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[2020] ZAGPJHC 423
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First Rand Bank Limited v Vega Holdings Proprietary Limited and Others (7841/19) [2020] ZAGPJHC 423 (10 May 2020)
REPUBLIC
OF SOUTH AFRICA
IN
THE HIGH COURT OF SOUTH AFRICA
GAUTENG
LOCAL DIVISION, JOHANNESBURG
CASE
NUMBER:
7841/19
REPORTABLE: NO
OF INTEREST TO OTHER
JUDGES: NO
REVISED.
10
May 2020
In
the matter between:
FIRST
RAND BANK LIMITED
Applicant
and
VEGA
HOLDONGS PROPRIETARY LIMITED
First Respondent
THE
COMPANIES AND INTELLECTUAL
Second Respondent
PROPERTY
COMMISSION
THE
MINISTER OF FINANCE
Third Respondent
THE
MINISTER OF PUBLIC WORKS
Fourth Respondent
J
U D G M E N T
KEIGHTLEY,
J
:
INTRODUCTION
1.
On 19 December
2019 this Court granted a provisional winding-up order at the
instance of the applicant, FirstRand Bank Ltd, against
the first
respondent, Vega Holding (Pty) Ltd. As none of the other respondents
have played an active role in the litigation, I
refer to the first
respondent simply as “the respondent” in my judgment.
2.
This judgment
concerns the return day of the provisional winding-up order. The
issues before me are essentially the same as those
facing the Court
when it granted the provisional order, albeit, of course, that the
test for granting a final winding-up order
is different to the test
that applies at the provisional stage. In opposing the final order
the respondent raises the same defences
as those raised previously,
and has advanced no further facts in support of its opposition.
3.
The dispute
arises out of a loan agreement entered into between the applicant and
respondent on 14 May 2015 in terms of which the
applicant afforded a
loan to the respondent of R5 million. It is not necessary for present
purposes to set out in any detail the
material terms of the loan
agreement, save for those that are in dispute, which I will deal with
later. Suffice it to record that
the loan was provided for purposes
of enabling the respondent to acquire certain immovable property and,
among other forms of security,
a mortgage bond in the applicant’s
favour was registered over the property. It is common cause that the
respondent is a property-holding
entity, and does not trade.
4.
The loan
agreement was subsequently varied by way of a written variation
agreement entered into between the parties. Loan amounts
were duly
advanced to the respondent, which made monthly repayments to the
applicant over the period 2015 to 2018. The last repayment
was made
on 18 September 2018, and thereafter the respondent failed to make
any further payments of its monthly instalments. This
failure to pay
the amounts due prompted the applicant to hold the respondent in
breach of the loan agreement, and to give effect
to the acceleration
clause, which permitted the applicant to call up the full amount due.
5.
It
is common cause that the applicant subsequently sent three letters of
demand to the respondent under section 345 of the Companies
Act,
[1]
calling
on the respondent to make payment of the full outstanding amount due
under the agreement. Various meetings and discussions
were held with
a view to the parties reaching some sort of settlement, but this did
not come to pass. The final letter of demand
under section 345 was
served by the Sheriff on 25 January 2019, but the respondent failed
to comply with its terms.
6.
The
applicant’s case is that the respondent is, for this reason,
deemed to be unable to pay its debts. The applicant contends
further
that the respondent is also factually unable to pay its debts. This
is because the respondent owes an amount of over R60
000. 00 to the
City of Johannesburg (CoJ) for rates and taxes; some R4 million to
the South African Revenue Service (SARS) and
another R4 million to
the applicant. The applicant says that the respondent has no income,
and the municipal value of its immovable
property is R5,5 million.
The applicant provided an initial, and subsequently, an updated
certificate of balance as proof of the
respondent’s
indebtedness to it. Under the agreement, a certificate of balance
provides
prima
facie
proof of the respondent’s indebtedness.
7.
