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[2014] ZASCA 17
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Express Model Trading 289 CC v Dolphin Ridge Body Corporate (656/2013) [2014] ZASCA 17; [2014] 2 All SA 513 (SCA); 2015 (6) SA 224 (SCA) (26 March 2014)
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THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Case no: 656/2013
Reportable
In the matter between:
EXPRESS MODEL TRADING 289
CC
....................................................................
APPELLANT
and
DOLPHIN RIDGE BODY
CORPORATE
.............................................................
RESPONDENT
Neutral citation:
Express
Model Trading 289 CC v Dolphin Ridge Body Corporate
(656/13)
[2014] ZASCA 17
(26 March 2014)
Bench:
Ponnan,
Leach, Petse and Saldulker JJA and Mocumie AJA
Heard: 4 March 2014
Delivered: 26 March 2014
Summary
:
Lapsed appeal – refusal of condonation – winding-up of
close corporation – recurrent obligation - whether creditor
lost its
locus standi
in
consequence of payment of original debt by third party.
ORDER
On appeal from
:
Western Cape High Court, Cape Town
(Dolamo AJ sitting as court of first instance):
(a) The application for condonation is
dismissed with costs.
(b) The applicant for condonation is
ordered to pay the costs incurred by the
respondent in opposing the lapsed appeal.
(c) In both instances (a) and (b) the
costs shall include the costs of two counsel.
JUDGMENT
Ponnan JA (Leach,
Petse, Saldulker JJA and Mocumie AJA concurring):
[1] After the record had been filed in
this matter the appeal lapsed for failure on the part of the
appellant (now the applicant)
–
Express
Model Trading 289 CC (Express Model)
– to prosecute it
by timeously filing its heads of argument. The initial question that
is before us is whether the default
by Express Model should be
condoned and the appeal revived. Before turning to that question, it
is necessary to describe how the
appeal arose and the circumstances
in which it came to lapse.
[2] During February 2010
the respondent, the Dolphin Ridge Body Corporate (the body
corporate), a body corporate incorporated as
such in terms of
s 36
of
the
Sectional Titles Act 95 of 1986
for a residential sectional title
development north of Bloubergstrand known as Dolphin Ridge (Dolphin
Ridge), applied to the Western
Cape High Court for the winding-up of
Express Model. Express Model had been the developer of the
development and still owned several
units in Dolphin Ridge. In
support of that application, Mr Larry Smulowitz, the chairperson of
the body corporate, stated:
‘
8.
In terms of
Section 37(1)
of the
Sectional Titles Act, the
Respondent
is liable for payment of monthly levies in respect of the
aforementioned Sections owned by Respondent and it’s
undivided
share in the common property apportioned to that Section in terms of
Section 32
of the
Sectional Titles Act.
9.
The
Respondent has, for a number of years, failed to make payment of
levies upon the aforesaid basis when it became due and payable.
This
problem was compounded by the fact that Respondent, from the date of
Applicant’s inception, effectively succeeded in
controlling the
election of trustees and consequent actions by the trustees. In this
instance, the Respondent’s member, Mr
Saliem Mohammed Hassan
and persons nominated and elected by him (as a representative of
Respondent and other entities controlled
by Mr Hassan) effectively
controlled the actions of the Body Corporate in their capacity as
trustees.
10.
The Respondent’s voting rights as aforesaid was annually
secured by making payment of arrear levies before or at the Annual
General Meeting. Due to the substantial amount of such levies (based
on Respondent’s ownership) such actions were obviously
severely
prejudicial to Applicant’s financial management.
11.
At Applicant’s most recent Annual General Meeting held on 18
November 2009, Respondent again made payment of arrear levies
in
securing its voting rights. At this meeting the balance of the
Applicant’s property owners however secured a majority
vote by
mobilising members and conducting trustee elections on the applicable
participation quota as provided for in
Section 32
of the
Sectional
Titles Act. None of Respondent
’s or Mr Hassan’s nominees
or were elected as trustees.
12.
The Respondent has failed to make payment of any levies subsequent to
the payment referred to hereinabove. Consequently and
on 23 December
2009, the Applicant, through its attorneys of record, caused to be
served a formal letter of demand to Respondent
for payment of arrear
levies as at December 2009. Such Letter of Demand was addressed to
Respondent at its registered office and
transmitted by registered
post. This correspondence also serves as a formal notice in terms of
Section 69(1)
of the [Close Corporations] Act . . .
13.
