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[2018] ZAECPEHC 55
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Standard Bank of South Africa Limited v Master of the High Court (2632/2017) [2018] ZAECPEHC 55; [2018] 4 All SA 871 (ECP) (2 October 2018)
IN
THE HIGH COURT OF SOUTH AFRICA
(EASTERN
CAPE LOCAL DIVISION, PORT ELIZABETH)
CASE
NO.: 2632/2017
In the
matter between:
THE
STANDARD BANK OF SOUTH AFRICA LIMITED
Applicant
and
THE
MASTER OF THE HIGH
COURT,
First Respondent
EASTERN
CAPE, PORT ELIZABETH
LIONEL
SHROSBREE
Second Respondent
GARY
MARK SHROSBREE
N.O.
Third Respondent
In his
capacity as the joint liquidator of
Mario
Levi Manufacturing, South Africa
(Pty)
Ltd (In Liquidation)
MICHELLE
PAY
N.O.
Fourth Respondent
In her
capacity as the joint liquidator of
Mario
Levi Manufacturing, South Africa
(Pty)
Ltd (In Liquidation)
MOHAMMED
IMRAN PETERSEN
N.O.
Fifth Respondent
In his
capacity as the joint liquidator of
Mario
Levi Manufacturing, South Africa
(Pty)
Ltd (In Liquidation)
SIVALUTCHMEE
MOODLIAR
N.O.
Sixth Respondent
In her
capacity as the joint liquidator of
Mario
Levi Manufacturing, South Africa
(Pty)
Ltd (In Liquidation)
PW
HARVEY AND COMPANY
(PTY)
Seventh Respondent
LIMITED
JUDGMENT
HUISAMEN
AJ
INTRODUCTION
:
[1] This
is a review application in which the applicant (Standard Bank) seeks
the following
relief:
"1.
Condoning the Applicant's failure to institute the application within
the time period
specified in
section 7
of the
Promotion of
Administrative Justice Act 3 of 2000
(PAJA).
2.
Reviewing
and setting aside the decision of the First Respondent
(the
Master)
taken on 21 November 2016 regarding the payment to the
Second Respondent
(Lionel Shrosbree)
of a commission on
the investment of certain funds of Mario Levi Manufacturing South
Africa (Pty) Ltd (in liquidation) (Mario Levi)
during the course of
the administration of Mario Levi;
3.
Declaring
that the Second Respondent had no lawful entitlement to receive
payment of commissions in respect of the investment of
the funds of
Mario Levi, invested by the Third Respondent
(Gary
Shrosbree),
in his capacity
as
joint
liquidator of Mario Levi, with
a
financing house
known
as
PW Harvey and Co.;
4.
Directing
Gary Shrosbree to provide to the Master and. the Applicant
a
full account of all amounts paid to Lionel Shrosbree from
the funds of Mario Levi within 30 days of the date of this Order and
upon
the furnishing of such account,
a
debatement
thereof, if necessary;
5.
Directing
Lionel Shrosbree, alternatively Gary Shrosbree in his personal
capacity, to repay the commissions received by Lionel Shrosbree
to
Mario Levi within 5 days of the delivery of the debatement and
accounting referred to in paragraph 3 above;
6.
Directing
that the costs of this application be paid
as a
cost
in the winding-up of Mario Levi, alternatively that the costs be paid
by any respondent opposing this application;•.•"
[2] The
Master is abiding the court's decision.
[3] Standard
Bank's founding affidavit, as well as its replying affidavit, was
deposed
to by Elizabeth Johanna Engelbrecht.
[4] Lionel
Shrosbree, Gary Shrosbree and PW Harvey are opposing the application.
[5] No
direct relief is sought against PW Harvey. However, having regard to
the obvious
impact and consequences of the relief sought, PW Harvey
joined the proceedings as seventh respondent and is also opposing the
application.
[6] Gary
Shrosbree and Gavin Charlton Harvey deposed to extensive opposing
papers.
Lionel Shrosbree filed a confirmatory affidavit in which he
confirmed the allegations contained in Gary Shrosbree's affidavit.
[7] Gary
Shrosbree conducts his business through Shrosbree Trustees CC. He is
the
sole member of the CC.
CONDONATION:
[8] The
decision of the Master, which is the subject matter of these
proceedings, was conveyed
to Standard Bank through its attorneys on
21 November 2016. The application was launched on 3 August 2017, some
75 days out of
the prescribed period of 180 days set out in PAJA.
[9] Standard
Bank has fully set out their explanation for the delay in relation to
the bringing of the application. The explanation covers the entire
period of the delay. There was no objection from any of the
respondents to the application for condonation and I therefore
granted the required condonation to Standard Bank.
THE
BACKGROUND FACTS:
[10] Mario
Levi was provisionally wound-up by this court on 4 March 2014 and
finally on 8 April
2014. The initial liquidators were appointed on 14
March 2014.
[11] The
Master convened the first meeting of Mario Levi's creditors and
members, as contemplated
in section 364 of the 1973 Companies Act, on
21 May 2014, at which meeting Gary Shrosbree was finally appointed as
one of the liquidators
of Mario Levi, together with Ms Pay and Mr
Petersen.
