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[2011] ZASCA 156
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O'Shea NO v Van Zyl NO and Others (791/10) [2011] ZASCA 156; 2012 (1) SA 90 (SCA); [2012] 1 All SA 303 (SCA) (28 September 2011)
THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Case No: 791/10
In the matter between:
SIOBHAN LEE O’SHEA
N.O.
….........................................................................
Appellant
and
CHRISTOPHER PETER VAN
ZYL N.O.
…...........................................
First
Respondent
BRYAN NEVILLE SHAW
N.O.
….....................................................
Second
Respondent
HASSEN KAJIE N.O.
….......................................................................
Third
Respondent
BRYAN NEVILLE SHAW
N.O.
…......................
First
Intervening Applicant
(Respondent)
DUDLEY BERNARD DAVIDS
N.O.
….........
Second
Intervening Applicant
(Respondent)
ABSA BANK LIMITED
….................................
Third
Intervening Applicant
(Respondent)
Neutral citation
:
O’Shea N.O. v Van Zyl
(791/10)
[2011] ZASCA 156
(28
September 2011)
Coram:
HEHER,
MHLANTLA, BOSIELO, THERON JJA and MEER AJA
Heard:
9 September
2011
Delivered:
28
September 2011
Updated:
Summary:
Insolvency
– compulsory sequestration – trust – locus standi
to bring application as creditor of trust –
reliance on
admissions made by trustee during private enquiry under s 417 of
Companies Act 63 of 1971 – admissibility.
Insolvency –
compulsory sequestration – act of insolvency in terms of s 8(g)
of
Insolvency Act 24 of 1936
– what constitutes.
Evidence –
admissibility – statements made by trustee during private
enquiry under
s 417
of Companies Act 63 of 1971 – whether
admissible in subsequent proceedings against trust.
____________________________________________________________________________________
ORDER
On appeal from:
Western Cape High Court (Cape Town)
(Jacobs AJ sitting as court of first instance):
1. The appeal of the
appellant (the Trust) against the order of the court a quo in favour
of the respondent (the liquidators) is
upheld with costs including
the costs of two counsel.
2. The appellant shall
pay the costs of Absa Bank in the appeal.
3. Paragraphs 1 and 3 of
the order of the court a quo are set aside and respectively replaced
by the following:
‘
1. The rule nisi
granted on 11 November 2009 is discharged with costs.’
and
‘
3. The costs of
the third intervening applicant are reserved for decision in the
application between itself and the first respondent.’
4. The costs of the
application brought by the Trust in terms of s 22 of the Supreme
Court Act 59 of 1959 are to be paid by the
Trust on an opposed basis.
_______________________________________________________________________
JUDGMENT
_____________________________________________________________________
HEHER JA (MHLANTLA,
BOSIELO, THERON JJA AND MEER AJA concurring):
[1] This is an appeal
against an order made by Jacobs AJ in the Western Cape High Court in
terms of which the court
1. finally sequestrated
the estate of the O’Shea Family Trust (‘the Trust’);
2. granted leave to Absa
Bank Ltd to intervene as an applicant in the sequestration
application;
3. ordered that costs,
including the costs of Absa Bank Ltd, be costs in the sequestration.
The learned judge granted leave to appeal
to this Court against his
order.
[2] The Trust is
represented in these proceedings by Siobhan Lee O’Shea in her
capacity as its sole trustee for the time being.
I shall refer to her
as ‘the appellant’. Her husband, Patrick Kerry O’Shea,
was a co-trustee until 5 June 2009
when his estate was sequestrated
and he ceased to be a trustee.
[3] On 9 June 2009 the
present first, second and third respondents in their capacities as
the joint provisional liquidators of Sapphire
Finance (Pty) Ltd (in
liquidation) (‘the liquidators’) applied for the
sequestration of the Trust. On 11 November 2009
a provisional order
was made by Traverso DJP.
[4] By that time the
first and second intervening applicants (Mr O’Shea’s
joint trustees, who are for unexplained reasons,
cited as respondents
in this appeal) had brought an application to intervene. It appears
to be confirmed, in the judgment of Jacobs
AJ in the application for
leave to appeal, that their application was never moved and no order
was made in that regard.
[5] The
appellant opposed the application for the sequestration of the Trust.
[6] In May 2010 Absa Bank
Ltd applied for leave to intervene in that application and for an
order placing the estate of the Trust
under provisional
sequestration. Although Jacobs AJ duly granted the intervention he
found it unnecessary to consider the merits
of Absa’s
application for sequestration because of the success obtained by the
liquidators in the main application.
