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[2011] ZASCA 16
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EDS South Africa (Pty) Ltd v Nationwide Airline (Pty) Ltd and Others (2011 (5) SA 158 (SCA)) [2011] ZASCA 16; 237/2010 (14 March 2011)
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THE SUPREME COURT OF APPEAL OF
SOUTH AFRICA
JUDGMENT
Case No: 237/2010
In the
matter between:
EDS SOUTH AFRICA (PTY) LTD
.........................................................................
Appellant
and
NATIONWIDE AIRLINES (PTY) LTD
(IN PROVISIONAL LIQUIDATION)
.........................................................
First
Respondent
DUNCAN OKES INC
...........................................................................
Second
Respondent
THE MASTER OF THE HIGH COURT
(WITWATERSRAND LOCAL DIVISION)
...............................................
Third
Respondent
Neutral citation:
EDS v Nationwide
(237/2010)
[2011] ZASCA 16
(14 March 2011)
Coram:
HARMS DP, CLOETE and MALAN JJA
Heard:
4 March 2011
Delivered: 14 March 2011
Summary:
Funds held in attorney’s trust account –
whether attorney stakeholder – control of funds.
_____________________________________________________________________
ORDER
On
appeal from:
South Gauteng High Court (Johannesburg) (Spilg J
sitting as court of first instance):
The
appeal is dismissed with costs.
_____________________________________________________________________
JUDGMENT
MALAN JA (HARMS DP, CLOETE JA concurring)
[1] This is an appeal with leave of the court a quo against the
judgment and order of Spilg J dismissing a claim of EDS South Africa
(Pty) Ltd for the payment of funds held in an investment account by
the attorneys for Nationwide Airlines (Pty) Ltd, Duncan Okes
Inc, and
in the name of Nationwide.
[2] Nationwide was provisionally liquidated on 29 April 2008 and is
represented in these proceedings by its provisional liquidators.
EDS
supplied information technology services to Nationwide and the funds
held by Duncan Okes form part of fees allegedly owing
by Nationwide
to EDS.
[3] Prior to Nationwide’s liquidation there existed an
information technology agreement in terms of which EDS undertook to
render such services to Nationwide. A dispute arose between them as
to the extent of Nationwide’s indebtedness. On 1 February
2008
the attorneys for EDS wrote to Nationwide demanding payment of the
fees alleged to be owing. It concluded with reference to
s 345(1) of
the Companies Act 61 of 1973 by stating that should Nationwide fail
to pay the amount claimed or secure or compound
it to the
satisfaction of EDS within a period of 21 days Nationwide would be
deemed to be unable to pay its debts.
[4] Further correspondence followed and on 22 February 2008 Duncan
Okes responded on behalf of Nationwide disputing the amount
of the
indebtedness in respect of various categories of charges. It recorded
Nationwide’s denial of indebtedness and stated
that the latter
refused to make payment albeit that it was able to do so. The letter
continued that certain amounts, in respect
of which Nationwide denied
liabIility, had been paid by the latter to Duncan Okes and that
Nationwide had ‘instructed us
to deposit it into an interest
bearing account under our control and instructed us as follows’
-
‘
(a) If your client institutes
dispute resolution proceedings against our client for payment of
[certain charges] within two months
from date hereof, we must keep
this amount in the said account and pay it out in terms of the final
outcome of such proceedings.
(b) Those instructions will not be revoked otherwise
than on written notice to yourselves of not less than a month.
(c) If dispute resolution proceedings are not instituted
within the aforesaid period of two months, our client reserves the
right
to require us to withdraw this amount for repayment to it.’
[5] The attorneys for EDS replied to this letter on the same day.
They did not accept the proposal but enquired whether, in the
event
of an agreement being reached to proceed in terms of the dispute
resolution clause in the information technology agreement,
certain
provisions could be dispensed with and whether Nationwide would be
agreeable to pay into trust further amounts that EDS
contended would
be owing so as to demonstrate its ability to pay on an ongoing basis.
