’ theconsumer. The question however,is what happens if the consumerwould indeed be unjustlyenriched?

Section 89 provides that the loanin question should be consideredvoid. However, this is insufficientreason to deprive Opperman ofhis right to restitution of themoney lent. The recognition of theright to restitution of money paid,based on unjustified enrichment,as property under section 25(1) islogical and realistic.

The effect of the section is toarbitrarily deprive Opperman ofhis property. The deprivationwas not partial but complete. Thepurpose of the section - to deterunscrupulous money lenders -was insufficient to justify suchdeprivation. The means chosen toachieve this purpose weredisproportionate to the purpose.Thus it resulted in arbitrarydeprivation of property in breachof section 25(1) of theConstitution, and could not bejustified in terms of section 36(1)of the Constitution.

The appeal was dismissed.

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BALKIND v ABSA BANK

A JUDGMENT BY ALKEMA JEASTERN CAPE HIGH COURT12 DECEMBER 2012

2013 (2) SA 486 (ECG)

The effect of Sebola v StandardBank of South Africa Ltd 2012 (5)SA 142 (CC) is to require that acredit provider take reasonablesteps to ensure that a notice interms of section 129(1) of theNational Credit Act (no 34 of 2005)probably reached the consumer whowould have reasonably collectedthe notice from the post office

THE FACTSAbsa Bank Ltd brought an

action against Balkind as suretyfor payment of R103 173,76. Thesuretyship agreement uponwhich it sued cited hisdomicilium as an address in EastLondon. The notice issued interms of section 129(1) of theNational Credit Act (no 34 of2005) prior to summons did thesame. The bank secured a track-and-trace report which showedthat the notice was delivered tothe post office in the area of thedomicilium address.

At the time of the issue of thenotice, Balkind was not residentat the address but had moved toJohannesburg. He was not awareof the notice, nor of the summonswhen judgment was takenagainst him. When the warrant ofexecution was delivered to him,Balkind applied for rescission ofjudgment. He contended thatthere had not been compliancewith the delivery requirementsfor the section 129(1) notice asrequired by Sebola v Standard Bankof South Africa Ltd 2012 (5) SA 142(CC).

THE DECISIONSebola held that despatch of a

section 129(1) notice by registeredpost is not enough and that proofby means of the post office ‘trackand trace’ report, that theregistered post reached thecorrect post office, wouldconstitute proper delivery of thenotice to the consumer. Thequestion arises whether, on areading of Sebola, thejurisdictional requirements ofsection 129 are met on proof ofregistered post and delivery tothe correct post office, or only onproof that the notice came to theattention of the consumer.

Sebola stated that the creditprovider must make avermentsthat will satisfy the court fromwhich enforcement is sought thatthe notice, on balance ofprobabilities, reached theconsumer. What is required isthat reasonable steps were takenby the credit provider to ensurethat the notice probably reachedthe consumer who would havereasonably collected the noticefrom the post office.

In the present case, it was notdisputed that the notice neverreached Balkind and did it cometo his attention. Since the section129 notice was not brought to hisattention as required by Sebola,and the jurisdictionalrequirements of section 129 werethus not met, the legalproceedings instituted by thebank were premature in terms ofs 129(1)(b).

Rescission of judgment wasgranted.

Credit Transactions

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FIRSTRAND BANK LTD v OWENS

A JUDGMENT BY LEWIS JA(MHLANTLA JA, TSHIQI JA,ERASMUS AJA and PLASKET AJAconcurring)SUPREME COURT OF APPEAL23 NOVEMBER 2012

2013 (2) SA 325 (SCA)

A notice in terms of section129(1)(a) of the National Credit Act(no 34 of 2005) is not requiredwhere a notice under section 86(10)has been given.

THE FACTSOwens bought a Honda vehicle

from FirstRand Bank Ltd. Thepurchase price was to be paid ininstalments over a period of 78months. She took possession ofthe vehicle but defaulted inmaking payment. Owens appliedfor debt review in terms ofsection 86(1) of the NationalCredit Act (no 34 of 2005). Theprocess was not completed.

More than a year after applyingfor debt review, she remained indefault in respect of instalmentpayments to FirstRand. Acting interms of section 86(10), FirstRandgave notice to her, to the debtcounsellor appointed in terms ofthe section, and to the NationalCredit Regulator, terminating thedebt review. Owens remained indefault.

FirstRand then brought anaction against her. It asserted thattheir agreement was terminatedand claimed return of the vehicleand costs. Owens gave notice todefend the action. FirstRandapplied for summary judgmentagainst her. Owens opposed theapplication. The court hearing thematter refused summaryjudgment on the grounds that acredit provider, upon terminationof debt review proceedings interms of section 86(10), is notentitled to enforce the creditagreement without having givennotice to the debtor as requiredby sections 129 and 130 of theNational Credit Act.

THE DECISIONA reading of sub-section (1) of

each of sections 129 and 130shows that if the credit providerwishes to enforce the debt, anotice must be given by it to theconsumer in terms of section129(1)(a). That subsection alsomakes it clear that the creditprovider must draw to theconsumer’s attention the possiblemethods of resolving the debtdefault.

By contrast, section 86(10)assumes knowledge on the part ofthe consumer of these methods: itapplies only where the consumerhas already applied for debtreview. A notice under section129(1)(a) is thus redundant wherethe consumer has already takensteps to rearrange her debts. Thatis why section 129(1)(b)(i) statesthat in order to commence legalproceedings, a credit providermust give notice either undersection 129(1)(a) or section 86(10).The former applies where therehas been no debt review. Thelatter applies where there hasbeen.

It follows that a notice in termsof section 129(1)(a) is not requiredwhere a notice under section86(10) has been given.

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NATIONAL CREDIT REGULATOR vSTANDARD BANK OF SOUTH AFRICA LTD

A JUDGMENT BY NUGENT JA(PONNAN JA, MALAN JA,PILLAY JA and SALDULKER AJAconcurring)SUPREME COURT OF APPEAL15 NOVEMBER 2012

2013 (1) SA 628 (SCA)

The restriction that was imposedon the administration fee under theUsury Act must be taken, underpara 7(2), to be imposed on thecomparable service fee undersection 101(1)(c) of the NationalCredit Act.

THE FACTSStandard Bank of South Africa

Ltd granted loans at a time whenthe Usury Act (no 73 of 1968)applied to them. The Act, interalia, regulated the administrationfee which a lender could charge aborrower in respect of such loans.

The bank contended that whenthe National Credit Act 34 of 2005came into force, superseding theUsury Act, the the limit imposedon administration fees under theUsury Act did not survive thetransition to the National CreditAct so far as extant home loanswere concerned, with the resultthat administration fees on thoseloans ceased to be regulated.

The National Credit Regulatorapplied to the South GautengHigh Court for an orderrestraining the bank fromcharging administration fees onthose loans in excess of themaximum amount set under theUsury Act, alternativelydeclaring the bank to be entitledto no more than that amount.

THE DECISIONGiven the tight regulation under

both statutes of the fees that maybe charged on the administrationof home loans, it would beextraordinary if the drafter of theNational Credit Act had chosen toterminate the regulation of suchfees on existing loans.

The transitional provisions inthe National Credit Act make itclear that the drafter was awarethat the regulation of existingagreements had to be providedfor. Existing agreements weresubjected to the regime of theNational Credit Act in certainrespects. Paragraph 7 providesfor the ‘general preservation ofregulations, rights, duties, noticesand other instruments’ and sub-section 2 of that paragraphprovides that any other right orentitlement enjoyed by, orobligation imposed on, anyperson in terms of any provisionof the previous Act which had notbeen spent or fulfilledimmediately before the effectivedate must be considered to be avalid right or entitlement of, orobligation imposed on, thatperson in terms of anycomparable provision of this Act,as from the date that the right,entitlement or obligation firstarose, subject to the provisions ofthis Act.

The restriction that wasimposed on the administration feeunder the Usury Act must betaken, under para 7(2), to beimposed on the comparableservice fee under section 101(1)(c)of the National Credit Act. Itremains, however, theadministration fee formerlyimposed by the Usury Act.

Credit Transactions

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COMMAND PROTECTION SERVICES (GAUTENG)(PTY) LTD v SOUTH AFRICAN POST OFFICE LTD

A JUDGMENT BY BRAND JA(MTHIYANE DP, CLOETE JA,PILLAY JA and SALDULKER AJAconcurring)SUPREME COURT OF APPEAL16 NOVEMBER 2012

2013 (2) SA 133 (SCA)

An acceptance of an offer whichexpressly states that theacceptance is subject to certainconditions being fulfilled cannotresult in a concluded contract ifthose conditions are not fulfilled.

THE FACTSThe South African Post Office

Ltd invited tenders for theprovision of security services atits post offices. CommandProtection Services (Gauteng)(Pty) Ltd submitted a tenderproposal. In due course, the postoffice wrote a letter of acceptanceCommand stating that the TenderBoard had awarded the tenderproposal to it. It stated that as aresult Command was appointedas the supplier of the service asper the tender proposal. Theappointment was subject to BEEimprovement and the successfulfinalisation and signing of aformal contract. A draft contractwould be forwarded toCommand within seven workingdays for its comment and to theeffect mutually agreed onamendments and finalisation intoa formal contract.

While the parties werenegotiating the final contract,Command began providingsecurity services in threeoperational areas.

The post office then informedCommand that it had engaged inconduct that had materially andseriously undermined the trustand utmost good faithrelationship between the parties,as a result of which it would notcontinue contractual negotiations,and the existing month-to-monthcontract would come to an end.

Command considered this to bea repudiation of an existingcontract which had arisen whenthe post office had informedCommand that its tenderproposal had been accepted. Itcontended that when the postoffice issue that letter, thisconstituted an unconditionalacceptance of Command’s offercontained in the tender document.Command sued for damages.

THE DECISIONOften when complicated

transactions are negotiated, theparties reach agreement bytender (ie offer) and acceptancewhile there are clearly someoutstanding issues that requirefurther negotiation andagreement. Our case lawrecognises that in these situationsthere are two possibilities. Thefirst is that the agreement reachedby the acceptance of the offerlacked the intention to contractbecause it was conditional uponconsensus being reached, afterfurther negotiation, on theoutstanding issues. In that eventthe law will recognise nocontractual relationship, despitethe offer and acceptance, unlessand until the outstanding issueshave been settled by agreement.The second possibility is that theparties intended that theacceptance of the offer would giverise to a binding contract and thatthe outstanding issues wouldmerely be left for laternegotiation. If in this event theparties should fail to reachagreement on the outstandingissues, the original contractwould prevail.

Were it not for the fact that thepost office’s letter to Commandstated that the appointment was‘subject to’ the two mattersstipulated, there was sufficientbasis for a concluded contract inthe exchange of communicationsbetween the two parties.However, these words made itclear that the communicationswere not sufficiently certain toconstitute a provision of acontract, whether in the form of acondition or a term. Though itindicates that the post office wasnot satisfied with Command’sexisting BEE status, it is not clearin what respect and to whatextent that status would have toimprove in order to meet the post

Contract

54

office’s requirements. This wastherefore clearly a topic on whichthe post office called for furthernegotiation and agreement.

The post office’s letter thereforedid not constitute anunconditional acceptance of the

tender, but was intended by thepost office and accepted byCommand as a counter-offer. Theagreement that came intoexistence when Commandaccepted this counter-offer wasan agreement to negotiate.

The claim failed.

MKHWANAZI v QUARTERBACK INVESTMENT (PTY) LTD

A JUDGMENT BY SPILG JSOUTH GAUTENG HIGH COURT12 AUGUST 2011

2013 (2) SA 549 (GSJ)

A contract induced by fraudulentmisrepresentation may be declaredvoid, and any transfer of propertyeffected on the strength of such acontract may be re-transferred tothe innocent party.

THE FACTSIn 2007, Mkhwanazi contacted

Quarterback Investment (Pty) Ltdrepresented by one Mthebe inorder to obtain relief for her debtcommitments. Mthebe gave herdocuments to sign. She signedthem without reading them.

Some two years after signing theagreement Mkhwanazi received amunicipal utility bill which, forthe first time, reflectedQuarterback as the accountholder. Mthebe told that hiscompany’s name was put in forconvenience as if they werepaying for the water bill. Shortlythereafter, Mkhwanazidiscovered that her fixedproperty had been sold toQuarterback and transferred tothat company. She alsodiscovered that the documentsshe had signed were a sale ofproperty by instalments, thepurchase price being R157 000, alease agreement in terms of whichshe became the tenant at herproperty at a rental of R2 500 permonth and a power of attorneyfor the transfer of the property.Upon these documents,Quarterback had paid certainamounts in satisfaction ofMkhwanazi’s debts, and hadtaken transfer of her property.

Mkhwanazi applied for an ordersetting aside the transfer of herresidential property, anddeclaring the underlyingagreement of sale null and void.She also sought an order directingthe Registrar of Deeds to transferthe property back into her name.

THE DECISIONThe allegations of fraudulent

misrepresentation which inducedMkhwanazi to conclude theagreements were uncontradicted.Quarterback therefore could notrely on Mkhwanazi’s signature tothe documents since herundisputed evidence was thatMthebe fraudulently misled herconcerning their contents andlulled her into believing that itwas unnecessary to go throughthem, as they conformed with hisprevious representations.

Mkhwanazi negotiated for aloan only and at all materialtimes Quarterback, throughMthebe as its duly authorisedrepresentative, held out andfraudulently misrepresented toher that she was only concludinga loan agreement and that thedocuments she was given to signhurriedly were so limited,knowing that she would rely onand be induced by thesemisrepresentations to sign, as itturns out she was. Furthermore,Quarterback fraudulently failedto disclose, as it was obliged to,having regard to their earliernegotiations, that the documentsshe was to sign were not inrespect of a loan, but were in factan out-and-out sale of herproperty to Quarterback at aunilaterally determined price.

The sale agreement wastherefore invalid as it was taintedby fraud. The transfer of theproperty was to be set aside.

Contract

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MAKULU PLASTICS & PACKAGING CC vBORN FREE INVESTMENTS 128 (PTY) LTD

A JUDGMENT BY LAMONT J(TSOKA J and FRANCIS Jconcurring)SOUTH GAUTENG HIGH COURT28 AUGUST 2012

2013 (1) SA 377 (GSJ)

It is not permissible for a party toprevent another from entering intoa contract with a third party if thatparty’s interests are not affected byany contract so concluded.

THE FACTSBorn Free Investments 128 (Pty)

Ltd leased its property to thesecond respondent. It was placedin liquidation. Occupation of theproperty was then taken byMakulu Plastics & Packaging CC.It and Born Free did not concludea formal lease but Born Freerendered monthly invoices toMakulu for the rental formerlypaid by the second respondent.

Disputes arose between Makuluand Born Free. Born Free thenaddressed the municipality withthe request that it terminate theelectricity supply to the property.Makulu attempted to obtain anelectricity supply of its own fromthe municipality but this wasrefused. Born Free threatened themunicipality with an interdict ifit should conclude a supplyagreement with Makulu.

Makulu then brought anapplication for orders designed tointerdict and restrain Born Freefrom preventing it from enteringinto an agreement with themunicipality in terms whereofthe municipality would providevarious services to the property,requesting, instructing orencouraging the municipality toterminate the supply of anyservices and hindering orobstructing it in respect of accessto and use or enjoyment of theproperty. Makulu also soughtrelief against the municipality inthe form of an order directing it tocontinue supplying services to theproperty subject to Makulumaking the appropriatepayments.

THE DECISION The acts of Born Free in

notifying the municipality of thefact that the property wasoccupied by a person with whomit had no contractual relationship,

if the contractual relationshipexisted, would constitute aninterference by Born Free in thecontractual relationship betweenMakulu and municipality. Thefact that the contractualrelationship had not beenconcluded did not affect theposition. It would have beenconcluded but for the interference.In terms of the lease agreementBorn Free was by necessaryimplication, at the very least, tohave co-operated with Makuluwhen it sought to conclude theservices agreement with themunicipality. It is apparent thatthe municipality, in consequenceof the interference by Makulu,declined to conclude a contractwith it. Born Free’s conduct inperforming acts designed tofrustrate the free commercialactivity of Makulu constituted awrongful act.

Makulu had established primafacie that it occupied the propertypursuant to a lease, that itsoccupation was untenable unlessit had access to services, hencethat the harm was irreparable,that there was no other form ofappropriate relief available to theappellant, and the balance ofconvenience favoured continuedoccupation of the property by aparty who was paying the rent.

The state of affairs had arisen indirect consequence of thecorrespondence addressed byBorn Free to the municipality.There was also some evidencethat Born Free was attempting tomanipulate a state of affairs toput it in a stronger position toeject Makulu or force it to give into its other demands.

Born Free was not at risk ofbeing compelled to pay anyamount due by Born Free to themunicipality. Accordingly, therelief sought by Makulu should begranted.

Contract

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CROOKES BROTHERS LTD v REGIONAL LANDCLAIMS COMMISSION, MPUMALANGA

A JUDGMENT BY PONNAN JA(CLOETE JA, CACHALIA JA,WALLIS JA and SOUTHWOODAJA concurring)SUPREME COURT OF APPEAL21 SEPTEMBER 2012

2013 (2) SA 259 (SCA)

A claim brought upon the basis of aprovision for mora interest payablein the event of default is not adamages claim.

THE FACTSCrookes Brothers Ltd sold land

to the Regional Land ClaimsCommission, Mpumalanga, andthe other respondents for R200m.In terms of clause 6 of the saleagreement, should any part of thepurchase price not be paid on duedate, the purchaser would beliable for payment of interest tothe seller on the amountoutstanding at the rate of interestprescribed from time to time interms of the Prescribed Rate ofInterest Act (no 55 of 1975), whichwould be calculated from date ofdefault to date of payment. Suchinterest would be in addition to,and not in substitution for, therights accorded to the sellerelsewhere in the agreement.

The Commission did not providea written undertaking for thepayment of the purchase pricewithin 14 days of being calledupon to do so, as required by theagreement. They ultimately didso, and paid the purchase priceupon transfer. Crookes thenclaimed mora interest in terms ofclause 6 at the rate of 15½% perannum in terms of the Act,amounting to R22 761 643,85.

The Commission contended thatthe claim against them was notone which could be brought interms of the Act because that Actwould only have applied to delayin payment following transfer,and that their claim was,properly understood, a damagesclaim.

THE DECISIONThere was no reason why clause

6 would not apply. Of the manyobligations imposed on theparties, the two relevant thatwere imposed on the respondentswere first, to furnish a guaranteewithin 14 days of a writtenrequest and, second, to pay thepurchase price no later than 10days after transfer. The secondwas not an independent and self-standing obligation but wasdependent for its fulfilment uponthe first. The respondents’obligation to fulfil the secondcould not have arisen until thefirst had been satisfied. Theybreached the agreement by notfurnishing the writtenundertaking for the payment ofthe purchase price within 14 daysof being called upon to do so. Thatbreach caused a delay in effectingtransfer of the properties and, asa result, a delay in the payment ofthe purchase price.

It followed that clause 6 didapply. The claim was not adamages claim. It is an acceptedtenet of our law that a party whohas been deprived of the use of hisor her capital for a period of timehas suffered a loss.

The fact that Crookes may havehad the benefit of the propertywas irrelevant because a default-interest clause had been agreedon and the seller’s continuedpossession of the sold propertyoccurred as a consequence of thepurchaser’s deliberate default.

The claim succeeded.

Contract

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NORTJE v FAKIE

A JUDGMENT BY SWAIN J(BOOYSEN AJ concurring)KWAZULU NATAL HIGHCOURT7 APRIL 2011

2013 (1) SA 577 (KZP)

A sale agreement which empowersa conveyancer to give notice ofmora to the purchaser requires thatthe conveyancer and not the seller’sattorney give the relevant notice.

THE FACTSFakie bought fixed property

from Nortje. In terms of the saleagreement, in the event of therebeing any delay in connectionwith the registration of transferfor which the purchaser wasresponsible, the purchaserundertook to pay interest on thepurchase price at the rate of 18%per annum, calculated from thedate on which the purchaser wasnotified in writing by theconveyancers of being in mora tothe date upon which thepurchaser ceased to be in mora.

Nortje alleged that there was adelay in connection with theregistration of transfer. Hisattorney gave notice in writing toFakie.

In litigation which then ensuedbetween the parties, Nortjecontended that he was entitled toenforce the provision in questiondespite the fact that notice hadbeen given by his attorney andnot a conveyancer.

THE DECISIONThe clause in question placed the

conveyancer in the position togive notice because a conveyanceris best able to determine whetheror not a delay has taken place.The conveyancers were pre-eminently qualified to determine,for the purposes of the provision,first, whether there had been adelay in connection with theregistration of transfer and,secondly, whether Fakie wasresponsible for the delay. Theprovision clearly conferred uponthe conveyancers the power tomake a value judgment on theconduct of Fakie and to thennotify him in writing that he wasplaced in mora.

Nortje’s attorney was thereforenot entitled to issue the notice.

Contract

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SANDOWN TRAVEL (PTY) LTD v CRICKETSOUTH AFRICA

A JUDGMENT BY WEPENER JSOUTH GAUTENG HIGH COURT7 DECEMBER 2012

2013 (2) SA 502 (GSJ)

A party faced with anticipatorybreach of contract which initiallyinsists on proper performance of thecontract is entitled to change itsposition and cancel the contractwhen the breach of contractactually takes place.

THE FACTSSandown Travel (Pty) Ltd

supplied travel agency services toCricket South Africa in terms of acontract concluded between thetwo parties. The contractprovided that it would subsist fortwo years commencing on 1October 2009. It further providedthat either party could givewritten notice of intention toterminate at least 6 monthsbefore the end of the contractdate. In the event of such noticenot being forthcoming at least 6months before the end of thecontract date then the contractwould automatically renew foranother year, on the same termsand conditions, subject to thesame 6 months notice processapplying to the new period.

On 6 April 2011, Cricket wroteto Sandown stating that itwished to terminate theagreement after the effluxion ofthe initial period of two years,which would be 30 September2011. Sandown responded with aletter stating that Cricket wasobliged in terms of the contract togive it written notice of intentionto terminate the contract, at least6 months prior to 30 September2011. As the notice to terminatethe contract was not given on orbefore 30 March 2011, thecontract was automaticallyrenewed for a further year andwould now terminate on 30September 2012.

Cricket reiterated its position inJune 2011 and Sandownresponded by reiterating itsrejection of Cricket’s position. Theparties met in order to resolvetheir difference regardingtermination of the contract butreached no resolution. Sandownremained of the view that thecontract would subsist betweenthem until 30 September 2012 andCricket remained of the view thatit would not.

On 10 October 2011, Sandownwrote to Cricket stating that sinceit no longer utilised its services interms of the contract, but insteadutilised the services of RenniesTravel, this together with itstermination letter, constituted arepudiation of the contract, whichrepudiation it accepted.

Sandown claimed damages ofR1.64m. Cricket defended theaction on the grounds that asSandown had initially chosen toinsist on compliance with thecontract, it had not been entitledto cancel the contract.

THE DECISIONThe letter of 6 April 2011

constituted a repudiation of thecontract. As from that date, andthereafter, Cricket deliberatelyand unequivocally stated thatfrom October 2011 it intended tono longer be bound by the termsof the agreement. This amountedto a repudiation or anticipatorybreach of the agreement on thepart of Cricket.

Sandown’s response was toinsist on performance of thecontract. However, on 10 October2011, it decided to cancel thecontract. Cricket contended thatSandown could not ‘approbateand reprobate’, ie could not keepthe contract in existence and thenhave a change of heart and cancelit. Consequently, it was precludedfrom claiming damages based oncancellation.

This contention however, didnot take into account the right ofa party facing anticipatorybreach to reconsider its positionwhen the time for performancearrives. The principle, that aninnocent party can change his orher mind if the guilty partypersists in his or her repudiationat the time when performance interms of the contract arrives islimited to cases of anticipatorybreach of an agreement, ie a

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breach of the agreement beforethe date on which performance isdue. This was the situation whichhad arisen, and thereforeSandown had been entitled tocancel the contract on 10 October2011.

On the assumption thatSandown was neverthelessbound by its choice to keep the

contract alive, even though itscancellation did not include atender to perform, its particularsof claim still disclosed a cause ofaction for damages as a surrogatefor performance, based onCricket’s repudiation of thecontract.

The action for damagessucceeded.

Contract

The plaintiff’s response to the repudiation was clear. It elected to treat theagreement as binding and not to cancel the agreement. This much is clearfrom the plaintiff’s communications to the defendant. Also, in evidence MrNewall said that as far as he was concerned it was ‘business as usual’ for theplaintiff. He said during cross-examination that throughout the periodApril 2011 to shortly before 10 October 2011, the plaintiff sought topersuade the defendant to comply with the provisions of the agreement. Theletter of 10 October 2011, in which the plaintiff stated that it accepted thedefendant’s repudiation and sought to cancel the agreement, is in conflictwith its initial election.Applying the above principles, the plaintiff would ordinarily be bound by itselection to enforce the agreement and it could therefore not later cancel theagreement, unless there is another ground upon which the plaintiff can rely.