The application to
receive further evidence
[7] At the hearing of
this appeal the appellant moved an application in terms of s 22(a) of
the Supreme Court Act, 59 of 1959 to
have new evidence received. That
evidence comprised paragraphs 10 to 26 of an affidavit made on 2
September 2011 by the appellant
together with eleven documents
identified in and annexed to her affidavit. It was directed at
resisting the liquidators’
claim to locus standi in the
sequestration proceedings before the court a quo on the ground that
Sapphire Finance had ceded its
debtor book to a third party before
liquidation. The reception of such evidence would have no effect on
the intervening application
of Absa Bank.
[8] The application was
opposed by the liquidators and Absa Bank, the latter because it had
incurred substantial costs in preparing
for the appeal which would be
wasted by a postponement of the appeal to allow the liquidators to
answer the new allegations.
[9] The
criteria applicable to such an application are now trite. See
Rail
Commuters Action Group and Others v Transnet t/a Metrorail and Others
[2004] ZACC 20
;
2005 (2) SA 359
(CC) at 387D-389C in which it
is emphasised that new evidence will only be received in exceptional
circumstances. One consideration
is the materiality of the evidence;
it must be practically conclusive and final in its effect on the
issue to which it is directed.
However, at least in this Court when
no constitutional issue is in question, the existence of an
unanswerable case for the applicant
on the papers as they stand must
render the reception of further evidence on its behalf superfluous
and immaterial to the outcome
of the appeal. As will appear, the
applicant does have such a case. There is, in the circumstances,
nothing to be gained by allowing
the application. I shall in due
course return to the matter of who is to pay the wasted costs of the
application.
[10] Although the
argument in the appeal ranged over several issues, there are, in my
view, only two that need to be considered
in determining its outcome.
Was Sapphire
Finance (Pty) Ltd a creditor of the Trust?
[11] In their application
for sequestration the liquidators relied for their status as creditor
of the Trust (and also for the quantum
of their claim) upon an
alleged loan of R2 682 000 made by Sapphire Finance to the Trust.
[12] As was to be
expected the liquidators came as strangers to the affairs of the
Trust. They were unable to produce any books
of account or bank
accounts which bore out the claim. They relied solely upon certain
admissions said to have been made by Mr O’Shea
on behalf of the
Trust during interrogation at their instance at an enquiry into the
affairs of Sapphire Finance held from April
to July 2009 in terms of
s 417 of the Companies Act 61 of 1973.
[13] During the
sequestration application and on appeal it was contended on behalf of
the appellant that the evidence of Mr O’Shea
at the enquiry was
inadmissible against the Trust.
[14] Mr
O’Shea gave evidence to the Commission in the following
circumstances. Sapphire Finance carried on business as a finance
company that inter alia furnished bridging finance to estate agents
and sellers of immovable property. Mr O’Shea was such
a person.
He and his family occupied a property owned by the Trust. The
liquidators were interested in establishing whether Sapphire
Finance
had claims against him in his personal capacity and against the
Trust. They caused him to be interrogated. When his evidence
commenced he was a director of Sapphire Finance and a trustee of the
Trust. By the adjourned date in July 2009, by reason of his
sequestration, he was disqualified from acting in the former
capacity
1
and had automatically vacated the latter office.
2
[15] Mr O’Shea was
represented by counsel and attorneys. He was cross-examined by Mr
Manca, counsel for the liquidators. Before
his sequestration he
testified that Sapphire Finance advanced moneys to the Trust on the
strength inter alia of a bond to be registered
over the Trust’s
properties in favour of Investec Bank. Continuing his evidence in
July 2009 he backtracked, avoided repeating
earlier answers and was
patently obstructive in his responses. He testified that the moneys
were not paid into the bank account
of the Trust and were not
authorised by both trustees.
[16] During the earlier
part of his evidence – given while he was still a trustee –
Mr O’Shea made a number of
statements against the interest of
the Trust. It is sufficient to refer to two passages in his
testimony:
‘
MR
MANCA
:
And according to Ms Geater who has added up the various amounts owing
by the O’Shea Family Trust to Sapphire Finance, that
comes to
an amount of R2 682 000. You’re a trustee of the
O’Shea Family Trust, is the O’Shea Family
Trust in a
position to pay Sapphire Finance the R2 682 000?
