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[2013] ZASCA 110
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Axal Properties 2 CC v Kotze (712/2012) [2013] ZASCA 110 (16 September 2013)
THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Case No: 712/2012
Reportable
In the matter between:
AXAL PROPERTIES 2 CC
..........................................................
FIRST
APPELLANT
K B STRICKER HOLDINGS
CC
.............................................
SECOND
APPELLANT
and
HENDRIK
NICOLAAS KOTZE
............................................................
RESPONDENT
Neutral
citation
:
Axal
Properties 2 CC v Kotze
(712/2012)
[2013] ZASCA 110
(16 September 2013)
Coram
: Mthiyane
AP, Brand, Tshiqi & Majiedt JJA & Swain AJA
Heard
: 29 August
2013
Delivered:
16
September 2013
Summary
:
Interpretation
of
s 34(3)
of the
Insolvency Act 24 of 1936
– sale of property
by close corporation to appellants, set aside by high court on basis
that claim of respondent arose in
connection with the business of the
CC – correct approach to determine whether claim arises in
connection with business of
CC – claim of respondent did not
arise in connection with business of CC – appeal against
decision of South Gauteng
High Court accordingly upheld.
Order
On appeal from:
South
Gauteng High Court, Johannesburg (Sutherland J sitting as court of
first instance):
1. The appeal is upheld
with costs.
2. The order of the court
below is set aside and substituted as follows:
‘
The
application is dismissed with costs, such costs to include all
reserved costs.’
judgment
_______________________________________________________________
SWAIN Aja
(
MTHIYANE AP, BRAND, TSHIQI & MAJIEDT JJA
concurring):
The
respondent, Mr Hendrik Kotze, is a judgment creditor of Mega Super
Cement CC (Mega). He obtained orders before the South Gauteng
High
Court (Sutherland J) in terms of s 34(3) of the Insolvency Act 24 of
1936 (the Act), declaring void a disposition by Mega
of an immovable
property to the first appellant, Axal Properties 2 CC (Axal) and
moveable property to the second appellant, KB
Stricker Holdings CC
(Stricker Holdings).
The issues before the
court below and on appeal were whether
2.1 Mega was a ‘trader’
within the meaning of that term as contained in s 34(3) read with s 2
of the Act, at the time
it disposed of these assets; and whether
2.2
Kotze’s claim fell within the meaning of the phrase ‘in
connection with’ the business of Mega, as contained
in s 34(3)
of the Act at the time it disposed of these assets.
Axal
and Stricker Holdings bear the onus of proving that Mega was not a
‘trader’ at the relevant time. See
Gainsford NNO v
Tiffski Property Investments (Pty) Ltd
2012 (3) SA 35
(SCA) at
44G-H. Kotze, however, bears the onus of proving that his claim is
one ‘in connection with’ the business
of Mega.
The background facts
which are not in dispute are as follows:
4.1 Kotze obtained
judgment against one Shepherd and Mega jointly and severally on 15
February 2007 for payment of the sum of R872 000,
together with
interest and costs.
4.2 The members of Mega
in 50 per cent shares were Shepherd and the Kyle Court Trust of which
one Stricker was a trustee.
4.3 On 14 April 2007 Mega
was placed under a provisional winding up order which was discharged
on 24 June 2008.
4.4 Mega had a secured
creditor, Come What May Properties 2 (Pty) Ltd, (CWMP) which was owed
in excess of R22 million. Stricker
represented this entity.
4.5 After Mega had been
discharged from liquidation, according to Stricker Shepherd visited
Mega’s place of business and discovered
that the business had
been destroyed.
4.6 According to
Stricker, Mega did not have the financial ability to resurrect its
business. In order to pay its indebtedness to
CWMP, Mega resolved to
sell certain of its assets to Axal and Stricker Holdings.
4.7 Stricker is the sole
member of Axal and Stricker Holdings and deposed to the affidavits
filed on their behalf.
4.8 On 3 July 2008 Mega
sold the immovable property to Axal for R6,3 million.
4.9
On 3 July 2008 Mega sold the movable property to Stricker Holdings
for R15 million.
In terms of s 2 of the
Act
‘“
[T]rader”
means any person who carries on any trade, business, industry or
undertaking in which property is sold, or is bought,
exchanged or
manufactured for purpose of sale or exchange . . . and any person
shall be deemed to be a trader for the purpose of
this Act . . .
unless it is proved that he is not a trader as hereinbefore defined .
. .’
The
argument advanced on behalf of Axal and Stricker Holdings was that
Mega was not a ‘trader’ at the time of the
alienation of
its property, because it was unable through no fault of its own, as
a result of the destruction of its business,
to carry on any ‘trade,
business, industry or undertaking’.
An
inability to trade on the part of Mega formed the cornerstone of
this argument, formulated as it was in an attempt to distinguish
the
present case from the decision in
Kelvin Park
Properties CC v Paterson
NO
2001 (3) SA 31
(SCA).