60

ACL GROUP (PTY) LTD v QICK TELEVENTURES FZE

JUDGMENT BY SNELLENBURG AJFREE STATE HIGH COURT12 JULY 2012

2013 (1) SA 508 (FB)

A duly registered external company,conducting business in SouthAfrica, cannot be said to be residentin the Republic for purposes ofsection 28(1) of the Supreme CourtAct (no 59 of 1959), even if thecause of action arises from thebusiness activities of the externalcompany in the Republic

THE FACTSQick Televentures KZE was

incorporated in the United ArabEmirates. It was registered as anexternal company in South Africa.

ACL Group (Pty) Ltd enteredinto a contract with Qick for thesupply of certain subcontractingservices relating to horizontaldrilling and ancillary services.The agreements provided for thesupply of specific services,associated equipment andmaterials, so as to enable Qick tosatisfy its obligations andliabilities under a separatecontract with Nokia SiemensNetworks.

ACL alleged that Qick owed itR4 437 670 arising from theiragreement. It applied for theattachment of certain certainmovable assets of Qick in order tofound or confirm jurisdiction inSouth Africa.

Corporations

THE DECISIONIn order to succeed with an

application for attachment adconfirmandam jurisdictionem, anapplicant must prove that (i) ithas a prima facie cause of actionagainst the defendant, (ii) that thedefendant is a peregrinus, (iii)that the property in which theperegrinus defendant has abeneficial interest is within theRepublic, (iv) that the cause ofaction arose in the area ofjurisdiction of the court. In orderto succeed with an application forattachment ad fundandamjurisdictionem the applicant mustalso prove that the property inwhich the peregrinus defendanthas a beneficial interest is withinthe area of jurisdiction of thecourt.

Qick admitted that it was aperegrinus but contended thatregistration as external company,and the designation of aregistered address, implied that itcarried on business in SouthAfrica and was as suchsufficiently resident in theRepublic to confer jurisdiction

61

FINTECH (PTY) LTD v AWAKE SOLUTIONS (PTY) LTD

A JUDGMENT BY VAN OOSTEN JSOUTH GAUTENG HIGH COURT8 OCTOBER 2012

2013 (1) SA 570 (GSJ)

A court may exercise its inherentjurisdiction to validate acts doneby a company at a time when it wasderegistered in circumstanceswhere the company has beenreinstated as a company.

THE FACTSAt a time when it had been

deregistered as a company,Awake Solutions (Pty) Ltdapplied for an order againstFintech (Pty) Ltd that it payamounts of R72 310,20, allegedlybeing a profit share payable toAwake, and R437 622,60,allegedly being interest payableto it. The parties reached anagreement on an amount Fintechwould pay Awake, and Fintechduly made payment.

At a later stage, thederegistration of Awake wascancelled by the Companies andIntellectual Property Commissionunder the provisions of theCompanies Act (no 71 of 2008).

Fintech then brought anapplication against Awake forrepayment of all amounts it hadpaid to Awake during the periodof its deregistration, a totalamount of R1 764 641,34 togetherwith interest thereon. Fintechcontended that because Awakewas not a legal persona from thedate of its deregistration, it couldnot have acted as it ostensibly didin the litigation, and thepayments to Awake were madeto a non-existing entity in thebona fide and reasonable beliefthat the entity in fact did exist.

THE DECISIONSection 82(4) of the Act read

with reg 40(6) of the CompaniesRegulations provides forreinstatement of registration bythe commission. In the presentmatter, however, thederegistration process of Awakewas cancelled. The questionwhich arose was whether there

was any difference in meaningbetween the two concepts. Therewas this difference: thecancellation of the processconnotes an elimination of theentire process, including theinitial deregistration, as if it hadnever occurred, whereasreinstatement implies putting itback in its former position priorto deregistration. On thisconstruction, by the cancellationof the deregistration process,Awake at all times remained acorporate entity. Therefore, onthis basis, all acts it performedremained valid and binding at alltimes.

Assuming however, that Awakewas reinstated as a company atthe later stage, there was noreason why the court could notexercise its inherent jurisdiction,in view of the absence of enablingstatutory provision under the2008 Act, to validate anythingdone by or against it betweenderegistration and itsreinstatement, and to make suchorder it considered appropriate.

The practical need to provide forthe retrospective consequences ofa reinstatement of a deregisteredcompany was patently clear fromthe facts of the matter. In the timeit was deregistered, Awake in allrespects carried on business andwas in operation as before, as if itwere clothed with corporatepersonality. The payments madeto Awake were all made inrespect of an admitted liability.The litigation involving Awakewas properly conducted.

There were therefore no groundsfor Fintech’s application. Theapplication was dismissed.

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HENNIE LAMBRECHTS ARCHITECTS vBOMBENERO INVESTMENTS (PTY) LTD

A JUDGMENT BY THAMAGE AJFREE STATE HIGH COURT15 NOVEMBER 2012

2013 (2) SA 477 (FB)

A genuine incola plaintiff who has asustainable case but is impecuniousshould not be required to givesecurity for costs in any action ithas brought.

THE FACTSBombenero Investments (Pty)

Ltd brought an action againstHennie Lambrechts Architects.The action alleged breach ofcontract, and claimed someR5.5m.

Hennie Lambrechtscounterclaimed, and also appliedfor an order that Bombeneroprovide security for costs of theaction in the sum of R150 000.Bombenero refused to disclose itsfinancial position, and refused toprovide the security claimed. Itstated that having to pay the sumof R150 000 would disturb itscash flow.

Hennie Lambrechts sought anorder that Bombenero providesecurity.

THE DECISIONThe new Companies Act (no 71

of 2008) does not make provisionfor a company providing securityfor costs. However, the commonlaw remains, and the cases basedon the old legislation mayprovide guidance in determining

whether or not security for costsshould be ordered.

It has been held that mereinability of a plaintiff, who is anincola, to satisfy a potential costsorder against him is insufficientin itself in a case of a particularkind to justify an order that hefurnish security for hisopponent’s costs. Something morethan this is required before thatcan be done. Although the courtshave the inherent duty to guardagainst abuse of court process byvexatious, reckless orimpecunious litigation, theyshould not close their doors to thegenuine incola plaintiff who has asustainable case but isimpecunious.

There was no merit in theargument that Bombenero’sfailure to show that it wassolvent was in itself proof that thelitigation was vexatious. Anaction is vexatious if it isobviously unsustainable.However, this was not the case inthe present matter.

The application was dismissed.

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LIVING HANDS (PTY) LTD v DITZ

A JUDGMENT BY MOKGABA JSOUTH GAUTENG HIGH COURT11 SEPTEMBER 2012

2013 (2) SA 368 (GSJ)

A shareholder owes no fiduciaryduty to its company. An investmentmanager owes a duty to ensure thata party requesting transfer of aninvestment held with it is properlyauthorised.

THE FACTSIn May 2002 and September

2004, in its capacity as trustee of atrust, Living Hands (Pty) Ltdinvested money with Old Mutual.By 5 October 2004, the amount ofthis investment stood at R1 124137 589,46.

In an action brought six yearslater, Living Hands alleged thaton 5 October 2004, Investec andother shareholders in LivingHands concluded a sale-of-sharesagreement with FidentiaHoldings Ltd, in terms of whichthe shareholders sold all theissued shares in Living Hands toFidentia for R93 million. Clause 4of the agreement obliged Fidentiato deliver to Investec acting onbehalf of the other shareholders, aletter from its bankers confirmingto the reasonable satisfaction ofthe shareholders that it hadsufficient funds to pay thepurchase price, within threebusiness days after the signaturedate. The shareholders had toprovide signed transfer formsand written resignations of thethen directors of Living Handsagainst payment of the purchaseprice. Investec did not receive, nordid it insist upon, the letter fromFidentia’s bankers as stipulatedin the agreement. However, infulfilment of this condition,Fidentia furnished Investec witha letter from Standard Bankconfirming the instruction totransfer R93 million to LivingHands’ current account.

The particulars of claim allegedthat on 14 October 2004, LivingHands, under new management,appointed Fidentia AssetManagement Ltd (FAM) asportfolio manager of the funds.FAM delivered a letter to OldMutual instructing it to liquidateR150 million of the funds and totransfer the proceeds into FAM’saccount. Old Mutual informedFAM that it would only act on a

signed, written instruction fromLiving Hands, in which theproper appointment of FAM wasconfirmed. Living Hands thensent a letter to Old Mutualadvising that FAM had beenappointed as the investmentmanager of Living Hands and theTrust with effect from 14 October2004, that FAM had a ‘fulldiscretionary mandate’, and thatFAM had full authority to dealwith the investment portfolio asit saw fit.

They further alleged that on 19October 2004 the directors ofLiving Hands were replaced bythe fourteenth to seventeenthdefendants. Living Handsinformed Old Mutual that itsboard had resolved to call up itsentire trust-investment portfoliowith Old Mutual with immediateeffect, and requested Old Mutualto transfer the funds to itimmediately. Old Mutualtransferred the funds to LivingHands which then paid the fundsover to FAM for investment.

On 22 October 2010, LivingHands brought an action againstits directors and against OldMutual and Living Hands forpayment of R1 124 137 589,46. Italleged that the funds weredepleted by the allegedmaladministration andmisappropriation whilst underthe administration of FAM. Thealleged maladministration andmisappropriation areattributable to the four directorswho replaced the existingdirectors on 19 October 2004.

Old Mutual and Investec raisedexceptions to the particulars ofclaim.

THE DECISIONInvestec

Living Hands alleged thatInvestec breached its fiduciaryduty and duty of care in itscapacity as shareholder by not

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preventing the conclusion andimplementation of the sale-of-shares agreement. It contendedthat, at that time, Investec ‘knewthat Living Hands had grantedFAM a mandate containing anunfettered discretion to investand manage the trust funds.Investec’s exception was to theeffect that a shareholder does notin law owe the alleged duties toits company, that a shareholderdoes not in law owe the allegedduties to the beneficiaries of thetrust of which its company is thetrustee, and that even if Investecowed the alleged duties to it andthe beneficiaries of the trust, theduties did not in law extend to aduty to protect Living Hands orthe beneficiaries against losses ofthe kind they suffered in this case.

Living Hands sought toattribute obligations to Investecin its capacity as a minorityshareholder selling its shares,which is an act of a shareholder,and not of the company. Theduties sought to be imposed onInvestec and other shareholderswere too widely stated. It is not,for example, alleged that theposition of the shareholders vis-à-vis the beneficiary fundscreated a special relationshipbetween the shareholders and thetrust beneficiaries from which aduty of care could be inferred. Inthe result it could be concludedthat no sufficient nexus betweenInvestec’s conduct and thedissipation of the beneficiaryfunds had been alleged to showthat there were considerations ofpolicy to justify the extension of

the Aquilian liability so as tocover the facts of the present case.

Should liability be extended onthe amended particulars of claimas framed, this would have majorand far-reaching consequences forcompany law in general and theduties of shareholders inparticular. The risk ofindeterminate liability forshareholders generally was real.Old Mutual

Living Hands alleged that OldMutual, knowing that the moneywould be placed under theadministration of FAM, causedthe funds to be paid to itselfduring the period from 26October 2004 to 8 November 2004without insisting on a 90-daynotice period, that Old Mutualknew that FAM did not have theauthority of Living Hands toaddress the request to OldMutual, that this constituted afraudulent attempt by FAM, tomisappropriate R150m of thefunds, that as at 15 October 2004FAM had not been appointed asinvestment manager , and itsdirectors did not have authorityto deal with the investmentportfolio as they saw fit in theircapacity as representatives ofFAM, alternatively Old Mutualought to have suspected throughthe exercise of reasonable careand diligence that it had notreceived a lawful instructionfrom a recognised fundadministrator addressed to it inthe normal course of business.

It alleged in the alternative thatOld Mutual ought to have known,

alternatively ought to havereasonably suspected that FAM’sactions constituted a fraudulentattempt to misappropriate R150million of the funds, that knowingthat an attempt had been madeby FAM to fraudulentlymisappropriate part of the funds,ought not to have released thefunds such as it did.

What happened before the fundswere transferred was asimportant as what happenedafter. Old Mutual was aware, notonly of the delicate andvulnerable nature of the funds,but also of its fiduciary duty inrelation to those funds. OldMutual ought have been put onalert by the very tenor of therequest to it.

That Old Mutual owed a duty tothe trust not to allow thedissipation of the funds could notbe seriously disputed. Thisentailed a duty not to allowanother party to gain access tothe funds, especially with theknowledge of the circumstancesthat prevailed during the relevantperiod. The manner, and theindecent haste with which FAMattempted to gain access to thefunds, made the dissipation offunds a reasonable foreseeability.For that reason Living Hands’particulars of claim containedsufficient averments necessary tofound a cause of action such that atrial court might find Old Mutualto have been factually and legallypartly the cause of the loss, jointlywith others. Accordingly thisground of exception could not beupheld.

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PROPSPEC INVESTMENTS (PTY) LTD v PACIFICCOAST INVESTMENTS 97 LTD

A JUDGMENT BY VAN DERMERWE JFREE STATE HIGH COURT28 JUNE 2012

2013 (1) SA 542 (FB)

A company which is in financialdistress will not be placed undersupervision for the purpose ofbusiness rescue if it cannot beshown that a business rescuepractitioner would achieve a betterreturn on the sale of the company’sproperty than a liquidator.

THE FACTSBy way of a so-called ‘private

placing invitation’ Pacific CoastInvestments 97 Ltd invitedinvestors to invest in a project forthe development of servicedproperties. The developmentwould consist of two phases, afterwhich the properties would besold and the investments repaid.

In respect of the first phase, thepurpose of the invitation was toraise funds to finance thecompany’s acquisition of certainproperty in East London,measuring 16,6 hectares,payment of professional feesrelating to the installation ofinfrastructure on the property,and the necessary private-placingcosts and the promoter’s fee. Inrespect of the second phase thepurpose was the financing of theinstallation of electrical, civil andbulk services on the property, aswell as the necessary private-placing costs and the promoter’sfee.

Linked units were offered forsubscription at R1000 per unit.Investors were persuaded toinvest in the project by the offerof interest on shareholders’ loansof 30% per annum calculatedfrom closing date of the particularoffer to date of completion of theproject.

The first phase attractedinvestments in the amount of R26152 900 and the second phaseattracted investments in theamount of R35 711 000. This wasin accordance with theprojections in the private placinginvitation. The two phases werecompleted and the projected 205full-title erven and 330 sectional-title erven became available forsale at approximately theprojected time. Not a single standwas sold. This caused thecompany serious financialdistress. Payment of acceleratedinterest ceased and the project

ground to a halt.The liability of the company for

repayment of shareholders’ loansand interest thereon amounted toapproximately R85 968 831.Propspec Investments (Pty) Ltd,the promoter of the project, wasentitled to promoter’s fees ofapproximately R8 901 197.However, it made a loan to thecompany in order to enable it topay interest to the investors thatopted for payment of acceleratedinterest. Other liabilitiesamounted to R337 046, so that thetotal liabilities of the companyamounted to approximately R93869 225. Apart from the amountof R40 033 in savings accounts,the property was the only assetof the company. The company hasno employees.

Propspec applied for an orderplacing Pacific under supervisionand commencing business rescueproceedings, and for appointmentof an interim business rescuepractitioner.

THE DECISIONIn terms of the private placing

invitation the total projected netprofit of the project would bedistributed as investors’ returnon investments. Therefore, evenafter successful completion of theproject, the company would beleft with no funds and no assets.Prospec’s case was that theproperty should be sold, either asa whole or by sale of individualerven. It follows that there is nopractical prospect of the companycontinuing to exist on a solventbasis.

There was no proper valuationof the property to show that theproperty or erven may be sold formore than the total liabilities ofthe company. The best proof ofthe market value of property isthe price actually obtained in theopen market. However, no sales oferven took place at all over a

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period of approximately 3 years.The question was therefore

whether there was a reasonableprospect that selling of theproperty by a business rescuepractitioner would yield a betterreturn than selling thereof by aliquidator. There was no reasonwhy a sale by a liquidator shouldbe a forced sale. In this matter all

shareholders were also creditorsand there were no employees. Theliquidator must act on thedirections of the creditors of thecompany. The return achieved bya liquidator was therefore no lessadvantageous than that which abusiness rescue practitionermight obtain.

The application was dismissed.

Corporations

The question therefore is whether there is a reasonable prospect that selling of theproperty by a business rescue practitioner will yield a better return than sellingthereof by a liquidator. The applicant says that the problem with the developmentwas the economic downturn, as well as the chilling effect of the National Credit Acton obtaining credit from banks. The applicant says that there is improvement inrespect of both these impediments. It says that the economy has improved and that‘the banks now grant 50% loans for the purchase of vacant land and much morefavourable building loans’. This may be accepted, but is neutral. There is no reasonwhy these factors would not apply equally to a liquidator and a business rescuepractitioner.

67

STANDARD BANK OF SOUTH AFRICA LTD vR-BAY LOGISTICS CC

A JUDGMENT BY KING AJKWAZULU NATAL HIGHCOURT31 OCTOBER 2012

2013 (2) SA 295 (KZD)

If there is no real dispute that acompany is deemed to be unable topay its debts because it failed torespond to a demand in terms ofsection 69 of the CloseCorporations Act (no 69 of 1984), aprovisional winding up order maybe given against the company. Anycounterclaim raised by thatcompany against the applicant maybe taken into account by the courtin deciding whether or not to grantsuch an order.

THE FACTSStandard Bank of South Africa

Ltd lent money to R-Bay LogisticsCC by way of various instalmentsale agreements and overdrafts.The bank delivered a demand forrepayment in terms of section69(1)(a) of the Close CorporationsAct, and then brought anapplication for the winding up ofR-Bay.

R-Bay disputed that the debtwas due and payable. Its groundswere that a sum of R760 918,73had earlier been paid to the bank,and it was subsequentlydiscovered that this was notpayable then to the bank. R-Baycontended that the claim onwhich the bank brought thewinding up application wasbased on a debt which was notdue, owing and claimable.

The bank’s application wasbased on the provisions ofchapter 14 of the Companies Act(no 61 of 1973). It alleged that, asprovided for therein, the bankcould apply for the winding up ofR-Bay on the grounds that it wasunable to pay its debts as they felldue.

R-Bay opposed the applicationon the grounds that the bank hadnot provided sufficient evidencethat it was insolvent and so couldnot rely on chapter 14 for itsapplication.

THE DECISIONNothing in the new Companies

Act changed any of the provisionsof ch 14 of the old Companies Act.Accordingly, for the purpose ofwinding up an insolventcompany, the provisions of thatchapter had to regulate the basis

upon which R-Bay could bewound up. Of particularrelevance is section 344(f) whichrequires an applicant to provethat the respondent company isunable to pay its debts, ascontemplated in section 345 of theold Companies Act. Accordingly,an applicant must establish oneor other of the grounds forwinding-up contemplated insection 344, including, inparticular, that the respondentcompany is unable to pay itsdebts.

The evidence showed that R-Bayhad fallen into arrears in regardto the instalment sale agreements.It was therefore clear that it wasindebted to the bank and had notpaid debts which were due andpayable. The bank was entitled tocall up the full amount payableunder the instalment saleagreements.

The only answer to this given byR-Bay was that the bank owed itmoney because it had paid alarger amount at an earlier stage.This however, did not give rise toany real dispute that the bank’sclaims were due and payable.Hence, there was no real disputethat R-Bay was deemed to beunable to pay its debts because itfailed to respond to the bank’sdemand in terms of section 69 ofthe Close Corporations Act.Instalments under the instalmentsale agreements were unpaid andpayment of the full balance owedthereunder was accordinglyaccelerated. Despite demand, theamounts owed under the twooverdrafts were not paid andthey accordingly became due,owing and payable as well.

The application was granted.

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SCANIA FINANCE SOUTHERN AFRICA (PTY) LTD vTHOMI-GEE ROAD CARRIERS CC

JUDGMENT BY SNELLENBERG AJFREE STATE DIVISION19 JULY 2012

2013 (2) SA 439 (FB)

An applicant may, in terms ofsection 9 of sch 5 of the 2008 Act,approach the court for theliquidation of a respondentcompany or close corporation onthe ground of its inability to pay itsdebts in terms of section 344(f).Section 345 and section 69 of theClose Corporations Act are stilldeeming provisions. Such anapplicant need not prove that therespondent company is insolvent.

THE FACTSThomi-Gee Road Carriers CC

owed Scania Finance SouthernAfrica (Pty) Ltd R1 089 659,34. Acertain payment was receivedduring February 2012 from adebtor of Thomi-Gee, which wasearmarked to be allocated on itsarrears. This payment followed ademand made on it in terms ofsection 69(1)(a) of the CloseCorporations Act (no 69 of 1984).No response has beenforthcoming.

Scania then applied for thewinding up of Thomi-Gee. Itbased its application on theallegation that Thomi-Gee wasunable to pay its debts and wascommercially insolvent.

The court raised the questionwhether in the light of the newCompanies Act (no 71 of 2008),Scania could not rely on section69(1)(a) and had to allege andprove that Thomi-Gee wasinsolvent. In a previous case. ithad been held that the groundsset out in section 81 of the newAct only apply to solventcompanies. In that court, it wasnoted that in order to rely on thegrounds for liquidation in ch 14 ofthe 1973 Act, an applicant mustfirst (and as sine qua non) proveinsolvency, ie that the company isnot solvent and therefore thatsection 81 is not applicable. Itfollowed from this that, should an

applicant be unable to proveinsolvency, such applicant mustthen make out a case for winding-up in terms of section 81. Thefailure to respond to a demand interms of section 69 will in suchevent constitute a factor thatmay, or may not, assist such anapplicant to rely on the groundthat it is just and equitable toliquidate.

THE DECISIONThe reasoning of the judgment in

the previous case could not besupported. The misconception ofrequiring a creditor to proveinsolvency before being able torely on ch 14 of the previous Actwas apparent merely from theprovisions of section 345, readwith section 344 of that Act,which clearly did not provide forfactual insolvency, but only adeemed inability to pay debts.

An applicant may, in terms ofsection 9 of sch 5 of the 2008 Act,approach the court for theliquidation of a respondentcompany or close corporation onthe ground of its inability to payits debts in terms of section 344(f).Section 345 and section 69 of theClose Corporations Act are stilldeeming provisions. Such anapplicant need not prove that therespondent company is insolventin order to rely on ch XIV of theprevious Act.

The application was granted.

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ROESTORF N.O. v JOHNS

A JUDGMENT BY LOPES JKWAZULU NATAL HIGHCOURT28 JUNE 2012

2013 (2) SA 459 (KZD)

Majority shareholders may notbring an action for damages whichproperly lies with the company ofwhich they are shareholders.

THE FACTSRoestorf and the second plaintiff

were trustees of a two trustswhich owned shares in TwoWheel Investments (Pty) Ltd. Thecompany traded as Tommy JohnsMotorcycles in Old Main Road inPinetown, and held principaldealerships with BMW andKawasaki.

In April 2004, Johns took upemployment with the business.The business went well forapproximately the first 18months. BMW and Kawasakiexpressed dissatisfaction with theway in which Johns conductedthe business, and cancelled thedealerships. Thereafter, thebusiness went into steep declineand it was closed and liquidatedin 2007.

Roestorf and the second plaintiffalleged that the failure of thebusiness was caused by Johns,and claimed from her the sum ofR2 742 521,35, being damagessustained by the trusts for theloss of their shares and loanaccounts in the companyconsequent upon its liquidation.

Johns objected to the claim onthe grounds that in accordancewith Foss v Harbottle (1843) 2 Hare461 (67 ER 189) the action shouldhave been brought by thecompany and not itsshareholders.

THE DECISIONThe plaintiffs were the majority

shareholders, holding 75% of theshares. They wished to recoverthe loss in the value of theirshares and their loan accountsfrom the 25% minorityshareholder. There is no reasonwhy they could not have passed aresolution authorising the actionon behalf of the company torecover the losses sustained bythe company as a result of theactions of the defendant.

The plaintiffs had a financialinterest in the business of thecompany. But the fact that theirshareholding was affected by theconduct of the defendant did notgive them a right of action per seagainst Johns. They had notdemonstrated that their actionfell outside the rule, or within anyof the exceptions recognised inFoss v Harbottle.

In any event, since the action layin the first instance by thecompany, then if all the creditorswere not paid, any amountrecovered by the company couldhave gone to the creditors whosuffered a shortfall. To allow thepresent action would be tocircumvent the liquidationprocess in its entirety and awarda dividend to shareholders whichmay not have been warranted.