[12]
Ms Moodliar was also appointed as one of the joint liquidators on 13
August 2014. Prior to Ms
Moodliar's appointment the initial
liquidators, on 8 August 2014, lodged the first liquidation and
distribution account (the first
account) with the Master.
[13]
Standard Bank subsequently lodged an objection to the first account
with the Master, raising
various grounds of objection, including the
defective advertising of the first account. Thereafter Standard Bank
amplified its
objection and the amplified objection was lodged with
the Master on 18 September 2014.
[14]
Prior to Ms Moodliar's appointment the administration of Mario Levi's
liquidation process was
led by Gary Shrosbree.
[15]
Ms Moodliar subsequently brought an investment of certain funds of
Mario Levi with PW Harvey
to the attention of Standard Bank.
[16]
Standard Bank became concerned as to,
inter alia,
the
propriety of this arrangement as well as other aspects relating to
the administration of Mario Levi. Consequently, on 6 May
2015,
Standard Bank formally applied to the Master to convene an enquiry to
investigate,
inter alia,
whether commission was being earned
on the investment of Mario Levi's funds with a private investment
company.
[17]
Gary Shrosbree, in his official capacity, invested the said funds of
Mario Levi in a corporate
saver account with Nedbank, through the
agency of PW Harvey on or about 30 June 2014.
[18]
PW Harvey invests, as part of their business, funds placed with it on
behalf of its clients with
certain financial institutions, including
Nedbank, and charge a fee, alternatively receives a commission, for
this service from
Nedbank. The said fees are charged as a percentage
of the interest earned on the monies invested.
[19]
PW Harvey has, at all material times hereto, had an arrangement with
Lionel Shrosbree in terms
of which Lionel Shrosbree would receive a
referral commission for. any investments referred by him to PW
Harvey. This arrangement
was in terms of a historical oral agreement
which included an entitlement to commission on all funds invested by
Gary Shrosbree
with PW Harvey.
[20]
Lionel Shrosbree is not involved with Shrosbree Trustees and has no
connection with Shrosbree
Trustees other than that Gary Shrosbree is
his son.
[21]
The net interest rate earned on the corporate saver account at the
time that the funds of Mario
Levi were invested as aforesaid with
Nedbank (after deduction of PW Harvey's agency fee), was 3.65°/o
per annum.
[22]
Standard Bank contends that this net rate is significantly lower than
the interest rate offered
by similar investments by other financial
institutions.
[23] Standard
Bank's complaint is that the investment of the funds of Mario Levi
with PW Harvey on
the basis set out above, resulted in:
23.1
the unlawful payment of fees and/or charges out of the funds of Mario
Levi; and.
23.2
the payment of the funds of Mario Levi to a third party (Lionel
Shrosbree), who had
no lawful entitlement thereto.
[24]
After receiving representations from PW Harvey and Gary Shrosbree,
the Master ruled, on 13 August
2015, that a
prima facie
case
was made out by Standard Bank, necessitating an investigation into
the conduct of the initial liquidators in terms of section
381 of the
1973 Companies Act.
[25]
The Master requested the details of a suitable person to investigate
the books and vouchers of
the initial liquidators, as well as details
of the relevant individuals at PW Harvey who were in control of the
funds invested
in the corporate saver account. He also requested a
complete set of the bank statements of Mario Levi as well as the bank
statements
in respect of the funds invested with PW Harvey from the
date of the appointment of the provisional liquidators until the date
of the first liquidation account.
[26]
On 28 September 2018 the Master appointed Alan Greyling of
Accountants@Law to conduct a forensic
investigation into the
investment of the funds of Mar.io Levi through the agency of PW
Harvey, as part of the enquiry process.
[27]
At the enquiry, held on 20 October 2015, which was initially only
aimed at the production of
documents, various individuals were
subpoenaed to attend, including the initial liquidators; Gavin Harvey
and Ms Lindy Kotze, an
employee of PW Harvey.
[28]
PW Harvey's attorneys, Kaplan Blumberg, submitted various documents
to the enquiry, including
documents which related to the request to
open a corporate saver account for Mario Levi; investment statements
for the corporate
saver account and a summary of fees paid in respect
of that account.
[29]
From the documents submitted by Kaplan Blumberg it became apparent
that over a period of one
year, Lionel Shrosbree earned an amount of
R7 804,48 from the interest which accrued on the funds of Mario Levi
in the corporate
saver account. Although this sum seems fairly
insignificant, I accept that this matter is not primarily about the
repayment of
this sum, but that it involves an important principle in
relation to the lawfulness of the administration of the estate under
the
leadership of Gary Shrosbree.
[30]
PW Harvey, duly represented at all material times by Gavin Harvey,
also furnished a statement
under oath to the enquiry in which he
confirmed that PW Harvey had an arrangement with Shrosbree Trustees
CC in relation to funds
which the latter invested with PW Harvey in
its Nedbank corporate saver facility.
[31]
Gavin Harvey further advised that no commissions were paid to either
Shrosbree Trustees CC or
to Gary Shrosbree, but that PW Harvey paid a
share of the agent's fee, earned by it, to Lionel Shrosbree, on a
monthly basis in
terms of the aforesaid longstanding relationship
between PW Harvey and Lionel Shrosbree.