In
Kelvin
(at 35A-C) it
was held that trading or carrying on of a business continued ‘until
sums due are collected and debts paid’
and that ‘a
person who still had debts to discharge does not cease to be a
trader merely because he has closed his shop’.
The submission
being that no decision was taken to close the business of Mega, its
inability to continue trading being dictated
by the destruction of
its business whilst in liquidation.
When
regard is had to the object of s 34 of the Act, namely to protect
the rights of creditors by ensuring that,
in the
defined circumstances of the section, traders are prevented from
disposing of their businesses, or assets of their businesses,
to
their creditors’ prejudice, the cause of the cessation of
trading is irrelevant. There is no basis for a distinction
to be
drawn between the situation where a trader voluntarily ceases
trading because of financial difficulties and where the trader
is
compelled to do so by the financial collapse of the business. The
need to protect creditors of the trader in the defined circumstances
of s 34 of the Act, is equally apparent in both cases.
Axal
and Stricker Holdings accordingly failed to discharge the onus of
establishing that Mega was not a ‘trader’ when
it sold
the respective immovable and moveable properties to them.
Turning to the issue of
whether Kotze discharged the onus of proving that his claim fell
within the meaning of the phrase ‘in
connection with’
the business of Mega, as contained in s 34(3) of the Act. The
provisions of s 34(3) should be considered
in the context of s 34 as
a whole.
11.1 Section 34(1)
provides that in the absence of the specified publication of a
trader’s intention to transfer any business
or any goods, or
property, forming part of the business in terms of a contract (except
in the ordinary course of that business
or for securing the payment
of a debt) such transfer shall be void as against his creditors for a
period of six months after the
transfer, and against the trustee of
his estate, if his estate is sequestrated at any time within such
period.
11.2 Section 34(2)
provides that as soon as such notice is given, every liquidated
liability of the trader ‘in connection
with the said business’
which would become due at some future date, shall fall due forthwith,
if the creditor concerned demands
payment of this liability.
11.3
Section 34(3) provides that the transfer shall be void as against any
creditor who has a claim against the trader ‘in
connection with
the said business’ and has before transfer instituted
proceedings for the purpose of enforcing his claim,
in a division of
the high court having jurisdiction in the district in which the
business is carried on, or in the magistrate’s
court of that
district. If proceedings are instituted in any other court, it is
necessary that the persons to whom the business
was transferred knew
at the time of transfer that the proceedings had been instituted.
The court below, in
concluding that the claim of Kotze arose in connection with the
business of Mega in terms of s 34(3) of the
Act, relied upon the
decision in
Simon v DCU Holdings (Pty) Ltd & others
2000
(3) SA 202
(T) and in particular the following dictum at 223E-G:
‘
In
my view, the words “in connection with the said business”
simply mean that the trader’s private liabilities
not related
to the business in any way, are not affected by the operation of ss
34(2) and (3).
Where,
as in the present case, the trader is a company, which carried on no
other activity other than its business, it has no private
liabilities
as would an individual trader.
Given
the mischief aimed at by s 34(3), the words “in connection with
the said business” should not be interpreted in
some narrow
technical way. There is no authority, nor any logical reason, why
only certain claims against the trader in connection
with the
business and not others should be contemplated in s 34(3).’
The
court below concluded that the object of the phrase ‘in
connection with the said business’ in the case of a natural
person, was to distinguish between a trader’s ‘private
persona’ and his ‘business persona’. The
reference
to the ‘business’ of the trader was not to be equated
with the trader’s ‘trading activity’.
On this
basis because Mega was a corporate person it could not possess
‘multiple persona’ and had no ‘private
persona’.
Consequently its liability to pay Kotze’s claim arose ‘in
its sole capacity or persona as a business’.
However,
the inherent fallacy in applying the distinction drawn between the
personal and business liabilities of natural persons,
to a close
corporation such as Mega, and then concluding that for the purposes
of s 34 it can only have liabilities that arise
in connection with
its business, is revealed by the provisions of
s 54(2)
of the
Close
Corporations Act 69 of 1984
. This section provides that a
corporation is bound by the act of a member ‘whether or not
such act is performed for the
carrying on of business of the
corporation’.
To
recognise that Mega may have liabilities other than those which
arose ‘in connection with’ its business, in interpreting
s 34(3)
, is not to do so in a ‘narrow technical way’ and
thereby defeat the mischief at which the section was aimed (
Simon
supra). To interpret
s
34(3)
to mean that all of the claims against Mega arose ‘in
connection with’ its business, is to obliterate in the case of
close corporations the distinction between
s 34(1)
which refers to
all the creditors of a trader, and
ss 34(2)
and (3) which restrict
creditors’ claims to those in connection with the business of
the trader. See
Vermaak
v Joubert & May
[1990] ZASCA 56
;
1990
(3) SA 866
(A) at 872H-873A.