The objection was upheld.

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UNION FINANCE HOLDINGS (PTY) LTD v BONUGLI N.O.

A JUDGMENT BY VAN OOSTEN JSOUTH GAUTENG HIGH COURT9 MAY 2012

2013 (2) SA 449 (GSJ)

A mistaken debit entry on anaccount gives rise to a claim forcorrection on the date on which it ismade, and therefore the period ofprescription should run against thedebt so created from that date.

THE FACTSBonugli, in his capacity as

trustee of a trust, and the otherrespondents held a chequeaccount in the name of the trustwith Union Finance Holdings(Pty) Ltd.

The trust brought an actionagainst Union Finance allegingthat it had incorrectly passeddebits against its account duringthe period from 31 January 2000to 31 December 2005. It sought anorder declaring that the debitswere incorrectly passed and thatthe trust was not liable to UnionFinance for the amounts of thedebits, an order directing UnionFinance to reverse the debits andpass corresponding credits for theamounts of the debits, and anorder for payment of the totalamount of R77 113 759,50,interest thereon and costs.

In February 2012, Union Financeapplied for leave to introducecertain counterclaims based onalleged incorrect accounting. Itclaimed that the trust’s accountshould be amended by thereversal of a large number ofcredits and debits, resulting innew and increased debits of someR3m more than the amount of theinitial debits, and furtherincluded other amounts whichhad not before been debited to theaccount.

Bonugli opposed the applicationon the grounds that the claimshad prescribed. Union Financecontended that section 13(2) of thePrescription Act (no 68 of 1969)applied. The section provides thata debt which arises from acontract and which would, butfor the provisions of thissubsection, become prescribed

before a reciprocal debt whicharises from the same contractbecomes prescribed, shall notbecome prescribed before thereciprocal debt becomesprescribed.

THE DECISIONBecause of the nature of the

account, which was operated as acurrent account, where paymentswere effected by means of debitsor credits from time to time, allentries made on the account arewere subject to the laws of set off.Set off could be applied if it couldbe shown that the respectiveclaims were reciprocal.

Union Finance claimed that theagreement between the partieswas an implied agreement.Accepting this to be the case, thedebits and credits applied to theaccount were made in termsthereof, but this did not create aninterdependency of obligations inthe strict sense, when a reversalof the debts arose. Furthermore, itcould not be said that by virtue ofthe implied agreement, arelationship thereby existedbetween the parties, which was ofsuch a nature as to indicate thatthe one was undertaken inexchange for the other. Acorrection would result in areversal but that flowed from themistaken entry and not thenature of the relationshipbetween the parties. Noreciprocity of debts had thereforebeen shown. Section 13(2) of thePrescription Act did not apply.

A period of more than threeyears had elapsed from the dateon which the debts became dueuntil the application was begun.The counterclaims had thereforeprescribed.

Prescription

71

BRIDON INTERNATIONAL GMBH v INTERNATIONALTRADE ADMINISTRATION COMMISSION

A JUDGMENT BY BRAND JA(CLOETE JA, MHLANTLA JA,WALLIS JA and SOUTHWOODAJA concurring)SUPREME COURT OF APPEAL30 MAY 2012

2013 (3) SA 197 (SCA)

Section 35(3) of the InternationalTrade Administration Act (no 71 of2002) may be applied to disclosurein review proceedings and is notconfined to proceedings before theCommission. A court may thereforemake an order requiring disclosureof information supplied to it by acompany, provided that the ordertakes into account the interests ofthe relevant parties.

THE FACTSIn 2007, the International Trade

Administration Commissionconsidered an application for thecontinuation of anti-dumpingduties which were then in placein respect of imports of steel-wirerope. The application was madeby Scaw South Africa (Pty) Ltd, acompetitor of BridonInternational Gmbh.

The Commission requestedinformation of these parties, aswell as of Casar DrahtseilwerkSaar Gmbh, another competitor.The parties provided theCommission with extensive andconfidential informationregarding their businessactivities. The Commissionrecommended the continuation ofand an increase in anti-dumpingduties levied on wire ropesexported by some Germanmanufacturers, including exportsby Casar. But with reference toexports by Bridon, theCommission recommended thatno anti-dumping duties beimposed.

The Commission’srecommendations were acceptedby the Minister of Trade andIndustry. The anti-dumpingduties recommended by theCommission were then imposedby publication in the GovernmentGazette of 13 February 2009.Casar applied for a review of thedecision in terms of section 46 ofthe International TradeAdministration Act (no 71 of2002).

As required by Rule 53 of theRules of Court, the Commissiondisclosed the record ofproceedings on which its decisionwas based. In doing so, it dividedthe information into confidentialand non-confidential parts, anddisclosed only the non-confidential part.

The court hearing the reviewapplication ordered that the

confidential parts of the recordalso be disclosed, but under strictconditions. Bridon appealedagainst this order. TheCommission took the view thatthe matter was governed bysection 35 of the Act and shouldbe dealt with in terms of itsprovisions. The section providesfor the resolution of a conflict ofinterests between a partywishing access to confidentialinformation supplied to theCommission by another party.

THE DECISIONSection 35(3) of the Act provides

that a court may determinewhether information alleged to beconfidential is confidential orshould be recognised as such, andthen make an appropriate orderconcerning access to thatinformation. The section may beapplied to disclosure in reviewproceedings. It is not confined toproceedings before theCommission.

Bridon contended that the basisof confidentiality in regard tosensitive information such as ithad provided to the Commissionwas the public interest. However,it was doubtful whether a partysuch as Bridon could depend onpublic privilege, this beingsomething more appropriatelyavailable to a public body such asthe Commission.

Disallowing disclosure ofBridon’s confidential informationwould effectively deprive Casarof a fair hearing in the mainapplication. Casar’s interest indisclosure therefore enjoyedconstitutional protection, notonly under section 32 of theConstitution, which guaranteeseveryone’s right of access to anyinformation held by the state, butalso under section 34, whichguarantees the right to a fairpublic hearing before a court.

By imposing the strict

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conditions regarding disclosure,the court hearing the reviewapplication had ensured that itsorder fairly weighed up thecompeting interests of the partiesinvolved. The order limited accessto the confidential part of theCommission’s record to legalrepresentatives of the parties inthe main application and oneindependent expert appointed byeach party to assist in thatapplication. In addition, thesepersons would only have accessafter they have signed a

confidentiality undertaking in theform dictated by the order. Interms of that undertaking thesignatory pledges not to divulgethe information that he or sheobtained from the record toanybody outside the stipulatedgroup of persons, which groupdoes not include the partiesthemselves or any of theiremployees.

In the circumstances, the ordergranted by the court wasappropriate, and could not bechallenged. The appeal failed.

Competition

As I see it, the approach to the recognition of public interest privilege on the factsof a particular case in both the United Kingdom and Canada therefore depends ona judicial evaluation of the balance between two conflicting public interests. Onthe one hand there is the public interest in finding the truth in court proceedings.This is to be weighed up against the countervailing public interest whichsometimes requires that the confidentiality of information be maintained. Insupport of its argument that in this case the latter interest outweighs the former,Bridon relied on evidence produced in the answering affidavit of both itself andthe Commission. What this evidence shows, in broad outline, is that, in the sameway as in Crompton, the Commission is vitally dependent, in its investigationsinto anti-dumping, on receiving commercially I sensitive evidence supplied bythird parties who may refuse to co-operate if the confidentiality of theirinformation is not ensured.

73

BRIGHT BAY PROPERTY SERVICE (PTY) LTD vMORAVIAN CHURCH IN SOUTH AFRICA

A JUDGMENT BY HENNEY JWESTERN CAPE HIGH COURT31 OCTOBER 2012

2013 (3) SA 78 (WCC)

Acts performed by a company whileit is deregistered cannot beretrospectively validated in termsof the Companies Act (no 71 of2008).

THE FACTSIn 2006, Bright Bay Property

Service (Pty) Ltd concluded anagreement with MoravianChurch in South Africa entitlingit to mine on Moravian’sproperty. Operation of theagreement began in 2007 whenBright Bay obtained a licence tomine for five years in terms of apermit given by the Departmentof Minerals and Energy.

In 2010, Bright Bay wasderegistered as a company. InJanuary 2011, it applied for its re-registration. Re-registration tookplace in February 2012. In August2011, it applied for and obtained arenewed mining permit.

The church took the view thatthe agreement had lapsed due tofailure of the renewal of themining permit, Bright Bay havinglacked the ability to effectivelyapply for the renewal because itwas then de-registered. Clause 11of their agreement provided thatif Bright Bay was not in a positionto obtain the required licencesand permits, it would no longerhave any rights in terms of theagreement.

Bright Bay contended that it hadthe ability to effectively apply forthe renewal because section73(6A) of the Companies Act (no61 of 1973) applied. This sectionprovides that the Registrar ofCompanies may restore theregistration of a company which

has lapsed due to failure to lodgeits annual returns, and thereuponthe company shall be deemed tohave continued in existence as if ithad not been deregistered.

Bright Bay applied for an orderthat the church comply with itsobligations under the agreement.

THE DECISIONThe new Companies Act (no 71

of 2008) replaced the oldCompanies Act, and in so doingits provisions regardingreinstatement of a de-registeredcompany replaced section 73(6A).The new Act provides only thatupon re-registration, a companyis to be treated as if it remainedregistered during the period ofderegistration. The new Act doesnot retain the retrospectivityprovisions of the old Act.

The reinstatement of Bright Baywas done under the new Act. Thistook place after the application forrenewal of the mining permit hadbeen made and granted. Thoseevents were however, of no effectbecause when they took place thecompany had been deregistered.The effect of that was that theagreement had lapsed in terms ofclause 11. Bright Bay could nolonger assert any rights in termsthereof. Not being the holder of avalid mining permit, it could notdemand specific performance ofthe church.

The application failed.

Companies

74

EX PARTE GORE AND OTHERS NNO

A JUDGMENT BY BINNS-WARD JWESTERN CAPE HIGH COURT13 FEBRUARY 2013

2013 (3) SA 382 (WCC)

Section 20(9) of the Companies Act(no 61 of 2008) provides a broadbasis on which a court may orderthat the corporate veil be lifted.

THE FACTSGore and the other applicants

were the liquidators of KingFinancial Holdings Ltd and 41other companies which were itssubsidiaries. All of the companieshad been controlled by threebrothers through their control ofvarious trusts.

The business operations of thecompanies involved sellingfinancial investments incommercial and residentialproperties to the public. TheFinancial Services Boardinvestigated their operations anddetermined that widespreadirregularities were involved. Itdetermined that the affairs of thegroup were in material respectsconducted in a manner thatmaintained no distinguishablecorporate identity between thevarious constituent companies inthe group. The entire group wasoperated as one entity throughthe holding company. Fundssolicited from investors weretransferred by the controllers ofthe holding company between thevarious companies in the groupat will, with no effectual regard tothe individual identity of thecompanies concerned, and withgrossly inadequate record-keeping. The King brothersadmitted that they treated alltheir companies as one.

As a result of the chaoticadministration of the affairs ofthe companies, the liquidatorsencountered difficulty inidentifying the companies againstwhich investors might haveclaims. They therefore applied foran order that the separate

personalities of the companies bedisregarded and permitting theliquidators to treat the assets ofthe companies as if they were allthose of the holding company.

THE DECISIONSouth African courts have

shown a greater willingness topierce or lift the corporate veil.They will do so if justice requiresit and not only when noalternative remedy is available. Itinvolves the weighing by thecourt of the importance of givingeffect to the legal concept ofjuristic personality,acknowledging the materialpractical and legal considerationsthat underpin the legal fiction, onthe one hand, as against theadverse moral and economiceffects of countenancing anunconscionable abuse of theconcept by the founders,shareholders, or controllers of acompany, on the other.

Section 20(9) of the CompaniesAct (no 61 of 2008) provides that ifa court finds that theincorporation of a companyconstitutes an unconscionableabuse of corporate personality, itmay declare that the company isdeemed not to be a juristic personin respect of any right orobligation of the company. Thelanguage of this section is cast invery wide terms and is consistentwith court decisions made on thesubject prior to its enactment. Ifanything, it broadens the scopefor piercing the corporate veil.

In the present case, the sectioncould be applied to the companiesin liquidation. The order wasgranted.

Companies

75

CHETTY v ITALTILE CERAMICS LTD

A JUDGMENT BY MALAN JA(BRAND JA, PILLAY JA,SOUTHWOOD JA and ERASMUSAJA concurring)SUPREME COURT OF APPEAL28 NOVEMBER 2012

2013 (3) SA 374 (SCA)

A claim based on the condictiofurtiva must show that the personalleged to have stolen the owner’sgoods either dispossessed theowner of them or used themunauthorisedly.

THE FACTSIn 2006, Chetty concluded a joint

venture and franchise agreementwith Italtile Ceramics Ltd. Underthe agreement, he conducted thebusiness of a warehouse andretail store selling ceramic tiles tothe public. In terms of theagreement, Chetty was obliged tosell the goods on a cash basisonly.

Chetty sold goods to somecustomers on a credit basis.Selected customers were giventhe option of paying for theirgoods at month end. In order toconceal the fact that he had soldgoods on credit, in the books ofaccount Chetty effected stockentries on the first and last daysof each month. On the first day ofthe month, missing stock wasattributed to breakages andcustomer claims, and on the lastday of the month, this would bereversed back.

Italtile discovered that Chettyhad supplied goods on credit andterminated the agreement. It thenclaimed payment of R1 168 340.26alleging that this was made up ofthe discrepancy in stock figuresand R26 055.62 in bad debt. Itbased its claim on the condictiofurtiva.

THE DECISIONThe condictio furtiva is a

remedy available to an owner ofgoods against a thief. It requiresproof of theft, either by

dispossession or by unauthoriseduse of the owner’s goods.

Chetty did not use Italtile’sgoods. He made false entries in thebooks of account in order tomislead Italtile but he did notconceal any unlawful taking ofthe goods. There was no ‘taking’or withdrawal from Italtile of thegoods sold on credit. There wastherefore no theft in the first senseof the word. As far asunauthorised use was concerned,the goods were lawfully underChetty’s control. Their sale byChetty could not be seen asunauthorised use since he neverintended to return to Italtilewhat he had sold on credit. He didnot intend using it temporarily,as in most cases of furtum usus,but sold it intending to benefitboth himself and Italtile. Makingthe stock available for salepursuant to the book deliverysystem Chetty had institutedcould be regarded as the use of thegoods, since the act of selling thegoods, necessarily, includes theiruse. Buy in every case, the saleswere credited to the store. A claimbased on the condictio furtivacould therefore not be sustainedagainst Chetty.

As far as the bad debt wasconcerned, Italtile could havepursued the debtors for paymentthereof, but chose not to do so. Itwas therefore the author of itsown loss in this respect.

The claim failed.

Contract

76

FOIZE AFRICA (PTY) LTD v FOIZE BEHEER BV

A JUDGMENT BY LEACH JA(MTHIYANE DP, CLOETE JA,HEHER JA and SHONGWE JAconcurring)SUPREME COURT OF APPEAL20 SEPTEMBER 2012

2013 (3) SA 91 (SCA)

A court should determine whetheror not a foreign jurisdiction clauseshould be enforced at a stage whenthere are sufficient facts before it toenable it to exercise its discretionin making such a determination.

THE FACTSFoize Africa (Pty) Ltd concluded

an agreement with Foize Sales BVin terms of which Foize Africaobtained the exclusive right tosell, market and distribute aproduct in South Africa. FoizeBeheer BV was also a party to theagreement. Both of thesecompanies were incorporated inthe Netherlands.

Clause 10 of the agreementprovided that Dutch law wouldapply to it and the courts ofHolland would have exclusivejurisdiction in any matter arisingfrom it. Any disputes were to bereferred to arbitration inAmsterdam.

Algemeen Beheer Nederland BV,Foize Beheer’s sole director, thenalleged that it held the intellectualproperty rights in the productand the marketing rights and thatit intended to market the productin South Africa through twoother companies.

Foize Africa brought anapplication against the twoNetherlands Foize companies inwhich it sought to compel themto comply with the agreement. Italso sought an order piercing thecorporate veil of Foize Beheer anddeclaring Algemeen bound by theagreement. Its application wasalso brought against otherrespondents who were directorsand companies which controlledand were associated with the twoNetherlands Foize companies. Theapplication sought an interiminterdict pending the outcome offinal relief.

Foize Beheer and the othercompanies opposed theapplication and raised theobjection that clause 10 of theagreement precluded a SouthAfrican court from deciding thematter.

THE DECISIONSince the claim brought against

Algemeen Beheer and thedirectors and companiesassociated with the twoNetherlands Foize companies wasnot based on the agreementconcluded with Foize Sales BVand Foize Beheer BV, clause 10 ofthat agreement provided no basisfor denying jurisdiction to SouthAfrican courts.

As far as the two NetherlandsFoize companies were concerned,it is settled law that a foreignjurisdiction or arbitration clausedoes not exclude the court’sjurisdiction. Parties to a contractcannot exclude the jurisdiction ofa court by their own agreement,and where a party wishes toinvoke the protection of a foreignjurisdiction or arbitration clause,it should do so by way of a specialor dilatory plea seeking a stay ofthe proceedings. Then the courtwill have to exercise its discretionwhether or not to enforce theclause in question.

In the present case, thediscretion lay in decidingwhether or not the exercise of thecourt’s jurisdiction should bestayed pending the outcome offoreign proceedings orarbitration. Given the fact thatFoize Africa sought an interimorder in the first instance, it wasappropriate not to take a finaldecision at that stage on whethera South African court shouldexercise jurisdiction in respect ofappellant’s proposed action. Itwas a matter which should standover for decision by the trialcourt. On the bare facts availableat that stage it was impossible todo justice to either side in regardto the disputed questions arisingfrom clause 10. The dispute wasnot one in which the arbitrationand foreign jurisdiction clausesshould be upheld against FoizeAfrica.

Contract

77

KOPM LOGISTICS (PTY) LTD v PREMIER,GAUTENG PROVINCE

A JUDGMENT BY KRUGER AJNORTH GAUTENG HIGH COURT5 OCTOBER 2012

2013 (3) SA 105 (GNP)

Negotiations conducted in an effortto reach an agreement to agree maybe the subject of administrativereview. Disclosure of alldocumentation relating thereto maytherefore be obtained in order todetermine whether or not suchnegotiations have been conductedfairly.

THE FACTSKOPM Logistics (Pty) Ltd

secured a tender for the supply ofservices in the healthcare sector.The tender award specified that itwas subject to the successfulconclusion of a mutuallyacceptable agreement betweenKOPM and the third respondent.

The parties entered intonegotiations for the conclusion ofsuch an agreement but at acertain point, negotiations brokedown and the third respondentrefused to continue with them.KOPM then brought anapplication for an order that itrecommence and continuenegotiations in order to concludean agreement.

KOPM contended that it wasentitled to all documentation inthe possession of the thirdrespondent relating to thenegotiations which had takenplace. Documentation wasproduced relating to mattersleading up to the award of thetender. KOPM contended that thiswas insufficient as it was entitledto documentation relating tomatters following the award andrelevant to the negotiations. Itapplied for an order compellingthe third respondent to furnishsuch documentation.

THE DECISIONThe third respondent argued

that the second conditionindicated that the parties hadagreed to agree on terms still to bedetermined, in effect had agreedto agree. This involvednegotiations which would not besubject to administrative lawentitling KOPM to review.

However, in the light of CapeMetropolitan Council v MetroInspection Services (WesternCape) CC 2001(3) SA 1013 (SCA)there was no good reason whythe ongoing process (ienegotiations followingacceptance of the tender, butpreceding the establishment of acontract) should not also besubject to the public duties offairness and openness. Inaddition, if in particularcircumstances the requirementsof administrative justice mighthave an impact on the contractualrelationship itself the nature ofthe process under considerationcould only be that ofadministrative law.

It was highly improbable thatthird respondent possessed nodocumentation which might berelevant for purposes of the mainapplication and the relief soughttherein. The duty to negotiate ingood faith inter alia implied thatthe respondents had to keepproper records of all relevantdocumentation.

The order was granted.

Contract

78

SENTINEL MINING INDUSTRY RETIREMENTFUND v WAZ PROPS (PTY) LTD

A JUDGMENT BY CLOETE JA(MALAN JA, SHONGWE JA,TSHIQI JA AND SOUTHWOODAJA concurring)SUPREME COURT OF APPEAL21 SEPTEMBER 2012

2013 (3) SA 132 (SCA)

An agreement which provides forthe lapsing of an obligation to makea payment upon the happening ofsome future event, absolves theparty obliged to make suchpayment of the obligation to makepayment immediately upon theoccurrence of that event.

THE FACTSWaz Props (Pty) Ltd concluded

an agreement with SentinelMining Industry Retirement Fundin terms of which Waz undertookto pay Sentinel R115 531.87 beingits pro-rata share of a roadupgrading project. The projectrelated to a road serving both theproperties of Waz and those ofSentinel.

Clause 4 of the agreementprovided that Waz would secureits obligation either by transfer ofthe money into an attorney’strust account, or by furnishing abank guarantee, or by agreeing tothe imposition of a particularrestrictive conditions in its titledeeds. Clause 5 of the agreementprovided that in the event thatthe road upgrading project wasnot completed by 1 April 2009,any money transferred was to berepaid and Sentinel was toprocure cancellation of therestriction condition.Waz furnished the bankguarantee.

The project was not completedby 1 April 2009 but wascompleted on 15 February 2010.Sentinel’s attorneys presented theguarantee for payment on 26March 2010. On 6 April 2010, thebank made payment in termsthereof.

Waz contended that because theproject was not completed on thedue date, its obligation to makepayment had lapsed and Sentinelhad not been entitled to presentthe guarantee. It contended that

clause 5 of the agreementcontained a resolutive conditionwhich terminated the obligationto pay the amount of R115 531.87and any further obligations.Waz brought an application forrepayment of the amount paid toSentinel.

THE DECISIONThe obligation to make payment

was not independent of the otherterms and conditions of theagreement. It had to be read withthe obligations imposed on Wazunder the options for paymentbecause these would determinethe amount to be paid, and thesewould vary depending upon theoption chosen.

The effect of clause 4 was to listthe methods by which Waz hadto make payment. It contained noexpress residual obligation to paythe amount due at some futureand undefined date. It wastherefore exhaustive of themethods by which payment canbe made, and it allowed for nopayment other than in its terms.

The effect of clause 5 was toterminate the obligation to makepayment. If the project was notcompleted by 1 April 2009, theobligation to pay lapsed. Itfollowed that if the resolutivecondition was fulfilled, theamount payable by Waz, and theaccrued interest, had to berefunded to Waz.

Contract

79

JOUBERT SCHOLTZ INC v ELANDSFONTEINBEVERAGE MARKETING (PTY) LTD

A JUDGMENT BY HEHER JA(BRAND JA, MHLANTLA JA,MALAN JA AND MAJIEDT JAconcurring)SUPREME COURT OF APPEAL9 MARCH 2012

2013 SACLR (SCA)

Payments made in accordance withan agreement by an intermediarywill not be considered to have gonebeyond the mandate given to theintermediary provided they remainwithin the terms of the agreement.A claim for unjust enrichmentdepends on proof that the claimanthas been impoverished.

THE FACTS Elandsfontein Beverage

Marketing (Pty) Ltd purchased abusiness as a going concern fromGoosen and three others. Thebusiness assets includedmoveables and fixed property,both of which were encumberedto creditors, First National BankLtd and Standard Bank Ltd.Elandsfontein acceptedresponsibility in respect of theliabilities of the businesses andthe immovable propertyincluding any liabilities of Goosenfor any obligations secured byany mortgage bonds over theproperty for the sum of up toR12m only.

Elandsfontein mandated JoubertScholtz Inc to investigate,negotiate, settle and pay the debtsof Goosen and one of the otherparties. For this purpose, it paidto Joubert Scholtz certainamounts, and these in total werein excess of the amounts owed tothe two banks. Joubert Scholtzwas Goosen’s attorneys, and ithad been introduced toElandsfontein for the purpose ofconcluding the sale agreement.

Joubert Scholtz paid Goosen theamounts in excess of those owedto the two banks, the excess beingintended for payment to othercreditors of Goosen. Elandsfonteincontended that in so doing, itexceeded its mandate. It claimedfrom Joubert Scholtz payment ofR800 000,00 and R1 574 024,65being the amounts in excess ofthat owed to First National Bankand Standard Bank respectively.It claimed the same amounts fromGoosen on the grounds that hehad been unjustly enriched.

THE DECISIONElandsfontein had no particular

reason to place a limit onGoosen’s authority to paycreditors because it consideredGoosen’s understanding of thesale agreement accorded with itsown and there was trust betweenthem. Joubert Scholtz hadaccepted that Goosen wasentitled to receive up to R12m ashis share of the purchase price,and Elandsfontein gave noinstruction to Joubert Scholtzwhich ran contrary to itsperception of Goosen’sentitlement and authority to dealwith the funds as it deemed best.