[32]
Standard Bank contends that, based on a comparison between the net
rate earned by Mario Levi
on the said investment and comparable rates
obtained from other financial institutions, for the period in
question, the initial
liquidators would have been able to achieve a
higher interest rate (ranging from 4.5°/o to 6°/o), had they
invested the
funds with another financial institution.
[33]
Consequently, so Standard Bank contends, in accordance with the
initial findings of Accountants@Law,
Mario Levi forfeited 1.2% (plus
VAT) of the interest accruing to it as a result of its capital being
invested with PW Harvey.
[34]
On 8 April 2016, Accountants@Law circulated a supplementary report,
which took into account a
letter and annexures submitted by Gary
Shrosbree's attorneys; the bank statements of Lionel Shrosbree; the
comparative rates submitted
by Gary Shrosbree; as well as
correspondence from the remaining initial liquidators regarding the
commission arrangement.
[35]
According to Standard Bank the following new evidence emerged from
the supplementary report of
Accountants@Law:
35.1 Gary
Shrosbree acknowledged that he was aware that a portion of the
interest from
the corporate saver account was paid as an agent's fee
to PW Harvey, although he denied any knowledge of the referral
commission
payments made to his father by PW Harvey;
35.2 Gavin
Harvey was under the impression that Gary Shrosbree had been aware of
the details of the commission agreement between PW Harvey and Lionel
Shrosbree, based on the fact that all monthly statements regarding
the agent's fees were delivered to Lionel Shrosbree via the offices
of Shrosbree Trustees CC and they followed up on the payment
of the
commission;
35.3 Ms
Pay and Mr Petersen (the fourth and fifth respondents) were not aware
of
the agent's fee that was being deducted from the interest earned
on the funds of Mario Levi or of the fact that half of the agent's
fee was paid to Lionel Shrosbree on a monthly basis, and they never
had sight of any forms or participated in any decision to open
the
corporate saver account through PW Harvey.
[36]
Accountants@Law furthermore found that there was no evidence that
Lionel Shrosbree was the effective
cause of Mario Levi's funds being
invested with PW Harvey.
[37] They
also concluded that Mario Levi's funds were invested in the corporate
saver account at less
than competitive rates as a consequence of the
agency fee earned by PW Harvey on the investment.
[38] On
27 October 2016, the Master furnished his ruling regarding the
enquiry and the objections of
Standard Bank.
[39]
Although the Master made a ruling in respect of the various grounds
of objection he omitted to
make a ruling regarding the commission
arrangement between PW Harvey and Lionel Shrosbree.
[40]
Accordingly, on 15 November 2016, Standard Bank's attorneys requested
that the Master make a
ruling regarding the commission arrangement.
[41]
On 21 November 2016, the Master advised that the ruling had not been
made, as the issue of the
commission issue had not been raised in the
initial objection.
[42]
The Master, however, made the following decision regarding the
commission arrangement:
"The
ruling will be guided by the following question.
Is
Mr Lionel Shrosbree liable for the re-payment of the commission paid
to him by P.W. Harvey to the estate banking account?
The
Master answers the aforementioned question in the negative. The
reason for answering the commission question in the negative
is found
in the evidence of Gavin Harvey on the inquiry dated
6
June 2016 when he stated that he paid 50 percent of the
administration fee to Mr Lionel Shrosbree based on a long standing
relationship
between Mr Lionel Shrosbree and P.W. Harvey for
introducing clients to P.W. Harvey. On his evidence Gavin Harvey
admitted that
Shrosbree trustees were introduced to P.W. Harvey by Mr
Lionel Shrosbree. Mr Gavin Harvey further admitted that work which
emanated
from Shrosbree trustees triggered the payment of 50 percent
administration fee to Mr Lionel Shrosbree. From the evidence of Mr
Gavin Harvey the source of the funds was
not a
factor
and their only consideration to pay Mr
Lionel Shrosbree 50 percent of the administration fee is that funds
must be from Shrosbree
trustees.
The Master has
considered the fact that the P.W. Harvey was not concerned of the
source of the funds be it estate funds or not,
their only
consideration resulting to the 50 percent payment to Mr Lionel
Shrosbree was funds must be from Shrosbree trustees and
in the
present matter directive to invest estate funds was from Shrosbree
trustees. The 50 percent administration fee to Mr Lionel
Shrosbree
had to follow the link of funds from Shrosbree trustee to P.W.
Harvey.
In light of
the above consideration of the Master, Mr Lionel Shrosbree is
not
liable
for the payment of 50 percent administration fee to the
liquidators of the estate."
[43]
This ruling is the subject matter of these proceedings.
[44]
This matter is predicated upon the suspicion on the part of Standard
Bank that Gary Shrosbree
has earned a secret referral commission or
kickback from PW Harvey as a result of the investment made by Gary
Shrosbree with Nedbank
through the agency of PW Harvey. This is
apparent from the request for a section 381 enquiry addressed to the
Master which reads,
inter alia,
as follows:
"25.
There is a further issue of serious concern which has been brought to
our attention by Ms Moodliar.
This relates to the secret referral
commission or 'kick-back' paid to one of the liquidators, Mr Gary
Shrosbree, by the firm PW
Harvey...
29.
This
arrangement is done in secret and is not disclosed to creditors, nor
to the remaining liquidators. Mr Shrosbree derives a commission
without reflecting this in the Estate banking account or the
liquidation and distribution account.