Updated statements as at February 2010, supported by a detailed
summary reflecting the current outstanding balance as R137,634.92,
is
annexed hereto . . .
APPLICABILITY
OF SECTION 68 AND 69 OF THE CLOSE CORPORATIONS ACT
14.
It is accordingly submitted that the Respondent falls to be wound-up
by virtue of the provisions of Section 69 of the Act, in
that the
Respondent has neglected for 21 (twenty one) days after proper demand
was served upon it at its registered office, to
pay the outstanding
sum or to secure or compound the sum to Applicant's reasonable
satisfaction.
15.
In addition to the aforesaid it has most recently come to Applicant’s
knowledge that in addition to the basis stated hereinabove,
good
cause exists to justify an inference that Respondent is unable to pay
its debts. These are the following:
15.1
During a telephone conversation between Applicant’s attorney of
record and Mr Michael Jennings the attorney of record
for Respondent,
it was confirmed that Respondent is, in addition to its indebtedness
to Applicant, involved in formal legal proceedings
in terms whereof
the Respondent has incurred substantial financial obligations through
an order of court and that Respondent is
unable and unwilling to meet
such obligations. . . .’
In a confirmatory
affidavit, Richard Dixon, the body corporate’s attorney of
record, stated:
‘
5.
I was telephonically contacted by Mr Michael Jennings Attorney
(acting on behalf of Respondent) on 17 February 2010. During the
conversation Mr Jennings confirmed Respondent’s receipt of
Applicant’s Notice in terms of Section 69 of the Close
Corporations Act.
6.
It was further confirmed that Respondent was currently involved in
High Court litigation in respect of an Order granted against
Respondent during 2009 in terms whereof Respondent will, in
compliance with such order incur substantial financial obligations.
Respondent is unable or unwilling to do so at this stage.
7.
It was also confirmed that the Respondent is, at this stage, indebted
to the City of Cape Town in a substantial sum which it
is neither in
a position to pay.
8.
Despite my confirmation that Applicant intends to proceed in the
current manner, payment or an undertaking to pay was not
forthcoming.’
[3] The response that those
allegations elicited from Mr Mohammed Hassan, the sole member and
controlling mind of Express Model,
was:
‘
11.2
Applicant has instituted these proceedings against Respondent and has
a liquidated claim as set out in its papers. Respondent
avers that
the amount is not due and payable as Respondent has a
bona
fide
defence to and a Counterclaim against Applicant’s claim.
Respondent will aver that Applicant has failed to perform its duties
and responsibilities in accordance with the
Sectional
Titles Act
95 of 1986
and as a result of this failure Respondent shall assert
that it is not liable for these levies;
11.3
Respondent is able to pay its debts in the ordinary course of
business;
11.4
Respondent is able to provide a guarantee for the due payment of any
obligations which this Honourable Court may find is due
and payable
to Applicant by Respondent;
11.5
Respondent has sufficient assets which it could liquidate, if
necessary, to satisfy any indebtedness to Applicant, which process
would not leave Respondent unable to continue operating profitably.
11.6
Respondent’s Assets are sufficient to cover all of its
liabilities, whether to Applicant or any other creditor.
11.7
Applicant’s letter in accordance with
s 69(1)
of the
Close
Corporations Act 60 of 1984
. . . is incorrect and fatally flawed.
.
. .
24.
Respondent however denies that its late payment of levies in any
manner prejudiced Applicant’s financial management, and
Respondent avers that Applicant has at all times had funds in its
account for due performance of its duties.
.
. .
31.
Accordingly I deny that the amount of R 77 156,00 was due and
payable at the time Applicant sent out the material letter.
In fact
at most, and in accordance with Applicant’s statements,
Respondent would have been in arrears for one month at this
time,
subject to its defence and Counterclaim, which alleged arrears would
have been in the amount of R 40 878,00 at the time.’
Significantly,
Mr Hassan did not dispute that all of the levies had not been
timeously paid or that some of it was in arrears as
alleged. In fact
Mr Hassan admitted that R40 878 was then due and payable. Nor,
was it disputed that the body corporate’s
demand in terms of
s
69(1)(
a
)
of the
Close Corporations Act 69 of 1984
had been served on Express
Model’s registered address and that no part of the outstanding
amount claimed had been secured
or compounded to the satisfaction of
the former. Mr Dixon’s affidavit did not elicit a response from
Mr Jennings.