It followed that Elandsfonteinfailed to prove that it conferred amandate on Joubert Scholtz asalleged and, failed to prove eithera mandate or a resolution of thecompany which limited theauthority of Goosen, as ashareholder empowered by theagreement and a director whoseauthority was not impugned orrestricted by the board, todetermine how the fundsdeposited with Joubert Scholtzshould be used.

As far as the enrichment claimwas concerned, Elandsfontein alsofailed to show that it had beenprejudiced by the excesspayments made to Goosen,because the effect of these wasonly to reduce liabilities toGoosen on loan account.

The claim failed.

Contract

80

SOUTH AFRICAN CONGO OIL COMPANY (PTY) LTD vIDENTIGUARD INTERNATIONAL (PTY) LTD

JUDGMENT BYBORUCHOWITZ AJA(MPATI P, CACHALIA JA, LEACHJA AND KROON AJA concurring)SUPREME COURT OF APPEAL31 MAY 2012

2012 SACLR (SCA)

Enforcement of the attachment of adebt by garnishee proceedings interms of Rule 45(12) must bepreceded by the actual attachmentof the debt in terms of Rule 45(8).

THE FACTSIdentiguard International (Pty)

Ltd obtained a judgment againstthe government of the DemocraticRepublic of the Congo (the DRC)for payment of US$1 961 000.Identiguard obtained partialsatisfaction of this debt but abalance remained.

The South African Congo OilCompany (Pty) Ltd (Congo) owedUS$2m to the DRC. Identiguardissued two separate notices interms of Rule 45(12)(a) of theUniform Rules of Court. The firstdirected the sheriff to attach thedebt and the second - a garnisheenotice - called upon Congo to paythe amount of the debt toIdentiguard. Congo refused to paythe sheriff the amount demandedof it. Identiguard then sought anorder in terms of Rule 45(12)(b),that Congo show cause why itshould not pay the sheriff theamount of the debt in satisfactionof the respondent’s writ ofexecution.

Congo opposed the applicationon the grounds that enforcementof garnishee proceedings cannotbe effected in terms of Rule45(12)(b) only and that anyapplication for enforcement mustattach the debt in accordancewith the provisions of Rule 45(8).

THE DECISIONRule 45(12)(b) provides that if

the judgment debtor fails tocomply with a notice given interms of sub-rule (a) the sheriffshall notify the judgment creditorwho may then bring enforcementproceedings in court. Sub-rule (a)empowers the sheriff to attach

the debts of the judgment debtor,and serve a garnishee noticerequiring payment by him to thesheriff of so much of the debt asmay be sufficient to satisfy thewrit.

Rule 45(8) provides that anattachment shall only becomplete when notice of theattachment has been given inwriting by the sheriff to allinterested parties, and the sheriffshall have taken possession of thewriting or document evidencingthe ownership of such propertyor right.

Identiguard contended that Rule45(8) was complied with whenthe garnishee notice was servedin terms of Rule 45(12)(b). Thiscontention however, could not besustained. When Rule 45(12) wasintroduced, it did not dispensewith the requirement ofattachment, nor did it create adiscrete attachment procedure. Itestablished the machinerynecessary to oblige the garnisheeto pay the attached debt to thejudgment creditor. The debt itselfneeds to be attached, and this waswhat the Rule sought to providefor.

The words in Rule 45(12)support this interpretation:‘[a]ttach the same, and thereuponshall serve a notice on such thirdperson…’ envisages two separatejural acts, (a) an attachment of thedebt and (b) service upon thegarnishee of the prescribed notice.

It follows that it is a necessaryrequirement of rule 45(12)(a) thatthe sheriff attach the debt inaccordance with rule 45(8)(c).

The application was refused.

Contract

81

FIRSTRAND BANK LTD v LODHI 5PROPERTIES INVESTMENT CC

A JUDGMENT BY VAN DER BYL JNORTH GAUTENG HIGH COURT20 MARCH 2012

2013 (3) SA 212 (GNP)

As a ground for the liquidation of acorporation, t is possible to provethat the corporation is insolventeither on the grounds that it isfactually insolvent or commerciallyinsolvent.

THE FACTSFirstrand Bank Ltd applied for

the liquidation of Lodhi 5Properties Investment CC andother associated companies. Thebank had advanced loans to therespondents and alleged thatthere had been default inrepaying the loans.

Lodhi raised an objection to theapplication on the grounds thatas it was brought in terms of theCompanies Act (no 71 of 2008) thebank was obliged to prove thatthe companies were actuallyinsolvent in the sense that theirliabilities exceeded their assets.

THE DECISIONIn the context of the grounds for

liquidation of companies, theCompanies Act refers to a solventcompany. In so doing, it does notexclude a company which is

Insolvency

commercially solvent, as opposedto factually solvent.

The expression ‘solventcompany’ in item 9(2) of sch 5 tothe new Companies Act relates tosolvent companies, beingcompanies that are either not‘actually (or factually) insolvent’or ‘commercially insolvent’,envisaged in part G of ch 2 of thenew Companies Act, in contrastto companies that are insolvent,being companies that are either‘commercially insolvent’ or‘actually (or factually)insolvent’ which are to be dealtwith in terms of ch XIV of theCompanies Act, 1973.

There is no indication that thenew Companies Act excludes thepossibility that a company willbe considered insolvent because itis commercially insolvent.

The objection was dismissed.

I am, for the reasons dealt with above, of the opinion — • that there is, in the absence of an express provision, no indication in thenew Companies Act that the legislature intended — particularly, insofar as itleft s 345 of the Companies Act, 1973, intact — to do away with the principlethat a company (or a close corporation) may be liquidated on the grounds of its‘commercial insolvency’; • that the expression ‘solvent company’ in item 9(2) of sch 5 to the newCompanies Act relates to solvent companies, being companies that are either not‘actually (or factually) insolvent’ or ‘commercially insolvent’, envisaged in partG of ch 2 of the new Companies Act, in contrast to companies that are insolvent,being companies that are either ‘commercially insolvent’ or ‘actually (orfactually) insolvent’ which are to be dealt with in terms of ch XIV of theCompanies Act, 1973.

82

ROERING N.O. v NEDBANK LTD

A JUDGMENT BY VAN OOSTEN JSOUTH GAUTENG HIGH COURT4 OCTOBER 2012

2013 (3) SA 160 (GSJ)

A creditor which has retained theright of ownership over goods soldunder a credit agreement cannotassert rights of ownership if theright to do so has not accruedbefore an application forliquidation of the debtor has beenmade.

THE FACTSBetween September 2011 and

February 2012, Aircrafts AfricaContracts Company (Pty) Ltdbought seven aircraft fromNedbank Ltd on credit underinstalment sale agreements. Theagreements provided that noticeof default entitling Nedbank tocancel required a 10-day periodfrom date of notice to right tocancel. They also provided thatNedbank would remain owner ofthe aircraft until full payment forthem had been made.

On 20 May 2011, Nedbankdelivered to Aircrafts notice ofdefault. On 27 May 2011,applications for the winding up ofAircrafts were brought. On 13July 2011, Nedbank cancelled theagreements. Aircrafts was thenplaced in liquidation.

Nedbank contended that itremained the owner of theaircraft after the liquidation of thecompany. The liquidatorscontended that section 84(1) of theInsolvency Act applied. Thesection provides that uponliquidation, an instalmentagreement shall be considered tocreate a hypothec over thedebtor’s property in favour of thecreditor, and the property is to bedisposed of as provided for insection 83.

THE DECISIONThe bank’s contention rested on

the proposition that section 84(1)only applies to an agreementwhich is in force when windingup commences, and not to anagreement where the right tocancel has accrued at that time.

The bank’s argument could notbe accepted. Only a completedaccrued right of cancellation cansurvive the commencement of

liquidation, ie the moment aconcursus creditorum takes place.If its argument was accepted, itwould follow that even if thebank had not made and delivereddemand its right of cancellationwould have been complete beforeconcursus. All that would havebeen necessary to effectcancellation would have been theformal act of cancellation andnotification thereof. Performanceby either the debtor or theliquidators, after the right tocancellation became complete,would neither have been relevantnor could it affect the bank’s rightto cancel. The logical conclusionfrom this would be that thecompleted right of cancellation,which had existed prior toconcursus, would have survivedconcursus. Such a possibilitywould be inconsistent withsection 84(1).

The question arising was, whatwas the status of the bank’s rightto cancellation at the stage ofconcursus? The demand affordedAircrafts a period of 10 days toperform before cancellationwould be effected. The bankthereby suspended its right tocancel the agreements for a periodof ten days. In other words, thebank could not at concursusvalidly cancel the agreements,because it was then bound by thetime period allowed in thedemand. Its right to cancellationwas incomplete, and only becamecomplete upon non-performanceby Aircrafts or the liquidatorswithin the stipulated time andthus only after concursus. Itfollowed that the bank’s right ofcancellation at the occurrence ofconcursus was incomplete andthat it accordingly did notsurvive concursus.

Insolvency

83

CORPORATE MONEY MANAGERS (PTY)LIMITED v KUFA TRADING ENTERPRISE CC

A JUDGMENT BY FARLAM JA(NAVSA JA, PONNAN JA TSHIQIJA AND KROON AJA concurring)SUPREME COURT OF APPEAL1 JUNE 2012

2012 SACLR (SCA)

An application for the liquidation ofa close corporation on the groundsthat a claim against it is due andpayable will not succeed if it can beshown that upon the terms of theagreement upon the claim is not yetdue and payable.

THE FACTSCorporate Money Managers

(Pty) Limited (CMM) brought anapplication for the liquidation ofKufa Trading Enterprise CC. Itsapplication was based on theallegation that it had made loansto Kufa of almost R9m, and Kufahad failed to repay the loans.

In substantiating its claim, CMMfurnished an Acknowledgementof Debt signed by Kufa, and aletter of demand addressed toKufa in terms of section 69 of theClose Corporations Act (no 69 of1984). CMM also alleged that bypurchasing certain earth movingequipment Kufa hadmisappropriated moneysadvanced to it.

In response to the demand,Kufa’s attorney had disputed itsobligation to repay the loans onthe grounds that an underlyingagreement concluded between theparties had been breached byCMM and this had given rise to asubstantial claim by Kufa againstCMM. The underlying agreementrelated to the provision ofadministration and supportservices in connection withbuilding contracts which hadbeen awarded to Kufa. CMMcontended that the underlyingagreement had fallen awaybecause of fraud when Kufa hadmisappropriated the moneysadvanced to it. Kufa rejected thisallegation, contending that themoney had been used forpurposes envisaged in theunderlying agreement.

Kufa furnished a loan agreementbetween the parties which it saidreflected some of the terms of theunderlying agreement. Kufa alsostated that the earth movingequipment it had purchased wasused on the contract as well as onothers.

CMM contended that becausethe loan agreement was notsigned, Kufa was not entitled torely on it in defending theapplication. Kufa contended thatit nevertheless reflected theparties’ agreement because it wasdrafted by CMM and given to itfor signature, was then signed byKufa and handed to arepresentative of CMM whoundertook to furnish him with acopy bearing a counter-signaturebut this was not done, and wasthen given to the Kufa’s attorneyby CMM in response to a writtenrequest by Kufa’s attorney. Acontract in almost identical termshad previously been concludedbetween Kufa and CMM and thiswas duly performed by bothparties.

THE DECISIONAlthough the loan agreement

was not signed by CMM, its termsgoverned the relationshipbetween the parties. It followedthat CMM could not assert thatthe amounts due by Kufa wererepayable on demand. Thedemand issued in terms of section69 of the Close Corporations Actwas therefore incompetent as itwas not clear that the claim uponwhich that demand was basedhad in fact arisen.

The underlying agreementbetween the parties did not fallaway as a result of the allegedmisappropriation of money. Thiswas because CMM did not avoidthe agreement, and because Kufadenied the allegedmisappropriation. This denialcould not be rejected on theapplication papers.

It followed that it had not beenshown that Kufa wascommercially insolvent, nor thatit was factually insolvent.

Insolvency

84

ABSA TECHNOLOGY FINANCE SOLUTIONS(PTY) LTD v MICHAEL’S BID A HOUSE CC

A JUDGMENT BY LEWIS JA(THERON JA, PETSE JA, PLASKETAJA and SWAIN AJA concurring)SUPREME COURT OF APPEAL15 MARCH 2013

2013 (3) SA 426 (SCA)

A lease agreement in which the itemleased remains in the ownership ofthe lessor is not subject to theNational Credit Act (no 34 of 2005).

THE FACTSMichael’s Bid A House CC signed

a master rental agreement. Interms thereof, Michael’s receiveda printing machine with fullmaintenance and the supply oftoner for 36 months. The rentalpayable was R2 878.00 permonth. The lessor would at alltimes remain the owner of themachine which would bereturned to the lessor upontermination of the lease.

After the machine had beendelivered, Michael’s alleged thatthe lessor under the agreement,Sapor Rentals (Pty) Ltd, hadbreached its terms by inter alia,failing to supply the toner. Saporceded its rights under theagreement to Absa TechnologyFinance Solutions (Pty) Ltd.

Absa brought an action forpayment due under theagreement.

The court held that theagreement was not a lease but acredit agreement and subject tothe National Credit Act (no 34 of2005). Accordingly, Absa hadbeen obliged to give notice toMichael’s under sections 129 and130 before bringing action againstit.

Absa appealed.

THE DECISIONSection 8(4)(e) of the Act

provides that a lease agreemententails that the lessor passownership of the leased item tothe consumer at the end of thelease period. In contrast to this,the terms of the master rentalagreement provided that thiswould not take place. Parolevidence indicating a term atvariance with this was notpermissible, given the clear termsof the agreement. Upon the basisof section 8(4)(e) therefore, theagreement could not beconsidered to be a lease as definedin the Act.

Section 8(4)(f) provides that theAct covers an agreement in whichpayment of an amount owed byone person to another is deferred,and any charge, fee or interest ispayable to the credit provider inrespect of (i) the agreement, or (ii)the amount that has beendeferred. However, in the case of alease agreement such as thepresent one, the lessor does notdefer receipt of the amount owingto it. Rentals are to be paid on duedate in terms of the agreementand they are not deferred.

The agreement was also not anincidental credit agreement asdefined in the Act.

Because the agreement was notsubject to the Act, Absa had notbeen obliged to give notice interms thereof. The appeal wasupheld.

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RODEL FINANCIAL SERVICE (PTY) LTD vNAIDOO

A JUDGMENT BY SEEGOBIN JKWAZULU NATAL HIGHCOURT, PIETERMARITZBURG18 FEBRUARY 2011

2013 (3) SA 151 (KZP)

An acknowledgement of debt mayconstitute an affirmation of a pre-existing loan agreement and in sucha case will not be a novation of thatagreement.

THE FACTSRodel Financial Service (Pty) Ltd

made two loans to Naidoo. AfterNaidoo defaulted in making therepayments, he signed anacknowledgement of debt for theamounts then due andacknowledged himself to be liablefor discounting fees on that sum.The discounting fee was stated tobe 4% of the capital sum lent forthe first thirty days, and 0.125%per day for the period thereafter.

Naidoo contended that theacknowledgement of debt was anovation of the original loanagreement between the partiesand was subject to the NationalCredit Act. He contended thatRodel had not complied with theAct.

THE DECISIONIn the light of Rodel’s

undisputed allegation thatNaidoo had made certainpayments in terms of theacknowledgement of debt, theparties merely intended thatagreement to confirm the loanagreements entered into betweenthem. It was therefore not anovation of them.

As far as compliance with theNational Credit Act wasconcerned, the discounting feescould not be seen to be interest onthe loan.

Credit Transactions

I am of the view that the parties intended the acknowledgment of debt tomerely confirm an existing obligation, viz the prior discountingagreement. Bearing in mind the presumption against novation, I am ofthe opinion that the respondents have failed to discharge the onusresting on them of proving that they had intended a novation of thediscounting agreement. I accordingly find that the AOD did not novatethe prior discounting agreement.

86

RHOODE v DE KOCK

A JUDGMENT BY CLOETE JA(CACHALIA JA, BOSIELO JA,WALLIS JA and PILLAY JAconcurring)SUPREME COURT OF APPEAL29 NOVEMBER 2012

2013 (3) SA 123 (SCA)

To prove that one has animprovement lien, one must provethat one has actually incurredexpenses in improving the propertyin question, or that the value of theproperty has increased as a resultof the improvements made to it. Anowner suing for return of his

property is not obliged to tenderreturn of anything owed to theparty holding possession of theproperty.THE FACTS

De Kock and his wife sold theirfixed property to Rhoode. Rhoodepaid R400 000 and tookoccupation of the property. Heeffected certain improvements toit while he was there.

De Kock alleged that there hadbeen a breach of the saleagreement as a result of which hecancelled the agreement. Rhoodecontended that the agreement hadfallen away due to the failure of asuspensive condition.

In January 2010, De Kock appliedfor an eviction order againstRhoode. Rhoode opposed theorder on the grounds that he heldan improvement lien over theproperty. The lien had arisenbecause he had effectedimprovements to the propertyamounting to R1 046 319.97, ofwhich R600 000 representedmaterials and the rest, labour. Insubstantiation of this allegation,Rhoode submitted a quotationfrom a third party indicatingwhat the improvements wouldcost at current market prices. Healso contended that De Kock’scause of action against him,

Property

which was based on the reivindicatio, was defective in that itfailed to tender return of the R400000 paid by him.

THE DECISIONThe first issue to be decided was

whether or not Rhoode hadestablished that he held animprovement lien over theproperty. This he could do byshowing the necessary or usefulexpenses incurred in respect of it.

The evidence submitted byRhoode however, did notestablish this because it indicatedwhat the improvements wouldhave cost, not what Rhoodeactually spent on them. As far asuseful expenses were concerned,there was no evidence as to theincrease in the value of theproperty brought about byRhoode during his occupation.

As far as the contention basedon restitution was concerned, themere fact that Rhoode would beentitled to repayment of the R400000 in order to prevent De Kockfrom being unjustly enriched, didnot mean that he was entitled toresist ejectment until the amountis repaid or tendered. He could doso only if repayment had to takeplace at the same time thatRhoode was ejected.

Since De Kock’s case was basedon the rei vindicatio, he needed todo no more than allege and provehe was the owner of the property.The cause of action was notrendered defective by his nottendering return of the R400 000.This did not mean that Rhoodehad no claim for return of theR400 000, but De Kock’s claimremained effective.

De Kock was entitled to an orderof ejectment.

87

STEVE TSHWETE LOCAL MUNICIPALITY vFEDBOND PARTICIPATION MORTGAGEBOND MANAGERS (PTY) LTD

A JUDGMENT BY VAN DERMERWE AJA(MALAN JA, SHONGWE JA,SALDULKER AJA and MBHA AJAconcurring)SUPREME COURT OF APPEAL20 MARCH 2013

2013 (3) SA 611 (SCA)

The period for which rates must bepaid in the case of a property ownerwhich has become liquidated is twoyears, reckoned from the date onwhich the application for a ratesclearance certificate is made.

THE FACTSTNT Trading 23 CC was placed

in liquidation. It ownedproperties bonded to FedbondParticipation Mortgage BondManagers (Pty) Ltd. Theproperties were sold by publicauction and Fedbond acceptedresponsibility for paying themunicipal rates needed to obtaina rates clearance certificate for thetransfer of the properties.

The municipality and Fedbonddisagreed about the period overwhich the rates pertaining to theproperties had to be paid.Fedbond contended that this wasa period of two years precedingthe date on which application forthe certificate was made. Themunicipality contended that theperiod was two years precedingthe date of liquidation.

The two provisions upon whicheach party based theircontentions were section 118(1) ofthe Local Government: MunicipalSystems Act (no 32 of 2000) andsection 89 of the Insolvency Act(no 24 of 1936).

THE DECISIONIn City of Johannesburg v Kaplan

NO 2006 (5) SA 10 (SCA) it washeld that the applicable period isthe period referred to in section118(1), ie two years preceding thedate of application.

An order was granted on thebasis that the municipality’scharge under s 118(3) enjoyed

preference over the securityattached to the mortgage bondover the property in question. Itwas clear from para 21 of thatjudgment that an essential part ofthe line of reasoning that led tothat order was the finding thatthe legislature provided in thefirst part of section 89(4) for alimitation of an embargoprovision. In consequence, insubsequently adding the secondpart of section 89(4), it intended tosimilarly limit the preferencesarising from security provisionssuch as section 118(3).

The finding that section 89(4)provides for a limitation ofembargo provisions thereforeforms part of the ratio decidendiof the judgment in Kaplan. Fromthis finding it necessarily followsthat when an embargo period laiddown in any other law iseffectively shorter than the two-year period in section 89(1), theshorter period continues to applyafter sequestration. Becausesection 89(4) is intended to limitand not to extend embargoprovisions, its effect cannot be toextend the embargo period interms of section 118(1) to a periodlonger than the period of twoyears preceding the date ofapplication for a certificate.

The municipality’s submissionthat in terms of section 89(4) theperiod of the embargo is extendedbeyond the period mentioned insection 118(1) was inconsistentwith the ratio decidendi inKaplan.

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INGONYAMA TRUST v ETHEKWINI MUNICIPALITY

JUDGMENT BY PONNAN JA(MTHIYANE DP, BOSIELO ANDTHERON JJA AND PETSE AJAconcurring)SUPREME COURT OF APPEAL1 JUNE 2012

2012 SACLR (SCA)

Property rates may not be levied inrespect of property which is heldby the State, and in trust for theinhabitants of the area ofjurisdiction of a local authority.

THE FACTSThe Ethekweni Municipality

sought an order that the propertyof the Ingonyama Trust withinthe area of the municipality wassubject to rates which themunicipality was entitled toimpose in terms of section 3(1) ofthe Rating of State Property Act(no 79 of 1984).

Prior to 1994, the Trust’sproperty was owned by the State.The Trust was established by theKwaZulu Ingonyama Trust Act3KZ of 1994, an Act of theKwaZulu legislative assembly.This Act was later amended by aNational Act.

Section 3(3)(a) of the Rating Actprovides that no rates shall belevied by a local authority on thevalue of State property held bythe State in trust for theinhabitants of the area ofjurisdiction of a local authority.The Trust contended that becauseof this exemption, the Trust’s landwas State land, so that themunicipality was not entitled toimpose rates on its property.

THE DECISIONThe exemption applies if

property is held by the State, andin trust for the inhabitants of thearea of jurisdiction of a localauthority.

It was clear from the provisionsof the KwaZulu Ingonyama TrustAct as amended, that theproperty in question was held intrust for the inhabitants of thearea of jurisdiction of themunicipality. The same Actprovides that any national landreform programme shall apply tothe Trust’s land. Similarly, section2 of the KwaZulu Land AffairsAct (no 11 of 1992) states that thePremier or the Minister may,subject to the provisions of thatAct and the Trust Act, sell,exchange, donate, lease orotherwise dispose of anygovernment land which vests inthe provincial or nationalgovernment respectively.

From this, it could be inferredthat since the State reserved toitself the right to apply its landreform programme, it would notdo so in respect of land that it haddivested itself of. The purpose ofthe KwaZulu Land Affairs Actwas to provide for the disposal ofgovernment land. Since this wasthe case, if the Trust’s land wasnot considered to be governmentland, there would be no need tomention it in that Act.

The Trust’s property wastherefore State property asenvisaged in section 3(3) of theRating Act.

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INVESTEC EMPLOYEE BENEFITS LIMITED vMARAIS

JUDGMENT BY FARLAM JA(CLOETE JA, MALAN JA, WALLISJA AND MCLAREN AJAconcurring)SUPREME COURT OF APPEAL1 JUNE 2012

2012 SACLR (SCA)

A claim made in terms of thePension Funds Act (no 24 of 1956)may prescribe in terms of thePrescription Act (no 68 of 1969)and may not be revived byoperation of the powers given tothe adjudicator to condone non-compliance with the time limits forlodging complaints as provided forin the Pension Funds Act.

THE FACTSMarais was an investor member

in the Vantage PreserverProvident Fund and the VantagePreserver Pension Fund. He madesingle premium payments intothese funds in 1996 and 1999. Thefunds were underwritten byInvestec Employee Benefits Ltd.

In 2000, Marais notified Investecof his wish to withdraw thebenefits of the funds. In order tocomply with this request,Investec requested tax directivesfrom the South African RevenueServices. On 1 February 2001,Investec declared interim bonusesof 9 per cent for the year ended 31December 2000 and 6 per cent forthe year ended 31 December 2001.On 15 February 2001 Marais gaveinstructions for payment of hiswithdrawal benefit from thepension fund on or before 28February 2001, but on 26February 2001 he stated that inthe light of an incorrect directiveby the South African RevenueServices payment should be heldback until further notice and thatthe monies be kept on investment.