As we shall
see shortly, the respondent makes a bald attempt to dispute that it
is indebted to the CoJ and to SARS, and to dispute
the certificate of
indebtedness. However, it does not provide any proof to substantiate
its denials in this regard. I will return
to this point later. What
is of more immediate importance is the respondent’s main arrow
in the bow of its defence, viz.
its contention that the loan
agreement was subject to suspensive conditions that were never
fulfilled, and hence the loan agreement
never came into effect and is
void
ab
initio
.
8.
On
this basis, the respondent says that it is not indebted to the
applicant under the agreement (as the agreement is a legal
non-entity);
it did not breach the agreement (as no instalments ever
fell due for payment); and the certificate of balance is of no
effect.
The respondent says that this constitutes a
bona
fide
and reasonable defence to the applicant’s claim, and that the
well-known rule laid down in
Badenhorst
v Construction Enterprises (Pty) Ltd
[2]
should
apply. That rule says that a winding-up application is not a
legitimate means of seeking to enforce the payment of a debt
which is
bona
fide
disputed by a respondent.
9.
At the centre
of the respondent’s defence is clause 4 of the loan agreement,
read together with Appendix 2. That clause reads:
“
DISBURSEMENT
4.1
FNB shall not be obliged to advance (and the Borrower may not draw
against the Loan) unless
(1) the Borrower has signed this
Agreement and returned the original thereof to FNB, and (2)
the
Specific Loan Conditions contained in Appendix 2 have been fulfilled
(or waived) to FNB’s satisfaction
.
4.2
The Specific Loan conditions have been inserted into the Agreement
for the benefit of FNB. FNB may, in its sole and absolute
discretion
, and subject to clause 4.1 (Disbursement),
waive
each and every condition by delivering
written notice
of
waiver to the Borrower
at any time
.
4.3
To
the extent that FNB allows the Borrower to utilise the Loan before
the Borrower complying with its obligations in terms of this
Agreement
,
the Borrower shall comply with the outstanding obligation within 7
days of notice in writing calling upon the Borrower to do so.
Failure
to comply with the terms of this clause 4.3 (to the extent
applicable) shall constitute an Event of Default
.
”
(my emphasis)
10.
Appendix 2 is
headed “
Disbursement
Conditions
”.
It records that: “
The
advance of the Loan is subject to the fulfillment, to the sole and
absolute satisfaction of FNB, of the following conditions:
”.
It goes on to list various conditions involving, among others, the
forms of security the applicant would require, and other
more formal
conditions, such as proof of FICA compliance, provision of
occupational certificates etc. It is not disputed that the
security
required by the applicant was forthcoming. A mortgage bond was duly
registered against the title deed; other suretyships
were provided
and a cession of income was subsequently also entered into in favour
of the applicant.
11.
It is not
disputed that until 27 August 2018 neither of the parties raised any
concern that the loan agreement may have been subject
to suspensive
conditions that may not have been fulfilled. This issue was raised
for the first time in a letter addressed to the
applicant’s
attorneys by Mr Kerr-Phillips, the respondent’s attorney. At
that stage, the applicant had alleged that
the respondent had
committed events of breach under the agreement, and it was
threatening winding-up proceedings. Mr Kerr-Phillips
stated as
follows in his letter (in relevant part):
“
3.
Your client is obliged to show that the suspensive conditions of the
loan agreement
in appendix 2 were timeously fulfilled, before your
client is entitled to enforce the loan agreement and our clients put
your client
to the proof thereof.
4.
Assuming the loan agreement is enforceable (which is not conceded by
our clients)
then ..... .
”
12.
The letter did
not identify what the “suspensive conditions” were, and
the loan agreement itself does not refer to any
“suspensive
conditions” as such. The letter thus hardly provided a concrete
basis upon which to dispute the enforceability
of the loan agreement.
It is perhaps not surprising that the applicant did not deal with
this issue in its founding affidavit.
The challenge was mounted by
the respondent in its answering affidavit and countered in the
applicant’s replying affidavit.
After the settlement of a
strike-out application, both parties filed supplementary affidavits
dealing more fully with the suspensive
conditions defence relied on
by the respondent.