30.
This
is an illegal practice in terms of the Insolvency Act and taking a
secret commission without disclosing it to affected parties,
could in
fact amount to a fraud on creditors if effectively funds which are
ultimately for their benefit are used to generate secret
commissions
to liquidators."
[45]
Lionel Shrosbree was not called upon by the Master to give any
evidence at all as part of the
section 381 enquiry.
[46]
The essence of the dispute between the parties is whether or not the
payment to Lionel Shrosbree
of a portion of the interest earned on
the funds of Mario Levi which had been invested with PW Harvey was
lawful.
THE
LEGAL POSITION:
[47]
Section 381 of the Companies Act of 1973 provides as follows:
"(1)
The Master shall take cognizance of the conduct of liquidators and
shall, if he has
reason to believe that a liquidator is not
faithfully performing his duties and duly observing all the
requirement imposed on him
by any law or otherwise with respect to
the performance of his duties, or if any complaint is made to him by
any creditor, member
or contributory in regard thereto, enquire into
the matter and take such action thereanent as he may think expedient.
(2)
The
Master may at any time require any liquidator to answer any enquiry
in relation to any winding-up in which such liquidator is
engaged,
and may, if he thinks fit, examine such liquidator or any other
person on oath concerning the winding-up.
(3)
The
Master may at any time appoint a person to investigate the books and
vouchers or a liquidator.
(4)
The
Court may, upon the application of the Master, order that any costs
reasonably incurred by him in performing his duties under
this
section be paid out of the assets of the company or by the liquidator
de bonis propriis.
(5)
Any
expenses incurred by the Master in carrying out any provision of this
section shall, unless the Court otherwise orders, be regarded
as part
of the costs of the winding-up of that company."
[48]
As
emphasized in the opening paragraph of the judgment in
Standard
Bank of South Africa v The Master of the High Court (Eastern Cape
Division
)
[1]
:
"In
the winding-up of companies liquidators occupy a position of trust,
not only towards the creditors but also the companies
in liquidation
whose assets vest in them. Liquidators are required to act in the
best interests of creditors. A liquidator should
be wholly
independent, should regard equally the interests of all creditors,
and should carry out his or her duties without fear,
favour or
prejudice."
[49]
The
object of the provisions of the 1973 Companies Act relating to
winding-up, which provisions continue to apply in terms of item
9 of
schedule 5 to the new
Companies Act of 2008
, is to ensure a fair
distribution of the company's assets among its creditors in the order
of their preference.
[2]
[50] The
effect of a winding-up order is to establish a
concursus
creditorum
and once the law takes control of the estate, the
rights of the general body of creditors have to be taken into
consideration on
a fair and equal basis.
[51] Included
in the duties of a liquidator is the fiduciary duty not to make a
secret profit
or receive a kickback resulting from investments made
by the liquidator.
[52] English
Law is instructive in this regard and provides that:
"A
liquidator is required to act in good faith, prohibited from making a
secret profit out of dealings with the company's property
and money,
not at liberty to act out of self-interest in the performance of his
duties and not entitled to unapproved reward.
"
[3]
[53]
The
liquidator must act with reasonable care in discharging his duties,
whether the winding-up is compulsory or voluntarily.
[4]
[54] Section
394 of the 1973
Companies Act prescribes
the manner in which the
banking and investment of funds of a company in liquidation are to be
dealt with and provides,
inter alia,
as follows:
"394.
(1) The liquidator of
a company-
(a)
shall
open a current account from which amounts are withdrawable by cheque
in the name of the company in liquidation with a banking institution
registered under the Banks Act, 1.965 (Act No. 23 of 1.965), within
the Republic, shall from time to time deposit therein to the
credit
of the company all moneys received by him on its behalf;
(b)
may
open a savings account in the name of such company with such a
banking institution, a mutual building society registered under
the
Mutual Building Societies Act, 1965 (Act No. 24 of 1965), or a
building society registered under the Building Societies Act,
1986
(Act No. 82 of 1986), within the Republic, and may transfer thereto
moneys deposited in the account referred to in paragraph
(a) and not
immediately required for the payment of any claim against such
company;
(c)
may
place moneys deposited in the account referred to in paragraph (a)
and not immediately required for the payment of any claim against
such company, on interest-bearing deposit with such banking
institution, mutual building society or building society within the
Republic;
(d)
shall
not
withdraw any money from any account referred to
in paragraph (b) or (c) otherwise than by way of a transfer to the
said current
account."
( own emphasis)
[55] In
other words, a liquidator is obliged to open a current account in the
name of the company
in liquidation. In addition, he may also open a
savings account in the name of the company. The savings account is
meant to be
in addition to, and not instead of, the current account.
All funds received by the liquidator on behalf of the company must be
deposited into the current account and funds deposited in the savings
account can be only those which have been transferred from
the
current account and which are not immediately required for the
payment of any claims against the company.
[56] In
addition to a savings account the liquidator may also place funds in
a current account
on an interest-bearing deposit with a banking
institution, if such funds were not immediately required for the
payment of any claims
against the company.
