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[2021] ZAWCHC 99
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Moodliar N.O and Others v Lawson Tool Distributors (Pty) Ltd (7855/2016) [2021] ZAWCHC 99; 2022 (2) SA 220 (WCC) (7 May 2021)
REPORTABLE
IN
THE HIGH COURT OF SOUTH AFRICA
(WESTERN
CAPE DIVISION, CAPE TOWN)
Case
No: 7855/2016
In
the matter between:
SIVALUTCHMEE
MOODLIAR N.O.
1st Plaintiff
RYNETTE
PIETERS
N.O.
2nd Plaintiff
MLAMLI
BALISO N.O.
3rd Plaintiff
and
LAWSON
TOOL DISTRIBUTORS (PTY) LTD
Defendant
Coram:
Bozalek J
Heard:
28, 29 April & 3 May 2021
Delivered:
7 May 2021
JUDGMENT
BOZALEK
J
[1]
The
plaintiffs are the joint liquidators of Vusela Construction (Pty) Ltd
(‘Vusela’) which was placed into final liquidation
on 4
December 2013 after spending less than a month under business rescue.
[2]
In
this action they claim payment of the sum of R1 287 088.00 from the
defendant being the total sum of eight payments made by Vusela
to the
defendant in the six-month period preceding its liquidation.
[3]
The
plaintiff’s case is that such payments constituted voidable
preferences in terms of
sec 29
of the
Insolvency Act, 24 of 1936
as
read with sec 339 and 340 of the Companies Act, 61 of 1973.
[4]
The
defendant carries on the business of a supplier of building tools,
equipment and cement to the construction industry. It was
common
cause that Vusela was a long-time customer of the defendant, that it
enjoyed a credit facility with it and that the eight
payments in
question formed part of regular payments made by it on account. The
first of the disputed payments was made on 5 June
2013 and the last
on 9 October 2013, their amounts ranging from R42 108.60 to R514
694.19. This latter payment was made just less
than six months before
Vusela’s liquidation.
[5]
Section
26
of the
Insolvency Act provides
as follows:
‘
Voidable
Preferences
(1)
Every
disposition of his property made by a debtor not more than 6 months
before the sequestration of his estate or, if he is deceased
and his
estate is insolvent, before his death, which has had the effect
of preferring one of his creditors above another,
may be set aside by
the Court if immediately after the making of such disposition the
liabilities of the debtor exceeded the value
of his assets, unless
the person in whose favour the disposition was made proves that the
disposition was made in the ordinary
course of business and that it
was not intended thereby to prefer one creditor above another’.
[6]
It
follows that the plaintiff bears the onus of proving that there were
disposition/s by Vusela of its property made not more than
six months
before liquidation to the defendant, being one of Vusela’s
creditors. None of these requirements are disputed
by the defendant.
In addition, the plaintiffs must prove that the dispositions had the
effect of preferring the defendant above
Vusela’s other
creditors and that immediately after making such dispositions,
Vusela’s liabilities exceeded its assets.
[7]
In
its plea the defendant denied the latter allegation but admitted that
the effect of the disposition was to prefer it as a creditor
above
Vusela’s other creditors. It pleaded further that the
dispositions were made by Vusela in the ordinary course of business
and were not intended to prefer one creditor over another.
[8]
By
the conclusion of the evidence the defendant, although not formally
admitting that Vusela was hopelessly insolvent in the last
six months
of its existence, did not dispute the existence of this state of
affairs. Having regard to the evidence in this regard
it can be
safely accepted that after each of the disputed dispositions Vusela’s
liabilities exceeded its assets.
[9]
As
a result of these concessions and findings the onus shifted to the
defendant to prove, in accordance with its plea and in order
to
escape liability, that the dispositions were made by Vusela in the
ordinary course of business and were not intended to prefer
one
creditor over another.