[4] The issues raised
by Mr Hassan were dealt with in a detailed replying affidavit deposed
to by Mr Smulowitz. It was pointed out
in that reply,
inter
alia
, that Express Model was a purely
property holding enterprise with no other income aside from the
rentals it received from some
of the units that were let to tenants;
and that in any event its rental income was insufficient to cover the
monthly mortgage bond
payments, levies, municipal rates and taxes and
other expenses attributable to that enterprise. It was also pointed
out that Express
Model’s assets, which Mr Hassan had somewhat
laconically asserted were worth R55 million, were not readily
realisable. It
was further asserted that Express Model’s
indebtedness to the body corporate had in the meantime increased to
R413 671.84.
The body corporate moreover complained that because
Express Model’s monthly levy obligations to it comprised some
38 per
cent of the total levy obligation for Dolphin Ridge, the
former’s refusal to pay the levies impacted substantially on
the
body corporate’s ability to properly maintain Dolphin
Ridge.
[5] The matter came
before Fortuin J, who on 31 August 2010 ordered that Express Model be
placed under a provisional order of winding-up
returnable on 6
October 2010. On 1 October 2010 the sum of R337 390.12 being the
arrear levies was paid by an undisclosed
third party to the
provisional liquidator, Mr Christian Bester. The matter was
thereafter postponed on several occasions at the
behest of Express
Model. It was agreed between the parties that in the interim
additional affidavits would be filed by them and
that in view of the
payment of the arrear levies that had been made by an undisclosed
third party, Mr Bester would file a preliminary
report on the
financial position of Express Model with the court.
[6] The matter
ultimately served before Dolamo AJ, who, on 22 February 2012, placed
Express Model under a final order of winding-up.
On 15 August 2012
the learned judge dismissed with costs an application by Model
Express for leave to appeal against that order.
However, on 27
November 2012 and pursuant to a petition addressed to this court,
Bosielo et Tshiqi JJA granted leave to Express
Model to appeal to
this court against the order of Dolamo AJ. In respect of costs, the
order granting leave to appeal stated: ‘The
costs order of the
court a quo in dismissing the application for leave to appeal is set
aside’. Counsel were agreed, however,
that it should in
addition also have read: ‘The costs of the application for
leave to appeal in this court are costs in the
appeal. If the
applicant does not proceed with the appeal, the applicant is to pay
these costs’ - that being the usual order
that issues by this
court in an instance such as this. It follows that the order granting
leave to appeal to this court should
accordingly be amended by the
incorporation of the latter order.
[7] Pursuant to the grant of leave to
appeal, the record of appeal was filed with the registrar of this
court on 9
May 2013 and in terms of SCA
rule 10(1)(
a
)
Express Model had six weeks (namely until 20 June 2013) within which
to file its heads of argument. However, it only came to file
its
heads of argument on 16 August 2013. SCA
rule 10(2A)(
a
) of
this court makes it plain that ‘[i]f the appellant fails to
lodge heads of argument within the prescribed period or within
the
extended period, the appeal shall lapse’. Express Model
accordingly sought condonation for its failure to timeously file
its
heads of argument with the registrar of this court. That application
was opposed by the body corporate.
[8] As it was recently put in
Dengetenge
Holdings (Pty) Ltd v Southern Sphere Mining and Development Company
Limited
[2013] 2 All SA 251
(SCA):
‘
[11]
Factors which usually weigh with this court in considering an
application for condonation include the degree of non-compliance,
the
explanation therefor, the importance of the case, a respondent’s
interest in the finality of the judgment of the court
below, the
convenience of this Court and the avoidance of unnecessary delay in
the administration of justice (
per
Holmes JA in
Federated
Employers Fire & General
Insurance Company
Limited and another v McKenzie
1969
(3) SA 360
(A) at 362F-G). . .
[12]
In
Uitenhage Transitional Local Council v South African Revenue
Service
2004 (1) SA 292
(SCA) at paragraph 6 this Court stated:
“
One
would have hoped that the many admonitions concerning what is
required of an applicant in a condonation application would be
trite
knowledge among practitioners who are entrusted with the preparation
of appeals to this Court: condonation is not to be had
merely for the
asking; a full, detailed and accurate account of the causes of the
delay and their effects must be furnished so
as to enable the Court
to understand clearly the reasons and to assess the responsibility.
It must be obvious that, if the non-compliance
is time-related then
the date, duration and extent of any obstacle on which reliance is
placed must be spelled out.”