THE
MAIN SUBMISSIONS AND DISCUSSION:
[57] Adv
Adhikari, appearing on behalf of Standard Bank, contends that a
corporate saver account
is not a current account as contemplated by
section 394 of the 1973
Companies Act. She
continues to argue as
follows:
57.1
In terms of
section 394(1)(a)
Gary Shrosbree was obliged to open a
current account with a bank, from which account amounts could be
withdrawn by cheque in the
name of Mario Levi, and into which account
Gary Shrosbree was obliged to deposit, to the credit of Mario Levi,
all monies received
by him on its behalf;
57.2
It is
clear that what is intended by
section 394(1)(a)
is that all monies
received by the liquidator on behalf of the company must be deposited
into the current account.
[5]
A
savings account and/or interest-bearing deposit are to be additional
to, and not instead of, the current account.
57.3
Further,
section 394(1)(b)
and (c) makes it clear that monies
deposited into the savings account or interest bearing deposit
may only be those which
have been transferred from the current
account;
57.4
Section 394(1)(d)
is a peremptory provision that requires that monies
in the savings account, or on interest-bearing deposit, may only be
withdrawn
by way of a transfer to the current account;
57.5
The clear purpose of
section 394
is, according to Ms Adhikari, to
ensure that there is effective control over the payment of funds of
an insolvent company by ensuring
that there is a single transactional
account for the receipt of all funds due to the insolvent company and
through which all payments
to third parties out of the funds of the
insolvent company are made;
57.6
The liquidation and distribution account (which sets out the manner
in which all the assets
of the company have been liquidated and how
the proceeds thereof will be used in settling the administration
costs and in paying
dividends to the proved creditors), is prepared
on the basis of the transaction record of the current account;
57.7
Section 394
is an essential tool in ensuring that the Master is able
to exercise effective control over all aspects of a winding-up by,
inter alia,
examining the liquidation and distribution account
against (a) vouchers submitted by the liquidator and (b) the
transaction record
of the current account;
57.8
Ms Adhikari furthermore argues that Gary Shrosbree expressly
requested PW Harvey to open
a savings account for Mario Levi and not
a current account. According to her Gary Shrosbree at all relevant
times considered the
corporate saver account to be a savings account
and not a current account;
57.9
She argues that this is confirmed by the fact that, during the period
December 2014 to
April 2015, Gary Shrosbree requested PW Harvey on
several occasions to electronically transfer certain specified
amounts from the
corporate saver
"to the Estate banking
account",
as reflected on the transfer requests annexed
to the application papers. She argues that the corporate saver bank
statements demonstrate
that transactions made in respect of the
corporate saver account were:
(a) cheque
payments into the account recorded as being from accounts identified
as Mario Levi;
(b) electronic
deposits identified as coming from the Mario Levi Standard
Bank
account;
(c) amounts
paid from the corporate saver account to the Mario Levi Standard
Bank
account; and
(d) amounts
debited against the corporate saver account in respect of
agent's
fees and VAT on agent's fees;
57.10
She concludes that, on the evidence, it is clear that the corporate
saver account is not a current account
as contemplated by
section
394(1)(a)
;
2.77c
m; text-indent: -1.4cm; line-height: 150%; page-break-before: auto">
57.11
According to Ms Adhikari
section 394(1)(a)
furthermore does not
permit a liquidator to open more than one current account, given that
the current account is meant to operate
as the sole record of
payments made in satisfaction of legitimate claims against the
estate. According to her it is clear from
the evidence that there was
in fact a Mario Levi current account (being an account held with
Standard Bank). That being so, and
to the extent that Gary Shrosbree
might have opened a second current account, on his version, in the
form of the corporate saver
account, he contravened
section 394
, as a
consequence of which the payment of any funds out of that account was
per se
unlawful;
57.12
She contends, in particular, that the debiting of agent's fees and
VAT
directly from the corporate saver account contravened
section 394(1)(d)
and was unlawful;
57.13
She also argues that a portion of the interest income earned on the
investment of Mario Levi's funds which
was, as a matter of law,
income in the hands of Mario Levi (and which income would otherwise
have been available to it to pay its
creditors and for which it
incurred a tax liability), was unlawfully paid over to Lionel
Shrosbree and PW Harvey;
57.14
According to Ms Adhikari Mario Levi was, in the circumstances,
deprived of a portion of its income to its
detriment and the
detriment of its creditors. The detriment also extended to the net
interest earned by Mario Levi on the investment,
which was less than
could have been earned had the funds been invested directly with a
financial institution.
[58]
Adv Dyke SC, appearing on behalf of Gary Shrosbree, contends as
follows:
58.1 A
corporate saver account is in effect a current account with the added
benefit
that interest is earned on funds deposited in the account;
58.2 A
current account is an account at a registered bank into which cash or
cheques
may be deposited and from which money may be withdrawn as
required by the account holder;
58.3
Collins
[6]
defines a current account as:
"an
individual's or company's account kept at a commercial bank or
building society into which the customer can deposit cash
or cheques
and from which he or she can draw cheques or make withdrawals on a
day-to-day basis."
58.4
Penguin
[7]
defines a current account as:
"The most
common type of bank account, on which deposits do not earn interest,
but can be withdrawn by cheque at any time."