13.
From these
affidavits, and from the heads of argument and oral submissions made
by the parties, the respondent’s case is that
the conditions in
Appendix 2 are “true conditions”, i.e. they had the
effect of suspending the legal operation of the
entire loan agreement
until such time as they were either fulfilled or waived in writing by
the applicant. Further, that properly
interpreted, the agreement
required that fulfilment of the conditions, or the relevant written
waiver (if relevant), had to take
place prior to the first advance of
loan funds to the respondent. If this did not take place, then the
effect of the suspensive
conditions is that the loan agreement did
not take effect, and must be treated as being void
ab
initio
.
14.
The respondent
says that the applicant has the
onus
to satisfy the court that these “suspensive conditions”
were met, and thus that the agreement is enforceable. It says
that
there is a material dispute of fact in this regard, i.e. as to
whether the conditions were met and when this occurred. This
is all
sufficient, in the respondent’s view, to found a
bona
fide
and
reasonable defence to the applicant’s claim of indebtedness,
and for this reason, it contends that the court should not
contemplate granting a final winding-up order.
15.
The
first issue to consider is the proper interpretation of the relevant
clauses, and particular clause 4, read with Appendix 2,
which is what
the respondent says is the clause giving rise to the “suspensive
conditions”. Are they of such a nature
that they comprise true
suspensive conditions? Do they suspend the operation of all or some
of the obligations flowing from the
contract until the occurrence of
a future uncertain event, in the words of Christie?
[3]
Or
are they more properly to be interpreted as terms of the agreement,
along the lines of the distinction drawn in
R
v Katz
:
[4]
“
The
word ‘condition’ in relation to a contract, is sometimes
used in a wide sense as meaning a provision of the contract,
i.e. an
accepted stipulation, as for example in the phrase ‘conditions
of sale’. In this sense the word includes ordinary
arrangements
as to time and manner of delivery and of payment of the purchase
price, etc - in other words the so called acccidentalia
of the
contract. In the sense of a true suspensive or resolutive condition,
however, the word has a much more limited meaning,
viz. of a
qualification which renders the operation and consequences of the
whole contract dependent upon an uncertain event ...
In the case of true conditions the
parties by specific agreement introduce contingency as to the
existence or otherwise of the contract,
whereas provisions which are
not true conditions bind the parties as to their fulfillment and on
breach give rise to ordinary contractual
remedies of a compensatory
nature, ie (depending on the circumstances) specific performance,
damages, cancellation or certain combinations
of these.
”?
16.
As this
dictum
explains, the term “condition” is often used loosely to
refer to both terms of the agreement (which do not have suspensive
effect), and true conditions (that do). There is no magic in the use
of the term “condition” as opposed to “term”.
Indeed, the two words are commonly used in conjunction in many
contracts, as in “the terms and conditions”. This means
that an interpretive exercise may need to be undertaken in order to
determine the true legal nature of the particular contractual
provisions in question.
17.
In his
submissions Mr Kerr-Phillips contended that the conditions contained
in Appendix 2, read with clause 4 of the contract fell
into the
category true conditions, having suspensive effect. One of the
reasons for this, he said, was because the conditions related
to
future events over which the respondent did not have control. For
example, it was not in the respondent’s control whether
a
certificate of occupancy would be issued and when this might be. He
submitted that the applicant could not enforce compliance
of such a
condition, because the respondent was dependent on a third party
issuing the certificate. This was an indication, he
submitted, that
the conditions in Appendix 2 introduced that element of contingency
characteristic of true suspensive conditions,
and thus placing the
legal effect of the loan agreement in abeyance until fulfilment of
the Appendix 2 conditions.
18.
Although
Appendix 2 is headed “Disbursement Conditions” this is
not an indication, for the reasons discussed earlier,
as to their
true legal nature. If one considers the conditions themselves it
appears, contrary to Mr Kerr-Phillips’ submission,
that a
number of them place obligations on the respondent, and are thus
within the respondent’s control.