[13]
What calls for some acceptable explanation is not only the delay in
the filing of the heads of argument, but also the delay
in seeking
condonation. An appellant should, whenever it realises that it has
not complied with a rule of court, apply for condonation
without
delay (
Commissioner
for Inland Revenue v Burger
1956
(4) SA 446
(A) at 449G-H).’
[9] I shall assume in Express Holding’s
favour that the matter is of substantial importance to it. I also
accept that there
has been no or minimal inconvenience to this court.
In respect of the remaining factors, however, it is difficult to be
as charitable
to it. Mr Barry Michael Jones, Express Holding’s
Bloemfontein attorney, who deposed to the affidavit in support of the
application
for condonation stated:
‘
10.
During
or about
May 2013
,
Adv Paul Zietsman SC in BLOEMFONTEIN was approached in order to
ascertain as to his availability to argue the appeal on behalf
of the
Applicant / Appellant. He agreed to represent the Applicant /
Appellant. Further arrangements were made by the member of
the
Applicant / Appellant in order to secure the necessary funding.
However, the date on which the heads of argument were to be
filed by,
was not initially mentioned to Adv Paul Zietsman SC.
11.
After
receiving instructions from Messrs Michael Jennings Attorneys, I
formally proceeded to brief Adv Paul Zietsman SC as well
as Adv
Stelios Tsangarakis during the month of
June 2012
from the
Bloemfontein Bar to attend to the drafting of the heads of arguments
on behalf of the Applicant / Appellant.
12.
I
did not realise however, that Adv. Paul Zietsman SC was called upon
to act as an Acting Judge of the High Court in the Free State,
BLOEMFONTEIN for the month of
June 2013
, and that he was
therefor unable to compile the said heads of arguments before the
20
th
June 2013
.
13.
Furthermore,
Adv. Stelios Tsangarakis indicated to Michael Jennings and I that he
was involved in an arbitration matter before retired
Justice
van
Dijkhorst
for the
first three weeks in
July
2012
in PRETORIA.
Consequently this matter would not enjoy his attention as he was
involved in preparation for such arbitration.’
[10] But as Mr Herman Anton Botes, the
body corporate’s attorney, who deposed to the answering
affidavit in opposition to
the application for condonation, was quick
to point out, Express Model had failed on an earlier occasion to
comply with the rules
of this court. He stated:
‘
10.
Express Model Trading was required to file the record of appeal by 25
April 2013 in terms of Rule 8(1) of the Supreme Court
of Appeal Rules
(“the Rules”).
11.
Although a record of appeal was filed by Express Model Trading on 25
April 2013, a copy of which was also delivered to me as
Dolphin Ridge
BC’s attorney, it transpired that the Court Registrar rejected
the record on 25 April 2013 due to deficiencies
in it, and afforded
Express Model Trading ten days to rectify the deficiencies. In doing
so the Registrar was presumably acting
in terms of Rule 8(2)(b) of
the Rules.
12.
I was unaware that the record had been rejected. I accordingly
expected Applicant’s heads of argument to be lodged within
six
weeks after 25 April 2013 in terms of Rule 10(1)(a) of the Rules.
13.
When no heads of argument were lodged, I made enquiries of the
Registrar. I was then informed for the first time that the record
had
been rejected, but that Express Model Trading had been afforded an
additional ten days to rectify the deficiencies. I was informed
by
the Registrar that an improved record was filed on 9 May 2013 and
that the date for the filing of Express Model Trading’s
heads
of argument was therefore extended to 20 June 2013. This was later
confirmed to me in correspondence from my local attorney
of record
(Mcintyre and Van der Post), a copy of which is annexed as “
HB1
”.’
Moreover, according to Mr Botes, there
were significant gaps in Express Model’s explanation. In that
regard he observed
’
17.
The date when Adv Zietsman was ostensibly approached for the first
time “
during or
about May 2013
”
is not stated. There is moreover no explanation why Adv Zietsman was
not approached earlier in April when Express Model
Trading’s
attorney must have known that heads of argument would be due within
six weeks from the date of the filing of the
record and when it was
anticipated that the record would be filed by 25 April 2013.
18.
Jones does not explain why the date for the filing of heads of
argument was not mentioned to Zietsman. It is incomprehensible
that
counsel was requested to indicate his availability to compile heads
of argument, when counsel was ostensibly not informed
when the heads
of argument would be due.
19.
Jones says that “
further arrangements were made by the
member of [Express Model Trading] to secure the necessary funding
”.