58.5
Caney
J, in
Standard
Bank of South Africa Ltd v Minister of Bantu Education
[8]
,
explains
the difference between a deposit account and an ordinary or current
account. He quotes (with approval) Halsbury's definition
as adopted
in
Colonial
Banking Trust Co Ltd v Hill's Trustee
1927 AD 488
at 494
i.e.:
"The
business of banking strictly speaking is the receipt of money from or
on account of a customer to be repaid on demand
or when drawn on by
cheque";
58.6
At 340
Caney J cites Halsbury
[9]
and
describes the business of banking as:
"the
receipt of money on current or deposit account and the payment of
cheques drawn by and the collection of cheques paid
in by a
customer."
58.7
Caney J then concludes:
"it is
clear also that a customer who has an ordinary or current account at
the bank is entitled to withdraw the whole as any
portion of the
amount standing to his credit in that account, upon demand..."
58.8 In
modern banking, the practice of issuing cheques has, according to Mr
Dyke, to a large extent
been replaced with the electronic transfer of
money, but the principle of what comprises a current account has not.
In modern parlance
a current account serves the same purpose it
always did - it facilitates transactional banking, notwithstanding
the disappearance
of cheques, in many instances, to facilitate
payments from and deposits into such an account;
58.9
As
discussed by Caney J
[10]
,
there are considerable differences between a current account; a
deposit account and a savings account. All are distinguishable.
The
most striking feature of a current account is its liquidity and the
account holder's ability to transact on it;
58.10 A
savings account is used by individuals to invest their money. Savings
accounts earn interest calculated on a
minimum balance kept in the
account on a predetermined basis;
58.11
Funds are normally not invested in current accounts for fixed periods
and, as a general rule, no interest is earned
on the balance
maintained in current accounts. Deposits and withdrawals are normally
unlimited on current accounts;
58.12
According to Mr Dyke there can be no doubt that the corporate saver
account at Nedbank is a current account. It
meets all the criteria
for current accounts and it offers the benefit of an attractive
interest rate. It does not meet the criteria
of a deposit account or
a savings account;
58.13 As
far as the portion of PW Harvey's agency fee which was paid to Lionel
Shrosbree is concerned, Mr Dyke argues
that the commission sharing
arrangement between Lionel Shrosbree and PW Harvey is historical and
should be regarded as
res inter alios acta.
According to Mr
Dyke the fee charged by PW Harvey has been duly disclosed on the
statements. What PW Harvey did with its income
was of no concern to
Gary Shrosbree or, for that matter, the creditors of Mario Levi;
58.14 Mr
Dyke also emphasizes that neither Gary Shrosbree nor Shrosbree
Trustees CC has received any portion of the
commission or agency fees
from PW Harvey. The commission sharing arrangement has always been
between PW Harvey and Lionel Shrosbree.
This is also effectively what
the Master found in the
section 381
enquiry. According to Mr Dyke
this finding cannot be faulted;
58.15 Mr
Dyke furthermore argued that whilst section 381(2) of the 1973 Act
empowers the Master to examine the liquidator
or any other person on
oath concerning the winding-up, this does not entitle the Master to
make a binding finding or decision against
any other person, other
than the liquidator, against whom he may act in terms of sections 373
and 379 of the 1973 Act. This, according
to Mr Dyke, presented a
jurisdictional obstacle to the relief claimed by Standard Bank;
58.16
Should the Master make a finding against any other person, Mr Dyke
argued that the Master's remedy is to commence
civil or criminal
action against such a person. No direct action by the Master against
any other person, in the absence of independent
recovery proceedings,
is permissible in terms of the
1973 Act;
58.17
Mr
Dyke pointed out that the Master's powers in terms of Section 381 are
proscribed. They are limited to an enquiry
into the faithful
performance by a liquidator of his duties and due observation of all
the requirements imposed upon him by law;
58.19 Mr Dyke
therefore argued, by reference to the said provisions of section 381,
that the Master lacked the jurisdiction
to make the decision the
applicant contends he should have made in relation to the repayment
of Lionel Shrosbree's earnings received
from PW Harvey and that,
similarly, this court cannot review the Master's failure to make this
order when the Master never had
this jurisdiction in the first place.
[59] Adv
Richards, appearing for PW Harvey, essentially makes common cause
with Mr Dyke and it
is not necessary to repeat his submissions for
purposes hereof.
EVALUATION
OF THE MAIN SUBMISSIONS:
[60]
The contention of Ms Adhikari in relation to the obligation of a
liquidator to open a current
account in terms of section 394(1)(a) of
the 1973 Act is plainly correct. I do not think this is in dispute
between the parties.
[61]
However, Mr Dyke's proposition that the corporate saver account was,
for all intents and purposes,
a current account in terms of section
394(a), is, in my view, incorrect. It ignores the fact that Mr
Shrosbree did in fact operate
a current account in the name of the
liquidated estate, as plainly demonstrated by the transfer
instructions annexed to the founding
papers as annexure "FA18C".
[62]
The existence of such a current account is furthermore evident from:
62.1 the
liquidation accounts of Mario Levi where, under the heading
"bank
charges",
provision is made for disbursements in respect of
a
"current account";
and
62.2
the cheque deposits and electronic transfers from the Mario Levi
current account to the corporate
saver, as reflected on the corporate
saver investment register, annexed to the founding papers, marked
"FA18B".