MR
O’SHEA
: I would
have to look at the affairs of the Family Trust, but again, it may be
in a few
weeks
time.
MR
MANCA
: So again would
I be correct to say that you would have to realise assets?
MR
O’SHEA
: Will
have to realise assets to pay for the debt owing, yes.
MR
MANCA
: And,
similarly, are you able to put a time period as to when you would be
able to – O’Shea Family Trust would be able
to pay the
R2 682 000 to the provisional liquidators?
MR
O’SHEA
: Mr
Manca, yes, there is possibly an offer coming on our home that could
realise that value to the liquidators but I would need
to see it in
writing.’
and
MR
O’SHEA
: But the
Trust has not denied that we owe that money, Mr Manca.
MR
MANCA
: No, I’m
not investigating the Trust’s indebtedness, we’ve
established that.
MR
O’SHEA
: Sure.
MR
MANCA
: You’ve
candidly admitted that ...(intervention)
MR
O’SHEA
: I just
want it on record, I just want it on record Mr Manca, we’re not
denying the indebtedness and we’ve in fact
made offers to the
liquidator already on how to ...(intervention)’
Of this latter extract,
which was quoted by Jacobs AJ in his judgment, the learned judge said
that O’Shea was not only speaking
on his own behalf but also on
behalf of his co-trustee when he admitted that the Trust was indebted
to Sapphire Finance. He found
support also in a letter written by
attorneys Herold Gie on 24 April 2009, shortly after O’Shea
gave evidence. No attempt,
the learned judge said, was made in that
letter to qualify or clarify the earlier admission. The letter in
question, which was
the letter relied on by the liquidators as
evidencing an act of insolvency in terms of s 8(g) of the Act, I
shall consider more
fully below.
[17] For present purposes
I shall accept that Mr O’Shea did indeed admit both the
indebtedness of the Trust to the company
and that the moneys advanced
totalled about R2,6 million. For the reasons that follow neither
assumption assists the liquidators.
[18] Mr O’Shea
testified under subpoena. There is no suggestion that in doing so he
was authorised to represent the Trust
nor was there any need for him
to do so since the purpose of the enquiry was purely to establish
facts that the liquidators could
use to establish the position of the
company and recover assets to which it was entitled. The liquidators
also did not lead any
evidence which directly proved his authority to
speak on its behalf.
[19] In any event the
evidence given by Mr O’Shea was inadmissible against the Trust.
In
Simmons
NO v Gilbert Hamer & Co Ltd
1963 (1) SA
897
(N) one of the issues confronting the court was the admissibility
of admissions made by one Lea, the managing director of Consolidated
Portland Cement Co Ltd, during an enquiry in relation to claims
against the company in liquidation under s 155 of the Companies
Act
46 of 1926 (i e the predecessor of s 417) in subsequent proceedings
by the liquidators to vindicate certain fabricated steel
from Gilbert
Hamer & Co. In an application before Henochsberg J (reported at
1962 (2) SA 487
(D)) the learned judge struck out the affidavit of
Lea as inadmissible against the liquidators. On appeal to the Full
Court Harcourt
J addressed the question of admissibility at some
length and, the other members of the Court (Caney J and Henning J)
concurring,
the appeal against the striking out order was dismissed.
In a further appeal to this Court that order was not attacked and,
although
the appeal succeeded on other grounds, this Court approached
the matter on the basis that
‘
the
cardinal fact – in the absence of any cross appeal –
remains that in launching, and in persisting in, the motion
proceedings the judicial manager and his advisers laboured under a
fundamental error in regarding the commission evidence as admissible
against the Engineering Company.’
(
James
Brown & Hamer (Pty) Ltd v Simmons NO
1963
(4) SA 656
(A) at 661H-662A.)
[20] Harcourt J said (at
913A):
‘
In
general it may be said that a person who testifies as a witness
speaks for himself; he tells of what he, himself, knows and by
his
oath vouches for its truth. If he is an employee or agent in any
respect of another and gives evidence in litigation to which
that
other is a party, he does so, not as an employee or agent, unless his
admissions bind that party, but as a person speaking
on oath to the
facts to which he testifies, and this is so whether he is called as a
witness by his employer or principal or by
the opposing litigant.
Similarly, if he gives evidence in proceedings to which his employer
or principal is not a party, although
in relation to matters in which
the latter has been or is concerned, he speaks as an individual; he
is giving evidence, not taking
part in the making of a contract or
the giving of an undertaking on behalf of his employer or principal.