On March 2001 Investecdeclared a 0 per cent bonus forthe year ended 31 December 2000and revised the interim bonus forthe year ended 31 December 2001to 0 per cent. These values wereconfirmed as declared bonuses on31 May 2001, and were R471515.00 less than the total of theamounts quoted on 1 February2001. Investec paid Marais thelesser amount.

Marais claimed he was entitledto R471 515 more than he waspaid. An exchange ofcorrespondence took placebetween the parties’ respectiveattorneys. On 27 June 2001Investec explained the basis onwhich the reduced calculationshad been arrived at. It stated thatthe figures as at 30 January 2001had been based on the interimbonuses while the figures as at 31

May 2001 were based on thedeclared bonuses. In a letter of 14September 2001 Investec statedthat as a dispute had arisen, thematter had to be subject toarbitration.

Investec heard nothing furtherfrom Marais until the end ofAugust 2004. On that date, itlearnt that Marais had lodged acomplaint on 20 July 2004 interms of the provisions of section30A of the Pension Funds Act (no24 of 1956). The complaint wasupheld. Investec applied for anorder setting aside that decision.It contended that Marais’ claimhad prescribed in terms of thePrescription Act (no 68 of 1969).

THE DECISIONIn terms of section 30H(3) of the

Pension Funds Act, receipt of acomplaint by the Adjudicatorshall interrupt any running ofprescription in terms of thePrescription Act or the rules ofthe fund in question. It was clearfrom that provision that receipt ofa complaint would interruptprescription in terms of the latterAct. The use of the word‘interrupt’ indicated thatprescription would otherwisecontinue running in respect of thecomplaint referred to. It followedthat the Prescription Act appliedto claims such as that made byMarais.

The fact that section 30Iempowers the adjudicator tovary the time within which acomplaint must be lodged did notimply that the Act empowers himto extend a period of prescriptionwhich has already run its course.

In the present case it was clearthat whatever claim Marais mayhave had against Investec hadprescribed. Prescription did notonly began running when hereceived payment of a portion ofthe amount claimed at the end ofJuly 2001. In terms of section 12(3)of the Prescription Act, if he was

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entitled to claim the full amountfrom Investec, the correspondingdebt owed to him would bedeemed to have been due when hehad ‘knowledge of the identity ofthe debtor and of the facts fromwhich the debt [arose]’. Thesefacts were all set out in Investec’sletter of 27 June 2001. Prescriptionwas therefore already running at

least from the time when hereceived that letter. Prescriptionhad started to run in respect ofhis claim more than three yearsbefore he lodged his complaintwith the adjudicator. His claimaccordingly prescribed before hiscomplaint was lodged.

The application succeeded.

Prescription

91

ABSA BANK LTD v COMPANIES ANDINTELLECTUAL PROPERTY COMMISSION

A JUDGMENT BY ROGERS J(YEKISO J and CLOETE Jconcurring)WESTERN CAPE HIGH COURT19 APRIL 2013

2013 (4) SA 194 (WCC)

An interested party may apply foran order that the dissolution of aclose corporation be declared voidin terms of section 83(4)(a) of theCompanies Act (no 71 of 2008) incircumstances where the closecorporation was de-registered as aclose corporation for failing tolodge its annual returns.

THE FACTSVoigro Investments 19 CC

owned fixed property which wassold in execution at the instance ofa municipality. At the time of thesale, Voigro had been de-registered as a close corporationfor failing to lodge its annualreturns. Deregistration took placein February 2011. The sale inexecution took place later thatyear.

The property had been bondedto Absa Bank Ltd but its headoffice was not aware of the sale inexecution and so had not acted toprotect its interests when the saletook place. The property was soldfor R200 000 but Voigro thenowed the bank some R1.5m.

When the bank learnt that theproperty had been sold, it appliedfor an order reinstating Voigro’sregistration as a close corporationin terms of section 83(4)(a) of theCompanies Act (no 71 of 2008)and that its assets re-vest in it withretrospective effect. Theapplication failed on the groundsthat reinstatement could only beachieved by following theprocedures set out in section82(4), ie by applying forreinstatement to the Companiesand Intellectual PropertyCommission.

Absa appealed.

THE DECISIONSection 83(4)(a) provides that at

any time after a corporation hasbeen dissolved, the liquidator ofthe company, or other person withan interest in the company, mayapply to a court for an order

declaring the dissolution to havebeen void.

The issue was whether or notthis section applies to acorporation which had been de-registered. The ordinary meaningof the section indicates that it doesso apply. The previousCompanies Act which wassuperseded by the present Act,maintained a distinction betweena de-registered and a dissolvedcorporation. The fact that thepresent Act dropped thisdistinction indicated that forpurposes of re-registration, theprocedures to be followed wouldbe the same whether thecorporation had been dissolved orde-registered due to failure to fileits annual returns.

Section 83(4) applies in all caseswhere a company or corporation’sname has been removed from theregister in terms of part G ofchapter 2 and where the companyor corporation has as a result beendissolved. This includesderegistration on any of thegrounds set out in s 82(3). Where acompany or corporation has beenderegistered by the CIPC in termsof s 82(3) rather than in terms of s82(2)(b), an interested party mayeither apply to the CIPC forrestoration in terms of s 82(4) or tothe court in terms of s 83(4).

Absa was therefore entitled to anorder that the dissolution ofVoigro was void and it was to bereinstated as a corporation.Furthermore, since Voigro did notexist at the time the municipalityattached the property, the sale inexecution was null and void.

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COMMUNICARE LTD v KHAN

A JUDGMENT BY SWAIN AJA(CLOETE JA, CACHALIA JA,MALAN JA and SHONGWE JAconcurring)SUPREME COURT OF APPEAL29 NOVEMBER 2012

2013 (4) SA 482 (SCA)

Articles of Association should beinterpreted in a manner whichrenders their provisions business-like and so as to avoid any hiatuswhich might arise from any otherinterpretation.

THE FACTSArticle 15 of the Articles of

Communicare Ltd provided thatat the annual general meeting ofthe company after the first one,one-third of its directors were toretire from office. Those who hadto retire were those who had beenlongest in office. Retiring directorswere entitled to stand for re-election, and the company couldfill any vacancy by electing a newdirector.

Only members of the companycould vote for the election of adirector. Some members of thecompany were members only byvirtue of their position as director.

At an annual general meeting,directors who had retired in termsof article 15 were excluded fromvoting for the election of newdirectors because theirmembership of the company hadterminated because they hadceased to be directors. Khan andthe other members applied for anorder that the election of thedirectors was invalid and shouldbe set aside.

The order was granted.Communicare appealed.

THE DECISIONWhat had to be decided was

whether directors who had retiredwere entitled to vote in respect ofvacancies so created.

The meaning to be given to theprovisions of article 15 should beone which is business-like and onewhich excluded any hiatusbetween the retirement of adirector and his or herreplacement. The interpretationgiven to the article byCommunicare was not business-like and did envisage such ahiatus, because it envisaged thepossibility that an annual generalmeeting could begin with one setof members entitled to vote for anew directorship and end with adifferent set of members soentitled. On a properinterpretation of article 15 thedirectors who retired at an annualgeneral meeting were entitled tovote as members in respect of theelection of individuals to fill suchvacancies. The exclusion of theretiring directors from voting wasaccordingly unjustified and theresolutions appointingreplacement directors werecorrectly declared invalid by thehigh court and set aside.

The appeal was dismissed.

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LIVANOS N.O. v OATES

A JUDGMENT BY WEPENER JSOUTH GAUTENG HIGHCOURT14 MARCH 2012

2013 (5) SA 165 (GSJ)

An executor acting in terms ofsection 35 of the CloseCorporations Act (no 69 of 1984)is not obliged to refer thevaluation of the price at which themember’s interest is to be sold fordetermination in terms of section36 of the Act as that section is notrelevant to the application ofsection 35 of the Act.

THE FACTSThe executor of a deceased

estate, Livanos, sold thedeceased’s interest in a closecorporation to the third applicantfor R16m. The sale took place interms of section 35 of the CloseCorporations Act (no 69 of 1984)after the other member of theclose corporation, Oates, declinedto give his consent to the transferof the member’s interest to theappointed heir.

Livanos notified Oates of the saleby enclosing a copy of the saleagreement in a letter to him. Oatesdid not exercise his rights in termsof section 34(2) of the Act and alsodid not consent to the transfer ofthe member’s interest. Oatesstated that he wished to acquirethe member’s interest at an agreedprice or a price to be determinedin terms of section 36 of the Act.

The executor sought an orderthat the member’s interest hadbeen validly sold to the thirdapplicant.

THE DECISIONSection 35(a) of the Act provides

that the executor of a deceasedestate must cause the deceasedmember’s interest in thecorporation to be transferred to aperson who qualifies formembership of a corporation interms of section 29 and is entitledthereto, if the remaining membersof the corporation consent to thetransfer of the member’s interestto such person. Section 35(b)provides that if any consentreferred to in para (a) is not givenwithin 28 days after it wasrequested by the executor, theexecutor must sell the deceasedmember’s interest (i) to thecorporation, if there is anymember than the deceasedmember, (ii) to any otherremaining member or members ofthe corporation in proportion tothe interests of those members in

the corporation or as they mayotherwise agree upon, or (iii) toany other person who qualifies formembership of a corporation interms of s 29, in which case theprovisions of ss (2) of s 34shall mutatis mutandis apply inrespect of any such sale.

The executor had acted in termsof section 35(b)(iii) and so section34 applied. Sub-section 2 of thatsection provided that the executorhad to deliver to the corporation awritten statement givingparticulars of the name andaddress of the proposedpurchaser, the purchase price andthe time and manner of paymentthereof; for a period of 28 daysafter the receipt by thecorporation of the writtenstatement the corporation or themembers had the right to besubstituted as purchasers of thewhole of the member’s interest atthe price and on the terms set outin the trustee’s written statement;and if the interest was notpurchased in terms thereof, thesale was to become effective andbe implemented.

These provisions did notincorporate any application ofsection 36 which requires a courtto determine a value of amembers’ interest in the case of adispute between members.Section 36 has no application to asale of the members’ interest froma deceased’s estate. Themaxim inclusio unius, est exclusioalterius applied. The provisionsreferred to in section 36 did notapply. Sections 34(2) and 35 wereclear and there was no warrant toread into them the requirement offair value. The power conferredupon a court in terms of section36(2) is limited to where the courtmakes an order in terms of thatsection, provided the grounds forsuch relief were present. Therewas no reason to transpose thatpower into section 35.

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The price which Oates or thecorporation had to match in orderto be substituted as purchaserswas that which was contained inthe written statement referred to

in section 34. Oates failed toexercise his pre-emptive right tomatch the offer, and the sale to thethird applicant became effective.

The order sought by the executorwas granted.

SMM HOLDINGS (PVT) LIMITED v MAWERE

A JUDGMENT BY WILLIS JSOUTH GAUTENG HIGHCOURT11 OCTOBER 2012

2012 SACLR 480 (SCA)

A person will be considered to beliable for the debts of a companyas referred to in section 424 (1) ofthe Companies Act (no 61 of 1973)in circumstances where thatperson has purposely divertedfunds due to that company for hispersonal gain.

THE FACTSSouthern Asbestos Sales (Pty)

Limited (SAS) owed SMMHoldings (Pvt) Ltd R18 043 374,21. Under a cession purportedlyentered into by SMM, PetterTrading (Pty) Limited tookcession of the debt. Petter wascontrolled by Mawere, the sameperson who controlled SAS.Mawere also exercised somecontrol over SMM, the decisionstaken by its board of directorshaving historically, beeninfluenced by Mawere.

The cession was executed inwriting, but was a fraudulentdocument because it contravenedthe Zimbabwean laws in regard tothe remittal of foreign exchange.In terms of those laws, one couldnot cede the entitlement to foreignexchange without the priorapproval of the Reserve Bank ofZimbabwe. Furthermore, thecession agreement had not beenapproved by the board ofdirectors of SMM and the dateupon which the agreement hadbeen signed was not the datereflected on the agreement itself.

Petter obtained a court orderbased on the purported cessionagreement which affirmed itsrights in the cession, and ensuredthat money owing from the debtowing by SAS was not remitted toSMM in Zimbabwe but to Petter.

SMM obtained an order

rescinding that court order, andthen brought an action againstMawere claiming an order that hewas personally liable to SMM interms of section 424 (1) of theCompanies Act (no 61 of 1973).

THE DECISIONMawere’s failure to contest the

evidence presented by SMM inregard to the cession and hisfailure to testify, the questionarose: why was a cessionagreement fraudulently createdand thereafter relied upon toobtain a court order, if not for thepurpose of diverting funds whichwere due to SMM by SAS toPetter? Further, if the funds werenot, in fact paid from SAS toPetter, why was the money notfound in the accounts of SAS?

The probabilities led to theconclusion, beyond reasonabledoubt that (i) the cessionagreement was devised for thepurpose of diverting funds whichwere due to SMM by SAS, out ofthe accounts to SAS to Petter andthat (ii) this diversion of fundstook place consequent upon thecourt order. In the result, thediversion of funds caused SMM tosuffer loss.

This meant that section 424(1)was directly applicable, and anorder declaring Mawerepersonally liable to pay SMM’sclaim against SAS.

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95

FOURIE v FIRSTRAND BANK LIMITED

A JUDGMENT BY BRAND JA(LEWIS JA, BOSIELO JA,SHONGWE JA AND THERON JAconcurring)SUPREME COURT OF APPEAL18 SEPTEMBER 2012

2012 SACLR 461 (SCA)

Documents which are intended tomislead a creditor into providingcredit may constitute fraudulentmisrepresentations upon which anaction in terms of section 424 ofthe Companies Act (no 61 of 1973)may be brought

THE FACTSIn November 2001, a company

trading under the name SupremeCar entered into a Used Car FloorPlan Agreement with FirstRandLtd. Under the agreement,FirstRand advanced money toSupreme Car for the purchase ofsecond-hand motor vehicles. Thevehicles became the property ofFirstRand and constituted securityfor the loan. In terms of theagreement, upon resale of thevehicle by Supreme Car, it wasobliged to repay the sumadvanced by FirstRand for thepurchase of that vehicle, withinthe following week.

Fourie was appointed by theauditor of the company to managethe financial affairs of SupremeCar. In the course of his duties, heprepared documents whichindicated the state of SupremeCar’s financial affairs, in theformat of financial statements.These financial statements weresubmitted to Firstrand from timeto time, as and when Supreme Carwished to increase the creditfacility given by Firstrand. On thestrength of them, Firstrandincreased the credit facility toR13m. According to the financialstatements prepared by Fourie,Supreme Car’s business wasgrowing, it was makingsubstantial profits and wasfinancially sound. The financialstatements did not correctlyreflect the financial position ofSupreme Car which was in facttrading under difficult conditions.

The sole director of the companyand her son used Supreme Car’sfunds to speculate in seasideproperties in Yzerfontein. Theyspent R2.9m of Supreme Car’s

money on completing a housewhich they expected to sell at aprofit. However, this prospect didnot materialise. At the same time,the son used some R2.7m ofSupreme Car’s funds to pay forpersonal expenses. At the time,Fourie was aware of these things.

In April 2004, FirstRanddiscovered that Supreme Cars hadresold some vehicles withoutrepaying the loan due to it. Itcancelled the floor planagreement. As at that dateFirstRand had financed 136vehicles. When FirstRand went toSupreme Car’s premises torepossess the vehicles, it foundonly 84 of them. Supreme Car wasplaced under final liquidation. Itwas hopelessly insolvent.

Firstrand brought an actionagainst Fourie for payment ofR10m, basing its claim onsection 424 of the Companies Act(no 61 of 1973).

THE DECISIONFourie contended that because

the financial statements were nottrue financial statements, in thatthey did not fully comply with therequirements of the CompaniesAct, they could not be said toconstitute fraudulentmisrepresentation made toFirstrand. However, thedocuments submitted to Firstrandwere held out to be a true and fairreflection of the financial positionof Supreme Car and vouched forby an independent financialexpert. Fourie prepared them forthat very purpose, and SupremeCar relied on them when makingits applications to FirstRand for anincrease in its credit facility.Fourie knew that they would be

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used by Supreme Car for thatpurpose.

The financial statements weretherefore fraudulentmisrepresentations.

Fourie also contended thatFirstrand failed to establish acausal link between the fraudulentor reckless conduct of thecompany’s business and itsinability to pay its debt, becauseSupreme Car’s inability to pay itsdebt was a result of recklessspending on the Yzerfonteinproperties. Fourie contended thathe was not a party to suchspending. However, in accordance

with the authority of Howard vHerrigel 1991 (2) SA 660 (A) andPhilotex (Pty) Ltd v Snyman 1998(2) SA 138 (A) it is not necessaryto establish such a causal link.This conclusion did not detractfrom the fact that where theconverse is positively established,ie that there was no causalconnection between the relevantconduct and the debt, section 424cannot be applied.

Firstrand was therefore entitledto reply on section 424 in its actionagainst Fourie, and its actionsucceeded.

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AGRI SA v MINISTER FOR MINERALS AND ENERGY

A JUDGMENT BY MOGENG CJ(MOSENEKE DCJ, JAFTA J,NKABINDE J, SKWEYIYA J,YACOOB J AND ZONDO Jconcurring, CAMERON J,FRONEMAN J and VAN DERWESTHUIZEN J dissenting)CONSTITUTIONAL COURT18 APRIL 2013

2013 (4) SA 1 (CC)

A party which is deprived of itsmineral rights by virtue of thecoming into effect of the Mineraland Petroleum ResourcesDevelopment Act (no 28 of 2002)does not necessarily sufferexpropriation. It will only do so ifthe State acquires ownership ofsuch rights.

THE FACTSOn 1 May 2004, Sebenza Mining

(Pty) Ltd held the coal rightspertaining to a farm which itowned. These rights consisted inits common law mineral rights forwhich no prospecting permit ormining authorisation was issuedin terms of the Minerals Act (no50 of 1991). On that day, theMineral and Petroleum ResourcesDevelopment Act (no 28 of 2002)(‘the Act’) came into force,superseding the Minerals Act.The effect of the Act was tochange the position existing underthe Minerals Act by conferring onthe Minister custodianship of allmineral resources, and requiringindividuals who wish to obtainprospecting and mining rights toapply to her for them. The Actprovided for transitionalarrangements in regard to rightsalready existing when it came intoforce. In respect of ‘unused oldorder rights’ - a category underwhich Sebenza’s coal rights hadfallen - these were to subsist for aperiod of one year, but the holderhad the exclusive right to applyfor a prospecting right or a miningright in terms of this Act, failingwhich the unused old order rightwould cease to exist.Due to insufficient funds, as aresult of which it had been placedin liquidation, Sebenza did notapply for the continuation of itscoal rights within the year of theAct’s enactment. It ceded its coalrights to Agri South Africa.In March 2006, Agri claimed

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compensation for the loss of theserights from the Department ofMinerals and Energy. TheMinister rejected the claim. Agriclaimed that the effect of thepassing of the Act was to depriveSebenza of its coal rights so as toamount to expropriation entitlingit to compensation. It contendedthat in terms of section 25(2)(b) ofthe Constitution, it was entitled tocompensation as a result of theexpropriation.

THE DECISIONThe essential question waswhether or not Sebenza’s mineralrights were expropriated whenthe Act came into force.The effect of the Act was todeprive Sebenza of its mineralrights, but it did not necessarilyfollow from this that those rightsbecame the State’s. The Act doesnot confer such lost rights on theState, and there was nothing toshow that the State acquiredownership of them. The State wascustodian of the mineral resourcesof the country but was not theowner of them.Since Sebenza’s mineral rightswere not transferred to the State,there was no expropriation ofthem, and in consequence, noentitlement under section 25 ofthe Constitution arose. In anyevent, for financial reasons,Sebenza had not taken action topreserve its rights. In thesecircumstances, the Act could notbe said to have been the cause ofits loss of them.

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BERG RIVER MUNICIPALITY v ZELPY 2065 (PTY) LTD

A JUDGMENT BY ROGERS JWESTERN CAPE HIGH COURT8 APRIL 2013

2013 (4) SA 154 (WCC)

Section 4 of the National BuildingRegulations and BuildingStandards Act (no 103 of 1977)entitles a municipality tointerdict a property owner fromusing or occupying structuresunlawfully erected on theproperty. The municipality is notobliged to be satisfied with thecriminal sanctions provided for insection 14(1A).

THE FACTSZelpy 2065 (Pty) Ltd owned

fixed property situated within thearea of municipal jurisdiction ofBerg River Municipality. It builtstructures on the propertywithout first obtaining approvalof building plans for theirconstruction.

The municipality sought a finalinterdict preventing Zelpy fromoccupying or using certainbuildings on the propertyconstructed in violation of section4 of the National BuildingRegulations and BuildingStandards Act (no 103 of 1977)until an occupancy certificate hadbeen issued by it in terms ofsection 14(1) of the Act.

Zelpy applied to themunicipality in terms of s 14(1A)of the Act for permission tooccupy the new structures prior tothe issue of an occupancycertificate, such permission toendure pending a decision on thenew rezoning application. Themunicipality advised Zelpy thatits application could not begranted because section14(1)(a) stated that an occupancycertificate could only be issued inrespect of buildings constructed inaccordance with approved plans.

Zelpy opposed the applicationon the grounds that (a) themunicipality had not shown thatthe criminal sanctions providedfor in the Act were an inadequateremedy, (b) any interdict grantedby the court should be suspendedpending a decision on Zelpy’ssection 14(1A) request, whichZelpy contended had not yet beenvalidly determined, and pendingthe outcome of the new rezoningapplication.

THE DECISIONSection 14(1A) provides that a

local authority may grantpermission in writing for use of abuilding before the issue of a

certificate of occupancy for aspecified period and on suchconditions as may be specified.

Section 4(1) of the Act providesthat no person shall, without theprior approval in writing of thelocal authority, erect any buildingin respect of which plans andspecifications are to be drawn andsubmitted in terms of the Act.Section 4(4) provides that a personwho erects a building incontravention of section 4(1) isguilty of an offence and liable onconviction to a fine not exceedingR100 for each day on which hewas engaged in so erecting thebuilding.

One of the Act’s main purposes,in providing for the laying-downof standards for plans andspecifications and in requiringplans to be approved by the localauthority, is to ensure thatbuildings will be safe and suitablefor their intended use. It could notbe said that that purpose wouldnot be achieved unless oneimplied into it a prohibitionagainst the use and occupation ofa building erected in violation ofsection 4(1). However, aconsideration of the terms of theAct as a whole left no doubt thatin order to achieve that purpose, itis necessary to imply such aprohibition.

Zelpy’s new structures wereerected without municipalapproval and in violation ofsection 4(1). It followed that Zelpywas not entitled to obtainpermission for their use in termsof section 14(1A) and themunicipality rightly refusedpermission. It also followed thatZelpy’s use of the new structuresviolated the implied prohibitionin section 4(1) against the use ofstructures erected withoutapproval under the Act.

The remaining question waswhether the municipality wasentitled to an interdict to prevent

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Zelpy’s ongoing violation of theimplied prohibition. Since section14(1A) did not apply, the criminalsanction provided for in it couldnot apply. Criminal chargeswould not have constituted analternative remedy available to themunicipality. The municipality

was therefore entitled to theinterdict it sought.

Zelpy was prohibited from inany way using or occupying, orallowing to be used or occupied,the structures it unlawfullyerected.

I cannot say that the Act would be unworkable as it stands unless one implied intoit a prohibition against the use and occupation of a building erected in violation ofs 4(1). However, a consideration of the terms of the Act as a whole leaves me in nodoubt that in order to achieve the ostensible legislative intention, it is necessary toimply such a prohibition. It is inconceivable that the lawmaker could haveintended that while lawfully erected buildings could be used and occupied onlyafter obtaining the certificate or permission contemplated in s 14, an unlawfullyerected building could lawfully be used and occupied unless and until it wasdemolished. Such a view would defeat the obvious intention of the lawmaker. Thelawmaker intended that buildings should not come into existence withoutapproved plans and that buildings erected in accordance with approved plansshould not be used or occupied without further permission. If one were tocommandeer the officious bystander whose more usual function is to put questionsto contracting parties, and got him to ask the lawmaker, as the latter prepared toapprove the Act, whether a person would be entitled to use and occupy a buildingerected without approved plans, the lawmaker’s immediate response would havebeen, ‘Of course not, he cannot even lawfully erect such a building.’ By forbiddingin s 4(1) the act of bringing into existence a building intended (upon completion)for use and occupation, the lawmaker can be taken to have also forbidden theintended use and occupation if for any reason the unlawful erecting was allowedto reach the stage of a completed building. Even though the local authority mayapply for a demolition order, this might take some time.