The
evidence
[10]
The
plaintiffs led the evidence of a Mr Andrew Cawdry, a chartered
accountant. He analysed Vusela’s financial records with
particular reference to its solvency during the six-month period in
question and its record of payments to tis creditors over this
period. In his evidence Mr Cawdry pointed to several instances in the
six-month period where payments were made to the defendant
whilst no
payments were made to several creditors. In particular, SARS was owed
amounts of approximately R42.5mil for VAT, R7.6mil
for PAYE and
R800 000 for UIF and this indebtedness went back to a time well
before the six-month period. Thus while payments were
being made to
the defendant, SARS’ indebtedness was outstanding and, Mr
Cawdry testified, despite this no payments were made
in the six-month
period to SARS. Mr Cawdry also gave evidence as to Vusela’s
indebtedness to a number of creditors who eventually
proved claims at
the first and second meetings of creditors. In many instances the
indebtedness of these creditors increased over
the six-month period
and this while the defendant was paid regularly and in full. The
defendant did not prove a claim because it
was owed an amount of only
some R14 000.00 at liquidation.
[11]
Mr
Cawdry expressed the opinion that dispositions in question were not
made in the ordinary course of business because many of Vusela’s
other creditors remained unpaid during this period. The plaintiff’s
counsel disavowed reliance on his opinion, however, on
the basis that
the issue was a legal question.
[12]
The
defendant called two witnesses including its managing director, Mr M
Noordien. He testified that Vusela was a long-standing
customer whose
credit limit and payment terms had been set over the years the by the
defendant’s credit guarantor. These
terms required Vusela to
settle its indebtedness in full within 30 days of presentation by
defendant of a monthly statement. If
full payment was not timeously
made the defendant was required to suspend the account failing which
Vusela’s credit guarantee
was placed in jeopardy. The defendant
had faithfully complied with these terms over the years until
Vusela’s credit was suspended
by the defendant’s credit
guarantor temporarily on 13 August 2013.
[13]
The
guarantor suspended Vusela’s credit facility with the defendant
but reinstated it ten days later until 16 October when
Vusela’s
credit was again suspended but on this occasion, indefinitely. At
this stage Vusela’s outstanding debt balance
with the defendant
was only some R14 600.00.
[14]
Mr
Noordien’s evidence that neither he nor the defendant had any
special relationship with Vusela of its directors and that
the
account was not more than an everyday business relationship, was
unchallenged.
[15]
The
defendant also led the evidence of a chartered accountant, Mr Craig
Stieger, who analysed the financial records of Vusela’s
account
with the defendant in detail particularly as regards the pattern of
payments. He testified that the defendant had two accounts
in its
customer ledger for Vusela; one in respect of cement supplied to
Vusela and the other for a variety of building supplies
excluding
cement, eg tools, timber etc. Mr Stieger analysed the supplies
in respect of both accounts and found that there
was no specific
trend in the quantity of material supplied and assumed that materials
were ordered as and when they were required
for various building
projects.
[16]
In
respect of the dispositions made by Vusela, Mr Stieger found that its
payments were regular and consistent. Over the period from
31 August
2011 to 31 October 2013 payments of account balances on the cement
account had an average range of 26 days and on the
tool account an
average range of 32 days. These ranges increased within the
preference period but remained under 46 days. On the
only occasion
that one of the accounts had moved into a temporary credit balance on
3 May 2013 this had been due to a misallocation
of a payment and fell
outside the preference period.
[17]
In
short Mr Stieger found that Vusela’s account with the defendant
was well run and throughout showed a consistent pattern
of regular
timeous payments for materials sold and delivered.
[18]
Against
this background two issues fall to be decided; firstly, whether the
dispositions in question were made ‘
in
the ordinary course of business’
and secondly whether in making such dispositions Vusela intended to
prefer the defendant above another creditor/s. It is trite
that in
order to escape liability the defendant bears the onus of proving
these two requirements.
[19]
Dealing
with the first requirement, the principles applicable when
considering whether a disposition was made ‘
in
the ordinary course of business’
were conveniently drawn together and summarised in
Griffiths
v Janse Van Rensburg N.O.
[1]
:
‘
The
test is an objective one. The disposition should be evaluated in the
light of all relevant facts. This must be done on a case-by-case
basis. Put traditionally, the disposition –
“
must
be one which would not to the ordinary [person] appear anomalous or
unbusinesslike or surprising”.
The
question is whether ordinary, solvent businesspeople would, in
similar circumstances, themselves act as did the parties to the
transaction. Consideration should not be given to any intention to
prefer or to the fact that the party making the disposition
was
insolvent at the time since these are considered separately under
other parts of the section. The question to be answered is
whether
the transaction is one “with conventional terms which ordinary
businesspeople would normally have concluded under
the given
circumstances. In other words, the disposition in question should not
cause wrinkled noses or raised eyebrows among solvent
businesspeople
who know the circumstances in which it was made’.
