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[2011] ZAGPPHC 163
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Zadi and Another v Body Corporate of Outeniqua and Others (55727/2010) [2011] ZAGPPHC 163 (14 September 2011)
I
N
THE NORTH GAUTENG HIGH COURT, PRETORIA
(REPUBLIC OF SOUTH AFRICA)
REPORTABLE
Date: 2011-09-14
Case Number:
55727/2010
In the matter between:
URBAIN DJAH
ZADI
..................................................................
First
Applicant
JEANNE PASCALE
ZADI
....................................................
Second
Applicant
and
THE BODY
CORPORATE OF OUTENIQUA
.....................
First
Respondent
JOHANNES
ZACHARIAS HUMAN MULLER N.O.
.....
Second
Respondent
PHINEAS BONGANI
MOKWENA N.O.
..............................
Third
Respondent
THE MASTER OF
THE HIGH COURT
…........................
Fourth
Respondent
JUDGMENT
SOUTHWOOD J
[1]
The
first applicant and his wife, Jeanne Pascale Zadi (who on 24 August
2011 was given leave to intervene in this application as
the second
applicant) seek –
(1) An order
rescinding and setting aside the final sequestration order made
against the first applicant on 29 January 2009;
(2) An order
declaring that the first applicant is not responsible for the payment
of any costs and/or expenses relevant to or arising
from the
sequestration of the first applicant’s estate;
(3) An order that
the first respondent pay the costs of this application on the scale
as between attorney and client.
Only the first
respondent opposes the application. On 19 August 2011, Nedbank Ltd,
which gave notice that it intended to apply
at the hearing for leave
to file its founding affidavit (merely to place certain facts before
the court to enable it to make an
appropriate order) formally
withdrew its application because the first applicant had tendered
payment of its agreed costs.
[2] The parties
filed the usual affidavits. When the first applicant filed his
replying affidavit on 10 May 2011 he also delivered
a supplementary
founding affidavit. (This incorporated an application to file such
an affidavit.) Thereafter, on 16 May 2011
and 19 July 2011 the
applicant’s attorney called on the first respondent to file a
supplementary answering affidavit and
when the first respondent
failed to deliver such an affidavit, set the matter down for hearing
on 22 August 2011. The applicant’s
attorney delivered the
notice of set down to the first respondent’s attorney on 1
August 2008 but the first respondent still
did not file a further
answering affidavit. Eventually, on 19 August 2008 the first
respondent’s attorney, Mr. J.M. Krog,
served a further opposing
affidavit on the applicant’s attorney, an answering affidavit
to the first applicant’s application
to file a further founding
affidavit and an answering affidavit to the second applicant’s
application to intervene. In the
opposing affidavit the first
respondent purports to deal with the applicant’s supplementary
affidavit and alleged new matter
in the applicant’s replying
affidavit. On 23 August 2011 the first respondent’s attorney
deposed to an affidavit in
which he purports to explain the delay in
preparing and delivering the further opposing and answering
affidavits. According to
Mr. Krog he was unaware that the
application had been enrolled for hearing on 22 August 2011. At the
hearing the first respondent’s
counsel requested the court’s
leave to file these further affidavits and a ruling was made that the
court would consider
this request in the light of all the evidence
and make a decision at the end of the matter.
[3] In addition to
the further affidavits filed, the applicants’ counsel handed to
the court, by agreement, a letter dated
22 August 2011 from Tshwane
Trust Co (Pty) Ltd to Gildenhuys Lessing Malatji (marked exhibit ‘A’)
and a letter dated
19 August 2011 from Gildenhuys Lessing Malatji to
Matthys Krog (marked exhibit ‘B’). These letters are
incorporated
in the record at pages 307-309. Finally, it must be
recorded that the applicants’ counsel, without objection from
the first
respondent, attached to his Supplementary Practice Note
dated 19 August 2011, copies of the following correspondence: a
letter
dated 16 May 2011 from Gildenhuys Lessing Malatji to Matthys
Krog Attorneys (marked ‘A’); an e-mail sent by Izak
Boshoff
of Tshwane Trust Company to Derick de Beer on 19 August 2011;
a letter dated 6 July 2011 from Gildenhuys Lessing Malatji to
Matthys
Krog Attorneys (marked ‘B’); a letter dated 6
July 2011 from Matthys Krog Attorneys to Gildenhuys Lessing Malatji
(marked ‘C’); a letter dated 8 July 2011 from Gildenhuys
Lessing Malatji to Matthys Krog and a letter dated 19 July
2011 from
Gildenhuys Lessing Malatji to Matthys Krog (marked ‘D’).
The Supplementary Practice Note and copies of the
correspondence are
incorporated in the record at pages 310-326.