[6] On 10 March 2008 EDS’s attorneys wrote to Duncan Okes
discussing the proposed arbitration and suggesting the following
terms to be incorporated in the arbitration agreement –
‘
2.1 the procedure and time
limits for the arbitration shall be substantially those set forth in
the annexed draft arbitration agreement;
2.2 the existing funds in trust shall continue to be
held and your client shall agree to pay into trust such further
amounts as
our client contends would be owing as and for [certain
charges], all such amounts being held until the final outcome of the
arbitration
or the termination of the agreement (whichever shall
occur first);
2.3 all funds paid into trust shall be held in
escrow/trust by a third party such as an unrelated law firm which
will be mandated
to hold the funds and release them, together with
all accrued interest to the relevant party, upon production of a
settlement agreement
or alternatively a final award by the arbitrator
(which has not been appealed) or the appeal tribunal. The funds shall
be invested
[in an] interest bearing account with a financial
institution of your client’s choice.’
The final sentence of the letter reads that ‘[i] goes without
saying that should we not reach agreement regarding the referral
to
arbitration our client’s rights remain otherwise reserved’.
[7] In reply Duncan Okes on 19 March 2008 wrote -
‘
2.1 That the dispute between
our clients should be resolved by way of a speedy arbitration as
proposed by you;
2.2 The funds being held in our trust account shall
continue to be held in trust and our client will make payment of all
further
amounts in respect of [certain charges] into trust until the
final outcome and determination of the dispute;
2.3 The funds currently held in our trust account
together with such further amounts that are to be held will be
transferred to
a third party law firm, of our client’s choice,
who will hold the funds in trust in an interest bearing account and
who shall
be mandated to release such funds and the interest accrued
thereon to the relevant party, upon production of a settlement
agreement
or a final award by the arbitrator (which have not been
appealed) or appeal tribunal.’
[8] The arbitration agreement was signed by EDS and Nationwide on 3
and 4 April 2008 respectively in terms of which the dispute
was
submitted to arbitration. It recorded in clause 1.2 that the parties
agree -
‘
that the amounts contended by
[EDS] to be owing shall forthwith be paid into the trust account of
an independent firm of attorneys
nominated by [Nationwide] who shall
hold the funds and release them, together with all accrued interest
to the relevant party,
upon production of a settlement agreement or a
final award by the Arbitrator (which has not been appealed) or the
Appeal Tribunal.
The funds shall be invested in an interest–bearing
account with a financial institution of [Nationwide’s] choice.’
[9] On 4 April 2008 the attorneys for EDS acknowledged receipt of the
signed arbitration agreement, enclosed their client’s
statement
of claim and added -
‘
We confirm finally that you
will let us have your client’s final proposals regarding the
holding of the funds in trust pending
the outcome of the arbitration
and also the list of arbitrators.’
[10] On 30 April 2008 the attorneys for EDS wrote
to Duncan Okes informing them of their understanding that a
winding-up application
had been brought against Nationwide and
requesting confirmation that ‘you are still holding the funds
referred to in your
letter of 22 February 2008’. They also
stated that they relied ‘upon your undertaking and the
provisions of the arbitration
agreement in regard to the funds held
by you in trust’. To this letter Duncan Okes replied on 7 May
2008 confirming ‘that
we are holding an amount of R 3, 678,
896.15 in an interest bearing account in accordance with our
instructions as recorded in
our letter of 22 February 2008’.
[11] It is common cause that Nationwide did not nominate ‘the
independent firm of attorneys’ as agreed to in the arbitration
agreement. On 29 April 2008 Nationwide was provisionally wound up
without the funds having been transferred to the ‘independent
firm of attorneys’.
[12] In the court a quo Spilg J held that Duncan Okes’ letter
of 22 February 2008 was written not only to demonstrate an
ability to
pay but also contained an offer. He found that the arbitration
agreement did not amount to an acceptance of the offer
because it
specifically provided for the paying over of the funds to an
independent firm of attorneys nominated by Nationwide who
would hold
it as a stakeholder. Moreover, he could not infer from the exchange
of the letters of 10 March 2008 and 19 March 2008
that an agreement
that Duncan Okes was to be the stakeholder had been concluded. Nor
could Spilg J find that a tacit agreement
to that effect had been
reached. He concluded that because there was no compliance with
clause 1.2 of the arbitration agreement
the funds remained in the
estate of Nationwide. He accordingly upheld the claim of the
provisional liquidators. I agree with his
judgment.
