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[2013] ZASCA 159
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Cowan v Hathorn NO and Others (176/2013) [2013] ZASCA 159 (25 November 2013)
THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Case No: 176/2013
Reportable
In the matter between:
MICHAEL ALEXANDER
COWAN
..........................................................
APPELLANT
and
CRAIG
MACLEAN HATHORN N.O.
........................................
FIRST
RESPONDENT
CHRISTOPHER PETER VAN
ZYL N.O.
.............................
SECOND
RESPONDENT
DUDLEY BERNARD DAVIDS
N.O.
.........................................
THIRD
RESPONDENT
Neutral
citation
:
Cowan
v Hathorn
(176/2013)
[2013] ZASCA 159
(25 November 2013)
Coram
: Navsa ADP,
Brand, Malan and Pillay JJA and Swain AJA
Heard
: 13 November
2013
Delivered:
25
November 2013
Summary
:
Section
32(1)(b)
Insolvency Act 24 of 1936
– indemnity not furnished
prior to institution of proceedings – subsequently furnished –
in circumstances of
case object of section found to be satisfied –
proceedings not a nullity.
Order
On appeal from:
Western Cape High Court, Cape Town (Savage AJ sitting as court of
first instance):
1 The application to
supplement the appeal record is dismissed with costs.
2 The appeal is dismissed
with costs.
JUDGMENT
_______________________________________________________________
SWAIN AJA
(
NAVSA
ADP, BRAND, MALAN AND PILLAY JJA
concurring):
The
appellant, Mr Michael Alexander Cowan (Cowan), unsuccessfully
applied to the Western Cape High Court (Savage AJ) for an order
in
terms of rule 30 of the Uniform Rules of Court to set aside an
action instituted against Cowan in terms of s 32(1)(b) of the
Insolvency Act 24 of 1936 (the Act), in the names of the first
respondent Mr Craig Hathorn N.O, the second respondent Mr
Christopher
van Zyl N.O. and the third respondent Mr Dudley Davids
N.O, (the liquidators) in their capacities as the joint liquidators
of
Africa Plastics Holdings (Pty) Ltd (in liquidation).
The
main relief sought against Cowan were orders in terms of ss 26, 29,
30 and 31 of the Act read with ss 339 and 340 of the Companies
Act
61 of 1973 and Schedule 9 of the
Companies Act 71 of 2008
, setting
aside certain notarial general covering bonds registered by Cowan in
his favour, over the movable property of the company
in liquidation.
Essentially, it was alleged that the passing of these bonds
constituted prohibited dispositions by the company
in liquidation of
its property within the meaning of the applicable sections in the
Act.
The relevant facts which
formed the basis for Cowan’s application in terms of rule 30
are as follows:
a The liquidators had
failed to take any proceedings to set aside the notarial bonds in
question. Olampa (Pty) Ltd (Olampa) a creditor
of the company in
liquidation, therefore wished to institute proceedings against Cowan
in terms of s 32(1)(b) of the Act to achieve
this objective.
b In a letter dated 20
February 2012 Ms Carina Van Niekerk (Van Niekerk,) the attorney
acting for Olampa, advised the liquidators
of the action that Olampa
intended instituting in their names in terms of s 32(1)(b) of the
Act. Van Niekerk advised the liquidators
that Olampa ‘indemnifies
the joint-liquidators against all costs incurred as a result of the
abovementioned litigation’.