He is careful not to reveal when this was done, or why it was
evidently done at such a late stage. It is not clear whether
this
statement was included to suggest that the obtaining of funding was
an additional factor that gave rise to the delay, but
if it was,
entirely inadequate details have been furnished to demonstrate
sufficient cause for that reason.
20.
There is, further, no explanation by Jones why Advocates Zietsman and
Tsangarakis were only briefed during June 2012, and he
is careful not
to indicate exactly when in June 2012 they were briefed.
21.
There is also no explanation why Adv Tsangarakis was not contacted
earlier to ensure that he was available to compile the heads
of
argument.
22.
There is no explanation why Adv Zietsman failed to mention when he
was approached in May that he was called upon to act as an
Acting
Judge of the High Court for the month of June, when it must have been
obvious that heads of argument would be due imminently.
23.
Although Adv Tsangarakis was purportedly not available for the first
three weeks in July 2013, there is no indication why Adv
Tsangarakis
was not in a position to compile the heads of argument in June, when
he clearly was available.
24.
Finally, if the unavailability of counsel had any bearing on the
failure timeously to file heads of argument, there is no explanation
for why alternative counsel were not engaged.
25.
In summary, in the circumstances described in these paragraphs of
Jones’ affidavit, the unavailability of counsel to attend
to
compiling the heads of argument falls significantly short of an
explanation evidencing good or sufficient cause for the purposes
of
condonation in this case.’
[11] Faced with some explanation, albeit
one on the face of it that appears to be deliberately opaque and far
from adequate, counsel
was directed to address the merits of the
appeal so as to enable us to assess Express Model’s prospects
of success and to
weigh that together with the other relevant factors
in this case.
The thrust of the argument advanced
on behalf of Express Holdings, as I understood it, was that although
the high court could not
be faulted for granting a provisional
winding-up order, the same did not hold true in respect of its
conclusion that a final order
was warranted. In support of that
contention three submissions were advanced: first, that the body
corporate had lost its
locus standi
because of the payment of the outstanding levies by the third party
on 1 October 2010; second, that Express Model was able to pay
its
debts; and, third, that in any event, and if necessary, Express Model
had sufficient assets that it could liquidate to cover
all of its
liabilities.
As to the first:
[12] The body corporate
contended it had not lost its
locus standi
in consequence of
the payment from the third party inasmuch as: (a) that payment did
not have the effect of settling Express Model’s
entire
indebtedness to it; and (b) the levies and other charges were an
ongoing payment obligation, which Express Model through
a long
pattern of non or late payment had demonstrated a persistent
inability to pay. In that regard, Mr Smulowitz stated:
‘
17.
It is common cause that the Respondent’s indebtedness to
Applicant in the sum of R338 000.69 was paid in October
2010. As
indicated above, that payment did not include outstanding amounts for
accumulated interest for September and October 2010.
As at the date
of payment, therefore, Respondent still remained indebted to
Applicant in the respect of accumulated interest for
the latter 2
months, being R18 061.95.’
Moreover, as Mr Bester
noted in his interim report:
‘
5.1
Shortly after the provisional order of liquidation was granted by the
Honourable Court, the total amount of the Dolphin Ridge
BC’s
claim (as at 1 October 2010) in the amount of R337 390.12 was
settled by third parties as follows:
5.1.1
R250 000.00 was paid by Billmont 104 CC on 1 October 2010 . . .
5.1.2
R87 390.12 was paid by Class A Trading 480 CC on 1 October 2010
. . .;
5.2
Since 1 October 2010 to 31 March 2011 the Dolphin Ridge BC’s
monthly recurring levies again accumulated to R504 932.84
. . .
The Dolphin Ridge BC’s monthly levies are administration costs
(in provisional liquidation) and needs to be paid by
the provisional
liquidator if funds are available to do so.
5.3
The amount owing, due and payable for levies for the month of April
2011 is R55 472-50.
5.4
It remains however a contingent creditor of the corporation as
contemplated in Section 346(1)(b) of the Companies Act.’
[13] Tellingly, Mr Hassan’s
response to those allegations was:
‘
46.
As a matter of fact the Respondent avers that the levies were paid
until the end of October 2010. As a consequence, the levies
are
outstanding from 01 November 2010 to end of March 2011 should have
been paid by the provisional liquidator. The Respondent
avers that
the duty to pay the levies while the corporation is under provisional
liquidation, herein, derives from the provisional
liquidator’s
duties and functions to preserve the status quo in accordance with
the Act.’
