Brief Summary

Ownership — Movable assets — Claim for possession of movable assets financed under Instalment Sale Agreements — Applicant (ABSA Bank) asserts ownership of 67 movable assets, 24 of which have been paid off — Business rescue practitioners resist application — Court interprets ownership clause in Instalment Sale Agreements, concluding that ownership of paid-off assets transferred to New Beginnings Projects CC — Section 133 of the Companies Act provides moratorium on enforcement actions during business rescue, protecting assets in lawful possession of the company — Application for interim relief denied as to paid-off assets, but granted for those with outstanding balances.

Comprehensive Summary

Summary of Judgment

Introduction

This was an urgent interim application brought in the Free State Division of the High Court, Bloemfontein, in which ABSA Bank Limited sought a rule nisi and interim interdictory relief for the return of certain movable assets pending the institution and finalisation of declaratory proceedings to determine ownership.

The applicant was ABSA Bank Limited, acting as a creditor of New Beginnings Projects CC (in voluntary business rescue and supervision). The first and second respondents were Charles Phiri N.O. and Lebogane Grace Mpakati N.O., cited in their capacities as the duly appointed business rescue practitioners of New Beginnings Projects CC. The third respondent, the Companies and Intellectual Property Commission (CIPC), was cited due to its statutory interest but no relief was sought against it, and it did not oppose the application.

Procedurally, the matter served as an urgent application under Uniform Rule 6(12). The respondents opposed on multiple grounds, including urgency, jurisdiction, alleged non-joinder, and alleged failure to notify affected persons. The court recorded that the matter had been postponed on 15 September 2022 to the opposed roll of 20 October 2022 with directions for further affidavits and heads of argument, and it was ultimately heard on 20 October 2022 and delivered on 28 October 2022.

The general subject-matter concerned ownership and possession of financed movable assets used by a close corporation in business rescue, and the interaction between instalment sale agreements, contractual cancellation, and the business rescue moratorium (including protection of property in the company’s lawful possession).

Material Facts

ABSA historically financed 67 movable assets for New Beginnings Projects CC under multiple instalment sale agreements, concluded long before the commencement of business rescue. ABSA relied on the standard ownership clause in those agreements, which provided that ownership remained with ABSA until all financial obligations under the relevant agreement were paid, while the customer was entitled to possession and use provided it was not in default, and ownership would be transferred once payment was complete.

It was common cause on the papers, and confirmed in further heads of argument, that by the time the application papers were filed, 24 of the 67 movable assets had been paid off. The court treated as material that 43 assets still had outstanding balances. Although the respondents’ counsel asserted in additional heads that there were “further payments” and that other assets may have been settled, the respondents did not identify which additional assets were allegedly paid off. The court therefore determined the position on the papers, with particular reference to the affidavit of Mr Gerril Stephanus Gouws (annexure “AB5” to the founding affidavit).

A central factual element for the court’s reasoning was that ABSA had cancelled the instalment sale agreements (in relation to the unpaid assets) before business rescue proceedings commenced, due to arrears. The court treated this cancellation as resulting in New Beginnings Projects CC being unable to claim lawful possession of the unpaid assets thereafter.

The court distinguished between two categories of assets based on payment status. The 24 paid-off assets were treated as assets in relation to which ownership had passed to New Beginnings Projects CC, and which were, on the court’s interpretation, in the company’s lawful possession during business rescue and therefore protected by the statutory business rescue provisions. By contrast, the 43 unpaid assets were treated as assets in respect of which ABSA retained ownership and, following cancellation, the close corporation’s continued holding was not lawful for purposes of the statutory protection.

Legal Issues

The central legal questions were:

Whether ABSA established the requirements for an interim interdict (pending declaratory proceedings) compelling business rescue practitioners to return the movable assets, including whether ABSA showed a prima facie right to the relief sought and whether the balance of convenience favoured granting interim relief.

Whether, on a proper construction of the instalment sale agreements’ ownership clause, ABSA retained ownership of all 67 assets until every financed asset was fully paid, or whether ownership passed asset-by-asset once each individual asset was paid off.

Whether the statutory business rescue protections—particularly the moratorium on legal proceedings and the protection of property interests in property belonging to or lawfully in the possession of the company—prevented ABSA from obtaining interim relief in respect of the assets.

Whether the application was defective or should fail due to alleged lack of urgency, alleged lack of jurisdiction, alleged non-joinder of New Beginnings Projects CC, and alleged failure to notify the company’s creditors/affected persons.

These issues involved a combination of interpretation of contractual terms, the application of statutory provisions to largely common-cause facts (especially payment status and cancellation), and the application of established principles governing interim interdicts and vindicatory-type claims in an interlocutory setting.