There
are valid reasons for the distinction. I agree with the views
expressed in
Simon
(at 223A-E) as to what
the object of the legislature was in drawing this distinction. A
failure to publish notices in terms of
s 34(1)
results in the
transfer of the business being void against all of the creditors of
the trader, to ensure compliance with the
requirement of
notification.
Section 34(2)
, however, which provides for an
accelerated due date for payment of any claims on demand by
creditors after publication, only
applies to debts of the business,
because the business (or goods belonging to the business) is
alienated. In
s 34(3)
where the creditor has instituted action, the
same reasoning applies.
It
cannot be said that the mischief at which
s 34(3)
is aimed is
frustrated by recognising that a close corporation may have claims
by creditors which do not arise in connection
with its business, in
the same way as natural persons.
1
A distinction
accordingly has to be drawn for the purposes of s 34 of the Act
between the debts of Mega which arise in connection
with its
business and those which do not, in order to determine in which
category the claim of Kotze lies.
In
order to decide whether the claim of Kotze arose in connection with
the business of Mega, the nature of that business has to
be
determined, as well as the nature of Kotze’s claim. Kotze
described the business of Mega as ‘a manufacturer and
trader
of blended cement, cement bricks and tile adhesives’. He
described his claim in his founding affidavit as ‘not
in
respect of legal work but a brokerage fee’.
Axal and Stricker
Holdings contend that the claim of Kotze is correctly described as a
brokerage fee in respect of the sale by
one Stapelberg of his
member’s interest in Mega to Shepherd. In this connection they
are supported by the terms of an agreement
concluded between Kotze,
Shepherd and Mega dated 12 January 2005 in the preamble to which the
following is stated:
‘
Kotze,
representing Shepherd, successfully brokered a transaction between
Shepherd and Frans Petrus Stapelberg in respect of the
acquisition by
Shepherd of Stapelberg’s member’s interest / shares in
respect of Mega Super Cement at a purchase price
of R30 million.’
Moreover, Kotze in an
affidavit filed in support of his claim against Mega in liquidation,
describes his claim as follows:
‘
Judgment
(brokerage fee) – settlement.’
Kotze
however, denies that his claim is described as a ‘brokerage
fee’ and maintains that it arises from the judgment
he obtained
against Shepherd and Mega. In addition, Kotze, despite having
described his claim as a brokerage fee, repeatedly asserts
that his
claim arises from an agreement concluded subsequent to that referred
to above which he maintains novated all his previous
claims. However,
for the purposes of s 34 of the Act the true causa of Kotze’s
claim must be determined.
Fatal
to Kotze’s claim is that having initially described his claim
as a brokerage fee and ‘not in respect of legal
work’ he
contradicts this in a subsequent affidavit,
stating
that his claim ‘included legal services rendered by me to Mega
during 2005’. An application of the principle
in
Plascon-Evans
Paints Ltd v Van Riebeeck Paints (Pty) Ltd
[1984] ZASCA 51
;
1984
(3) SA 623
(A) at 634H-635B to this dispute of fact, leads to the
conclusion that Kotze failed to discharge the onus of proving that
his
claim fell within the provisions of s 34(3) of the Act. Kotze’s
claim on the evidence was a brokerage fee for the sale by
Stapelberg
of his member’s interest in Mega to Shepherd. This is not a
claim that arises in connection with the primary
or core business of
Mega.
Counsel
for the appellants submitted in heads of argument that any costs
order in favour of the appellants should include all
the reserved
costs in the court below. From the judgment in the court below, it
appears there were a number of interlocutory
applications prior to
the hearing,
in which the costs were reserved.
The court below directed that these costs be costs in the cause. No
argument was advanced why
a similar order should not be made on
appeal.
In
the light of the above the following order is made:
1. The appeal is upheld
with costs.
2. The order of the court
below is set aside and substituted as follows:
‘
The
application is dismissed with costs, such costs to include all
reserved costs.’
K G B SWAIN
ACTING JUDGE OF APPEAL
APPEARANCES:
FOR APPELLANTS: L
HOLLANDER
JOSEPH JOHN FINLAY
CAMERON, JOHANNESBURG
LOVIUS BLOCK,
BLOEMFONTEIN
FOR RESPONDENT: E F
DIPPENAAR SC
NEELS ENGELBRECHT,
JOHANNESBURG
CLAUDE REID, BLOEMFONTEIN
1
The
distinction is also of importance in the case of companies. A
company may be bound in terms of s 36 of the Companies Act 61
of
1973 by a contract which is ultra vires the company in terms of s 33
by reference to the terms of its memorandum defining
its main object
and business. S 20(1)(
a
)
of the
Companies Act 71 of 2008
provides that no action of a company
is void by reason only that the action was prohibited by any
limitation, restriction or
qualification in the memorandum of
incorporation.