[4
] The
applicants seek the rescission or setting aside of the sequestration
order in terms of section 149(2) of the Insolvency Act
24 of 1936
(‘the Act’) alternatively under the common law. Although
the first respondent purports to be opposing the
grant of this relief
on the merits it appears that the real dispute is who must be ordered
to pay the costs of the sequestration
once the sequestration order
has been set aside. The applicants’ attitude is that the first
applicant should not have to
bear these costs (see prayer 2 of the
notice of motion) as the first respondent abused the process of the
court in order to obtain
a sequestration order against him which
should not have been granted. The first respondent contends that the
first applicant should
bear these costs as he failed to make proper
arrangements to ensure that his creditors were paid. The first
applicant’s
supplementary affidavit deals with the steps taken
by the first applicant to ensure that his creditors are paid. The
first respondent’s
supplementary opposing affidavit attempts to
show that these steps were not effective and that the creditors will
be prejudiced
if the sequestration order is set aside.
[5
] Section
149(2) of the Act provides that:
‘The
court may rescind or vary any order made by it under the provisions
of this Act’.
The section does
not set out the grounds upon which the court may make such an order
and the section has been the subject of much
judicial comment.
According to the learned authors of
Mars
The
Law of Insolvency in South Africa
9
ed Bertelsmann et al (‘Mars’)
at
154 para 6.2 the section covers the grounds upon which a
sequestration order may be set aside at common law and it is firmly
established that the court may set aside an order of sequestration if
it is satisfied that there has been an abuse of its process.
For
present purposes the principles applicable to applications in terms
of section 149(2) set out by the court in
Storti
v Nugent and Others
2001
(3) SA 783
(W)
at
806D-G will be accepted as correct:
‘
(1) The Court’s
discretionary power conferred by this section is not limited to
rescission on common-law grounds.
(2) Unusual or special or exceptional
circumstances must exist to justify such relief.
(3) The section cannot be invoked to
obtain a rehearing of the merits of the sequestration proceedings.
(4) Where it is alleged that the order
should not have been granted, the facts should at least support a
cause of action for a common-law
rescission.
(5) Where reliance is placed on
supervening events, it should for some reason involve unnecessary
hardship to be confined to the
ordinary rehabilitation machinery, or
the circumstances should be very exceptional.
(6) A court will not exercise its
discretion in favour of such an application if undesirable
consequences would follow.’
[6
] Under
common law, an applicant for rescission of a judgment taken against
him by default, must show ‘sufficient cause’
– see
De
Wet and Others v Western Bank Ltd
1979
(2) SA 1031
(A)
at
1042F-1043C;
Chetty
v Law Society, Transvaal
1985
(2) SA 756
(A)
at
764I-765F;
Colyn
v Tiger Food Industries Ltd t/a Meadow Feed Mills (Cape)
2003
(6) SA 1
(SCA)
para
11. This requires that the applicant establish that –
(1) there is a reasonable and
acceptable explanation for his default;
(2) the
application is made
bona
fide
;
(3) the applicant
has a
bona
fide
defence
to the claim which
prima
facie
has
some prospect of success.
See
Chetty
v Law Society, Transvaal supra
at
765A-C;
Colyn
v Tiger Food Industries Ltd t/a Meadow Feed Mills (Cape) supra
para
11.
[7
] The
following facts are not in dispute or cannot be disputed:
(1) The first
applicant is a United Nations International Civil Servant (a United
Nations senior diplomat) who is the director of
the Office of
Strategic Planning and Programme Management of the United Nations
Economic Commission for Africa in Addis Ababa,
Ethiopia. The first
applicant is French speaking and also understands and speaks English
but not Afrikaans;
(2) The second
applicant
is an International Civil Servant employed by the African Union
Commission at its headquarters in Addis Ababa, Ethiopia. The second
applicant is French speaking and also understands and speaks English
but not Afrikaans;
(3) On 16 July 1983
the first and second applicants married in California, United States
of America where they were both domiciled;
(4) At all times
material hereto the applicants resided at Arat Kilo, Kebele No 7,
House No 1166/19, Addis Ababa, Ethiopia;
(5) In 1994, at the
time of the South African elections, the first applicant was
appointed a Peace and Electoral Observer with the
United Nations
Observers Mission in Pietermaritzburg, Kwa-Zulu Natal. While the
applicants were in South Africa their son, William,
was enrolled at
Michaelhouse College where he eventually matriculated;
(6) During his stay
in
South Africa the first applicant resolved to apply for permanent
resident status in South Africa as he wished to retire here.