Court’s Reasoning

The court first addressed the question of ownership under the instalment sale agreements. ABSA contended that the ownership clause meant that, so long as any asset financed by ABSA had an outstanding balance, ABSA retained ownership of all 67 assets, including those already paid off. The court rejected that interpretation, holding that the wording of the clause referred to “this agreement” in the singular and to “the asset” rather than “assets”, indicating that ownership retention operated per agreement/per asset, not collectively across multiple agreements and assets. On that interpretation, once a particular asset was fully paid, ownership of that asset transferred to New Beginnings Projects CC.

The court further reasoned that even if the clause were ambiguous, it would be construed contra proferentem against ABSA as the party relying on the clause, with reference to Durban’s Water Wonderland (Pty) Ltd v Botha and Another 1999 (1) SA 982 (SCA). This reinforced the conclusion that ABSA’s “all assets” interpretation could not be sustained. As a result, the court found that ABSA did not retain ownership in respect of the 24 assets that had been paid off.

In relation to the mechanics of transfer, the court held that insofar as delivery was required to effect transfer of ownership after payment, transfer occurred by traditio brevi manu, because New Beginnings Projects CC was already in bona fide possession of the assets and, upon payment, held them as owner.

The court then considered the interaction with the Companies Act 71 of 2008 business rescue provisions. It referred to the statutory description of business rescue (including a temporary moratorium) and relied particularly on section 133 (moratorium on legal proceedings) and section 134(1)(c) (restriction on exercising rights in respect of property in the company’s lawful possession, irrespective of ownership, absent written practitioner consent). The court held that the 24 paid-off assets, now belonging to and lawfully possessed by the close corporation, were protected against ABSA’s vindicatory or quasi-vindicatory attempt to recover them in this application.

However, the court reasoned differently in respect of the 43 unpaid assets. It accepted that ABSA had lawfully cancelled the relevant agreements prior to business rescue due to arrears. In the court’s view, following such cancellation the close corporation could not be in lawful possession of those assets. On that basis, section 134(1)(c) did not apply to the 43 unpaid assets, and the statutory protection for property “lawfully in possession” could not be invoked to defeat ABSA’s interim relief. The court referred in this context to Southern Value Consortium v Tresso Trading 102 (Pty) Ltd and Others 2016 (6) SA 501 (WCC) for the proposition that if the owner could not vindicate from an unlawful possessor under these circumstances, it would lead to an untenable position.

Having identified which assets ABSA could properly claim, the court applied the established requirements for an interim interdict, referencing Setlogelo v Setlogelo 1914 AD 221. It characterised the relief sought as compelling the respondents (business rescue practitioners) to perform a positive act—returning movable assets—so as to remedy an alleged wrongful state of affairs pending the declaratory proceedings.

On the prima facie right, the court held that ABSA had established such a right, but only in relation to the 43 assets with outstanding balances. Regarding the remaining requirements commonly associated with interim interdicts, the court adopted the approach applicable where the applicant seeks interim relief in aid of a vindicatory-type claim. It held that the applicant need not show irreparable harm in the ordinary way because there is a presumption of irreparable injury, citing SA Securitisation (Pty) Ltd v Chesane 2010 (6) SA 577 (GSJ). It also held that such an applicant need not show the absence of an alternative remedy, relying on Fedsure Life Assurance Life Company Limited v Worldwide Africa Investment Holdings (Pty) Ltd 2003 (3) SA 268 (W) for the proposition that a party entitled to vindicate property cannot be forced to accept merely its value.

On the balance of convenience, the court found that it favoured ABSA in relation to the 43 assets, because the respondents had no lawful entitlement to continued possession of them and their continued use would result in deterioration of value. The court also emphasised that ABSA did not seek to sell or alienate the assets pending the declaratory proceedings; instead, ABSA would be responsible for safekeeping and storage in terms of the relief sought.

The court then dealt with the respondents’ procedural and preliminary defences. It rejected the contention that the application lacked urgency or involved self-created urgency, holding that the issue had become moot given the earlier postponement to the opposed roll, the agreed procedural steps, and the fact that urgency was not reserved, with protracted negotiations explaining the timing.

The court rejected the jurisdictional challenge, relying on section 21(1) of the Superior Courts Act 10 of 2013, and additionally noting section 7 of the Close Corporations Act 69 of 1984, the close corporation’s principal place of business being in Bloemfontein, the conclusion of agreements in Bloemfontein, and the presence of a number of the assets in the Free State.

On the alleged non-joinder of New Beginnings Projects CC, the court held there was no merit because the business rescue practitioners were cited nomine officio and represented the close corporation, meaning the company was effectively before court. The court drew support from Gainsford and Others N.N.O. v Tanzer Transport (Pty) Ltd 2014 (3) SA 468 (SCA), treating business rescue practitioners as analogous, for citation purposes, to liquidators litigating in their official capacities.