His evidence in that case
is not admissible against his employer or
principal in a later case in proof of the facts stated in it. If
called by his employer
or principal, his evidence may, as that of any
other witness called by that party, be regarded as evidence for that
litigant and,
so far as adverse to him, redound to his disadvantage,
but that is because it is accepted as true, not because the witness
is the
employee or agent of the litigant.’
[21]
Harcourt J then proceeded (at 916C and following) to a consideration
of the scope and object of s 155 and, particularly, the
nature and
object of the private examination provided for in it. (The
Constitutional Court has more recently undertaken a similar
exercise,
although in a slightly different context in
Ferreira
v Levin NO and Others
;
Vryenhoek
and Others v Powell NO and Others
1996 (1) SA
984
(CC) at paras 115-124 and in
Bernstein and
Others v Bester and Others NNO
[1996] ZACC 2
;
1996 (2) SA
751
(CC) at paras 15-36.) While recognising that the purpose and
scope of the procedures now fulfils a wider purpose than some of the
Victorian authorities to which Harcourt J refers, his treatment of
the admissibility of statements made by witnesses in such hearings
in
subsequent proceedings is still valid. The basic considerations that
his judgment pinpoints are these:
1. The persons against
whom statements are made in such proceedings do not generally have a
right to be present during such testimony
nor are they afforded the
right to cross-examine the deponent. To allow a liquidator to rely on
such statements without calling
the witness would be inimical to the
law of evidence (at 916G-918B).
2. The evidence given by
an examinee at a private examination is not admissible against any
person other than the examinee himself
(at 918B-E).
[22] The
learned judge (at 918E-919C) rightly, I consider found support for
the inadmissibility of reliance on statements made in
private
proceedings in
Yorkshire Insurance Co Ltd v
Standard Bank of SA Ltd
1928 WLD 223
at
225-6:
‘
There
is a well-known rule of evidence that the admission of an agent may
be evidence against his principal when made on the principal’s
behalf in the ordinary course of some business or transaction in
which the agent acted as his representative (See
Halsbury,
vol.
13 sec. 638).
If
Trevor’s statements at the examination fall within that rule,
they will be admissible against the bank without the plaintiffs
having to rely on the provision in sub-sec. 1 of sec. 130, that any
statement made in the course of such examination may be used
as
evidence against the person making the same.
And
if Trevor’s statements at the examination are not covered by
that rule, in my opinion it will not avail the plaintiffs
to rely on
the said provision in sub-sec. (1) of sec. 130. I am of opinion that
it must be decided that neither the rule of evidence
in question nor
the provision in sec. 130 (1) entitled the plaintiffs to put in the
evidence of Trevor. And the reason for my decision
is the same in the
case of both grounds, namely, that when Trevor gave evidence at the
examination he was not acting on the defendant’s
behalf. When
Trevor made statements at the examination he did so because he was
summoned by the Court to give evidence, and in
making any admission
or statement in the course of such evidence Trevor was, in my
opinion, neither acting on the bank’s
behalf nor in the
ordinary course of his duty as the bank’s agent. (See
Halsbury
sec. 455 and the
cases there cited.)’
[23]
Trustees must act jointly unless the trust deed provides otherwise:
Nieuwoudt and Another NNO v Vrystaat Mielies
(Edms) Bpk
2004 (3) SA 486
(SCA) at 493E. The
deed of the Trust does not. There is no reason to believe that the
trustees delegated to Mr O’Shea authority
to speak on their
behalf at the s 417 enquiry:
Coetzee v Peet
Smith Trust en Andere
2003 (5) SA 674
(T) at
680I. When Mr O’Shea gave evidence at the hearing no
investigation was conducted into whether he spoke as the authorised
representative of the Trust rather than in his personal capacity.
Despite his bombast there is no reason to conclude that he did.
He
certainly was not there to carry out any act on its behalf, not even
to provide information to the liquidators. Inasmuch as
the loans in
question (or certain of them) had been paid into his personal bank
account he and the Trust faced a conflict rather
than shared a
privity of interest in relation to the claims of the liquidators.