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CITY OF JOHANNESBURG v CANTINA TEQUILA

A JUDGMENT BY CACHALIAJA (BRAND JA, LEWIS JA,BOSIELO JA AND THERON JAconcurring)SUPREME COURT OF APPEAL20 SEPTEMBER 2012

2012 SACLR 386 (SCA)

Usage as hotel does not includerestaurant within the meaning ofpermitted uses defined in a townplannning schemewhich onlyidentifies primary use rights, andnot any other uses. Excluded fromthe uses there identified is any useof the property as a ‘place ofrefreshment’.

THE FACTSCantina Tequila conducted the

business of a restaurant and bar ata hotel which was situated withinthe area of jurisdiction of the Cityof Johannesburg. The propertywas zoned under the SandtonTown Planning Scheme in termsof which certain primary userights and consent rights wereapplicable to the property. Theseincluded use of the property as ahotel, as well as, with the consentof the local authority, ‘use of theproperty for light industrial/commercial purposes, places ofamusement, places of instruction,recreational purposes as may bepermitted with the writtenapproval of the Council andwhich do not create any nuisance,noise, dust, smoke or smells’.

Cantina Tequila contended thatbecause the business of a hotelmay include that of a restaurantand bar, its conduct of thatbusiness as a stand alone businesswas also permitted under thezoning regulations.

The City of Johannesburgdisputed this contention, andbrought an application for aninterdict to prevent CantinaTequila from continuing theoperations of the restaurant andbar.

THE DECISIONCantina Tequila’s contention

could not be upheld. Thelanguage of the zoning regulationwas clear and unambiguous. Itallowed only identified primaryuse rights, and not any other uses.Excluded from the uses thereidentified was any use of theproperty as a ‘place ofrefreshment’, which the schemedefined as including a restaurant,but not a bar. This had to meanthat intention was to exclude any‘place of refreshment’ – includinga restaurant – from thepermissible uses of the property.

Had the restaurant and barbusiness been part of a hotel, therewould have been merit in thesubmission that the business wasancillary to the hotel, and did notdetract from the primary right of ahotel. But it did not follow thatbecause a restaurant and bar couldbe part of the ancillary uses of ahotel, they could also be read intothe list of primary rights givenunder the town planning scheme.

The interdict was granted.

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HYPROP INVESTMENTS LTD v NCS CARRIERS ANDFORWARDING CC

A JUDGMENT BY SPILG J(BORUCHOWITZ J and COPPIN Jconcurring)SOUTH GAUTENG HIGHCOURT14 MARCH 2013

2013 (4) SA 607 (GSJ)

A claim for loss of rental forholding over premises followingcancellation of a lease must provethat the rental lost was themarket rental which would havebeen obtained during the period ofholding over. The rental payableunder the cancelled lease isinsufficient in itself to prove thiswhen there are grounds fordoubting whether that rentalwould have been obtainable fromanother tenant.

THE FACTSHyprop Investments Ltd leased

business premises in a shoppingcentre to NCS Carriers andFowarding CC. The partiesconcluded two lease agreementsprior to completion of theconstruction of the shoppingcentre. Clause 31 of the leasesprovided that ‘While for anyreason . . . the tenant occupies thepremises and the landlorddisputes the right to do so, thetenant shall, pending thedetermination of such dispute . . .continue to pay an amountequivalent to the monthly rental’.

NCS failed to pay rent, as aresult of which Hyprop broughtan application for an orderconfirming cancellation of theleases. It obtained an order to thateffect as well as an order forpayment of arrear rental andejectment.

NCS remained in occupation ofthe premises while it appealed thejudgment given against it. NCSfailed to obtain leave to appeal.Hyprop then claimed against NCSfor loss of rental and ancillarycharges for the period followingcancellation of the lease. It allegedthat the rental it was entitled towas the market related rental inrespect of the premises, and thiswas equivalent to the rental itwould have received in terms ofthe cancelled lease. In support, itdepended, inter alia, on clause 31of the lease agreements. NCSdefended the claim on the samegrounds it had opposed the firstapplication Hyprop had brought,ie that Hyprop had fraudulentlymisrepresented the conditions ofthe shopping centre where NCSwas to operate its business. NCScontended that the market relatedrental was not equivalent to therental provided for in the leasebecause, given the quality of theshopping centre, Hyprop wouldnot have been able to let thepremises to another party at thatrental. In support of this, they

relied on a report given by a firmof architects which concluded thatthe premises as described in thelease did not accord with thepremises as finally constructed.

Hyprop contended that it wasentitled to lost rental for theperiod during which NCS washolding over the premises.

THE DECISIONA rental, predetermined before

development of the centre wascompleted, could not be reliedupon to determine the fair marketvalue of rentals during the periodof the actual holding over whenthere were so many uncertaintiesabout the eventual character of theshopping centre. Theseuncertainties included the factthat there would be differenttenants on the premises, the factthat anchor tenants did notmaterialise and, the effect of thequality of the shopping centre’smanagement, its marketing, thetenant mix and actual pedestriancustom, as well as superveningexternal factors such as theeconomy.

As far as clause 31 wasconcerned, this allowed Hypropto appropriate payments made torental liability but did not equatepayments made to a marketrental.

The architects report did notstate what the difference in rentalwould be between premises let ina shopping centre as described inthe lease and one as actuallyconstructed. However, the reportshowed that the defence that therental provided for in the lease wasnot market related was bona fide.

In view of these uncertainties, itcould not be accepted that therental provided for in the leaseswas market related. Accordingly,Hyprop had failed to prove theamount of the damages it hadsuffered for NCS having held overthe premises. Its claim for loss ofrental failed.

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CAPE EMPOWERMENT TRUST LTD v FISHERHOFFMAN SITHOLE

A JUDGMENT BY BRAND JA(MAYA JA, CACHALIA JA,SHONGWE JA and SWAIN AJAconcurring)SUPREME COURT OF APPEAL20 MARCH 2013

2013 (5) SA 183 (SCA)

A negligent misstatement causingeconomic loss does not result inliability if it is not shown that themisstatement was wrongful.Wrongfulness is demonstrated byshowing that the party to whomthe statement was made seriouslyrequested the statement in abusiness context and would bedependent on it.

THE FACTSOn 23 August 1999 Cape

Empowerment Trust Ltd (CET)concluded a written sale ofbusiness agreement withParadigm Interactive Media Ltd.In terms of the agreement, asubsidiary of CET, H InvestmentsNo 194 (Pty) Ltd purchased abusiness from Intella Ltd, asubsidiary of Paradigm. Thepurchase price was R147m, ofwhich R137m was to be paid afterfulfilment of certain suspensiveconditions and the balance ofR10m one year later. Theagreement provided that uponnon-fulfilment of a suspensivecondition on due date (theapproval of shareholders), ‘thisagreement will automatically failand be of no further force andeffect’.

During negotiations, the chiefexecutive officer of CET, Mr S Rai,was informed by directors ofParadigm and Intella that thebusiness had made a substantialloss in the 1999 financial year, butthat as a result of a lucrativecontract it had concluded withanother company, the businesshad experienced a turnaround inits financial fortune. Theassurance resulted in a warrantyin the sale agreement, to the effectthat ‘the [gross] profits from thebusiness for the period 1 March1999 up to and including 30 June1999 will not be less than R10million (ten million rand) …’Another warranty given by theseller was that all accountsreceivable were good andcollectable to the full amountthereof.

Rai decided that a due diligencerequirement of the agreementcould be substituted with anassurance from Intella’s auditors,Fisher Hoffman Sithole (FHS) andso he requested an auditcertificate from them confirmingthe warranty that the gross profits

of the business for the periodMarch 1999 to 30 June 1999 werenot less than R10 million. Inresponse, one of the firm’spartners affirmed in an emailmessage:‘I . . . advise that the after taxearnings for the Intella group forthe year ended 30 June 1999 asreported in the published resultsof Paradigm amounted to R9,141million.The Intella group had incurred asubstantial loss for the period 1July to 28 February 1999.Unfortunately I do not have thebreakdown between the twoperiods but I am satisfied that theafter tax profit of Intella group forthe period 1 March 1999 to 30June 1999 amounted to in excessof R10 million.’

The approval of shareholderswas not obtained before the dateprovided for in the agreement, butwas obtained at a later date.

This statement made by FHS wasuntrue. The business in fact madea substantial loss during thisperiod. Rai became aware of thisin March 2000. Because ofobligations arising from thefinancing arrangementsconcluded with other parties, Raiconsidered that CET was unableto cancel the agreement, butconcluded settlement agreementsinvolving those parties, HInvestments 194, Intella andParadigm.

CET then brought an action indelict against FHS, alleging thatits affirmation in its emailmessage constituted a negligentmisstatement which had inducedit to enter into a disadvantageousbusiness deal that caused it toincur wasted expenses. It claimedR17m in damages.

THE DECISIONCET had to prove the three

elements of delictual liability:wrongfulness, fault and factual

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causation. The evidence clearlyestablished fault and factualcausation. Given the true factsconcerning the profitability of thebusiness, the statement made byFHS displayed gross negligenceon its part. Factual causation hadalso been proved – had theaffirmation correctly recorded theprofitability of the business, theshareholders would not haveapproved the agreement.

However, as far as wrongfulnesswas concerned, this was to bedetermined by considerations oflegal and public policy as appliedto the facts of the particular case.In this regard, whether or not arequest for a statement uponwhich a person will rely is madeas a serious request is relevant. Inthe present case, Rai had made aserious request and this pointed topossible wrongfulness on the partof FHS. However, what was alsorelevant was whether or not CETwas dependent on the statement.CET was not so dependentbecause it had had the option ofproceeding with the due diligenceinvestigation.

Most importantly for thequestion of wrongfulness was theissue of ‘vulnerability to risk’. In

the present case, CET had reducedits vulnerability to risk byinsisting on the warrantyregarding the gross profits of thebusiness. However, upon it beingapparent that there had been abreach of warranty, CET haddeprived itself of the remedyavailable to it flowing from suchbreach by allowing the agreementto lapse and entering into asettlement agreement. CETtherefore appeared to be theauthor of its own misfortune. Itsallegation that it could notextricate itself from the complexfinancing arrangements and wastherefore compelled to continuewith the agreement in modifiedform was unconvincing.

It also appeared that CET hadnot proved that the statementmade by FHS was a legal cause ofits loss. FHS could not haveforeseen that its statement wouldresult in loss. It was aware of thesafeguards CET had ensured foritself in the form of the warrantiesin the agreement and therequirement of a due diligenceinvestigation, and had no reasonto think that CET could not havedepended on these to avoid anyloss.

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BANDA v VAN DER SPUY

A JUDGMENT BY SWAIN AJA(LEWIS JA, MAYA JA,CACHALIA JA and ERASMUSAJA concurring)SUPREME COURT OF APPEAL22 MARCH 2013

2013 (4) SA 77 (SCA)

A seller is liable to a buyer for thereasonable costs of repairing alatent defect if the seller wasaware of the defect and failed todisclose it to the buyer at the timeof conclusion of the sale.

THE FACTSVan der Spuy sold a house with

a thatch roof to Banda. The saleagreement recorded that Van derSpuy transferred to Banda hisrights under a guarantee given bya contractor who had repaired theroof. By that time, the period ofthe guarantee had expired. Thesale agreement also contained avoetstoots clause.

The repairs had been effectedbecause the roof had leaked whenit rained. It continued to do soafter Banda had taken occupationof the house. Banda sought areduction of the purchase price onthe grounds that Van der Spuyhad known of the latent defect.

Van der Spuy contended that ashe had been confident of therepair work done to the roof, andthe house continued to be insured.He denied that he had known thatthe roof would continued to leak.

THE DECISIONIf Van der Spuy had believed

that the repairs were adequate, thequestion arose why he did notinform Banda that the guaranteewas no longer effective and referhim to the contractor who had

issued it. Van der Spuy hadprovided no explanation for this.

Van der Spuy’s failure to probethe assurances given by thecontractor indicated a wilfuldisregard of the defect in the roof.He did not possess an honestbelief in the adequacy of therepairs that were effected to theroof, such that the problem ofleaks in the roof had beenpermanently addressed.Considered together with hisfraudulent conduct in notdisclosing the absence of a validguarantee and his dishonesty inrelation to the duration of theguarantee, it was clear that hepossessed knowledge of thestructural defects in the roofwhich were a cause of the roofleaking, and which had not beenpermanently repaired. At the veryleast, he was conscious of theinadequate nature of the repairs tothe defects in the roof, which gavehim reasonable grounds tosuspect that the leaks in the roofhad not been fixed. He wastherefore obliged to disclose thisknowledge to Banda.

Banda was therefore entitled tothe reasonable costs of repairingthe roof.

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COMWEZI SECURITY SERVICES (PTY) LTD v CAPEEMPOWERMENT TRUST LIMITED

A JUDGMENT BY WALLIS JA(CLOETE JA, CACHALIA JA,LEACH JA AND THERON JAconcurring)SUPREME COURT OF APPEAL21 SEPTEMBER 2012

2012 SACLR 435 (SCA)

A provision entitling a party inwhose favour there is a resolutivecondition to relax that condition,entitles that party to extend theperiod of the condition.

THE FACTSComwezi Security Services (Pty)

Ltd agreed to repay a loan owedto Cape Empowerment Trust Ltdby issuing 25 shares in itself tothat company. The agreement wassubject to the resolutive conditionthat Cape Empowerment Trustcomplete a due diligenceinvestigation into Comwezi, andbe satisfied with the outcomethereof by no later than 3 monthsafter the date of the agreement. Inthe event of Cape EmpowermentTrust not notifying Comwezi thatit was satisfied with the outcomeof the due diligence investigation,the agreement would‘automatically fail and be of nofurther force and effect’. It wasprovided that this condition wasimposed for the benefit of CapeEmpowerment Trust and could bewaived or relaxed by it prior tothe lapsing of the 3-month period.

Cape Empowerment Trustextended the date for fulfilmentthirteen times, on the grounds thatComwezi was in breach of itsobligations to co-operate with thedue diligence investigation andprovide documents to enable theinvestigation to be undertaken.

Comwezi argued that the powerto relax the resolutive conditiondid not allow CapeEmpowerment Trust to extend theperiod within which it was toconduct the due diligenceinvestigation. Since thatinvestigation was not completedwithin the 3-month period theagreement was automaticallyfailed and was of no further forceand effect.

Cape Empowerment Trustcontended that the effect of theextensions was to extend theperiod applicable to the resolutiveto condition, and so ensure thatthe agreement remained in force.

THE DECISIONCape Empowerment Trust had

the right to insist on propercompliance with the due diligenceobligations imposed on Comweziand equally, the right to relax fullcompliance with that obligation.That right existed independent ofthe resolutive condition. The rightto waive or relax the resolutivecondition therefore did not relateto that obligation and could onlyrelate to the 3-month periodreferred to in the resolutivecondition.

Were that right not to apply tothe period of the resolutivecondition, the provision of theagreement establishing the rightwould be redundant as it wouldnot apply to anything. Such aresult would not be acceptablesince it would mean that theprovision would be interpreted ashaving no application.

The only meaningful applicationof the provision was to consider itas relating to the 3-month period.On a proper interpretation of it,Cape Empowerment Trust wasgiven the power to relax thatperiod, and thereby extend theperiod of the resolutive condition.

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SENTINEL MINING INDUSTRY RETIREMENTFUND v WAZ PROPS (PTY) LTD

A JUDGMENT BY CLOETE J(MALAN, SHONGWE ANDTSHIQI JJA AND SOUTHWOODconcurring)SUPREME COURT OF APPEAL21 SEPTEMBER 2012

2012 SACLR 425 (SCA)

An agreement which provides forthe lapsing of an obligation tomake a payment upon thehappening of some future event,absolves the party obliged tomake such payment of theobligation to make paymentimmediately upon the occurrenceof that event.

THE FACTSWaz Props (Pty) Ltd concluded

an agreement with SentinelMining Industry Retirement Fundin terms of which Waz undertookto pay Sentinel R115 531.87 beingits pro-rata share of a roadupgrading project. The projectrelated to a road serving both theproperties of Waz and those ofSentinel.

Clause 4 of the agreementprovided that Waz would secureits obligation either by transfer ofthe money into an attorney’s trustaccount, or by furnishing a bankguarantee, or by agreeing to theimposition of a particularrestrictive conditions in its titledeeds. Clause 5 of the agreementprovided that in the event that theroad upgrading project was notcompleted by 1 April 2009, anymoney transferred was to berepaid and Sentinel was toprocure cancellation of therestriction condition.

Waz furnished the bankguarantee.

The project was not completedby 1 April 2009 but wascompleted on 15 February 2010.Sentinel’s attorneys presented theguarantee for payment on 26March 2010. On 6 April 2010, thebank made payment in termsthereof.

Waz contended that because theproject was not completed on thedue date, its obligation to makepayment had lapsed and Sentinelhad not been entitled to presentthe guarantee. It contended thatclause 5 of the agreementcontained a resolutive conditionwhich terminated the obligationto pay the amount of R115 531.87and any further obligations.

Waz brought an application forrepayment of the amount paid toSentinel.

THE DECISIONThe obligation to make payment

was not independent of the otherterms and conditions of theagreement. It had to be read withthe obligations imposed on Wazunder the options for paymentbecause these would determinethe amount to be paid, and thesewould vary depending upon theoption chosen.

The effect of clause 4 was to listthe methods by which Waz had tomake payment. It contained noexpress residual obligation to paythe amount due at some futureand undefined date. It wastherefore exhaustive of themethods by which payment canbe made, and it allowed for nopayment other than in its terms.

The effect of clause 5 was toterminate the obligation to makepayment. If the project was notcompleted by 1 April 2009, theobligation to pay lapsed. Itfollowed that if the resolutivecondition was fulfilled, theamount payable by Waz, and theaccrued interest, had to berefunded to Waz.

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CASEY v FIRST NATIONAL BANK LTD

A JUDGMENT BY SPILG JSOUTH GAUTENG HIGHCOURT8 AUGUST 2011

2013 (4) SA 370 (GSJ)

There are circumstances in whicha bank may call up a letter ofcredit given to it as security for adebt on the basis that the debtorhas not met its obligations to thebank, irrespective of whether ornot the debt has prescribed.

THE FACTSIn 1998, Kimberley Roller Mills

(Pty) Ltd, the second applicant,obtained a finance facility of R850000 from First National Bank Ltd.As security, the bank obtained astandby letter of credit for $200000 from the Bank of Americawhich Casey, that bank’scustomer, arranged.

The facility was increased fromtime to time, and the security ofthe letter of credit was alsoincreased. In 2005, the facility wasextended, the expiry date beingMarch 2007. The period of theletter of credit was also extended.

In July 2010, the parties enteredinto without prejudicenegotiations. Kimberley took theview that the bank’s claim hadprescribed three years after thelast expiry date of thecontinuation of the facility. Thebank asserted its right to claimpayment under the letter of creditand presented it for payment tothe Bank of America. The Bank ofAmerica paid $420 000 to thebank.

Kimberley applied for an orderreversing the payment. Itcontended that the bank hadfalsely stated to the Bank ofAmerica that the debt was due toit when it had in fact prescribed.

THE DECISIONIf the Bank of America had

extended the period of the letterof credit without properauthority, then it would be opento Casey to address a claimagainst that bank for breach of thebanker-customer mandate.

On a plain reading of the letter ofcredit, it would be called up ifKimberley did not meet itsobligations to the bank. On anordinary interpretation of thedocument the catalyst forpayment was not that the amountwas due and payable, since underthe letter of credit that was simplythe consequence flowing fromKimberley not having met itsobligations. If the term hadrequired the bank to authenticatethat an amount was ‘currentlydue, owing and payable’, thenthere might have been scope toargue that prescription would notallow for authentication.However, in the present case itwas common cause thatKimberley had not met itsobligations.

In terms of the law relating toletters of credit, the Bank ofAmerica had been obliged to paythe bank and the bank had beenentitled to call up the amount dueunder it.

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CHILIZA v GOVENDER

A JUDGMENT BY VAHED JKWAZULU NATAL HIGHCOURT29 APRIL 2013

2013 (4) SA 600 (KZD)

It is not necessary to serve aprovisional order of sequestrationon the South African RevenueService prior to applying for afinal order, although a court mayexercise its discretion to requiresuch service prior to granting suchan order.

THE FACTSGovender applied for the

provisional sequestration ofChiliza’s estate. The applicationpapers were served on the SouthAfrican Revenue Service.

In due course, Govenderobtained a final order. Prior to thegrant of the final order, theprovisional order was not servedon the South African RevenueService.

Chiliza applied for a rescissionof the final order on the groundsthat there had been a failure tocomply with section 11(2A)(c) ofthe Insolvency Act (no 24 of 1936).The section provides that apetition for the sequestration of aperson’s estate must be served onthe South African RevenueService.

THE DECISIONThe question was whether or not

the provisions of the section wereperemptory. If they were, failureto comply with them would

Insolvency

render the granting of the finalorder invalid.

The purpose of bringing theprovisional sequestration of adebtor’s estate to the attention ofthe South African Revenue Servicewas reasonably clear. Its purposeis to provide it with anopportunity to intervene, so as tobring certain relevant facts to thecourt’s attention or to ensure thata final order does in facteventuate. That object issubstantially achieved by serviceof the petition.While service of the petition onthe South African Revenue Serviceis peremptory, the requirement offurther service of the provisionalorder is not. This conclusion wasconsistent with section 12 of theAct which does not oblige a courtto take the non-service of theprovisional order into accountwhen exercising its discretionwhether to grant a final order.

The application for rescissionwas dismissed.

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PRO-MED CONSTRUCTION CC v BOTHA

A JUDGMENT BY WILLIS J(HORN J AND BAVA Jconcurring)SOUTH GAUTENG HIGHCOURT24 AUGUST 2012

2012 SACLR 375 (GSP)

There is no disposition withoutvalue within the meaning ofsection 26(1)(b) the Insolvency Act(no 24 of 1936) if the disposition ismatched by an equivalentreduction in the indebtedness ofthe insolvent party.

THE FACTSAD Master Parts (Pty) Limited

sold a farm, together with certainmovable items to SuperfectaTrading CC for R2 950 000 andtransfer of the property later tookplace by registration thereof withthe Registrar of Deeds. Theagreement was later varied toprovide that payment of part ofthe purchase price - R576 000 -would be effected by transfer toBotha of two properties in adevelopment known as thePinehaven Country Estate. Theseproperties were then owned byPro-Med Construction CC.

Botha took transfer of one of thePinehaven properties. The saleagreement in terms of whichBotha obtained this propertyrecorded that the sale price wasR100. A certain Mr Lubbe, the solemember of Pro-Med ConstructionCC, had a loan account inSuperfecta which he acceptedwould be reduced proportionatelyin accordance with the value ofthe property as reflected in thevariation agreement. Mr Lubbewas also owed money by Pro-Med, the amount of thatindebtedness exceeding the pricepayable for the Pinehavenproperties.

The joint liquidators of Pro-Medclaimed payment of R349 900,00from Botha. The claim was basedon the allegation that the transferof the Pinehaven property to himamounted to a dispositionwithout value in terms of theprovisions of section 26(1)(b) theInsolvency Act (no 24 of 1936) andshould be set aside.

THE DECISIONThe evidence was that the

Pinehaven property was used,together with other assets of Pro-Med, to discharge a debt ofSuperfecta Trading to AD MasterParts that arose from SuperfectaTrading’s purchase of the farmfrom AD Master Parts. This wouldhave given rise to a correspondingclaim by Pro-Med againstSuperfecta Trading, and thedisposition would have beenmatched by a corresponding legalobligation, ie the indebtedness ofSuperfecta Trading to Pro-Med.

The disposition was however notwithout value, because Lubbe’sclaim against Pro-Med wasreduced proportionately againstit, via the reduced loan account ofSuperfecta. The fact that theamount of Pro-Med’sindebtedness to Lubbe had notbeen specified did not detractfrom this conclusion as the exactamount was peculiarly within theknowledge of Pro-Med itself.

There was no dispositionwithout value. Accordingly,section 26(1)(b) did not apply. Theclaim was dismissed.

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ARNTZEN v NEDBANK LTD

A JUDGMENT BY GORVEN JKWAZULU NATAL HIGHCOURT, PIETERMARITZBURG,28 SEPTEMBER 2012

2012 SACLR 447 (KZP)

An ex parte application for thevoluntary surrender of an estaterequires full and frank disclosureby the applicant and well-foundedevidence indicating sufficientlythat the applicant owns realisableproperty of a sufficient value todefray all costs of thesequestration which will in termsof this Act be payable out of thefree residue of his estate and thatit will be to the advantage ofcreditors of the debtor if his estateis sequestrated.