As part
of his retirement planning he purchased two immovable properties in
South Africa: in 2003, Section 41 in the scheme known
as Outeniqua
situated in Arcadia, Pretoria (‘the Outeniqua property’)
for R140 000, and in 2004, Section 5 in the scheme
known as Houghton
Heights, situated in Houghton, Johannesburg, for R700 000 (‘the
Houghton property’). When the Outeniqua
property was
registered in his name the first applicant registered mortgage bond
no SB 120157/2004 in favour of Nedbank Ltd for
the sum of R77 500 and
when the Houghton property was registered in his name the first
applicant registered mortgage bond no SB72995/2004
in favour of The
Standard Bank of South Africa Ltd for the sum of R350 000;
(7) The first respondent is the body
corporate of the Outeniqua scheme;
(8) During 2004 and
until August 2005 the first applicant leased the Outeniqua property
to an employee of the University of Pretoria
which ensured that all
levies were paid to the first respondent;
(9
) From
August 2005 until December 2007 the applicants’ son, William,
and his girlfriend, Kate Legodi, lived in the Outeniqua
property.
During that period the first applicant made funds available to his
son so that he could pay the levies;
(10
) Unbeknown
to the first applicant, William got into financial difficulties and
stopped paying the monthly levies to the first respondent.
William
failed to inform the first applicant of this fact;
(11
) In
2008 the first respondent instituted action against the first
applicant in the Pretoria magistrates’ court for payment
of the
levies. The summons was served at the Outeniqua property which was
the first applicant’s
domicilium
citandi et executandi
,
and it never came to the first applicant’s attention;
(12
) On
6 March 2008 the first respondent obtained judgment by default
against the first applicant for R19 808,91 and costs;
(13
) The
first respondent issued a warrant of execution against the first
applicant’s movable property but no property was attached.
(The warrant of execution does not contain a description of any
immovable property to be attached.) According to the sheriff’s
return dated 10 July 2008 the sheriff was not able to execute the
warrant. He had attended at the Outeniqua property on four occasions
between April and June 2008 and on each occasion found the premises
locked. He could not ascertain whether the first applicant
lived at
the property or whether the first applicant had any attachable
assets;
(14
) There
is no evidence that the first respondent’s attorney instructed
the sheriff to attach the Outeniqua property. The
first respondent
clearly knew that the first applicant owned the property and that
there was a mortgage bond registered over the
property. The Deeds
Office report dated 9 January 2007, which was annexed to the first
respondent’s application to sequestrate
the first applicant to
prove that the first applicant owned the Outeniqua property, reflects
that the first applicant purchased
the property for R140 000 and that
a mortgage bond for R77 500 was registered over the property;
(15
) The
first applicant arranged for the instalments on the mortgage bond
over the Outeniqua property to be paid by debit order.
According to
the first respondent’s founding affidavit in the sequestration
application these instalments were paid every
month so that by the
time the first respondent launched the application for the first
applicant’s sequestration in November
2008 the first applicant
had not fallen into arrears. In its opposing affidavit in this
application the first respondent alleges
that the first applicant was
in arrears with his instalments on both mortgage bonds;
(16
) There
is no evidence about what the first applicant did with the Houghton
property. The first applicant says that he arranged
to pay the
mortgage bond instalments by debit order and does not mention that he
stopped paying. The first respondent’s
evidence indicates that
he stopped paying the instalments on 31 October 2008. It appears
that the first applicant also fell into
arrears with the levies
payable to the Body Corporate of the Houghton property;
(17
) On
31 October 2008 the first respondent applied to this court for leave
to effect service of a sequestration application on the
first
applicant by way of substituted service. The court granted the leave
sought by the first respondent: i.e. to effect service
upon the
first applicant by way of publication in the Pretoria News and
Citizen newspapers;
(18
) On
11 November 2008 the first respondent published notices in Afrikaans
in the Pretoria News and Citizen newspapers that the first
respondent
intended to apply to this court for the sequestration of the first
applicant;
(19
) On
16 January 2009 the court granted a rule
nisi
and
on 29 January 2009 a final order of sequestration. There is no
evidence of how this rule
nisi
was
served on the first applicant but it must be inferred that this was
done in the same way as the application;
(20
) The
second and third respondents were appointed provisional trustees in
the first applicant’s insolvent estate on 13 March
2009 and
trustees on 24 June 2009;
(21
) Some
time after August 2009 the first applicant discovered that his estate
had been sequestrated. (There is a dispute about precisely
when the
first applicant discovered this but it is not necessary to resolve
the dispute. However, it is clear that the trustees
did not inform
the first applicant immediately as they did not know where he was.
On 7 June 2010 the trustees sent an e-mail to
the first applicant to
confirm that his estate had been sequestrated, to inform him that
they had been appointed joint provisional
trustees and to draw his
attention to various sections in the Act with which he was required
to comply);
(22
) On
12 April 2010 in accordance with section 82(1) of the Act the
trustees sold the Outeniqua property on public auction to Mr.