But, as Mr Smulowitz
pointed out:
‘
46.
Payment of levies in the circumstances of this case would certainly
fall within the provisional liquidator’s obligations.
In this
case the provisional liquidator has made payment in respect of levies
to the extent that funds were available from the
income of the
Respondent to do so. Significantly, however, the Respondent’s
income is insufficient to cover the levy payments
and all other costs
of administration of the assets required for each month, and the
Respondent’s again, inter alia, fell
in arrears with the
payment of levies after the provisional liquidation order was
granted. I refer the Honourable Court to the
supplementary affidavit
of the provisional liquidator, Bester, filed simultaneously
herewith.’
[14] Thus even if the
payment by the third party had wiped the slate clean, as one is
dealing with a relationship between the body
corporate as creditor
and Express Model as debtor in relation to a recurrent debt in the
form of monthly levies and charges, for
as long as the latter
continued to own properties in Dolphin Ridge, the body corporate (as
Mr Bester correctly observed) remained
a prospective creditor of
Express Model. That legal relationship is established by the
provisions of the
Sectional Titles Act. In
Gillis-Mason
Construction Co (Pty) Ltd v Overvaal Crushers (Pty) Ltd
1971 (1)
SA 524
(T) at 528 Trengove J defined a prospective creditor as ‘one
who by reason of some existing
vinculum juris
has a claim
against a company which may ripen into an enforceable debt on the
happening of some future event or on some future
date’. And as
to what is meant by the term
vinculum juris
, Nestadt J
observed in
Holzman NO v Knights Engineering and Precision Works
(Pty) Ltd
1979 (2) SA 784
(W) at 787E-F that ‘there must I
consider be a legal obligation which creates a right enforceable in a
court of law. It can
arise either from contract or delict . . . .’
Nestadt J added (at 787G): ‘It is clear therefore that the
claim of the
“creditor” need not be due or payable at the
date of the presentation of the application for winding-up . . . But
it
is essential that there actually exists a
vinculum juris
with the company. It does not suffice that it will probably arise in
the future’.
Counsel for Express
Model was thus constrained to concede that he had some difficulty in
persisting with the submission that the
body corporate had lost its
locus standi
after payment of the sum upon which the application was originally
founded.
As to the second
[15] According to Mr
Bester, as against Express Model’s monthly rental income of
R171 505, it had the following monthly obligations:
‘
4.2.1
Dolphin Ridge Body Corporate = R 52 779.50
4.2.2
S A Home Loans:
monthly
bond instalment = R 31 685.92
4.2.3
Nedbank:
monthly
bond instalment= R 94 740.95
4.2.4
City of Cape Town (monthly rates
and
taxes) (see 4.3.4 herein under) = R 9 689.19’
Those monthly obligations
were not disputed by Mr Hassan. There were as well other expenses
that were placed in dispute by Mr Hassan.
Those I leave out of the
reckoning. Thus on the undisputed figures, Express Model’s
inability to pay its debts as and when
they fell due have been
adequately and convincingly demonstrated on the papers. In those
circumstances the following observation
by Innes CJ in
De Waard v
Andrews & Thienhaus, Ltd
1907 TS 727
at 733 would appear apt:
‘
Speaking
for myself, I always look with great suspicion upon, and examine very
narrowly, the position of a debtor who says, “I
am sorry that I
cannot pay my creditor, but my assets far exceed my liabilities.”
To my mind the best proof of solvency is
that a man should pay his
debts; and therefore I always examine in a critical spirit the case
of a man who does not pay what he
owes.’
[16] As a further string to his bow,
counsel called in aid the following dictum from
Helderberg
Laboratories CC v Sola Technologies (Pty) Ltd
2008 (2) SA 627
(C)
para 16 (Fourie J, Davis and Goliath JJ concurring):
‘
I
respectfully disagree with the finding of the court a quo, that the
fact that the payment of the admitted indebtedness was made
by a
third party on behalf of first to fourth appellants, justifies the
inference that the said appellants were unable to pay their
debts. In
my view, the ability of a company or close corporation to pay its
debts may be demonstrated by itself making payment
or by its ability
to obtain the necessary finance from an exterior source. In the
latter instance the creditworthiness of the debtor
would normally
enable it to raise the necessary funds. As submitted by Mr
Brusser
,
the emphasis in determining the ability of a company or close
corporation to pay its debts should be on the fact of payment and
not
on the source of the payment.’