THE FACTSArntzen brought an ex parte

application for the voluntarysurrender of his estate. In supportof the application, he affirmedthat he had two assets, animmovable property and a motorcycle, and that their values wereR650 000 and R33 500respectively. The value of theproperty was substantiated bymeans of a letter issued by anestate agent, and the value of themotorcycle was substantiated bymeans of a similar letter issued byanother person.

Arntzen affirmed that his totalindebtedness was R828 888.85. Heowed Nedbank Ltd R746 584.88.Of this, R524 535.32 was securedby a mortgage bond. The rest ofhis creditors were together owedR82 303.97. He affirmed that thecosts of sequestration would beR45 495. These figures resulted ina sum of R113 469.68 remaining tomeet concurrent creditors’ claimsof R304 353.53, and a dividend ofsome 37 cents in the rand.

Nedbank intervened in theapplication. It affirmed that, on aforced sale basis, Arntzen’sproperty would fetch a maximumof R600 000. This was based on theevidence of a professional valuerregistered as such under theValuers’ Act (no 23 of 1982).Nedbank also affirmed that thecosts of realising the immovableproperty and the motor cycle oninsolvency would be R92 505 andR8 021.45 respectively. It affirmedthat the costs of Arntzen’sattorneys of R22 500 and costs ofadvertisements and twopostponements should be added,with the result that an amount ofR640.78 would be available fordistribution to the concurrentcreditors. This would give adividend of less than 1 cent in therand. There was also a danger of acontribution if it as interveningcreditor proved a claim.

In his replying affidavit, theestate agent deposed to the valueof the property affirming that itwas the expected value from a salethrough insolvency. Arntzen alsoaffirmed that he had applied fordebt review in terms of theNational Credit Act (no 34 of2005).

THE DECISIONThe test for voluntary surrender

applications as set out in section6(1) of the Insolvency Act (no 24of 1936) requires that it be shownthat the debtor in question isinsolvent, that he owns realisableproperty of a sufficient value todefray all costs of thesequestration which will in termsof this Act be payable out of thefree residue of his estate and thatit will be to the advantage ofcreditors of the debtor if his estateis sequestrated.

In the present case, there was nodispute that Arntzen’s estate wasinsolvent. The question waswhether the remaining tworequirements were satisfied.

Since the application wasbrought ex parte, and was one forthe voluntary surrender of anestate, the need for full and frankdisclosure and well foundedevidence concerning Arntzen’sestate was more pronounced.Such evidence had not been given.Not only were there disputes onthe papers, but the evidence putforward in Arntzen’s foundingaffidavit was insufficient. Evendisregarding the debt reviewprocess, it was unclear whether ornot there would be an advantageto creditors. A factor relevant tothis was whether, despite Arntzenbeing insolvent, the indebtednesswould be likely to be liquidatedover time if his income exceededhis expenses. This would operateto the benefit of creditors sincethey would receive the fullamount due to them. However,

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the disclosure concerning incomeand expenditure was insufficientto give a proper indication in thisregard.

In consequence, the court could

not be satisfied that Arntzenowned realisable property ofsufficient value to defray all costsof the sequestration.

The application was dismissed.

I take the view that there is an even greater risk of abuse and a risk that theinterests of creditors will be undermined in voluntary surrender applicationsthan in ‘friendly’ sequestration applications. Therefore the need for full andfrank disclosure and well founded evidence concerning the debtor’s estate iseven more pronounced. There are a number of reasons for this, some of whichhave been foreshadowed in the discussion above. I shall mention only some.First, the applicant tends to focus on the formal requirements of s 4 of the Actand does not seem to appreciate the need to satisfy a more rigorous test than forsequestration applications at both provisional and final stages as regardsadvantage to creditors. Secondly the court must perforce, in most instances,rely on the founding papers. This brings into play the peculiar characteristicsmentioned above of voluntary surrenders being brought as ex parteapplications. Thirdly, no collusion between friendly creditor and debtor isnecessary since it is the debtor who is the applicant and has a more directinterest in the application succeeding and understanding of the genuineposition than the friendliest of creditors. Voluntary surrender applicationstherefore require an even higher level of disclosure than do ‘friendly’sequestrations if the court is to be placed in a position where it can arrive at thefindings and exercise the discretion set out in s 6(1) of the Act.

Insolvency

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LORCOM THIRTEEN (PTY) LTD v ZURICHINSURANCE COMPANY SOUTH AFRICA LTD

A JUDGMENT BY ROGERS JWESTERN CAPE HIGH COURT29 APRIL 2013

2013 (5) SA 42 (WCC)

A party will be considered to havean insurable interest in an insuredasset if it has a well-foundedexpectation that it will becomethe owner of the asset in duecourse.

THE FACTSZurich Insurance Company

South Africa Ltd insured LorcomThirteen (Pty) Ltd against loss of afishing vessel, the Buccaneer.During the period of theinsurance, the Buccaneer sank.

Zurich took the view thatLorcom did not have an insurableinterest in the vessel as it wasowned by Gansbaai FishingWholesalers (Pty) Ltd, GFW. GFWowned all the shares in Lorcom,62.5% of whose shares wereowned by a close corporationwhich a certain Mr Theart hadbecome the 100% owner of undera sale agreement with the closecorporation’s owner. Under thatsale agreement, the risk of loss tothe vessel passed to Theart uponpayment of a deposit. Theart wasthe party who completed theproposal form resulting in theinsurance of the Buccaneer.

Lorcom claimed indemnity interms of the insurance policy.

THE DECISION The policy’s reference to the loss

did not specify that it was to beloss suffered by Lorcom. The lossreferred to was the loss of thevessel. The word ‘loss’ did notmean ‘lost by the insured party’,but meant the event of the vessel’sloss due to sinking or destruction.

The parties understood theircontract as meaning that Zurichpromised to pay Lorcom R3million if the vessel were lost. Itfollowed that the policy did notrequire Lorcom to prove that theloss of the vessel caused it tosuffer actual loss. The enquiry waswhether Lorcom had an interestsufficient to render enforceable apolicy providing cover measuredwith reference to the value of thevessel.

That Lorcom had an insurableinterest was evident from thecombination of its right of use, itswell-founded expectation thatsuch use would continue until itbecame the owner of the vessel,and its well-founded expectationthat the sale agreement wouldresult in Lorcom becoming theowner of the vessel by theeffective date. The cover thusprovided would enable Lorcom, ifthe vessel were lost or damagedprior to the effective date, to beplaced in the same position as ifLorcom’s right of use hadcontinued as expected and as ifthe sale agreement had followedits expected course. If there wereany doubt about it however, thematter was placed beyondquestion by the addedconsideration that Lorcom was the100% shareholder of GFW.

Lorcom’s claim was confirmed.

Insurance

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ABSA BANK LTD v MORRISON

A JUDGMENT BY SPILG JSOUTH GAUTENG HIGHCOURT28 MARCH 2013

2013 (5) SA 199 (GSJ)

An execution creditor may stop asale in execution right up to thetime when the sale takes place. Ifby mistake, it fails to do so, itsdebtor may obtain re-transfer ofthe property to it.

THE FACTSAbsa Bank Ltd obtained a

judgment against the thirdrespondent which included anorder that his property bedeclared executable. The propertywas sold in execution by publicauction in terms of Rule of Court46 by the sheriff. Morrison wasthe purchaser.

Prior to the date of the sale, thethird respondent contacted Absawhich informed him that the salecould be prevented if the totalarrears were paid before the dateof sale. The third respondentsettled the arrears in full prior tothe public auction. Absa failed toinform its attorneys, as a result ofwhich, the sale had proceeded.

Absa applied for an order thatthe sale be set aside. Morrisoncontended that he had purchasedthe sale from the sheriff acting inhis capacity as such under Rule46, and not from Absa, and that assuch, the sale had been free of anyimpediment and could not beimpugned by Absa.

THE DECISIONRule 46 contains a sharp

distinction between theattachment of property and itssale. After attachment, it is not thesheriff who takes the stepsnecessary for the sale in executionbut the execution creditor, in thiscase Absa. The executioncreditor’s interests are whatmotivates the sale in execution.Accordingly, it is entitled to stop

Property

the sale right up until the pointthat the sale is about to take place.

Absa’s failure to withdraw thesale amounted to an actionablebreach of contract entitling itsdebtor to specific performance.However, Morrison as thepurchaser at the sale had anenforceable right to insist ontransfer. Both parties heldpersonal rights against Absa. Insuch situations, twoconsiderations come to the fore.The first was the principle of “quiprior est” which accords theenforceable right to the firstholder of the right in question.The second was that the lawwould seek to assist an existingowner of property even againstthose who were bona fide whenthey acquired it from a third partyclaiming title.

An overarching principle wasthat the law sought to avoid theloss of property. This also findsexpression in sections 129 and 130of the National Credit Act. Inaccordance therewith, propertywhich is by agreement of theexecution creditor with the debtorto be withdrawn from a sale inexecution upon payment ofarrears before that date cannot byreason of the principle of ‘the fallof the hammer’ at public auctionsresult in the debtor losing hishouse because of a mistake. Theinnocent purchaser is limited to adamages claim for breach ofcontract against the executioncreditor.

The application was granted.

122

RADEMAN v MOQHAKA LOCAL MUNICIPALITY

A JUDGMENT BY ZONDO J(MOGOENG CJ, MOSENEKEDCJ, FRONEMAN J, JAFTA J,NKABINDE J, SKWEYIYA J, VANDER WESTHUIZEN J andMHLANTLA AJ concurring)CONSTITUTIONAL COURT26 APRIL 2013

2013 (4) SA 225 (CC)

If a municipality’s bylaws soprovide, a municipality is entitledto cut off a ratepayer’s electricitysupply if the ratepayer withholdspayment of rates, even if theamounts due for electricity havebeen paid in full.

THE FACTSRademan received an electricity

supply at her house from theMoqhaka Local Municipality interms of a supply agreementconcluded between her and themunicipality. She was also aratepayer within thatmunicipality’s area of jurisdiction.

Rademan refused to pay herrates because she alleged that themunicipality had failed tomaintain proper standards ofservice delivery. However, shecontinued to pay for the electricitysupplied at her house.

The municipality asserted theright to cut off the supply ofelectricity because of Rademan’sfailure to pay her rates. Rademancontended that the municipalitywas not entitled to do so becauseshe had paid for the electricitysupplied to her house and was notin arrears with any payments duefrom her. She also contended thatthe municipality was not entitledto do so because any one of thethree conditions provided for insection 21(5) of the ElectricitySupply Regulation Act (no 4 of2006) had not been met. Thesection provides that amunicipality cannot terminate anelectricity supply unless thecustomer is insolvent, thecustomer has failed to honour, orrefuses to enter into, an agreementfor the supply of electricity or thecustomer has contravenedpayment conditions.

THE DECISIONSection 18(1) of the

municipality’s bylaws providedthat if one account was renderedfor more than one municipalservice, the amount due andpayable by a customer constituteda consolidated debt, and any

payment made by a customer ofan amount less than the totalamount due, would be allocatedin reduction of the consolidateddebt toward payment of (a) thecurrent account, (b) arrears and (c)interest. Section 18(3) providedthat a customer could not electhow an account was to be settledif it is not settled in full or if therewere arrears.

Section 1(g) of the bylaws madeit clear that the application for themunicipal services that a residentor ratepayer made to the councilconstituted the agreementbetween the municipality and thecustomer concerned. It was alsoclear from a reading of the LocalGovernment: Municipal SystemsAct (no 32 of 2000) and the bylawsthat residents and ratepayers werebound by the bylaws. In theapplication for municipal servicesmade by a resident or ratepayer tothe municipality, the applicantagreed to be bound by the bylaws,regulations and policies of themunicipality relating to thecontrol and distribution ofsupplies and for the collection orenforcement of payment thereof.

In paying the components of heraccount without paying the rates,Rademan elected how she wassettling her account. This isdisallowed by section 18(3). By sodoing, she placed herself indefault and in breach of herobligations towards themunicipality. This constituted acontravention of themunicipality’s conditions ofpayment of an account. Itfollowed that the contention that,since Ms Rademan did not oweanything on electricity, themunicipality was not entitled tocut her electricity off, was to berejected.

Property

123

ROYAL HOTEL RIVERSDAL (PTY) LTD vSIMON N.O.

A JUDGMENT BY HEHER JA(CACHALIA JA, MALAN JA,TSHIQI JA AND PILLAY JAconcurring)SUPREME COURT OF APPEAL18 SEPTEMBER 2012

2012 SACLR 532 (SCA)

The terms of a servitude may beinterpreted according to thebackground circumstances of itscreation, and from the language ofthe terms themselves.

THE FACTSThe Simon Family Trust sold a

portion of its property to RoyalHotel Riversdal (Pty) Ltd. The saleagreement also provided for thecreation of a servitude in favour ofthe trust. The servitude related toan area of the portion sold andobliged Royal Hotel not to allowany obstruction which mightstand in the way of vehicles inthat area, to allow the existingparking area there to be used byclients of businesses operating in abuilding on the property, and toensure that lorries and buses onlyuse a specific gravel portion.

After transfer of the portion toRoyal Hotel, it wished toconstruct a building on part of thearea subject to the servitude. Thiswould affect only the thirdrestriction referred to in theservitude, and would occupysome 20% of the gravel area.

The Royal Hotel applied for anorder declaring that it was entitledto construct the proposedbuilding.

THE DECISIONUpon a proper interpretation of

the third restriction, it was clearthat Royal Hotel was not entitledto construct a building on thegravel area. In contrast to the firstand second restrictions, thelanguage of the third was broadterms. Were the restriction not beapplied in broad manner, thiswould render it ineffective inrespect of the area to which itreferred.

The servitude entitled the trustto insist on a right to have busesand lorries visiting its premisespark anywhere on the gravel area.This did not confer an exclusiveright to park on the gravel area infavour of such vehicles but it didentitle the trust to defend the rightconferred on its portion against aproposed development on theservitude area that would detractfrom its reasonable use. The effectof the erection of a buildingcovering a substantial proportionof the gravel area, as proposed byRoyal Hotel, would so detractfrom its reasonable use.

The application failed.

Property

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MARGALIT v STANDARD BANK OF SOUTHAFRICA LTD

A JUDGMENT BY LEACH JA(NUGENT JA, PILLAY JA,SOUTHWOOD AJA ANDERASMUS AJA concurring)SUPREME COURT OF APPEAL3 DECEMBER 2012

2012 SACLR 564 (SCA)

A conveyancer should fastidiouslyexamine all relevant documentswhen preparing them for atransfer of property. Failure to doso will constituted negligence.

THE FACTSMargalit sold his property for

R3m. At the time of the saleStandard Bank of South Africa Ltdheld two mortgage bonds over theproperty. These had to becancelled before the could betransferred to the purchaser. Thebank appointed the secondrespondent, a firm of attorneys, toact on its behalf to cancel thebonds.

As a result of a series of delaysand mistakes, it took more than ayear before the bonds werecancelled, the property wastransferred to the purchaser, andMargalit was paid. There was adelay in securing the ratesclearance certificate, and a delayarose because the bank had lostthe property title deeds and itsmortgage bonds. When thedocumentation for lodgement ofthe transfer was examined in theDeeds Office, it was discoveredthat an application for certifiedcopies of the title deeds had notyet been made, and nocancellation of the secondmortgage bond over the propertyhad been lodged. A secondattempt at transfer failed becauseof defective linking. A thirdattempt also failed because of afailure to conform to agreedpractices in the signing of theaffidavit necessary to obtaincertified copies.

Marglit alleged that the secondrespondent’s negligent andunprofessional conduct hadresulted in a delay in transferfrom 29 May 2008, a date agreedto have been the date on whichtransfer would have been effectedif the papers as they were initiallylodged had been in order, until itwas eventually registered on 16July 2008. Margalit contended thatthe second respondent’s conductresulted in Standard Bank havingbreached its contract with him,and led to the second respondent

being liable to him in delict.Margalit claimed R42 713,42 in

damages.

THE DECISIONThe crucial question was

whether or not the secondrespondent had been negligent inthe performance of its duty incancelling the bonds. In thisconnection, it was important toremember that any mistakeswhich may lead to a transaction inthe deeds office being delayedwill almost inevitably causeadverse financial consequences forone or other of the parties to thetransaction.

The inference that the secondrespondent overlooked the needto cancel the second bond wasirresistible. In the absence of anexplanation, the inevitableconclusion to be drawn was thatwhoever acted for the secondrespondent to obtain cancellationof Standard Bank’s bonds over theproperty, did so negligently. Thepotential of harm caused by adelay in the event of theapplication for cancellation beingdefective was obvious. A cursoryexamination of the copy of thedeed of transfer in the secondrespondent’s possession wouldhave shown that it was necessaryto cancel two mortgage bondsregistered over the property. Aconveyancer should fastidiouslyexamine all relevant documents,and this was clearly not done bythe second respondent. Thestandard of care it exercised fellwell short of what is expected of areasonable conveyancer.

The failure to conform to agreedpractices in the singing of theaffidavit neceesary to obtaincertified copies was also evidenceof negligence. The rejection of thetransfer in the Deeds Office as aresult of this emanated fromnegligence on the part of thesecond respondent.

The claim succeeded.

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NEDBANK LTD v COOPER N.O.

A JUDGMENT BY VAN ZYL JFREE STATE HIGH COURT13 MARCH 2013

2013 (4) SA 353 (FB)

Security ceded in securitatemdebiti is an asset in an insolventestate even if the security has beenrealised prior to the date on whichthe insolvent was provisionallyliquidated.

THE FACTSNedbank Ltd advanced loans to

Marlim Group (Pty) Ltd, and tooksecurity in the form of two deedsof pledge and cession of two lifepolicies.

On 9 January 2009 Nedbankcalled up Marlim’s bankingfacilities and informed it that thesecurity it held would be realisedand applied in reducing itsindebtedness. On 27 January 2009Marlim owed Nedbank R2 129592,04.

On 30 January 2009 Nedbanksurrendered the first and secondMomentum policies andrequested payment of the policyproceeds from the insurer. On 4February 2009 AIM Group (Pty)Ltd applied for the winding-up ofMarlim.

Prior to Marlim being placedunder provisional winding-up,Nedbank received payment of R1387 512,00 and R525 006,00 fromthe insurer. On 26 February 2009Marlim was placed underprovisional winding-up. On 11March 2009 Nedbank receivedpayment of the further amounts ofR3 519,34 and R1 331,65 from theinsurer.

Nedbank submitted claims in theinsolvent estate of Marlim for R5023 743,17 plus interest, being thebalance outstanding on a termloan granted to Marlim, and R3599 132,61 plus interest, being thebalance outstanding on Marlim’sNedbond loan.

When Cooper and the otherliquidator drew the liquidationand distribution account, theylevied a fee of 1% on the amountsreceived from the insurer prior to26 February 2009 and a fee of 3%on the amounts received after thatdate. The account stated theeffective date of liquidation was 4February 2009.

Nedbank contended that theliquidators were not entitled to

levy a fee on either amountbecause the policies weresurrendered on 30 January 2009,before the deemed winding up ofMarlim on 4 February 2009, andtherefore did not vest in theinsolvent estate. The liquidatorscontended that as section 348 ofthe Companies Act (no 61 of 1973)provides that the winding-up of acompany by the court is deemedto commence at the time theapplication for the winding-up,this being 4 February 2009, andthe payments were made afterthat date, the liquidation anddistribution account was to bedrawn up as at that date, with theresult that the fee was applicable.

THE DECISIONThe surrender of a policy always

creates a potential asset in aninsolvent estate because moremoney may be realised than whatis owed to the creditor. If not,there would be no basis for aliquidator or a trustee of aninsolvent estate to claim thebalance back from the saidcreditor. Where the proceeds ofthe policies have not yet been paidout on the deemed date, theirsurrender values still form anasset in the insolvent estate. Whenthe insurer paid the proceeds toNedbank, the effect of this wasthat it operated in favour ofMarlim in that it reducedMarlim’s liability towardsNedbank.

When a cession in securitatemdebiti is made, a personal right ispledged, and the pledgor retainsthe dominium of the right. Thepledgor transfers only the powerto realise the right to the pledge.Accordingly, the right falls intohis estate upon his insolvency. Itfollowed that even if thesurrender took place prior toMarlim having been placed inprovisional liquidation, Marlim

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retained its ownership of thepolicies and these therefore fellinto the insolvent estate.

The liquidators were thereforeentitled to levy the fee on the

amounts paid by the insurer.The liquidation and distribution

account was properly drawn up asat the date of application for thewinding-up of Marlim, ie 4February 2009.

Insolvency

Mr Steyn, on the other hand, pointed out that given the established legalposition that the reversionary interest (the dominium) remains with thecedent, it is common cause that, if the money that the policies were worth werein excess of the debt owed to the applicant, the excess would have had to bepaid back to the cedent, based on his reversionary interest. Using thisestablished principle as a basis, Mr Steyn submitted that the surrendering of apolicy always creates a potential asset in an insolvent estate, in that moremoney may be realised than what is owed to the creditor. If not, there would beno basis for a liquidator or a trustee of an insolvent estate to claim the balanceback from the said creditor. He submitted that, should Mr Rood’s argument beaccepted, it would have the result that the policies, which policies were givenas a cession in securitatem debiti, become an out-and-out cession because of thesurrendering thereof, which cannot be correct. Mr Steyn therefore submittedthat, where the proceeds of the policies had not yet been paid out onthe deemed date, their surrender values still formed an asset in the insolventestate. He also pointed out that it should be remembered that, whenMomentum was to pay the proceeds to the applicant, it would still have beenutilised in favour of Marlim to reduce Marlim’s liability towards theapplicant. I have to agree with the submissions by Mr Steyn. It is evident that by meansof a cession in securitatem debiti a personal right is pledged, that the pledgorretains the dominium of the right, that he transfers only the power to realisethe right to the pledge, and accordingly that the right falls into his estate uponhis insolvency.

127

TOTAL AUCTIONEERING SERVICES AND SALES CC vNORFOLK FREIGHTWAYS CC

JUDGMENT BY WILLIS J (HORNJ AND BASHALL AJ concurring)SOUTH GAUTENG HIGHCOURT30 OCTOBER 2012

2012 SACLR 521 (GSP)

In an application for provisionalliquidation, if the applicant hasmade out a prima facie caseagainst the respondent and therespondent fails to show anyreason why the debt alleged to bedue from it should not be paid, theapplication should succeed.

THE FACTSTotal Auctioneering Services and

Sales CC conducted an auctionsale which was attended by a MrN Lallbehadu representingNorfolk Freightways CC. Norfolkpurchased certain equipment atthe auction.

In terms of the agreementbetween the parties, Norfolkbecame obliged to paycommissions on the sales. Thetotal of commissions following thesales was R842 311.80.

The sales were subsequentlycancelled. Total claimed paymentof R842 311.80 and brought anapplication for the liquidation ofNorfolk based on this debt interms of section 68(c), read withsection 69(1)(c), alternativelysection 68(d) of the CloseCorporations Act (no 69 of 1984).

In opposing the application,Lallbehadu gave no reason whythe debt should not be paid butdenied that the money was due toTotal.

The application failed. Totalappealed.

THE DECISIONIn liquidation proceedings, if the

applicant has prima facieestablished its case that therespondent is unable to pay itsdebt to the applicant, the onus ison the respondent to show thatthis debt is disputed on bona fide,reasonable grounds. In Kalil vDecotex 1988 (1) SA 943 (AD) itwas also stated that where there isa prima facie case (ie a balance ofprobabilities) in favour of theapplicant, a provisional order ofwinding-up should normally begranted.

These principles were applied inthe case of Hannover GroupReinsurance (Pty) Ltd v Gungudoo[2011] 1 All SA 549 (GSJ). Anappeal against that judgmenthaving been dismissed by theSupreme Court of Appeal, itsprinciples could be appropriatelyapplied to the present case.Applying them, it could beaccepted that a proper case wasclearly established for aprovisional order of liquidation ofNorfolk.

The appeal was upheld.

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NORTH EAST FINANCE (PTY) LTD v STANDARD BANKOF SOUTH AFRICA LTD

A JUDGMENT BY LEWIS JA(PONNAN JA, SHONGWE JA,SALDULKER JA and ZONDI AJAconcurring)SUPREME COURT OF APPEAL29 MAY 2013

2013 (5) SA 1 (SCA)

An agreement which contains aprovision that any disputesbetween the parties are to besubject to arbitration must beinterpreted within its context.Such an interpretation may resultin it being found that the partiesdid not intend that a disputebased on the allegation that oneof the parties was fraudulent mustbe submitted to arbitration.

THE FACTSNorth East Finance (Pty) Ltd

financed the acquisition of goodsby concluding rental agreementswith end users. It discounted thedebts owed to it with the StandardBank of South Africa Ltd in termsof an agreement of cession. Thebusiness between them began in1999. In terms of the cession NorthEast ceded its rights under variousrental agreements to the bank, andagreed to offer contracts to thebank from time to time. The bankwas entitled to accept such offersin its absolute discretion.