Ash
Kerpal for R300 000. The auction was subject to confirmation and the
trustees confirmed the sale on 17 May 2010. On 9 July
2010 in
accordance with section 82(1) of the Act the trustees sold the
Houghton property on public auction to Prof. B. Jacobson
for R640
000. The two properties have not yet been transferred. The
purchaser of the Houghton property has already paid the purchase
price and it has been agreed that the property will be transferred to
him. After deduction of the costs and the amount owing to
the bond
holder, Standard Bank, there will be a surplus of R138 000.
(23) On 7 March
2011 the applicants’ attorney, Mr. J.F. de Beer, the first
respondent’s attorney, Mr. Krog and the trustee,
Mr. Boshoff,
had a meeting to determine what amounts were owing to creditors and
to make arrangements for the transfer of the Houghton
property. The
applicants had no objection to the transfer of this property
as the first applicant had already decided in April 2010 to sell it
and he was satisfied with the purchase price achieved. At
the
meeting a number of matters were discussed:
(i) The trustee
told Mr. De Beer and Mr. Krog that once the Houghton property had
been transferred and the creditors in respect
of that property
(including the bondholder, Standard Bank, and the auctioneer) paid,
there would be a surplus of R138 372. This
calculation did not take
into account the statutory fees and expenses provided for in the Act;
(ii) The trustee told the two
attorneys that an amount of R184 348 would be required to pay the
relevant creditors in respect of
the Outeniqua property (R100 000 for
the first respondent for outstanding levies; R10 000 for Tshwane
Municipality for arrear
rates and taxes; R74 348 to Nedbank for the
outstanding balance on the mortgage bond). (The first respondent’s
version
is that the total for the three creditors was R186 000: R96
000 for the first respondent; R14 000 for Tshwane Municipality and
R74 000 for Nedbank – but the first respondent contends that an
amount of R32 550 was payable to the auctioneer. That appears
to be
an estate expense which is the subject of dispute);
(iii) Mr. De Beer informed the trustee
and Mr. Krog that he would advise the applicants to pay the amount of
R184 348 in order to
resolve the matter amicably;
(iv) The trustee raised the question
of who would pay the costs and fees prescribed by the Act: the
insolvent estate or the first
respondent. No agreement was reached
on this issue;
(24) On 11 March
2011
Mr. De Beer reported to the first applicant what had transpired at
the meeting and advised him to arrange for payment of R184 000
by 15
May 2011 which the first applicant undertook to do;
(25) On 29 March
2011
Mr. Krog faxed a letter to Mr. De Beer in connection with the matter
to confirm that Mr. De Beer had intimated that the proceeds
from the
sale of the Houghton property would be used to pay most of the
creditors (i.e. of the estate) on or before 15 May 2011
and to
enquire how the payment of the creditors would be effected if the
funds remained in the trustee’s trust account.
On 30 March
2011 Mr. De Beer replied to this letter. He advised that the surplus
on the sale of the Houghton property would remain
in the trustee’s
trust account until this application was heard and he confirmed that
the first applicant would use his own
funds to pay the first
respondent and Nedbank;
(26) As the first applicant understood
the position, he owed the creditors in respect of the Outeniqua
property a total of R184
000 which meant, in effect, that he had to
provide an additional R46 000 (R184 000 minus R138 000) for the
trustee to pay the Outeniqua
creditors. The first applicant arranged
for an amount of R56 000 to be paid from his American Express account
into his attorney’s
trust account for payment to the trustee on
the understanding that it would be retained in the trustee’s
trust account pending
the adjudication of this application. The
first applicant paid more than R46 000 because the first respondent’s
managing
agent had handed his attorney a statement reflecting that
the outstanding amount payable to the first respondent on 25 March
2011
was R107 758,83;
(27) In addition to
the payment of R56 000 from the first applicant’s American
Express’ account the first applicant
made arrangements for US$
30 000 to be transferred from the second applicant’s account in
New York to his attorney;
(28) The first
applicant’s attorney would consult with the trustee to arrange
to make payment to creditors after 15 May 2011
to avoid any
suggestion that the first applicant was preferring one creditor above
another;
(29) The first applicant concluded
that not only were there sufficient funds to pay all the creditors
out of the trust account of
the trustee but once the US$ 30 000 had
been received his attorney would be able to pay all the Outeniqua
creditors;
(30) On 28 June 2011 the applicants
paid to the first respondent the sum of R113 552,73 which was the
amount owing to the first
respondent on 25 May 2011;
(31) Despite the
fact that Mr. Krog had advised Mr. De Beer on 6 July 2011 and 15 July
2011 that the applicants’ indebtedness
to the first respondent
had been paid in full the first respondent complained that the first
applicant had not paid the levies
for June, July and August 2011
(something which had not been dealt with in the affidavits). As
appears from exhibit ‘A’
the applicants’ attorney
has instructed the trustee to pay these levies to the first
respondent with funds at his disposal
(which amount to R4 412,95) and
the trustee will pay the levies as soon as Mr. Krog provides his bank
details.