To the extent that the full court held
that the mere fact that a debt is paid by a third party did not
per
se
justify the inference that a debtor is unable to pay the debt
- that may as a general proposition be unobjectionable. But, the last
sentence of the quoted passage appears to me to state the position
rather too widely. An enquiry of this kind, I do believe, is
fact-based. Thus as important as the fact of payment, may well be the
source of payment. A debtor’s ability to raise a loan
from a
third party may indeed be a demonstration of its creditworthiness. On
the other hand, it could conceivably demonstrate the
exact opposite,
where (as here) it amounts to no more than borrowing from Peter to
pay Paul. Unlike in
Helderberg
, where the funds appear to have
been borrowed pursuant to an arm’s length transaction from an
unrelated entity, here, Express
Model’s benefactor initially
remained undisclosed. It subsequently emerged that assistance was
obtained from corporate entities,
namely Billmont and Class A
Trading, who as part of Mr Hassan’s stable of corporate
entities, enjoyed a fraternal relationship
with Express Model. Mr
Bester explains:
‘
The
Corporation is surety for the debts of Billmont No. 104 CC to Rand
Merchant Bank (“RMB”). Billmont is a “subsidiary”
of the corporation. RMB registered surety bonds over the remaining
units of the corporation in liquidation, which surety bonds
were
registered in the capital amount of R18 000 000.00
(excluding the additional amounts). The current outstanding amount
owing by Billmont to RMB amounts to R25 300 000.00 (see
“A3”). The full suretyship obligation forms a contingent
liability in the books of the corporation and must be taken into
consideration in its liability statement. RMB has submitted two
requisitions in the provisional liquidation of the corporation (see
“K1” and “K2”), and I have established
that
Billmont is currently in arrears with its payments to RMB.’
It follows that no inferences favourable
to Express Model’s creditworthiness or its ability to raise
arm’s length funding
can accordingly be drawn.
As to the third
[17] Objectively assessed,
Express Model’s liabilities fairly valued do indeed appear to
exceed its assets fairly valued.
In that regard Mr Bester records:
‘
Due
to the conflicting values placed on the properties by the different
parties I requested Claremart Auctioneers to do a valuation
of the
properties to establish the fair value thereof for purposes of this
report. Enclosed hereto and marked annexure “H”
is a copy
of the valuation(s) prepared by Claremart Auctioneers, indicating
that the combined value of the properties amount to
R25 640 000.00.
The
combined value of the immovable properties of the close corporation,
fairly valued, therefore amounts to R26 990 000.00
(inclusive of “E”).
3.2
Note to assets
3.2.1
The other assets listed by the corporation in its management
financial statements (“A3”) is stock (R102 363),
accounts receivable (R674 362) and cash in trust R137 636);
3.2.2
I cannot comment on the accuracy of these claims or averments at this
stage;
3.2.3
The only other asset which the corporation lists is goodwill. As the
corporation is solely a property holding (and leasing)
enterprise, no
value can be placed on any goodwill;
.
. .
Having
due regard to the enclosed documentation the liabilities of the
corporation can be summarized as follows:
3.3.1
Mortgagee: (Nedbank – as at 23 August 2010) = R
7 055 355.53
3.3.2
Mortgagee: (SA Home Loans – as at 23 Aug. 2010) = R
3 206 380.40
3.3.3
Loan from member (see 3.4.3 herein under) = R10 836 727.00
3.3.4
Rand Merchant Bank (suretyship obligation for
Billmont
104 CC) (See 3.4.2 herein under) = R18 000 000.00
3.3.5
SARS (owing by corporation according to financial
statements)
= R 646 454.00
3.3.6
SARS (additional interest payable as per “I”) (see 3.4.6)
= R 97 020.10
3.3.7
City of Cape Town = R 217 570.08
3.3.8
Accounts payable = R 439 864.00
TOTAL
R40 499 371.11
3.4
Notes to liabilities
3.4.1
The outstanding amounts reflected on the mortgage bond loans as at 23
August 2010. I do not know if the monthly bond instalments
on these
separate bonds have been paid by third parties since the aforesaid
date.
.
. .
3.4.3
According to the corporation’s financial statements, Hassan’s
loan to the corporation amounted to R15 175 493.00
in 2008
(see “A1”). The loan was reduced to R10 836 727.00
by 31 August 2010 (see “A3”). It follows
that the
difference of R4 338 766.00 represents repayments to Hassan
during the aforesaid period. The repayment appears
to have been made
by the corporation by raising loans from the bank against the
security of mortgage bonds registered against the
corporation’s
properties.