[13] The argument on behalf of EDS proceeded along
the following lines: it was submitted that EDS timously complied with
the conditions
referred to in Duncan Okes’ letter of 22
February 2008 (cited in paragraph 4 above) by instituting dispute
resolution proceedings.
It was at that time that Nationwide lost
control of the funds.
1
Since this occurred before the winding up the
funds fell outside the assets of Nationwide and it mattered not that
clause 1.2 calling
for the transfer of the funds to an independent
firm of attorneys of the Arbitration agreement was not ‘literally’
complied with. EDS further relied on Duncan Okes’ letter of 7
May 2008 in which it confirmed that it was holding the funds
in
accordance with the instructions as recorded in their letter of 22
February 2008. This, it was submitted, provided further evidence
of a
tacit understanding between the attorneys that if no independent firm
of attorneys were nominated the funds would remain in
Duncan Okes’
trust account on the same terms.
[14] A stakeholder agreement is based on contract
to which Duncan Okes must be a party in addition to EDS and
Nationwide.
2
Absent an agreement of stakeholding the funds
remained those of Nationwide. Its unilateral action of paying the
funds into the investment
account of Duncan Okes could not have given
the funds a different character creating rights
in
rem
to them.
3
The offer contained in Duncan Okes’ letter
of 22 February 2008 was never accepted. The reply on behalf of EDS on
the same
day does not contain an unequivocal acceptance of the offer,
and suggests that a counter-proposal may be made. Moreover, their
letter of 10 March 2008 contains a counter-proposal ending with the
words that it went without saying that should agreement not
be
reached EDS’s rights remain reserved. EDS cannot rely on
certain terms of the offer contained in the letter of 22 February
2008. That offer was never accepted, and there is, accordingly no
basis for the submission that Nationwide had lost control of
the
funds at that or, for that matter, any other stage. Moreover, the
funds were held pending resolution of a dispute relating
to fees that
were disputed. No admission that they were due was ever made.
[15] Duncan Okes had never agreed to be a
stakeholder. Although clause (a) of their letter of 22 February 2008
may suggest such,
clause (b) makes it clear that Nationwide may
revoke the instructions to Duncan Okes. A stakeholder is not the
agent of any of
the other parties to the stakeholding:
4
on the evidence Duncan Okes held the funds as
agent of Nationwide. Nor do clauses 2.1 and 2.3 proposed by the
attorneys for EDS
(and agreed to by Duncan Okes in their letter of 19
March 2008 with some amendments) convert them into a stakeholder. The
stakeholder
envisaged is the ‘unrelated law firm’
mentioned in clause 2.3 of these letters, not Duncan Okes, whose
obligation it
was to transfer the funds to the stakeholder (clause
2.3 of their letter of 19 March 2008). The negotiations between the
parties
culminated in the conclusion of the arbitration agreement
which provided expressly for the stakeholder to be nominated by
Nationwide.
No nomination was made. The suggested tacit term or
agreement contended for that Duncan Okes would be the stakeholder is
in conflict
with this term.
The appeal is dismissed with costs.
_________________
F R MALAN
JUDGE OF APPEAL
APPEARANCES:
For Appellant: M J Fitzgerald SC
Instructed by:
Bowman Gilfillan Inc
c/o Keith Sutcliffe & Associates
Johannesburg
Matsepes Inc
Bloemfontein
For Respondent: A Subel SC
Instructed by:
John Joseph Finlay Cameron
Johannesburg
Lovius-Block
Bloemfontein
1
Relying
on
Ngwalangwala v
Auto Protection Insurance Co Ltd
(in
Liquidation)
1965 (3) SA 601
(A) at 611D-E
and
Silverleaf Pastry &
Confectionery Co (Pty) Ltd v Joubert & another
1972
(1) SA 125
(C) at 127D-1287H.
2
See
Sadie v Currie’s City (Pty) Ltd & others
1979 (1)
SA 363
(T) at 366B-C: ‘[T]he stakeholder also assumes a
contractual obligation to hold the stake for and on behalf of the
person
who becomes entitled to it.’ See
Baker
v Probert
1985 (3) SA 429
(A) at
441B-E;
Ramdin v Pillay & others
2008 (3) SA 19
(D) para 14.
3
Ex
parte Kelly
1942 OPD 265
at 271-2.
4
Baker
v Probert
1985 (3) 429 (A) at 441B-E.