[20]
In
the present matter the main contention on behalf of the plaintiffs
was that the making of regular payments to the defendant whilst
Vusela’s other creditors remained unpaid could not have been
payments made in the ordinary course of business. This approach
however is tantamount to wishing away Vusela’s state of
insolvency at the time or implying an intention to prefer on its
part
when these are questions which are prematurely raised.
[21]
To
my mind the enquiry is a somewhat narrower one viz whether in the
context of the business relationship between Vusela and the
defendant, the dispositions would appear anomalous or unbusinesslike
to the ordinary person of business.
[22]
The
terms of the credit facility which Vusela enjoyed with the defendant
were clear. It if wished to continue purchasing building
materials
from it, it had to settle its arrears outstanding within 30 days of
statement failing which its account would be suspended.
Vusela
purchased such supplies (which it presumably required to carry on its
own business as a major builder) and duly paid for
them on a regular
basis within the stipulated period. In these circumstances I can see
no basis for any finding that such dispositions
were made other than
in the ordinary course of business. Accordingly, I find that the
defendant has discharged the onus of proving
the first element of its
defence to the claim.
[23]
This
brings one to the heart of the matter which is whether the defendant
has succeeded in proving the second element necessary
for its defence
to succeed viz that in making the dispositions there was no intention
to prefer one creditor above another.
[24]
The
leading case dealing with this requirement is the majority judgment
by Zulman JA in
Cooper,
Brian St Clair and Janse Van Rensburg, Jakobus Hendrikus v Merchant
Trade Finance Limited
[2]
and which deserves quotation at some length. The learned judge
commences as follows:
‘
[4]
It is essential and indeed fundamental to any decision as to whether
there has been an intention to
prefer to examine and weigh up all of
the relevant facts which prevailed at the time that the disposition
was made in order to
determine what, on a balance of probabilities,
was the “dominant, operative or effectual intention in
substance and in truth”
of the debtor for making the decision.
[5]
In seeking to establish whether the requisite intention was present
in the debtor’s mind
at the time of making the disposition the
test is a subjective one. The Court is required to determine a
question of fact. As Lord
Greene MR, echoing the well-known language
of Bowen LJ in an earlier case, asserted:
“
A
state of mind is as much a fact as a state of digestion, and the
method of ascertaining it is by evidence and inference…’
[6]
The mere fact that the effect of the transaction is to prefer one
creditor above another
does not necessarily mean that there has been
a voidable preference. Obviously in every case where one creditor is
paid and other
are not there is a preference in favour of the
creditor who has been paid. …
[7]
It is not incumbent upon the party who bears the onus of proving an
absence of intention
to prefer to eliminate by evidence all possible
reasons for the making of the disposition other than an intention to
prefer. This
is so because the Court, in drawing inferences from the
proved facts, acts on a preponderance of probability. The inference
of
an intention to prefer is one which is, on a balance of
probabilities, the most probable, although not necessarily the only
inference
to be drawn… If the facts permit of more than one
inference, the Court must select the most ‘plausible’ or
probable
inference. If this favours the litigant on whom the onus
rests he is entitled to judgment. If on the other hand an
inference
in favour of both parties is equally possible, the litigant
will have not discharged the onus of proof. Viljoen JA put the
matter as follows in AA Onderlinge Assuransie-Assosiasie Beperk v De
Beer:-
“
Dit
is, na my oordeel, nie nodig dat ‘n eiser wat hom op
omstandigheidsgetuienis in ‘n siviele saak beroep, moet bewys
dat die afleiding wat hy die Hof vra om te maak die enigste redelike
afleiding moet wees nie. Hy sal die bewyslas wat op
hom rus
kwyt indien hy die Hof kan oortuig dat die afleiding wat hy voorstaan
die mees voor-die-hand liggende en aanvaarbare afleiding
is van ‘n
aantal moontlike afleidings.”