[8] It is clear
that the sequestration orders were granted against the first
applicant (and possibly the second applicant) when
he (they) was
(were) in default of appearance and that the first applicant has
provided a reasonable and acceptable explanation
for his default. He
and the second applicant were in Ethiopia at the time and the
proceedings could not be and were not brought
to their attention. It
is also clear that the first respondent did not establish that the
first applicant had committed an act
of insolvency in terms of
sections 8(a), 8(c) and 8(d) of the Act which were relied upon by the
first respondent in its application
for the sequestration of the
first applicant. Jaco Breytenbach, the deponent to the first
respondent’s founding affidavit
in the sequestration
application, is simply a manager employed by the first respondent’s
managing agent, Huurkor Admin (Pty)
Ltd. He clearly does not have
knowledge of the facts which would justify a conclusion that the
applicant committed any one of
the acts of insolvency which he
alleges. If he did, he would have set out these facts rather than
simply repeat the wording of
sections 8(a), (c) and (d) coupled with
two bald allegations. Sections 8(a) and (d) require proof of the
applicant’s state
of mind. Mr. Breytenbach obviously has no
knowledge of any facts which would justify an inference that the
first applicant had
the required intention. As far as section 8(c)
is concerned, payment of his mortgage bond instalments and irregular
payment of
his sectional title levies is not sufficient for a
reasonable man to draw the inference that payment of his mortgage
bond instalments
would prejudice creditors. There is not sufficient
evidence of all the relevant circumstances - see
Mendel
Bros v Selikman
1930
WLD 243
;
Fittinghoff
v Hollins; Fittinghof v Stockton
1997
(1) SA 535
(W)
and
the cases there cited
;
Mars
94
para 4.4. In any event the first applicant denies that he did
anything that could be construed as an act of insolvency and this
prima
facie
is
correct. The first applicant therefore has a
bona
fide
defence
to the application. Finally, it cannot be doubted that the first
applicant is
bona
fide
in
seeking to set aside the sequestration order. He states that it is
an obstacle to his plan to obtain permanent residence status
and this
is not disputed. He has also made arrangements to pay all his
creditors.
[9
] The
first applicant has therefore made out a case for rescission of the
order at common law. The remaining issues are whether
there are
unusual or special or exceptional circumstances which would justify
such relief and whether setting aside the order would
result in
undesirable consequences. These issues will be considered in turn.
[10
] The
first applicant relies on the fact that the first respondent abused
the process of the court in order to obtain a sequestration
order
against him. He points out that if the first respondent had attached
and sold the Outeniqua property in execution the first
respondent
would have recovered its claim and legal costs in full and that would
have been the end of the matter.
(1) The first
respondent obviously knew that the applicant owned a property in the
scheme yet the first respondent never issued
a writ of execution
against the property itself. This is inexplicable in view of the
fact that on 9 January 2007 (i.e. one year
before the first
respondent obtained judgment against the first applicant) a Deeds
Office search had been conducted by the first
respondent or its agent
which showed that the first applicant had purchased the property for
R140 000 and registered a mortgage
bond over it for R77 500 (94). On
the face of it, there was sufficient equity available to pay the
first respondent’s claim
and costs. It is noteworthy that in
the sequestration application the first respondent relied on a
valuation for the property
of R280 000. The warrant of execution
issued on 10 March 2008 omitted the description of the immovable
property on which the warrant
may be executed (96). This was not
remedied even after the sheriff reported that he could not serve the
warrant of execution and
pointed out that the warrant is against
movable property only and that the services of a locksmith were
necessary to gain access
to the premises (63). The failure to
execute against immovable property is simply not explained. Despite
knowing all these facts
the first respondent obviously decided to
apply for the sequestration of the first applicant;
(2) In order to
commence sequestration proceedings the first respondent had to comply
with long-standing practice and serve the
application on the first
applicant personally – see
Mars
120
para 5.18. Since the first respondent did not know where the first
applicant was – or so it claimed – the first
respondent’s
attorney, Mr. Krog, instructed an investigator to ascertain the first
applicant’s whereabouts and on 29
August 2008 received a report
from the investigator that he could not find the first applicant
(i.e. that he was untraceable) but
that the first applicant was in
Gauteng and continually moved house and apparently worked for
himself. The first respondent then
launched an application in terms
of Rule 4(2) for leave to effect service on the applicant by way of
publication in the Pretoria
News and The Citizen newspapers which the
court granted on 31 October 2008. In view of the importance of
service generally –
see
Dada
v Dada
1977
(2) SA 287
(T)
at
288C-F;
SA
Instrumentation (Pty) Ltd v Smithchem (Pty) Ltd
1977
(3) SA 703
(D)
at
706E-H – and the general requirement of personal service in
sequestration proceedings, the first respondent should have
taken
special care to ensure that all material facts were placed before the
court in the
ex
parte
application
– see
Schlesinger
v Schlesinger
1979
(4) SA 342
(W)
at
349A-B;
National
Director of Public Prosecutions v Basson
2002
(1) SA 419
(SCA)
para
21;
(3) If the purpose
of an application for substituted service is borne in mind (i.e. to
obtain the court’s leave to serve by
a method not permitted by
the rules but which will effectively bring the relevant document to
the notice of the affected party)
the first respondent’s
application is a curious document. Mr. Krog deposed to the founding
affidavit and purported to speak
on behalf of the first respondent.