19.
For example,
clause 2 of the Appendix provides that the costs of each Security and
Security Document shall be borne by the respondent.
Clause 3 of the
Appendix requires that each listed security must be accompanied by,
for example, a special resolution of shareholders,
a board
declaration regarding solvency etc. This is not the type of condition
that would normally be regarded as being dependent
on a future,
uncertain event. On the contrary, the respondent has offered
security, in a form acceptable to the applicant, and
common sense
dictates that the respondent will have some control over ensuring
that these requirements are met. Indeed, one of
the sureties listed
is Mr Chimpelo himself, who was the deponent to the respondent’s
answering and subsequent affidavits.
20.
Similar
considerations apply to the requirement, in clause 10.1, that a bond
be registered over the property. Although the registration
is
effected by the Registrar of Deeds, it is not as if the respondent
doesn’t have some control over the process: it would
be
required to take whatever steps are necessary, and sign whatever
documents may be required to put the process of registration
in
motion. Clause 10.3 requires the respondent to cede as security all
right, tile and interest in existing and future income derived
from
the property. And clause 10.4 requires the respondent to insure the
property. These clauses clearly place obligations on the
respondent,
and are not in the nature of conditions that are dependent on events
outside of its control.
21.
There
are other indications in the loan agreement that the “Disbursement
Conditions” in Appendix 2 are not true suspensive
conditions.
Clause 4.3 is instructive in this regard. It provides that: “
To
the extent that FNB allows the Borrower to utilise the Loan before
the Borrower complying with its obligations in terms of this
Agreement
”
the applicant may place the respondent on notice as to compliance and
failure to comply will constitute an event of default.
There is an
obvious link between clause 4.3 and clause 4.1. The latter clause
says that the applicant has no obligation to permit
the respondent to
draw against the loan funds until the Appendix 2 conditions are
fulfilled or waived. However, clause 4.3 qualifies
this. It makes
specific provision for the applicant nonetheless to give the
respondent access to the loan funds even if it has
not met its
obligations, and to place the respondent in
mora
as to compliance. This is completely incompatible with an
interpretation of the conditions in Appendix 2 as being true,
suspensive
conditions. As noted earlier, true suspensive conditions
cannot be enforced or, to put it differently: there can be no
question
of a party being in
mora
in respect of the fulfilment of a true suspensive condition.
[5]
22.
Mr
Kerr-Phillips attempted to persuade me that clause 4.3 did not apply
to performance of any obligations arising from the Appendix
2
conditions, but to other obligations under the agreement. The thrust
of his submission was that clause 4.3 only has application
after the
Appendix 2 conditions have been met, and once the loan agreement has
come into existence.
23.
I am not
persuaded by this submission. Clause 4.3 must be seen in context.
Clause 4 deals with “Disbursements”, i.e.
access to the
loan funding. As I have already noted, there is a clear and obvious
link between this provision, and clause 4.3.
The effect of the link
is that clause 4.3 qualifies the stipulation in clause 4.1 requiring
either fulfilment or waiver of the
Appendix 2 conditions before
access to the funds will be permitted. It is plain from this link
that clause 4.3 cannot be read as
a stand-alone provision unrelated
to the conditions set out in Appendix 2 and the obligations of the
respondent pursuant thereto.
The Appendix is part and parcel of the
agreement, and any obligations on the respondent under it would be
“obligations in
terms of this Agreement” for purposes of
clause 4.3.
24.
Appendix 2
provides that: “
The
advance
of the Loan
is subject to the fulfilment, to the sole and absolute satisfaction
of FNB, of the following conditions
”.
As the applicant pointed out in its submissions, the respondent wants
this to read instead: “
The
Loan
Agreement
is subject to the
timeous
fulfilment
(
i.e.
before the advancement of the Loan
)
of the following
suspensive
conditions
.”
Such a reading is simply untenable when one considers the provision
in its full context. Apart from what I have already
discussed above,
Appendix 2 makes no reference to the entire loan agreement being
dependent on the fulfilment of the conditions.