…
[8]
The mere fact that the person who made the disposition does not give
evidence does not ipso
facto mean that one must infer that there was
an intention to prefer. So for example in Gert de Jager (Edms)
Bpk v Jones,
N.O. en McHardy, N.O. the debtor did not give
evidence. This notwithstanding, Rumpff, JA nevertheless, after
remarking
that it was the debtor who knew best as to what his
intention was in regard to the disposition, still examined the
probabilities
in order to determine whether the inference of an
intention to prefer was justified in the particular circumstances of
the case.
Indeed, as Catherine Smith points out, a debtor who
has made a disposition to a creditor with the intention of preferring
him above
his other creditors is hardly likely to testify that he had
that intention.
…
[10]
In order to determine whether the debtor had the requisite intention
it is necessary to enquire whether the
debtor actually applied his
mind to the matter. If there was no application of mind by the
debtor to the question of whether
in fact he was conferring a
preference, it can hardly be said that he had an intention to do so.
There is no room for treating
as an intention to prefer “a
culpable or reckless disregard of the possibility that the
disposition might have the effect
of preferring one creditor above
another.” An actual intention is required -
not simply the fact that objectively
viewed the debtor ought to have
realised that a preference would occur if the disposition is made.
Due regard being
had to the party who bears the onus in English law,
the matter is well put by Tomlin LJ in Peat v Gresham Trust Limited
in these words:-
“
It
is contended on the appellant’s behalf that once given the
withdrawal and the consequences of the withdrawal, then in the
absence of any other explanation the intent to prefer must be
inferred, because a man is presumed to intend the natural
consequences
of his act. My Lords, I do not accept this
contention. In my opinion in these cases the onus is on those
who
claim to avoid the transaction to establish what the debtor
really intended, and that the real intention was to prefer. The
onus is only discharged when the court upon a review of all the
circumstances is satisfied that the dominant intent to prefer was
present. That may be a matter of direct evidence or of
inference, but where there is not direct evidence and there is room
for more than one explanation it is not enough to say there being no
direct evidence the intent to prefer must be inferred.”
[11]
Mere proof that the insolvent’s liabilities exceeded his assets
at the time the disposition was made does not raise
a presumption of
an intention that the debtor’s dominant motive in making the
disposition was to prefer. Whilst contemplation
of insolvency
or inevitable insolvency is generally speaking necessary before an
intention to prefer can be inferred it by no means
follows
axiomatically that the presence of such a state of mind, in itself,
proves such an intention since other factors may nevertheless
negate
such an inference. …
[12]
In accordance with general principles, if an inference of an innocent
motive as opposed to an improper one can be drawn,
this should be
done.
[13]
The question which the Court has to decide is not whether the debtor
should have known that the effect of the disposition made
would have
been to disturb the proper distribution of his assets but rather as a
fact that he intended it to have that effect.
As previously
stated if the debtor never applied his mind to the matter it again
can hardly be said that he had the requisite intention.
[14]
Any relationship between the insolvent and the creditor in addition
to that of debtor and creditor, for example where the creditor
is a
close family member or relative, is relevant to the existence or
non-existence of an intention to prefer.’
[25]
Applying
these principles to the present matter several features stand out.
Firstly, there was no direct evidence of the debtor’s
state of
mind or intention in making the dispositions. Secondly, the
dispositions which are sought to be set aside were regular
payments
on account over a four-month period, the last of which was made some
two months prior to liquidation. This was not an
instance of one or
two substantial payments falling outside of a regular pattern or made
on the very eve of liquidation.
[26]
There
was no evidence of any particular reason why Vusela would seek to
prefer the defendant above its other creditors. Indeed,
all the
evidence suggests that the relationship between the parties was
entirely at arm’s length. An important consideration
was the
nature of the parties’ respective businesses. It seems clear
that in order to conduct its business of building or
construction
Vusela needed the raw materials i.e. cement and building supplies, to
do so. Without these materials Vusela would
have stood no chance of
trading its way out of the difficulties in which it found itself.
[27]
As
stated in
Cooper
the fact that the debtor does not testify as to his/its intention in
making the dispositions does not mean that the Court can only
conclude that the dispositions were made with the intent to prefer.
Nor is it sufficient to make such a finding that the insolvent
Vusela
must, in the light of its parlous financial state, have contemplated
insolvency or even inevitable insolvency. As the dicta
in Cooper make
clear, any inference that an intention to prefer a particular
creditor existed may be negated since other factors
may negate such
an inference.