There is no confirming affidavit by the first respondent itself or
its managing agent. Mr.
Krog described the applicant as ‘Mr.
UD Zadi an adult person whose full and further details are unknown’.
(This is
a startling allegation in view of the deeds office search
already referred to. There it appears that the deeds office was
given
the first applicant’s full names: Urbain Djah Zadi and
that the deeds office was in possession of the first applicant’s
ID number: 510525 – clearly neither the name nor the number
were South African. It must also be contrasted with the allegation
in the founding affidavit of the first respondent’s
sequestration application, deposed to only one month later, that the
first applicant is Urbain Djah Zadi an adult male person ‘presumably
a foreigner’ with only known ID number 510525,
whose full and
further particulars are unknown to the applicant (i.e. the first
respondent)). Then Mr. Krog states that the Sheriff
attempted to
serve the warrant of execution: that on advice of the Sheriff the
applicant (i.e. the first respondent) put up security
in terms of
Rule 38 of the Magistrates’ Court Rules and the Sheriff
confirmed the use of a locksmith but that the judgment
debt remains
unsatisfied. It is not clear what these statements mean and insofar
as they are based on the Sheriff’s return
they are misleading.
The Sheriff suggested that a locksmith be used. There is no evidence
that a locksmith was in fact used to
gain access to the property and
still could not find property to attach. Mr. Krog states that the
first respondent does not know
where the first applicant is and that
the first respondent does not know about any family or friends of the
first applicant. (The
first respondent’s deponent in these
proceedings refers to the fact that the first applicant and his son
came to the Huurkor
Admin Offices on occasions and he knew that the
first applicant’s son lived in the property. It is common
cause that William
lived in the property during this period.)
Finally Mr. Krog says that he employed an investigator to trace the
applicant but the
investigator was unsuccessful and he attaches to
his affidavit the investigator’s report. In view of the first
respondent’s
professed ignorance about the applicant and his
whereabouts it is difficult to imagine what instructions Mr. Krog
gave to the investigator.
(They are not attached). The
investigator’s report is an unimpressive document and is not
confirmed under oath. He does
not set out the facts he was given and
he does not set out any facts to justify a conclusion that the
applicant is in Gauteng and
that the applicant continually moves
house and apparently works for himself. In view of the undisputed
facts this was clearly
a fabrication. Then the first respondent
sought leave to serve by publication in two English language
newspapers without any indication
that the applicant reads English or
reads these newspapers. There is no suggestion that he could read
Afrikaans;
(4) The court gave leave to effect
service by publication in the Pretoria News and Citizen newspapers.
Mr. Krog arranged for publication
of the relevant notice in Afrikaans
in the two English language newspapers.
(5) By the time the first respondent
prepared the application for sequestration it clearly knew that the
first applicant was a foreigner
and in view of the lack of
information as to his whereabouts in South Africa it should have
appreciated, as any reasonable person
would, that he may not be in
South Africa and that the substituted service ordered by the court
would not be effective. The first
respondent obviously ignored this;
(6) There is no suggestion in the
papers that the first respondent consulted its records to ascertain
the first applicant’s
whereabouts. If it had, it would have
found the deed of sale completed by the first applicant when he
purchased the Outeniqua
property. It contains the first applicant’s
full names, residential address and contact details. It is
noteworthy that
on 7 June 2010, when the trustee notified the first
applicant that he had been sequestrated, the message was sent by
e-mail to
the address in the deed of sale. This could only have come
from the first respondent’s or Huurkor Admin’s records.
In view of these strange features I am
driven to the conclusion that the first respondent’s attorney,
Mr. Krog, never intended
to serve the papers on the applicant. No
attempt appears to have been made to ensure that the method of
service for which leave
was sought was effective.
[11
] The
first respondent’s application for the first applicant’s
sequestration was, in effect, an
ex
parte
application.
The first respondent and its attorney must have known that service
in the manner ordered would not be effective.
The first respondent
should have taken great care to ensure that the correct information
was placed before the court.