In September 2008, followingnegotiations and meetings toresolve disputes which had arisen,the parties entered into asettlement agreement. Clause 19.1provided: ‘In the event of anydispute of whatsoever naturearising between the parties(including any question as to theenforceability of this contract butexcluding the failure to pay anyamount due unless the defaultingparty has, prior to the due date forsuch payment, by notice inwriting to the other partydisputed liability for suchpayment), such dispute will bereferred to arbitration.’

In the two years following thesettlement agreement, the bankreached the conclusion that thesettlement agreement had beeninduced by fraudulentmisrepresentations and non-disclosures. Its officials assertedthat they had discovered thatprocedures had been flouted byNorth East, transactions had beendisguised, funds embezzled andother serious breaches of thefiduciary duty owed by NorthEast to the bank had occurred.

They concluded that theseirregularities must have beenknown to North East at the timewhen the settlement agreementwas concluded, and that bydeliberately failing to makedisclosure of all the irregularities,North East induced the bank toconclude the contract.

The bank decided to resile fromthe agreement and to regard it asvoid ab initio. It refused to submitthe question as to whether therehad been fraud inducing thecontract to arbitration. North Eastcontended that the dispute had tobe submitted to arbitration asprovided for in clause 19.1.

THE DECISIONIn interpreting the settlement

agreement, it was necessary forthe court to look at it as a whole,and its purpose. That was to bedone by looking at the context inwhich it was concluded.

The parties had had a protracteddispute about the collection ofdebts and the amounts owed toeach other respectively. The sumsran into millions of rand. Thepurpose of the settlementagreement was to resolveaccounting issues: at the time thebank was oblivious to themalpractices it claimed wereperpetrated by North East.

In the light of the purpose of thesettlement agreement, and havingregard to what the partiesenvisaged at the time ofconcluding the agreement, it wasnot intended that the validity orenforceability of the contractinduced by fraudulentmisrepresentations and non-disclosures would be subject toarbitration.

Contract

129

PAGE AUTOMATION (PTY) LTD v PROFUSAPROPERTIES CC

A JUDGMENT BY HEATONNICHOLLS JSOUTH GAUTENG HIGHCOURT26 OCTOBER 2012

2013 (4) SA 37 (GSJ)

It is possible to infer that transferof ownership of a corporeal takesplace upon conclusion of a cessionagreement in circumstances wherethe thing transferred remained inthe possession of a third partyboth before and after the cession.

THE FACTSOn 15 October 2008 Profusa

Properties CC entered into a five-year rental agreement with OEPFinancial Services (Pty) Ltd for thehire of three PABX systemssupplied by Page Automation(Pty) Ltd. On 10 January 2010, as aresult of Profusa defaulting on itsrental obligations, OEP ceded itsright, title and interest to therental agreement to PageAutomation.

Page Automation then broughtan action against Profusa for (i)payment of arrear rentals, (ii)escalated future rentals until 15October 2013, as provided for inthe rental agreement, (iii) deliveryof the equipment.

Profusa defended the action onthe grounds that (i) Page had noright to claim for any rentals afterthe date of the cession as theagreement of cession did notprovide for the cession of futurerentals, and (ii) becauseownership cannot be ceded,ownership still vested in OEPrather than Page Automationwhich therefore had no locusstandi to claim delivery of theequipment.

THE DECISIONAs far as the second defence was

concerned, the situation was thatthe owner (OEP) and thepossessor (Profusa) had enteredinto an agreement whichpermitted the owner to cedeownership. The question thatarose was whether once the ownerentered into the agreement ofcession with a Page Automationto cede ownership of the goods,constructive delivery took placeby way of attornment (the existingpossessor then possessing foranother party). There was no

tripartite agreement, Profusa nothaving agreed to hold on behalf ofPage Automation. However,Profusa had agreed that theowner, OEP, could cede theagreement to whomsoever itwished. The question then arosewhether the requirements ofattornment had been met, orwhether an adaptation of the legalprinciples relating to cession hadto be made in order to give effectto the intention of the cedent andthe cessionary.

It was necessary that the law ofcession should be developed toaccommodate cession ofownership or cession of the rightof vindication. In this matter OEPceded all its rights in terms of therental agreement, includingownership, to Page Automation.Accordingly, delivery and transferof ownership of the equipmenttook place when OEP ceded itsrights to and in the agreement toPage Automation on 10 January2010. The claim for delivery of theequipment therefore had tosucceed.

As far as the first defence wasconcerned, the cession expresslystated that the right, title andinterest in and to OEP’s claimagainst Profusa in terms of theagreement were ceded. The latterphrase could not be ignored: ‘theclaim’ could not be divorced fromthe rental agreement, as the claimwas specifically stated to be interms of the agreement. The rentalagreement made provision for aclaim for future rentals. Tointerpret the cession otherwisewould be unnecessarily restrictiveand would attribute a meaningthat neither the cedent nor thecessionary intended. The claim forfuture rentals therefore had tosucceed.

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BEAUX LANE SA PROPERTIES (PTY) LIMITED vTRESSO TRADING 193 (PTY) LTD

A JUDGMENT BY WILLIS JSOUTH GAUTENG HIGHCOURT25 OCTOBER 2012

2012 SACLR 554 (GSP)

Contemporaneous notes taken atnegotiations conducted betweenparties constitutes evidence ofany agreement alleged to haveresulted from such negotiations.The subsequent actions of partiesto such negotiations alsoconstitutes evidence of theconclusion of an agreementbetween them.

THE FACTSBeaux Lane SA Properties (Pty)

Limited and Tresso Trading 193(Pty) Ltd entered into negotiationsfor the conclusion of a lease inrespect of certain businesspremises at a shopping mall.Tresso wished to conclude thelease as tenant because theprevious tenant had been placedunder provisional liquidation andowed it some R1m. Tresso wishedto recoup its impending losses bybuying up all stock from theliquidators and trading out of thedifficulty. Tresso wished to tradefrom the premises.

The parties agreed that Tressowould rent the premises until theend of March 2008 at a rate ofR2000 a day. After the meeting atwhich the terms were agreed,Beaux Lane sent a fax to Tressosummarising the terms of lease asrecorded in contemporaneousnotes taken by a representative ofBeaux Lane at the parties’negotiations. These included aterm that from 1 April 2008,Tresso would pay a rent of R2000-00 per day exclusive of VAT.Tresso did not counter-sign thefax.

Tresso paid Beaux Lane R82 080on 27 March 2008 and made nofurther payments. On 5 May 2008,Beaux Lane discovered that Tressohad vacated the premises. It hadvacated the premises in earlyApril 2008.

Beaux Lane brought an action forunpaid rental.

THE DECISIONGiven the fact that there was no

reason to doubt that the notestaken at the negotiations werecontemporaneous and reflectedwhat must have been understoodby Beaux Land, terms ofagreement were those set out inthe fax later sent to Tresso. It wassignificant that Tresso did notrespond to this fax querying it, orsome of its detail.

It was also significant that theparties needed reasonableflexibility as to the arrangementbecause it was dependent on anumber of contingencies, whichcould not be determined at thetime. The very uncertaintiesinherent in the situation favouredBeaux Lane’s version more thanTresso’s. If the agreement hadbeen from 1 to 31 March only, thequestion arose why Tresso paidBeaux Lane an amount in excessof the amount that would bepayable for 31 days only at therate of R2000 per day.Furthermore, Tresso’s plea andaffidavit resisting summaryjudgment set the date ofcommencement of the lease at 25February and not 1 March. OnTresso’s own version, it did notvacate the premises on 31 Marchbut did so some time after that.The discrepancy as between theevidence of the witnesses for eachparty did not undermine thecredibility of Beaux Lane’switnesses nor the probability thata fixed term agreement ending on31 March 2008 had not beenagreed between the parties.Whether or not notice could begiven during the month of Marchdid not affect the outcome.

The action succeeded.

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OMM DESIGN WORKSHOP CC v SEGAL

A JUDGMENT BY GORVEN JKWAZULU NATAL HIGHCOURT, PIETERMARITZBURG29 NOVEMBER 2012

2012 SACLR 540 (KZP)

An arbitrator does not exceed hispowers as envisaged insection 33(1)(b) of the ArbitrationAct (no 42 of 1965) merely becausehe allows the addition of otherclaims to a claim brought by oneof the parties to the arbitration.The addition of other claims ispossible by amendment in termsof Rule 17 of the Rules forArbitrations.

THE FACTSOMM Design Workshop CC

concluded an agreement to supplyarchitectural services to DiamondIgoda View (Pty) Ltd. In terms ofclause 11 of the agreement, anydispute between the parties was tobe submitted to mediation andthen arbitration.

Diamond disputed an accountrendered by OMM alleging thatthere had been no contractualbasis for an item stipulated in oneof its fee accounts and stated inthe sum of R54,493.92. The partiesthen agreed to proceed with theresolution of the dispute byarbitration and agreed on theappointment of Segal as arbitrator.The parties agreed on theexchange of the statement ofclaim, statement of defence andfurther pleadings.

Before the date set for thearbitration, Diamond gave noticethat other alleged breaches of theagreement had come to its notice,and that further claims wouldtherefore be added to thestatement of claim. OMM objectedto this on the ground that it didnot fall within the disputedeclared by Diamond. The matterwas argued, and the arbitratorpublished his interim award inwhich he gave Diamond leave toamend its statement of claim.

OMM brought an application foran order reviewing and settingaside the arbitrator’s interimaward. It alleged that Segal hadexceeded his powers and based itsapplication on section 33(1)(b) ofthe Arbitration Act (no 42 of 1965)which provides that a court mayreview and set aside an arbitrationaward if an arbitration tribunalhas committed any grossirregularity in the conduct of thearbitration proceedings or hasexceeded its powers.

OMM contended that theadditional claims were notmentioned in the dispute declaredby Diamond and it had not

consented to the expanding of thedeclared dispute by the inclusionof this claim.

THE DECISIONA the time the dispute was

declared, the ambit of the disputehad not been defined. This meantthat its precise ambit would bedetermined at a later date. Notime limit was set and neither wasit said that, after the statement ofclaim was delivered, no furtherdefinition could take place.

Segal had then defined the ambitof the dispute to include the newclaims. The amendment of thestatement of claim was the meansby which Diamond proposed tomore clearly define what is indispute. The Rules forArbitrations apply, and theproposed amendment wasallowed by Rule 17. There was seeno reason why the new claim didnot fall within the declareddispute since the ambit had beendefined by Diamond. This meantthat the arbitrator had the powerto consider and grant anamendment which would result inthe inclusion of the new claim.The arbitrator did not act beyondhis powers in allowing theamendment.

In any event, OMM’sinterpretation of clause 11 wasincorrect. It envisaged that ‘anydisagreement’ which arosebetween the parties provided thebasis for a party to declare adispute. Even though the clausereferred in the singular to adisagreement, there was no reasonto limit its application so as toexclude more than one disputebetween the parties. In the light ofthe grammar and syntax used, itwas not sensible or businesslike tointerpret the clause 11 to require aclear and precise formulation ofwhat is in dispute at the time adispute is declared to theexclusion of all other disputes notmentioned at the time.

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NULANDIS (PTY) LTD v MINISTER OF FINANCE

A JUDGMENT BY PILLAY JKWAZULU NATAL HIGHCOURT24 MAY 2013

2013 (5) SA 294 (KZP)

A court may declare void thedissolution of a company whichhas taken place because it failedto file its annual returns if such anorder would be just and equitablein the circumstances.

THE FACTS On 1 November 2007, Nulandis

(Pty) Ltd obtained judgmentagainst Greenacres ManagementServices (Pty) Ltd for R369 328,25.Greenacres applied for rescissionof judgment but was unsuccessful.On 28 September 2010 its appealwas dismissed. On 16 July 2010,Greenacres was de-registered forfailing to file its annual returns.

Nulandis then applied for anorder that Greenacres be restoredto the companies register in termsof section 83(4)(a) of theCompanies Act (no 71 of 2008).

Section 83(4) provides that at anytime after a company has beendissolved (a) the liquidator of thecompany, or other person with aninterest in the company, mayapply to a court for an orderdeclaring the dissolution to havebeen void, or any other order thatis just and equitable in thecircumstances, and (b) if the courtdeclares the dissolution to havebeen void, any proceedings maybe taken against the company asmight have been taken if thecompany had not been dissolved.

THE DECISIONSection 83(1) of the Act equates

de-registration with dissolution.Section 82(4) provides that if de-registration has taken place, anyinterested person may apply inthe prescribed manner and formto the Commission, to reinstatethe registration of the company. Itfollowed that it would beincorrect to hold that section83(4)(a) is reserved for voidingdissolution following a winding-up in terms of sections 82(1) and(2) and not deregistration ascontemplated in s 82(3) when acompany has failed to file itsannual returns. Such aninterpretation would leavecreditors without a remedyfollowing dissolution after anadministrative deregistration.

Companies

Leaving creditors without aremedy would have the B effectof denying them a right they hadunder the old Act.

Section 83(4) empowers a courtto declare the dissolution of acompany to be void. However, thediscretion to make any order thatis ‘just and equitable’ did not gofar enough to confer power on thecourt to order the reinstatement ofGreenacres on the register ofcompanies. That power remainedexclusively within the realm of theCommission.

Once the Commission is servedwith an order voiding dissolutionit is for the Commission todetermine whether theregistration should be reinstated.Any other interested person whoconsiders reinstatement ofregistration to be necessary mayapply under s 82(4) to theCommission to reinstate theregistration of Greenacres. In thepresent case, Nulandis held nointerest as to whether Greenacreswas reinstated. Its real interestwas in Greenacres’ assets. If theCommission required Greenacresto be reinstated then it couldexercise its discretion on how thatcould be accomplished andwhether the reinstatement wouldbe conditional or unconditional. Ifthe Commission did nothing,Nulandis should not be frustratedin pressing ahead with locating,attaching and executing againstGreenacres’ assets, subject topublic notices to other creditorsand persons interested in theassets attached.

The question remaining waswhether it was just and equitablethat Greenacres should bereinstated as a company. Theeffect of the dissolution andconsequent vesting of any ofGreenacres’ assets in the nationalTreasury was an injustice toNulandis as a creditor. Nulandisobtained a valid judgment by

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default but could not enforce it.Furthermore, Greenacrespersisted with the appeal evenafter it was de-registered and lostits legal status. Those proceedings

denied Nulandis the remediesavailable to it under the old Actand propelled it into the regime ofthe new Act.

Nulandis’ application wasgranted.

Companies

My interpretation is that s 83(4) empowers a court to declare the dissolution of acompany to be void. However, the discretion to make any order that is ‘just andequitable’ does not go far enough to confer power on the court to order thereinstatement of Greenacres on the register of companies. That power remainsexclusively within the realm of the Commission. Relying on s 158 to promote thepurpose of the new Act, as MrVan Rooyen proffers, does not assist creditors becausethe clarity of the text of s 82(4) bars any interpretation suggesting that the court hasthe power to reinstate registration.Once the Commission is served with an order voiding dissolution it falls upon theCommission to determine whether the registration should be reinstated. Any otherinterested person who considers reinstatement of registration to be necessary mayapply under s 82(4) to the Commission to reinstate the registration of Greenacres. AsI said above, Nulandis is disinterested as to whether Greenacres is reinstated; its realinterest is in Greenacres’ assets. If the Commission requires Greenacres to bereinstated then it could exercise its discretion on how that could be accomplished andwhether the reinstatement would be conditional or unconditional. If the Commissiondoes nothing, Nulandis should not be frustrated in pressing ahead with locating,attaching and executing against Greenacres’ assets, subject to public notices toother creditors and persons interested in the assets attached.

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RABINOWITZ v VAN GRAAN

JUDGMENT BY DU PLESSIS AJSOUTH GAUTENG HIGHCOURT26 APRIL 2013

2013 (5) SA 315 (GSJ)

It is possible for a third party tohold directors of a company liablein terms of section 77(3)(b) of theCompanies Act (no 71 of 2008) foracquiescing in or knowing aboutconduct that falls within theambit of section 22(1).

THE FACTSVan Graan and the other

defendants were directors of CoolIdeas (Pty) Ltd. Rabinowitzbrought an action against them inwhich she alleged that she hadconcluded a written land sale andbuilding contract with, Cool Ideas,that a dispute arose between herand Cool Ideas about certaindefects and workmanship to ahouse built on her property. Thedispute was referred to arbitrationresulting in an award for specificperformance and costs in favourof Rabinowitz. Cool Ideas and twoother companies commencedreview proceedings in respect ofthe arbitration award, and afterthis was dismissed, commencedappeal proceedings. Rabinowitzcommenced further arbitrationproceedings. The companiesresponded with a tender to payher R1,35m and costs. Rabinowitzaccepted the tender. The arbitratormade an award against thecompanies for the payment ofcertain sums, including theR1,35m, interest and costs. Theaward was made an order ofcourt.

Rabinowitz alleged that thecompanies traded in insolventcircumstances, took no steps toremedy the defectiveworkmanship, continued to tradeand incur debts and activelyopposed the arbitrationproceedings despite the absenceof a bona fide dispute. She allegedthat Cool Ideas and another entitycaused a mortgage bond to beregistered over the property at atime when their respectiveliabilities exceeded their assetsand tendered to pay the R1,35million plus costs incircumstances where they did nothave the ability to pay theamounts and a determination hadalready been made to place themin winding-up. She alleged thatthe companies caused the erection

of a gazebo and a pool on aportion of the property that wassubject to a servitude, of whichfact they were aware, that in orderto overcome certain problemswith the construction, thecompanies caused certainfraudulent documents to besubmitted to various entities, andthat two of the defendants,representing Cool Ideas andanother entity, made certain falserepresentations to her whichinduced her to accept transfer ofthe property into her nameRabinowitz alleged that therepresentations were made for thepurpose of securing payment ofthe purchase price from her whenthe defendants had no trueintention of causing thecompanies to remedy the defects.

Rabinowitz alleged that theconduct described constituted thecarrying on of the business of eachentity within the ambit of section22 of the Companies Act (no 71 of2008), that the defendants, asdirectors of the variouscompanies, were knowinglyparties to the conduct in respect ofthe entity of which such adefendant was a director. Inconsequence thereof, thedefendants, alternatively eachdefendant individually, was liableto her in terms of section 22 readwith section 218(2) of the Act.

The defendants excepted to theclaim on the grounds that adirector can only be liable in termsof the Act for the losses ordamages sustained by thecompany of which he was adirector. The proper plaintiffshould therefore be the companyitself or, when it is in liquidation,the liquidator thereof.

THE DECISIONA court has no discretion but to

declare a director acting in themanner contemplated in section77(3)(b) to be a delinquent

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director.Section 77(3)(b) provides that

director of a company is liable forany loss, damages or costssustained by the company as adirect or indirect consequence ofthe director having acquiesced inthe carrying on of the company’sbusiness despite knowing that itwas being conducted in a mannerprohibited by section 22(1).Section 22(1) provides that acompany must not carry on itsbusiness recklessly, with grossnegligence, with intent to defraudany person or for any fraudulentpurpose. Section 218(2) providesthat any person who contravenesany provision of the Act is liableto any other person for any loss ordamage suffered by that person asa result of that contravention.

The consequence of an order of

delinquency is that such a personis disqualified from being adirector of the company. In thesecircumstances the Act prohibitsdirectors from engaging inconduct as provided for in section22 thereof. These provisions showthat the legislature intended toinclude within its ambit a directorwho knowingly was a party toconduct specified in section 22 ofthe Act. Bearing in mind that theAct specifically contemplates thatthe business and affairs of acompany are to be managed by orunder the direction of its board,there was no conceivable basisupon which the legislatureintended to prevent a companyfrom acting in the mannerprovided for in section 22, but didnot intend to prevent the directorsresponsible for the managementof the company from acting in that

manner.It followed from this that a third

party can hold a directorpersonally liable in terms of theAct for acquiescing in or knowingabout conduct that falls within theambit of section 22(1).

It was clear from the particularsof claim that the directors werebeing held liable by Rabinowitzon the basis that they wereknowingly parties to the conductof the company in respect ofwhich they were directors. Thecausation between the conduct ofCool Ideas and the damagesclaimed by the plaintiff in respectthereof was also clear: Cool Ideaswas a party to all the actscomplained of and any damagesresulting therefrom could beclaimed from it and, byimplication, its directorspersonally.

The exception was dismissed.

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OAKDENE SQUARE PROPERTIES (PTY) LTD vFARM BOTHASFONTEIN (KYALAMI) (PTY) LTD

A JUDGMENT BY BRAND JA(CACHALIA JA, VAN DERMERWE AJA, ZONDI AJA andMEYER AJA concurring)SUPREME COURT OF APPEAL27 MAY 2013

2013 (4) SA 539 (SCA)

A court may exercise its discretionin a broad sense when determiningwhether or not an application forbusiness rescue should be acceptedin preference to the liquidation ofa company.

THE FACTSFarm Bothasfontein (Kyalami)

(Pty) Ltd owned fixed propertieson which was built the Kyalamiracetrack complex. Theshareholders of the company wereNedbank Ltd (30%), ImperialBank Ltd (30%) and the MJF Trust(40%).At a board meeting of thecompany held on 13 December2010, a resolution was passed interms of which all revenuestreams enjoyed by the MJF Trustor Motortainment (Kyalami) (Pty)Ltd, in terms of whatsoeveragreement, resolution, head lease,lease and/or leases are pledgedand ceded to Oakdene SquareProperties (Pty) Ltd.Motortainment was a companycontrolled by a certain MrTheodosiou and his brother whohad also been appointed astrustees of the M JF Trust in termsof a transaction which wasdisputed by the othershareholders of FarmBothasfontein. This dispute hadresulted in a number ofapplications and actions whichwere still pending. Theodosiourefused to produce the financialstatements of the company.Nedbank acquired the assets andliabilities of Imperial Bank, witheffect from 1 October 2010. It thenbecame entitled to repayment ofan amount of R31 247 099,together with interest, whichImperial had lent to FarmBothasfontein. Nedbank had lentthe company R28m in its ownright. Farm Bothasfontein wasunable to repay either loan as itsonly revenue stream was rentalfrom a lease over the propertywhich was not being paid.Nedbank brought foreclosureproceedings against the companyand took steps to have theproperties sold in execution.Oakdene brought an applicationfor the business rescue of the

company. It contended that abusiness rescue practitionerwould be able to realise a higherprice for the properties, whereas aliquidator at a sale in executionwould realise a lesser price.

THE DECISIONSection 131(4)(a)(iii) of the

Companies Act (no 71 of 2008)provides that a court may place acompany under supervision andcommence business rescueproceedings if it is just andequitable to do so for financialreasons, and there is a reasonableprospect of rescuing the company.It was common cause that,although the company appearedto be factually solvent in that thevalue of its assets, on the face of it,exceeded its debts, it was unableto satisfy the judgment debt infavour of Nedbank. This meantthat it was both commerciallyinsolvent and ‘financiallydistressed’ within the meaning ofsection 131(4)(a)(i). The questionhowever was whether or not therewas ‘a reasonable prospect ofrescuing the company’.

In determining this question, acourt must exercise its discretion.Its discretion need not beexercised in the strict sense of theword but may exercise a broaddiscretion, taking into accountwhether or not there is areasonable prospect of rescuingthe company. The answer to thisquestion is either Yes or No: thereis no middle option.

The court’s discretion cannotdepend on vague speculationregarding the prospects of thecompany. Its discretion must bebased on concrete and objectivelyascertainable details of the likelycosts of rendering the companyable to commence or resume itsbusiness, and the likelyavailability of the necessary cashresource in order to enable thecompany to meet its day-to-day

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expenditure, or concrete factualdetails of the source, nature andextent of the resources that arelikely to be available to thecompany, as well as the basis andterms on which such resourceswill be available.

Given the facts of the case, the

position taken by Nedbank andImperial could not be consideredunreasonable. This, together withthe uncertainty associated withthe proposals put up by Oakdene,pointed to the court exercising itsdiscretion against Oakdene’sapplication in this case.

Companies

My problem with the proposal that the business rescue practitioner, rather thanthe liquidator, should sell the property as a whole, is that it offers no more than analternative, informal kind of winding-up of the company, outside the liquidationprovisions of the 1973 Companies Act which had, incidentally, been preserved,for the time being, by item 9 of sch 5 of the 2008 Act. I do not believe, however,that this could have been the intention of creating business rescue as aninstitution. For instance, the mere savings on the costs of the winding-up processin accordance with the existing liquidation provisions could hardly justify theseparate institution of business rescue. A fortiori, I do not believe that businessrescue was intended to achieve a winding-up of a company to avoid theconsequences of liquidation proceedings, which is what the appellants apparentlyseek to achieve.