A power of attorney was also
enclosed for signature by the liquidators in terms whereof Van
Niekerk was authorised and instructed
to proceed with the action.
c Van Niekerk accordingly
instituted the action in the names of the joint liquidators on 21
February 2012. She did so in the belief
that the claim would
prescribe on 6 March 2012. Thus, the summons was served on Cowan on
27 February 2012.
d By letters dated 27 and
28 February 2012 the attorneys representing the liquidators indicated
that they did not accept the indemnity
provided by Olampa, that
consequently Olampa was not entitled to act in the names of the
liquidators and the summons should be
withdrawn immediately. The
liquidators’ concern arose in regard to the nature and extent
of the indemnity to be furnished,
rather than whether the action to
be instituted was well founded. This aspect will be dealt with later
in this judgment.
e
Negotiations then ensued between Van Niekerk and the liquidators’
attorneys as to the nature of the indemnity to be furnished,
as well
as the wording of a power of attorney in favour of Van Niekerk to
institute the proceedings. The terms of the indemnity
acceptable to
the liquidators were finalised on 16 April 2012 and Van Niekerk was
furnished with a power of attorney signed by
the liquidators on 23
April 2012.
The
application in terms of rule 30 was dismissed and that decision is
before us on appeal with the leave of the court below.
An
application to amend granted by the court below is no longer
relevant.
The
basis upon which Cowan sought to set the summons aside in terms of
rule 30 was that the failure by Olampa to furnish the liquidators
with an indemnity against all costs to be incurred in the action in
terms of s 32(1)(b) of the Act, before the action was instituted,
had the result that the summons was invalid, or a nullity. The issue
of the summons was accordingly an irregular step in terms
of rule
30.
The court below held
that the purpose of s 32(1)(b) of the Act was satisfied by the
provision of an indemnity after the institution
of the proceedings,
because the liquidators and general body of creditors had not been
prejudiced. The purpose of the section
to protect them against any
adverse order of costs in the litigation had been achieved. It is
this conclusion that is challenged
on appeal. The court below also
had regard to s 157(1) of the Act which provides as follows:
‘
Nothing
done under this Act shall be invalid by reason of a formal defect or
irregularity, unless a substantial injustice has been
thereby done,
which in the opinion of the court cannot be remedied by any order of
the court.’
It concluded as follows:
‘
To
the extent that the late provision of indemnity constitutes a “formal
defect or irregularity”, there is no evidence
of substantial
injustice which has resulted as a consequence of the institution of
the proceedings in this matter and therefore
it follows that such
proceedings are not invalid on this basis.’
The
question in this appeal is whether the court below was correct in
dismissing Cowan’s application to declare the issue
of the
summons an irregular step in terms of rule 30.
A resolution of this
issue requires a consideration of s 32(1)
(a)
and
(b)
of the Act which provides as follows:
‘
32.
Proceedings to set aside improper disposition
(1)(a)
Proceedings to recover the value of property or a right in terms of s
25(4), to set aside any disposition of property under
s 26, 29, 30 or
31, or for the recovery of compensation or a penalty under s 31, may
be taken by the trustee.
(b)
If the trustee fails to take any such proceedings they may be taken
by any creditor in the name of the trustee upon his indemnifying
the
trustee against all costs thereof.’
A
creditor may take proceedings in terms of s 32(1)(b) of the Act only
if the trustee has failed to do so. In addition, the creditor
may
take these proceedings ‘upon’ the creditor indemnifying
the trustee against all the costs of the proceedings.
The plain
meaning of the section is that the furnishing of the indemnity must
occur at the time of the institution of the proceedings
by the
creditor.
However,
‘even where the formalities required by statute are peremptory
it is not every deviation from the literal prescription
that is
fatal. Even in that event, the question remains whether, in spite of
the defects, the object of the statutory provision
had been
achieved’. See
Unlawful Occupiers, School Site v City of
Johannesburg
2005 (4) SA 199
(SCA) at 209 G-I.
The
object of s 32(1)(b) of the Act is clear. An indemnity has to be
furnished to ensure that the liquidators ‘will not
be liable
for any adverse costs order which the creditors may incur while
litigating’ in the name of the liquidators ‘at
a time
when the proceedings have effectively become those of the creditors’
and the liquidators ‘no longer have any
control over the way
in which they are conducted or on the expenditure involved’.