(1) As already pointed out, Mr.
Breytenbach, the deponent, has no personal knowledge of the facts.
He could not allege that the
first applicant had committed any acts
of insolvency;
(2) The first
respondent sought to create the impression that the first applicant
was in South Africa. Reference was made to his
domicilium
citandi et executandi
which
is irrelevant for purposes of the application and service was
effected there and at Huurkor Admin despite the fact that this
was
not in accordance with the order for substituted service and the
contents of the application itself. Clearly from the application
service at these addresses would not come to the notice of the first
applicant;
(3) There is no
mention of the fact that the summons in the magistrates’ court
action was not served on the first applicant
but on his
domicilium
citandi et executandi
and
that the first respondent had obtained judgment by default;
(4) The amount of the outstanding
balance on the mortgage bond was misrepresented to be R140 000
whereas it was in fact only about
R72 000;
(5) It was alleged that the first
respondent had done everything in its power to limit its damage and
had taken steps to execute
its judgment but this had not resulted in
any proceeds. No mention was made of the first respondent’s
failure to attach
the Outeniqua property and sell it in execution.
[12
] In
view of these facts I am of the view that there are exceptional
circumstances present. The first respondent systematically
misled
the court about the first applicant’s whereabouts and the need
for a sequestration order. The facts alleged by the
applicants show
that they would never have had an opportunity to oppose the
magistrates’ court action or the sequestration
application and
that at least
prima
facie
they
have a valid and
bona
fide
defence
to the application.
[13] As far as
prejudice to creditors is concerned it appears that despite the first
respondent’s contentions the first applicant
has made proper
arrangements to pay all his creditors and that none will be
prejudiced by the setting aside of the sequestration
order. It is
significant that the first applicant was able to pay the first
respondent almost R120 000 from his own funds which
indicates that
his attorney did receive the US$ 30 000. The issue of the
sequestration costs is a separate matter and will be
dealt with next.
I do not regard that as prejudice which would prevent the court from
making the order.
[14] Both sides
seek orders against the other party that the other party pay the
costs of the sequestration. The applicants consider
that they were
not to blame in any way for an order which the first respondent
should not have sought against them and which the
first respondent
obtained improperly. The first respondent contends that the first
applicant should pay the costs because of his
failure to make proper
arrangements to pay his debtors in South Africa. It is also argued
that the first applicant is opportunistically
allowing the sale of
the Houghton property to proceed without accepting that his estate is
liable for the costs incurred. In view
of the manner in which the
first respondent has conducted this litigation I do not accept the
first respondent’s contentions.
In my view the first
respondent did abuse the process – see
Price
Waterhouse Coopers Inc v National Potato Co-op Ltd
2004
(6) SA 66
(SCA)
para
50. It sought an order for substituted service to which it was not
entitled and did not place all the material facts before
the court.
I have already referred to the fact that Mr. Krog never intended to
serve the papers on the first applicant. With
regard to service on
the first applicant the first respondent systematically misled the
court about his whereabouts. The difficulty
which the sequestration
order caused the applicants is obvious. Neither party has satisfied
me that I have the power to make the
order which is sought. If
nothing is ordered the unsuccessful applicant (i.e. the first
respondent) will be responsible for the
costs which is what I would
order if I had the power.
[15] After
considering the record and the argument I have decided to receive in
evidence those parts of the first applicant’s
Supplementary
Affidavit (paras 1, 10, 11, 12 and 13) and the first respondent’s
further opposing affidavit (paras 3.1, 3.2,
3.3, 3.7, 3.8 (first
sentence only), 3.9, 3.15, 3.23, 4, 9, 10, 11 and 12 and the
confirming affidavits of Johannes Matthys Krog
and Izak Boshoff which
deal with the arrangements made by the first applicant to pay his
creditors and the whole of the opposing
affidavit in the second
applicant’s application to intervene. See
James
Brown & Hamer (Pty) Ltd (Previously named Gilbert Hamer & Co
Ltd) v Simmons
1963
(4) SA 656
(A)
at
660D-H;
York
Timbers Ltd v Minister of Water Affairs and Forestry
2003
(4) SA 477
(T)
at
483F-484I. In order to do justice in this matter the position
regarding the first applicant’s creditors needs to be
clarified.
[16] The facts set
out in paragraph [7] are gleaned from the affidavits and the letters
referred to and enable the court to make
the necessary findings to
decide this case –
National
Director of Public Prosecutions v Zuma
[2009] ZASCA 1
;
2009
(2) SA 277
(SCA)
para
26. It is noteworthy that the first respondent’s deponents
have often not engaged with the facts and simply put up bald
denials
and allegations which do not create
bona
fide
disputes
of fact – see
Wightman
t/a JW Construction v Headfour (Pty) Ltd and Another
[2008] ZASCA 6
;
2008
(3) SA 371
(SCA)
paras
12 and 13.