[24] Finally
in this regard, Harcourt J called in aid (at 920
in
fine
) a passage from
The
Rhodesian Corporation Ltd v Globe & Phoenix Gold Mining Co Ltd
1934 AD 293
at 304 which bears repeating as
apposite to the present appeal:
‘
It
is difficult to see in principle why a distinction should be made in
the case where a person calls his agent as a witness or
a corporation
calls its officer to testify on its behalf. The witness who enters
the witness-box swears to speak the truth and
is not there to
represent his principal. The giving of evidence by an officer of a
corporation is not an act done in the course
of his employment. When
once he is in the witness-box the company has no control over him.
What he states in the witness-box may
bind the company in that
particular suit, but his evidence cannot be treated by a stranger as
an admission binding on the company.
No doubt in most cases the
principal knows more or less on what lines the witness will give his
evidence, but the witness may give
his testimony in direct opposition
to the interests of his principal. The fact that he speaks about
matters entrusted to him by
his principal who calls him, cannot alter
the fact that in the witness-box the witness represents no one but
himself, though he
states what he knows of his own knowledge acquired
whilst he was an agent. It is always difficult to foresee all cases
which may
arise and therefore it may be possible that in certain
special circumstances the Court may conclude that a witness was
authorised
to make a particular statement in the witness-box on
behalf of his principal, but to hold
simpliciter
that
statements in evidence made by an agent called by his principal in a
suit to which the latter is a party will bind the principal
as a
party in a later action by a stranger is not only a violation of the
general principle that the oral statements of a witness
called by a
party cannot be used by a stranger against such party in a subsequent
trial but it may lead to the gravest injustice.’
[25] For all these
reasons it is clear that the statements made by Mr O’Shea
before the commissioner were inadmissible against
the Trust in the
sequestration proceedings in the absence of their confirmation under
oath by him in those proceedings. The result
is that the liquidators
were, in the application to sequestrate the Trust, entirely without
evidence of their alleged status as
a creditor of the Trust.
Did the liquidators
prove an act of insolvency by the Trust
[26] The liquidators also
relied on an admission of insolvency in terms of
s 8
(g) of the
Insolvency Act 24 of 1936
alleged to have been made by the Trust.
This took the form of a letter addressed by Herold Gie Attorneys to
the liquidators’
attorneys on 24 April 2009 in the following
terms:
‘
SAPPHIRE
FINANCE (PTY) LTD IN PROVISIONAL LIQUIDATION
We
refer to the above and record that during the interrogation of our
client, Patrick O’Shea, at the Commission of Inquiry
convened
in terms of Section 417 of the Companies Act, he admitted liability
to the Liquidators of Sapphire Finance in the following
amounts:
-
In his personal capacity
R2.469.900.00
-
In his capacity as Trustee for the time being
of
the O’Shea Family Trust
R2.682.000.00
We
record that it is our client’s intention, and he is well able,
both in his personal capacity and as Trustee, to settle
the above
mentioned amounts which are due to the Liquidators.
We
confirm that our client undertook to the Commissioner to realise
certain assets in both the Trust and his personal capacity in
order
to fund repayment to the Liquidators and for that purpose required
approximately 4 – 6 weeks to do so. Our client furthermore
confirms his undertaking to liaise with the liquidators closely in
this regard and to obtain their consent prior to the disposal
of any
asset, although not obliged to do so by any law.’
As I have
said, the court a quo treated this letter as confirmation of the
admissions made by Mr O’Shea. It sought and found
further
confirmation of his authority to represent the Trust in relation to
the content of the letter in subsequent correspondence
from Herold
Gie, from statements in the affidavits and from other aspects of his
evidence before the Commission. But this was beside
the point. The
letter was unambiguous and must stand or fall as an act of insolvency
on its own terms. It cannot be subject to
interpretation by reference
to events which occurred or knowledge which was obtained subsequent
to its writing. The proper approach
to determining whether a letter
contains a notice of inability to pay in terms of s 8(g) is to
consider how it would be understood
by a reasonable person in the
position of the creditor at the time he receives it taking into
account that creditor’s knowledge
of the debtor’s
circumstances:
Firstrand Bank v Evans
2011
(4) SA 597
(N) at paras 14 and 15. In this regard:
(1) the letter states
that the client on whose behalf it is written is Patrick O’Shea;
(2) the letter states
that the admissions at the commission were those of Mr O’Shea
personally (‘he admitted liability’);
(3) the letter states
that
‘
it
is our client’s intention, and he is well able’
to
settle the amounts due to the liquidators arising from his personal
indebtedness and the Trust’s indebtedness to the company;
(4) the undertaking to
realise assets, both his own and those in the Trust, was Mr O’Shea’s
alone.