3.4.4
The amount owing to the City of Cape Town was determined from the
invoices submitted by the City to the managing agent of
the Dolphin
Ridge BC. I note that Hassan disputes this liability. However, he
reflects the rates and taxes as monthly expenses
in the corporation’s
financial statements;’
That
led Mr Bester to conclude that ‘the corporation’s current
liabilities (fairly valued) exceed its current assets
(fairly
valued), and it follows that the corporation is currently insolvent’.
A conclusion that, I daresay, cannot be assailed.
[18]
One final
aspect merits mention. Once the winding-up order issued, Express
Model’s position ‘crystallised’ and
‘the hand
of law’ was laid upon its estate (
Walker v Syfret NO
1911
AD 141
at 166). The liquidator then entered upon the winding-up of
Express Model. And as it was wound up
inter alia
on the ground
that it was unable to pay its debts, the operation of the order
remained in force despite the appeal (
Choice Holdings Ltd v Yabeng
Investment Holding Co Ltd
2001 (2) SA 768
(W)). A period in
excess of three years has since elapsed. The winding-up has
progressed apace. In those circumstances it may indeed
prove
impossible to turn back the clock. It may thus be arguable that this
appeal has become academic. But it is perhaps not necessary
to go
that far. It suffices for present purposes to record that since the
winding-up order issued Express Model’s position
appears to
have become even more dire. That much emerges from Mr Botes’
affidavit, where he states:
‘
39.
On 1 August 2013 I addressed further correspondence to Express Model
Trading’s attorney in which I conveyed to him that
the
liquidators were proceeding with the winding-up of Express Model
Trading. A copy of the correspondence is annexed hereto marked
“
HB4
”.
No reply was received thereto.
40.
To date R38 522 206.11 worth of claims have been proved in
the liquidation of Express Model Trading. That includes
Rand Merchant
Bank’s claims against Express Model Trading in the sum of
R25 370 114.30 arising out of the mortgage
bonds registered
over certain of Express Model Trading’s Dolphin Ridge units as
security for the bank’s loans to Billmont
104 A CC, which have
in the meantime been called up by Rand Merchant Bank due to
Billmont’s failure to service the monthly
loan installments.
41.
In addition, the following amounts are owed by Express Model Trading:
41.1
The debit balance on Nedbank account number 8849003600101 is
R596 716.86;
41.2
= The debit balance on Nedbank account number 8966217619001 is
R1 025 902.02;
41.3
The debit balance on Nedbank account number 8966217619901 is
R1 060 643.08;
41.4
The debit balance on Nedbank account number 8157809570901 is R 1258
466.45;
41.5
A judgment was obtained by Leopard Rock Home Owners Association in
the amount of R84 000.00;
41.6
The loan account of Express Model Trading’s sole member, Mr
Hassan, is reflected in financial statements as R10 836 727.00;
41.7
Tax due to the Receiver of Revenue is R743 474.10;
41.8
Further accounts payable, as reflected in the financial statements,
amount to R439 864.00;
41.9
Arrears rates and taxes to the City of Cape Town of approximately R1
million.
42.
The total of the aforesaid additional liabilities is in excess of
R17 million and therefore, Express Model Trading’s
total
liabilities at this stage exceeds R55 567 000.00.’
[19] It appears from all of this that
the applicant at all material times has been in a position in which
it is unable to pay its
debts and it thus has no prospects of success
on appeal. It follows that the lack of attention to detail in the
application for
condonation - particularly in respect of matters that
obviously called for an explanation - taken together with the
non-existent
prospects of success on appeal renders it impossible to
justify the grant of condonation.
[20] In the result:
(a) The
application for condonation is dismissed with costs.
(b) The applicant
for condonation is ordered to pay the costs incurred by the
respondent in opposing the lapsed
appeal.
(c) In both
instances (a) and (b) the costs shall include the costs of two
counsel.
V M PONNAN
JUDGE
OF APPEAL
APPEARANCES:
For
Appellant: P Zietsman SC (with him S Tsangarakis)
Instructed
by:
Michael
Jennings Attorneys, Welcome Glen
Honey
Attorneys, Bloemfontein
For
Respondent: J Muller SC (with him J van der Merwe)
Instructed
by:
Mostert
& Bosman, Tygervalley
McIntyre
& Van Der Post, Bloemfontein