[28]
Once
such factor could well be the debtor’s belief that, equipped
with the necessary building supplies, it could trade his
way out of
its financial difficulties or at least gain a temporary respite from
some of its creditors.
[29]
No
reason or motive, other than as discussed above viz to keep its
business afloat for the time being, was suggested on behalf of
the
plaintiffs nor any reason why it would favour the defendant over any
other of its numerous creditors. In seeking to counter
the
defendant’s arguments regarding Vusela’s dominant
intention, the plaintiffs sought to rely on the distinction drawn
by
Griesel J between motive and intention in
Gore
and Others NNO v Shell South Africa (Pty) Ltd
.
In that case, on the very eve of liquidation, in fact two days before
the winding up process commenced, the insolvent, a long
distance
haulier, made a payment of a substantial sum to the respondent
arguably to obtain further supplies of diesel for its fleet
of trucks
without which its business would come to an immediate halt. In
seeking to defeat the setting aside of the payments on
the basis that
it was made with the intention to prefer one creditor over others, it
was contended that the dominant intention
was rather to keep the
company operative in the hope that it could restructure itself or
trade out of its predicament.
[30]
The
Court found that that argument failed to differentiate between
intention on the one hand and motive or reason on the other.
The
Court stated:
‘
The
purpose or motive of the company in making the payment to the
defendant on 17 February 2000 may have been to obtain further
supplies of diesel. This does not negative the immediate intention of
the company to prefer the defendant. It merely furnishes
the reason.
By analogy, the primary intention of the thief is to steal, while his
motive may be to feed his starving children’.
[31]
By
analogy in the present matter, plaintiffs’ counsel argued that
if Vusela’s reason for making the dispositions was
to secure
building supplies and to keep trading, this had to be distinguished
from its intent to prefer the defendant over other
creditors.
[32]
Whilst
a distinction between reason and intent might, in certain situations,
be a tool in determining whether a disposition was
made with the
intention to prefer, its utility should not be overvalued.
[33]
Firstly,
seen in the correct perspective the act which is accompanied by an
intent or intention in the strict sense, is that of
making the
disposition, usually in the form of a payment. That act is
accompanied or impelled by reasons, motive or intent and
where this
is predominantly to favour the particular creditor over another such
a disposition, all other statutory requirements
being met, is
voidable.
[34]
In
this sense seeking to make a distinction between intent on the one
hand and reasons or motive on the other hand is of limited
value, if
not potentially misleading. It is noteworthy in this regard that in
Cooper
Zulman JA uses the words intention and motive synonymously.
[35]
Secondly,
in a civil law context the distinctions between motive, intent and
underlying reasons are by no means always clear and
to a certain
extent exist in the eye of the beholder. Thirdly, making fine
distinctions between motive or underlying reasons or
intent runs the
risk of undermining the settled test of seeking the dominant,
operative or effectual intention and of concentrating
unduly on the
effect of the payment vis-à-vis other creditors rather than
the subjective intention of the payer.
[36]
In
the circumstances of the present matter it seems strained to relegate
to a secondary role what appears on the probabilities to
have been
Vusela’s primary concern, to continue trading as a builder, and
to view its dominant intent as being to favour
one of its suppliers
of building materials – with whom it had an entirely regular
customer/supplier relationship reaching
back many years. Having
regard to the evidence as a whole, and notwithstanding the lack of
direct evidence, it appears to me that
the defendant has succeeded in
proving that the most plausible inference is that Vusela’s
‘
dominant,
operative or effectual intention in substance or in truth’
for
making the eight dispositions was not to prefer the defendant over
other creditors but simply to obtain building supplies to
keep
Vusela’s business afloat and with some prospect of surviving
its financial activities.
[37]
In
the result the defendant has succeeded in establishing the second leg
of its defence to the plaintiffs’ claim viz that
the disputed
dispositions were not made with the intention to prefer it above any
other creditor.
[38]
For
these reasons the plaintiffs’ claim cannot succeed and is
dismissed with costs.
BOZALEK
J
For
the Plaintiff
:
Adv P Myburgh
et Adv G Samkanga
As
instructed by
ENS Africa
For
the Defendant
: Adv M
Verster
As
instructed by
Pienaar Attorneys
[1]
2016 (3) SA 389 (SCA).
[2]
2000 (3) SA 1009
(SCA).