[27] The
inability to pay immediately was unequivocally stated in the Herold
Gie letter. It must have been understood by the reader
to contain
both an admission and undertaking by Mr O’Shea in his personal
capacity to discharge his own debt and an admission
and undertaking
as a trustee
as to the
indebtedness of the Trust and to procure its repayment. But the
last-mentioned admission carries the matter no further,
for the
reasons already enunciated in para 15 of this judgment. As noted
earlier the letter is, in terms, written on his behalf
only.
[28] Counsel for the
liquidators tried to save the day by recourse to a letter attached to
a replying affidavit made by the appellant.
This, he said, supported
his extension that the earlier Herold Gie letter had been written
with the knowledge and authority of
both trustees. However the author
did not depose to an affidavit and he apparently relied for the
information contained in his
letter on a statement made to him by a
third party who also did not venture on oath.
[29] There is no basis in
the letter for concluding that Mr O’Shea intended to bind the
Trust to whatever he admitted at the
commission or undertook to do in
consequence, or that he spoke, at the commission or through his
attorneys, with the authority
of his co-trustee. The letter
accordingly could not serve as notice by the Trust that it was unable
to pay its debts for the purposes
of
s 8(g)
of the
Insolvency Act.
[30
] The consequence of
my findings in relation to the evidence at the enquiry and the effect
of the letter from Herold Gie is that
the liquidators:
1. failed to allege or
prove their status as a creditor of the Trust; and
2. failed to establish an
act of insolvency on the part of the Trust.
[31] For these reasons
the appeal against the sequestration order made at the instance of
the liquidators of Sapphire Finance must
succeed.
The costs of the
application to receive further evidence
[32] There is no serious
dispute that at all material times during the proceedings in the
court a quo the new evidence lay substantially
within the company
documents under the control of the liquidators. It was only
subsequently brought to light by the persistent
enquiries of the
appellant and her husband. Before that the appellant could hardly
have been aware of its existence or its significance.
[33] Inasmuch as the new
evidence consists of documents which are admitted by the liquidators
both as to execution and contents,
the evidence is credible and
requires no further proof.
[34] The appellant was
fairly criticized for delay in bringing the application, a default
that stretched from May to September of
this year without a
persuasive explanation. Nevertheless counsel for the liquidators
disavowed prejudice and, understandably, showed
no interest in asking
for a postponement, or in meeting the new defence with evidence of
his own.
[35] The costs of the
application must therefore depend on its merits. The appellant’s
contention is that, properly interpreted,
the documents disclose an
out-and-out cession to a third party, of Sapphire’s debtors,
including the indebtedness of the
Trust.
[36] One approaches the
interpretative question with the understanding that, absent a clear
expression of an intention to divest
the cedent entirely and finally
of all his interest in the ceded property ‘the default position
will be that the pledge theory
will apply’ (
Grobler v
Oosthuizen
2009 (5) SA 500
(SCA) at 510H-I), ie the cedent
acquires a right of automatic reversion in the property once the debt
secured by the cession has
been discharged.
[37] In this case there
are three relevant agreements:
1. A cession by Sapphire
Finance in favour of GBS Mutual Bank on 11 August 2004.
2. A cession by Sapphire
Finance to Praesidium Structured Finance Fund en Commandité
Partnership on 7 December 2006.
3. A cession by Sapphire
Finance to Praesidium Capital Management on 12 December 2008.
(It would appear that the
creditors in the second and third agreements are either the same
entity or possessed a common interest.)