See
Lane & another NNO v Dabelstein & others
1999 (3)
SA 150
(C) at 163J-164B. The section is aimed at preventing the
assets of the company in liquidation being dissipated in litigation.
See
Patel v Paruk’s Trustee
1944 AD 469
at 475; and
Waisbrod v Potgieter & others
1953 (4) SA 502
(W) at
507G-H.
To determine whether in
the present case the object has been attained the facts require
closer scrutiny.
a Before the issue of
summons Van Niekerk advised the liquidators that Olampa indemnified
them against all costs incurred as a result
of the litigation. The
liquidators were not entirely satisfied that Olampa had the means to
comply with the indemnity and they
accordingly required a statement
of the assets and liabilities of Olampa which reflected assets of
material significance, so as
to enable the indemnity to be met within
a reasonable period of it being called upon. At the least they
required an indemnity to
be provided by a suitable party in addition
to that from Olampa.
b What followed was
interaction between the liquidators and Van Niekerk in order for the
liquidators to be appeased. That was the
cause for the delay in the
indemnity not being ‘formally’ lodged.
c There is no doubt that
the indemnity was offered prior to the institution of the
proceedings. Van Niekerk was seeking to comfort
the liquidators and
to assure them that the indemnity offered could be met.
d
The indemnity finally lodged does indeed cover ‘all costs
incurred as a result of the litigation instituted on 21 February
2012’. In other words past and future costs incurred in the
litigation.
[13]
As can be seen the liquidators were at all times adequately protected
against any costs order which might have been granted
against them in
the proceedings. In reality the liquidators were never at risk. The
court below was accordingly correct in its
conclusion that the object
of s 32(1)(b) of the Act had been met.
[14]
A further submission made by Cowan in support of his application to
have the summons set aside was that he would suffer substantial
injustice within the meaning of s 157 of the Act if the summons was
not set aside. The injustice was said to arise in the context
that
the summons had interrupted the running of prescription in respect of
the claim, which would have prescribed shortly thereafter.
If the
liquidators were obliged to issue a fresh summons, Cowan would then
be entitled to raise a special plea of prescription.
[15]
In my view, when regard is had to what is set out in the preceding
paragraphs, there was no need for the court below to have
gone
further to examine the provisions of s 157(1) of the Act. Put simply,
s 32(1)(b) of the Act had in substance been complied
with.
[16]
In response to the prescription point being persisted with on appeal
the liquidators launched an application in this court
to supplement
the record of appeal, with certain documents that formed part of an
application brought by Olampa (which application
was subsequently
withdrawn) in terms of ss 417 and 418 of the Companies Act 61 of 1973
as amended, as read with Schedule 5 of the
Companies Act 71 of 2008
.
This was to hold a commission of enquiry into the trade, dealings,
affairs and property of the company in liquidation. It was
submitted
that certain selected documents forming part of the abortive
application, were relevant to the issue of prescription.
The file in
regard to the enquiry was placed before the court below, was referred
to in argument and, it was submitted, must have
been considered by
the court below in concluding that a defence of prescription had not
been shown to exist. Counsel for the liquidators,
however, conceded
that there had been no agreement between the parties as to the
evidential status of these documents, nor what
weight should be
accorded to them. There was no agreement as to the accuracy or
admissibility of the contents of these documents.
They accordingly
had no probative value. The application was misconceived and should
not have been brought.
[17]
In the result the following order is made:
1 The application to
supplement the appeal record is dismissed with costs.
2 The appeal is dismissed
with costs.
K G B SWAIN
ACTING JUDGE OF APPEAL
APPEARANCES:
FOR APPELLANT: J G
DICKERSON SC
SMITH TABATA BUCHANAN
BOYES,
CLAREMONT
MATSEPES INC,
BLOEMFONTEIN
FOR RESPONDENT: A KANTOR
CARINA VAN NIEKERK
ATTORNEYS, CAPE TOWN
LOVIUS BLOCK ATTORNEYS,
BLOEMFONTEIN