[17] Costs must
follow the result. In view of my finding about the abuse of process
the applicants’ request that costs be
paid on the scale of
attorney and client is justified. The first respondent’s
conduct of these proceedings was also vexatious.
If the real dispute
was who was to be responsible for the sequestration costs this should
have been dealt with in terms of Rule
33. Instead the first
respondent attempted to create disputes of fact about prejudice to
creditors by filing a further affidavit
and then arguing the merits.
The applicants have been obliged to go to a great deal of unnecessary
effort and expense to deal
with all the issues – see
In
re Alluvial Creek Ltd
1929
CPD 532
at
535;
Johannesburg
City Council v Television & Electrical Distributors (Pty) Ltd and
Another
1977
(1) SA 157
(A)
at
177D-F.
[18] Although the
first respondent did not object to the second applicant’s
application to intervene the first respondent
made it clear that it
did not accept that the second applicant was married in community of
property and therefore should have been
joined in the sequestration
application in accordance with
section 17(4)(b)
of the
Matrimonial
Property Act 88 of 1984
. In her application to intervene the second
applicant alleged simply that on 16 July 1983 she and the first
applicant were married
in Claremont, California, United States of
America, where they were domiciled and that their marriage is similar
to a marriage
in community of property in South Africa. The question
of what matrimonial property regime applies to the applicants’
marriage
is clearly a matter of foreign law which must be proved by
expert evidence – see
Hlophe
v Mahlalele and Another
1998
(1) SA 449
(T)
at
457E-F:
Standard
Bank of South Africa Ltd and Another v Ocean Commodities Inc and
Others
1983
(1) SA 276
(A)
at
294G-H. In the latter case the court said:
‘The content
and effect of a foreign law is a question of fact and must be proved
(
Schlesinger
v Commissioner for Inland Revenue
1964
(3) SA 389
(A)
at
396G). Proof is usually furnished by the evidence of properly
qualified persons who have an expert knowledge of the law in
question. Where the relevant foreign law is statutory in nature,
then, in my opinion, it is the right and duty of the court itself
to
examine the statute and to determine the meaning and effect thereof
in the light of the expert testimony, especially where such
testimony
is of a conflicting nature. … It follows that the party
relying on the foreign statute should, generally speaking,
place the
statute before the court.’
There is no such
evidence in the present case and the court cannot find that the
applicants are indeed married in community of
property in a similar
manner to South African law. The second applicant has therefore not
proved that it was necessary for her
to be joined as a respondent in
the sequestration application. Clearly this issue could have been
argued on the second applicant’s
own application
and
it was not necessary for the first respondent to file an answering
affidavit. It is noteworthy that on the issue the first
respondent’s
deponent, Mr. Breytenbach, repeatedly says that he is advised without
disclosing the source of the advice or
attaching the affidavit of an
expert to confirm the advice. The joinder of the second applicant is
therefore of academic interest.
In my view the fairest order to make
with regard to costs is that each party pay his/her/its own costs.
[19]
The
conduct of Mr. Krog in this case leaves much to be desired. He
actively engaged in the proceedings and deposed to the founding
affidavit in the application for substituted service and obviously
prepared the sequestration application. He was involved in
abusing
the process of the court and made a number of misleading statements
in his founding affidavit and drafted a founding affidavit
which also
contained misleading statements. This conduct must be investigated
by the Law Society of the Northern Provinces and
if necessary,
appropriate steps taken against him. I record that the applicants
gave notice that they would seek an order of costs
against Mr. Krog
de
bonis propriis
but
at the end of the argument did not persist in this.
[20] The following order is made:
I The sequestration order made against
the first applicant on 29 January 2009 is set aside;
II The first respondent is ordered to
pay the costs of this application on the scale as between attorney
and client;
III The parties in the second
applicant’s application to intervene are ordered to pay their
own costs;
IV The registrar is
requested and directed to send a copy of this judgment together with
a copy of the record and the parties’
heads of argument and
practice notes to the President of the Law Society of the Northern
Provinces to investigate the conduct of
attorney Johannes Matthys
Krog of Matthys Krog Attorneys, Pretoria in the light of this
judgment and if it deems appropriate to
take disciplinary steps
against him.
_____________________
B.R. SOUTHWOOD
JUDGE OF THE HIGH COURT
CASE NO:
55727/2010
HEARD
ON: 24 August 2011
FOR
THE APPLICANTS: ADV. L. UYS
INSTRUCTED
BY: Gildenhuys Lessing Malatji
FOR
THE 1
ST
RESPONDENT: ADV. N.C. HARTMAN
INSTRUCTED
BY: Mathys Krog Attorneys
DATE
OF JUDGMENT: 14 September 2011