It is only the advance
of the “
Loan
”
that is so subject. “
Loan
”
is defined as “
the
Loan amount ...
”,
rather than “
the
Loan agreement
”.
The Appendix echoes clause 4.1, which says that: “
FNB
shall not be obliged to advance
and the Borrower may not draw against the Loan) unless ...
.”
Clause 4.3 then envisages that nonetheless the applicant may permit
the respondent to use the loan. It would be absurd
to interpret the
Appendix conditions as suspending the legal effect of the entire loan
agreement when the agreement itself provides
that the funds may be
advanced despite the respondent not complying with its obligations.
25.
There is also
no time stipulated for the fulfilment of the Appendix 2 conditions.
The respondent submits that fulfilment had to
be before the first
advance of funds. However, this is contrary to clause 4.3. It is also
at odds with the provision that permits
the applicant to waive the
conditions “at any time”.
26.
The sensible
businesslike interpretation of the conditions is that they were no
more than terms upon which the applicant agreed
to extend the loan to
the respondent. They were not true suspensive conditions, and the
legal effect of the agreement was not dependent
on their fulfilment.
This is consistent with the relevant provisions read in context. It
is consistent with the qualification in
clause 4.2 that the Appendix
conditions were included for the benefit of the applicant, and the
statement in the Appendix that
fulfilment of the conditions is to be
determined to the sole and absolute satisfaction of the applicant.
27.
While the
subsequent conduct of the parties cannot be determinative in
determining the legal nature of the provisions, that conduct
in this
case is absolutely consistent with the above interpretation of the
conditions. There is no evidence that either party understood
that
the very existence of the loan agreement depended on the Appendix 2
conditions being fulfliled before the respondent accessed
the loan
funds. On the contrary, they conducted themselves throughout as if
the loan had taken effect. They even signed a variation
agreement.
The respondent made monthly payments from 2015 into 2018. It only
raised the suspensive conditions defence when it was
facing the
prospect of a liquidation application by the applicant.
28.
I find that
the suspensive conditions defence does not constitute a
bona
fide
and
reasonable defence to the applicant’s claim that the respondent
is indebted to it under the loan agreement. As such,
the
Badenhorst
rule does not present an impediment to this court granting a final
order of winding up in this regard.
29.
The respondent
also advanced a second basis for contesting its indebtedness. It
claimed that it was not indebted to the applicant
because the
applicant had overcharged the respondent in terms of the monthly
instalments due under the agreement. This is because
in Appendix 1 of
the loan agreement a monthly repayment amount of R60 761. 99 is
indicated under the heading “loan details”.
The
respondent says that the statements emanating from the applicant show
that it was charged more than this amount, and that,
if a
recalculation is done, it is in fact the applicant that owes the
respondent money.
30.
There is
simply no merit in this defence. Appendix 1 makes it clear that the
monthly repayment amount is “an indicative amount
only”.
The terms of the loan are that the respondent would be charged
interest at the prime rate. This is a rate that fluctuates
over time.
Thus, the indicative monthly repayment amount could never be regarded
as being a fixed amount representing a ceiling
above which the
applicant could not claim repayments. It is inherent in the agreement
that the monthly repayments would vary, particularly
given that the
loan was over a period of time. This is an obvious feature of most
loan agreements.
31.
In
any event, the applicant has provided an updated certificate of
indebtedness, based on a reconciliation of the respondent’s
liabilities and payments. A party is entitled to use only a
certificate of indebtedness to show that the amount is owing, and is
due and payable by the debtor.
[6]
This
constitutes
prima
facie
evidence of such indebtedness, and the debtor bears the
onus
of rebuttal. The debtor must prove on a balance of probabilities that
the certificate is incorrect.
[7]
If
the
prima
facie
evidence is not rebutted, it becomes conclusive proof of the
indebtedness.