[38] It is common cause
between counsel for the appellant and the liquidators that the
primary intention of each agreement was a
security cession. The
appellant relies however on two specific clauses in the second and
third agreements. These are stated as
follows:
’
25
I warrant that I have not ceded to anyone else any of the claims,
rights of action and receivables hereby ceded. I further acknowledge
and agree that, without prejudice to anything hereinbefore contained,
should it nevertheless transpire that I have any time prior
to the
signature of this cession ceded any such claims, rights of action and
receivables to any person whomsoever, this cession
shall be a cession
of all my reversionary rights in and to any such claims, rights of
action and receivables after payment of all
amounts secured by the
prior cession/s or after the cession or loss for any reason or
abandonment or any of the rights of any of
the cessionary/ies
thereunder. For as long as any cession in favour of any prior
cessionary remains in force:-
25.1
I acknowledge and agree that such prior cessionary shall hold all and
any documents and securities relating to the amounts
owing to me by
my debtor/s on its own behalf and for and on behalf of the creditor
for the respective rights and interests therein
of such prior
cessionary and the creditor in terms hereof and that the delivery of
any such documents and securities to such prior
cessionary shall be
deemed also to constitute delivery thereof to and possession thereof
by the creditor,
25.2
the creditor shall be entitled to receive payment directly from such
prior cessionary of so much as it shall receive in excess
of the
amount due to it by me and which is paid to such prior cessionary,
25.3
when and if the cession in favour of such prior cessionary ceases to
be of any force then this cession shall thereupon immediately
operate
as a first cession by me to the creditor of all of my right, title
and interest in and to all claims, rights of action
and receivables
referred to or contemplated in 1, and which are due to me by all my
debtors and not only of my reversionary right,
title and interest in
and to such claims, rights of action and receivables,’
and
‘
21.8
Sapphire warrants to PSFF that, as at the Signature Date and until
the Secured Obligations have been discharged in full, it
has not
already ceded or otherwise created any security interests over the
Subject Matter, other than pursuant to this Cession.
If, contrary to
this warranty, Sapphire has previously or otherwise ceded or created
any security interest over the Subject Matter
other than pursuant to
this Cession, then (without limiting any right of PSFF arising from
that breach) Sapphire cedes in security
to PSFF, with immediate
effect, all claims, rights of action and receivables of whatsoever
nature which Sapphire now has and may
at any time during the currency
of this agreement have against any prior cessionary or pledgee, its
remaining title to and retained
interest in the Subject Matter and
all Sapphire’s reversionary rights to the Subject Matter, as
well as Sapphire’s
rights to obtain re-cession to itself of the
Subject Matter from any person whomsoever after payment of all
amounts secured by
any prior cession and/or pledge, or after the
cessation or loss for any reason or abandonment of any of the rights
of any prior
cessionary and/or pledgee.’
[39] The submission of
appellant’s counsel is that Sapphire had in fact ceded its
debtors to GBS in terms of the undertaking
of 11 August 2004 which
provided:
‘
1.
Giving
of cession
I/We,
Sapphire Finance (Pty) Ltd (“the Cedent”) cede to GBS
Bank or anyone who takes transfer of the Bank’s rights
under
this cession (“the Bank”) all the Cedent’s rights
in and to all book debts and other debts (“the
Debts”)
due and to become due to the Cedent and to all the Cedent’s
rights of action arising from the Debts.
2.
Amount secured under this cession
The
maximum amount secured under this cession is unlimited.
3.
Continuing covering security
The
rights ceded by the Cedent to the Bank (“the rights”)
will be continuing covering security for all amounts (including
interest, legal costs, collection commission and value added tax)
which the Cedent now or in the future may owe to the Bank for
whatever reason whether directly, contingently, as surety or
otherwise (“the indebtedness”) even if the indebtedness
is temporarily settled at any time, and whether the indebtedness:
be
incurred by the Cedent in own name or in the name of any firm owned
by the Cedent either solely or jointly with others in
partnership
or otherwise; and
arises
from money advanced or to be advanced, or from promissory notes or
bills of exchange made or to be made, accepted or
to be accepted or
endorsed or to be endorsed, suretyships and the like given or to be
given by the Cedent to the Bank for the
debts of third parties, or
guarantees given or to be given by the Bank on the Cedent’s
behalf.’
Consequently, so the
submission continued, Sapphire was, at the time of the cessions
effected under the two Praesidium agreements,
in breach of the ‘no
previous cession’ clauses; the effect of those clauses was, on
breach, to dispose in favour of
Praesidium of all remaining rights
and interest (including the dominium) in the ceded debtors – in
short, an out-and-out
cession.
[40] Accepting, without
deciding, that such is the effect of a breach of the ‘no
previous cession’ clauses, I do not
think the submission can be
sustained. First, the second Praesidium agreement is in substance a
supersession of the first inasmuch
as it brings about a retransfer of
the debtors sold under the first. So it is only the terms of Clause
21.8 that require our attention.
Second, in Clause 1.1.13 of the
second Praesidium agreement the ‘GBS Cession’ is defined:
‘
1.1.13.
“GBS Cession” means a written agreement titled “Cession
of book debts in favour of GBS Mutual Bank”
concluded by
Sapphire in favour of GBS on or about 11 August 2004 in terms of
which Sapphire ceded in security all its rights in
and to all book
debts and other debts due and to become due to Sapphire, and to all
Sapphire’s rights of action arising from
such debts on the
terms set out in that agreement.’