[63] It
is not apparent from the application papers when the Mario Levi
current account was opened.
What is clear, however, is that a Mario
Levi current account was operated by Gary Shrosbree during the
liquidation process.
[64] It
is also important to note that none of Mario Levi's creditors or
disbursements in the
liquidation were paid from the corporate saver
account. The corporate saver account was therefore a savings account
for surplus
funds, and not a current account.
[65] In
the circumstances I find that Gary Shrosbree indeed operated a
current account for Mario
Levi in terms of section 394(1)(a) of the
Companies Act of 1973.
[66] I
also find that Gary Shrosbree opened the corporate saver account with
Nedbank, through
the agency of PW Harvey, in terms of section
394(1)(b), alternatively section 394(1)(c) of the 1973 Act.
[67] I
find it difficult to understand why the Respondents' case was not
presented on the above
basis, instead of attempting to massage the
corporate saver facility into something which it never was.
[68] The
next issue to determine is whether or not the manner in which Gary
Shrosbree carried
out his obligations as a liquidator, in relation to
the corporate saver account, was tainted with illegality. As stated
above:
68.1 Gary
Shrosbree operated a current account in the name of Mario Levi;
68.2 He
also opened a corporate saver account in the name of Mario Levi;
68.3 He
transferred funds into the corporate saver account from the current
account;
68.4 He
did not, on the evidence placed before me, withdraw any money from
the corporate saver account
otherwise than by way of a transfer of
the funds to the current account.
[69] The
agency fees payable to PW Harvey were deducted directly from the
corporate saver account.
These fees were not reflected as
disbursements on the final liquidation accounts of Mario Levi. It
should be remembered, however,
that Mario Levi was only ever
contractually entitled to receive the net interest which was
generated on the corporate saver account.
Mario Levi did receive this
interest.
[70] The
agency fee payments to PW Harvey were effected in terms of an
arrangement between Nedbank
and PW Harvey. PW Harvey was Nedbank's
agent. (I will revert to this issue in greater detail later herein.)
Nedbank could, for
instance, have paid the agency fees directly to PW
Harvey without any reference thereto on the corporate saver
investment register.
[71] There
would, in my view, have been no need for the agency fees to be
accounted for in the
liquidation accounts of Mario Levi. The fact
that these payments were reflected on the investment register of the
corporate saver
account is however indicative of a full disclosure on
the part of PW Harvey in relation to the corporate saver investment.
[72] I
therefore disagree with Ms Adhikari's contention that the debiting of
agent's fees and
VAT directly from the corporate saver account
contravened section 394(1)(d) and was unlawful.
[73] In
my view Gary Shrosbree complied with his obligations in terms of the
provisions of section
394.
[74]
Even
if I am wrong in my said finding in relation to Gary Shrosbree's
compliance with section 394, this is not necessarily fatal
to the
legality of Gary Shrosbree's conduct. The question remains whether or
not the purpose and object of section 394 have been
achieved by the
way in which the funds of Mario Levi were administered by Gary
Shrosbree? It is, in this regard, a trite principle
of our law that,
where the purpose and object of a statutory provision have been
achieved, or where there has been substantial
compliance with such a
provision, a failure to strictly comply with the statutory provision
will not necessarily mean that the
actions under scrutiny would be
rendered invalid.
[11]
[75] The
purpose and object of section 394 of the 1973 Act are, in my view, to
ensure the secure
investment of all monies of the company in
liquidation received by the liquidator in a current account and (in
the discretion of
the liquidator), in a savings account, for purposes
of the payment of disbursements and the fair distribution of the
balance thereof,
under the auspices and supervision of the Master,
for the benefit of the entire body of creditors. There is no doubt
that this
purpose and object were achieved by the way in which Gary
Shrosbree dealt with the funds of Mario Levi.
[76] I
therefore find that, if there was not strict compliance with the
provisions of section
394 in the circumstances of this matter, there
was certainly substantial compliance therewith.
[77] Mr
Dyke's further submissions in relation to the provisions of section
381 of the 1973 act
are, in my view, compelling. However, having
regard to my aforesaid conclusions regarding section 394 of the 1973
Act, I do not
deem it necessary to make specific findings in this
regard.
[78]
The next and related issue is whether or not PW Harvey was legally
entitled to earn an agency fee from
Nedbank.
[79]
Section 1(1) of the Banks Act No 94 of 1990 describes agency as
follows:
"'agency',
in relation to
a
bank, means
a
right
granted to
a
person by that bank to receive on
its behalf from its clients any deposits, money due to it or
applications for loans and advances,
or to make payments to such
clients on its behalf".
[80]
Ms Adhikari argues that, if regard were had to the context within
which
"agency"
is utilized in the Banks Act, it does
not include a situation such as the present.
[81]
I disagree with this submission. Agency means a
"right
granted to
a
person by that bank to receive on
its behalf from its clients any deposits..."
This is
exactly what happened in this matter.
[82]
See furthermore section 40 of the Banks Act which provides as
follows:
"If a
bank or a controlling company or any director, officer, employee
or
agent of a bank
or controlling company in good
faith and on the strength of information reasonably obtained act or
fails to act and thereby unknowingly
contravenes the provisions of
section 38, such act or failure to act shall not constitute an
offence."