[8]
The
respondent has done no more than make general and unsubstantiated
averments that it has been overcharged and that it is not
in fact
indebted to the applicant. Its averments do not constitute evidence
to upset the
prima
facie
evidence constituted by the certificate of indebtedness. I conclude
that this purported defence also does not constitute a basis
for
denying the applicant relief based on the
Badenhorst
rule.
32.
In the
circumstances, the applicant has satisfied the first jurisdictional
requirement for purposes of the grant of a final winding-up
order. It
has established that it is a creditor and that the respondent is
indebted to it in excess of R100.
33.
The
remaining jurisdictional requirement is for the applicant to satisfy
the court that the respondent is unable to pay its debts.
[9]
The
applicant relies primarily on section 345 in this regard and on the
letter of demand served on the respondent in January 2019.
It is
common cause that the respondent received the demand. It denies, in
bald terms, with no substantiation, that the applicant
delivered a
valid and enforceable section 345 notice. The denial cannot hold
water. It is common cause that the respondent did
not comply with the
terms of the demand. It avers that it was unable to do so because it
was disputing the enforceability of the
loan agreement. There is
obviously no merit in this defence. Section 345 provides that a
company will be deemed to be unable to
pay its debts if it fails to
pay the sum contained in the demand within a period of three weeks.
It follows that in terms of this
section the respondent is deemed not
to be able to pay its debts, and the applicant has satisfied the
second jurisdictional requirement.
34.
In any event,
on the evidence before the court, it also appears that the applicant
has established that the respondent is factually
insolvent. It has
provided nothing to substantiate its bald averments that it is not
indebted to the CoJ and SARS in the amounts
set out in the founding
affidavit. Nor has it provided any evidence to substantiate its bald
averment that in its view the immovable
property is worth R7.5
million. Even if this estimate was accurate (of which there is no
proof), the respondent’s asset (the
immovable property) would
still be insufficient to cover the totality of its debt to its
creditors, which the applicant avers are
over R8 million.
35.
Generally
speaking, an unpaid creditor has a right,
ex
debito justitiae
,
to a winding-up order against a respondent company that has not
discharged its debt.
[10]
The
discretion of a court not to grant a winding-up order in those
circumstances is narrow, and not wide.
[11]
The
applicant is in this very position. Consequently, it is entitled to
an order placing the respondent under final winding up.
36.
I make the
following order:
1.
The first respondent is placed under final winding-up in the hands of
the Master
of the High Court of South Africa.
2.
The costs of the application are costs in the winding-up.
KEIGHTLEY
J
JUDGE OF THE HIGH
COURT
GAUTENG LOCAL DIVISION
Date
Heard (by videolink):
20 April 2020
Date
of Judgment:
10 May 2020
On
behalf of the Applicant:
Adv. PG Louw
Instructed
by:
Werksmans Attorneys Inc.
On
behalf of the First & Second Respondent:
Mr. M Kerr-Phillips
Instructed
by:
MK Attorneys
[1]
Act
61 of 1973
[2]
1956
(2) SA 346
(T)
at
347H - 348C
[3]
Christie,
The
Law of Contract in South Africa
(7ed), pg 164
[4]
1959
(3) SA 408
(C) at 417
[5]
Cardoso
v Tuckers Land and Development Corp (Pty) Ltd
1081
(3) SA 54
(W)
[6]
Trust
Bank of Africa Ltd v Senekal
1977
(2) SA 587
(W) at 592 F-G;
Senekal
v Trust Bank of Africa
Ltd
1978 (3) SA 375
(A) at 381H-382A;
Bank
of Lisbon International Ltd v Venter
1990 (4) SA 463
(A) at 482 A-B
[7]
Senekal
at
382G-383D;
Trust
Bank
at 593 C-F
[8]
Salmons
v Jacoby
1939
AD 599
at 593
[9]
Section
344(f) of the Companies Act 61 of 1977
[10]
Afgri
Operations Limited v Hamba Fleet (Pty) Ltd
2017
JDR 0558 (SCA) at para 12
[11]
Afgri
,
at para 13