On the argument that creditors/affected persons had to be notified, the court held that the contention lacked merit, relying on the rejection of this approach by the Supreme Court of Appeal in Timasani (Pty) Ltd and Another v Afrimat Iron Ore (Pty) Ltd [2021] 3 All SA 843 (SCA).

Finally, on costs, the court reasoned that because ABSA succeeded substantially—obtaining relief in respect of 43 of the 67 assets—it was entitled to the ordinary costs order that costs follow the result.

Outcome and Relief

The court granted prayer 1 and prayer 2 of the notice of motion, namely condonation for urgency-related procedural deviations under Uniform Rule 6(12) and leave under section 133(1)(b) of the Companies Act 71 of 2008 to commence and proceed with the relief.

The court issued a rule nisi granting interim relief pending the final determination of an action or application to be instituted by ABSA (within 30 days from finalisation of this application) for a declaration that ABSA is the owner of the 43 movable assets identified in annexure “X” as item numbers 1, 5, 7, 12, 13, 14, 15, 16, 18, 22 to 36, 38 to 40, 43 to 53, 55 to 58 and 63.

The first and second respondents were ordered to return those assets forthwith. Failing compliance, the Sheriff and the South African Police Service were authorised to enter premises and construction sites where the assets were located, attach them, and return them to ABSA. ABSA was ordered to attend to the safekeeping and storage of the assets pending finalisation of the contemplated proceedings.

The first and second respondents were ordered to pay the costs of the application on a party-and-party scale, including costs consequent upon the employment of two counsel where used.

Cases Cited

Durban’s Water Wonderland (Pty) Ltd v Botha and Another 1999 (1) SA 982 (SCA).

Setlogelo v Setlogelo 1914 AD 221.

Southern Value Consortium v Tresso Trading 102 (Pty) Ltd and Others 2016 (6) SA 501 (WCC).

SA Securitisation (Pty) Ltd v Chesane 2010 (6) SA 577 (GSJ).

Fedsure Life Assurance Life Company Limited v Worldwide Africa Investment Holdings (Pty) Ltd 2003 (3) SA 268 (W).

Gainsford and Others N.N.O. v Tanzer Transport (Pty) Ltd 2014 (3) SA 468 (SCA).

Timasani (Pty) Ltd and Another v Afrimat Iron Ore (Pty) Ltd [2021] 3 All SA 843 (SCA).

Legislation Cited

Companies Act 71 of 2008, including section 128, section 133(1)(b), section 133(1), and section 134(1)(c).

Superior Courts Act 10 of 2013, section 21(1).

Close Corporations Act 69 of 1984, section 7.

Rules of Court Cited

Uniform Rule of Court 6(12).

Held

The court held that ABSA did not retain ownership of the 24 movable assets that had been paid off; on a proper construction of the instalment sale agreements, ownership transferred per asset once that asset was fully paid, and any required delivery occurred by traditio brevi manu.

The court held that the business rescue statutory protections relating to property belonging to the company or lawfully in its possession operated to protect the paid-off assets from recovery in this application, but did not prevent ABSA from obtaining interim relief in respect of the 43 unpaid assets where ABSA had cancelled the agreements before business rescue and the close corporation could not be in lawful possession.

The court held that ABSA satisfied the requirements for interim relief (in a vindicatory context) in relation to the 43 unpaid assets, and it rejected the respondents’ defences based on urgency, jurisdiction, non-joinder, and lack of notice to creditors/affected persons.

LEGAL PRINCIPLES

The interpretation of an instalment sale agreement ownership clause was approached according to its language, with the court treating the clause as operating in relation to each agreement and each asset, rather than across a portfolio of separate agreements. Where ambiguity was suggested, the court endorsed that an exemption/disclaimer-type clause should be construed contra proferentem against the party relying on it, in line with the cited authority.

Where an asset is already in bona fide possession of a party, the court accepted that ownership may transfer upon payment through traditio brevi manu, so that continued holding shifts from possession as a user to possession as an owner.

In business rescue, the moratorium and protection of property interests under the Companies Act were applied as protecting property belonging to the company or lawfully in its possession, but not extending protection to property held unlawfully after valid cancellation of the underlying agreements.

For interim interdictory relief, the court applied the classical requirements from Setlogelo v Setlogelo 1914 AD 221, while emphasising that in vindicatory-type situations an applicant is not required to demonstrate irreparable harm or absence of alternative remedies in the usual manner, and that the balance of convenience may favour the owner where the respondent lacks a legal right to continued possession and continued use causes deterioration in value.

ABSA Bank Limited v Phiri N.O. and Others (3881/2022) [2022] ZAFSHC 365 (28 October 2022)