(own emphasis)
[83] This
section plainly, in addition to the definition of agency, recognizes
circumstances in which
a bank may act through a duly appointed agent.
It follows that such an agent would be entitled to an agency fee.
This is a matter
between PW Harvey and Nedbank.
[84] PW
Harvey was, in my view, an agent of Nedbank in terms of the said
definition of agency. Gary
Shrosbree invested some of the funds of
Mario Levi with Nedbank, through the agency of PW Harvey. This was
perfectly legal.
[85] As
far as the interest which was earned by Mario Levi on the investment
is concerned, the net
interest rate which the investment generated
was 3.65% per annum.
[86] There
is no provision in the 1973 Act, nor have I been referred to any
authority, requiring that
the funds invested must be in an account
which offers the highest possible interest rate, which proposition
appears to be one of
the key elements of Standard Bank's complaint
herein.
[87] On
the contrary, section 394 of the 1973 Act is conservative and compels
the liquidator to invest
the liquidated company's funds in a current
account. If Gary Shrosbree had invested all the funds of Mario Levi
in a current account,
there would be no basis for a complaint against
him, even if no interest was earned on such an investment. In this
case, however,
the net result of Gary Shrosbree's decision was to
benefit the creditors to the extent of the interest earned on the
investment.
[88] Furthermore,
I agree with Mr Dyke that the commission sharing arrangement between
Lionel Shrosbree
and PW Harvey is historical and irrelevant for
purposes of the present matter. What PW Harvey did with its agency
fees was its
own business. Giving a portion thereof to Lionel
Shrosbree was not unlawful and did not taint Gary Shrosbree's conduct
with any
degree of illegality.
[89] In
this regard neither Gary Shrosbree himself, nor Shrosbree Trustees
CC, has made a secret
commission from the corporate saver investment,
notwithstanding Standard Bank's persistent suspicions to the
contrary.
[90] It
is significant to note, as correctly pointed out by Mr Richards, that
Standard Bank is
not asking the court to interfere in the agreement
between PW Harvey and Lionel Shrosbree. The real issue, according to
Standard
Bank
"is the manner in which Gary Shrosbree
invested the funds of Mario Levi".
This is a clear
concession that there is in principle nothing wrong with the
investment of funds through investment houses that
charge
administration fees for their services rendered. This concession
effectively disposes of any contention that there is a
legal
obligation on the part of Lionel Shrosbree to repay the commission
which he had received from PW Harvey.
CONCLUSION:
[91] In
all the circumstances set out above, I am constrained to find that
Standard Bank has
failed to prove any reviewable error on the part of
the Master. In light of this finding, it follows that the remaining
relief
claimed by Standard Bank is also without merit.
[92] It
is with some concern that I note the zeal with which this litigation
has been driven,
fueled by Stand.ard Bank's unfounded suspicion that
Gary Shrosbree's intention was to supplement his income in an
unlawful manner.
This culminated in application papers exceeding 600
pages (including the notices index and the joinder application of the
seventh
respondent), at huge costs, in circumstances where the
monetary value of the amount in issue is less than R8 000,00. I think
this
is most unfortunate.
[93] As
far as the costs of the application are concerned, Ms Adhikari fairly
conceded that the
joinder of the seventh respondent was reasonable,
and that the seventh respondent's costs should form part of any cost
order herein.
[94]
In the circumstances I make the following order:
(a)
The application is dismissed;
(b)
The applicant is ordered to pay the respondents' costs of the
application.
JD
HUISAMEN
ACTING
JUDGE OF THE HIGH COURT
Matter
heard on
: 14
September 2018
Judgment
delivered on
: 2
October 2018
Counsel for
Applicant
: Adv M
Adhikari
Instructed
by
: Bowman
Gilfillan Inc
22 Bree Street, Cape Town
c/o
Pagdens Attorneys
Pagdens
Court
18
Castle
Hill
Port
Elizabeth
Counsel
for Second Respondent
:
Adv
Bruce Dyke SC
Instructed
by
: Lexicon
Attorneys
Clevedon and Western Roads
Port
Elizabeth
Counsel for
Seventh Respondent :
: Adv G
Richards
Instructed
by
: Kaplan
Blumberg Attorneys
Block A Southern Life Gardens
Port Elizabeth
[1]
See
2010 (4) SA 405 (SCA)
[2]
See
Walker v Svfret NO
1911 AD 141
at 166
[3]
See
Top Brands Limited and Another v Sharma
and Another
[2015] 2 All ER 581
at [40]
[4]
See
Concord Leasing Corporation (Rhodesia)
Limited v Pringle-wood NO
1975 (4) SA 231
(R) at 234 to 235
[5]
Henochsberg on the Companies Act 61 of 1/973. Vol. 1. 5
th
Ed p. 845
[6]
See
Dictionary of Business 2
nd
ed 163
[7]
See
A Dictionary of Economics
[8]
See
1966 (1) SA 299
(N) at 234 and 239
[9]
See
3
rd
Ed. p150. paragraph 2
77
[10]
See
Standard Bank supra at 234-235
[11]
See
Liebenberg NO v
Bergrivier Municipality
2013 (5) SA 246
(CC) at [25] and [26]
;
and
Weenen
Traditional
Local Council v Van Dvk
2002 (4) SA 653
(SCA) at
(13)