In terms of para 9 of
Annexure A to that agreement (‘Events of Default’) there
appears the following stipulation of
such an event:
‘
Sapphire
fails to make full and final settlement of the outstanding overdraft
facility with GBS and/or fails to procure its release
from the GBS
Cession on or before 28 February 2009.’
In terms of Annexure C to
the second Praesidium agreement (‘General Covenants and
Undertakings’):
‘
1.
Sapphire undertakes to PSFF:
.
. .
1.12
that it shall make full and final settlement of the outstanding
overdraft facility with GBS on or before 28 February 2009;
1.13
that it shall procure its release from the GBS Cession on or before
28 February 2009.’
[41] Thus, in the context
of the second Praesidium agreement, the cessionary was aware of the
GBS cession and made provision for
its termination. In these
circumstances the warranty given by Sapphire in clause 21.8 could not
have been breached by non-disclosure
of the prior cession to GBS. The
transfer of Sapphire’s remaining interest and dominium in its
debts was accordingly not
activated. The new evidence that the
appellant tendered would therefore have left unsullied the
liquidators’ locus standi
to sue the Trust for the payment of
the debt owed by it to Sapphire, and, likewise, the standing of
Sapphire as a creditor, all
things being equal, in the sequestration
application.
[42] For these reasons
the application in terms of
s 228
would have had no material effect
on the outcome of the appeal, and had it become necessary to do so,
would have been dismissed.
The Trust should therefore bear the wasted
costs of the respondents in relation to the application.
[43] That does not
dispose of the matter as there remains the appeal against the joinder
of Absa Bank as an intervening applicant.
The application of
Absa Bank for an order provisionally sequestrating the Trust
[44] Despite granting the
application of Absa Bank for leave to intervene, the court a quo made
no order in its favour because of
the success obtained by the
liquidators.
[45] The appellant, with
leave of the court a quo, appealed against the order granting leave
to intervene. Whether or not leave
to appeal against such an order
could properly have been granted (because of its possible lack of
final effect) it is unnecessary
to decide. The Bank appeared through
counsel to oppose the appeal as it was entitled to do. The appellant
did not, however, pursue
this ground of appeal and although it is
unnecessary to make a substantive order in that regard, the Bank is
plainly entitled to
its costs.
[46] Counsel for the Bank
wanted more. He moved us for a provisional sequestration order in the
event (as had become probable) that
the order in favour of the
liquidators was set aside. But, as counsel for the appellant pointed
out, the Bank had noted no conditional
cross-appeal against the
failure of the court a quo to make an order in its favour. That
shortcoming precluded relief before us:
Bayly v Knowles
2010
(4) SA 548
(SCA) at 557G-H.
The costs of the
Bank in the court a quo
[47] That court ordered
that the costs of the Bank should be costs in the sequestration.
Having merely joined the Bank but made
no order in its favour such an
order was premature.
[48] In the result the
following order is made:
1. The appeal of the
appellant (the Trust) against the order of the court a quo in favour
of the respondent (the liquidators) is
upheld with costs including
the costs of two counsel.
2. The appellant shall
pay the costs of Absa Bank in the appeal.
3. Paragraphs 1 and 3 of
the order of the court a quo are set aside and respectively replaced
by the following:
‘
1. The rule nisi
granted on 11 November 2009 is discharged with costs.’
and
‘
3. The costs of
the third intervening applicant are reserved for decision in the
application between itself and the first respondent.’
4. The costs of the
application brought by the Trust in terms of s 22 of the Supreme
Court Act 59 of 1959 are to be paid by the
Trust on an opposed basis.
_________________
J A Heher
Judge of Appeal
APPEARANCES
For Appellant: A R
Sholto-Douglas SC (with him T Crookes)
Instructed by:
Russell Knight &
Associates, Tableview
Lovius Block,
Bloemfontein
For First to Third
Respondents: B J Manca SC
Instructed by:
Edward Nathan
Sonnenbergs, Cape Town
Matsepes Inc,
Bloemfontein
For Third Intervening
Applicant (respondent): F S G Sievers
Instructed by:
Marais Muller Yekiso,
Tygervalley
Symington & De Kok,
Bloemfontein
1
Section
218(1)(d)(i) of the Companies Act 61 of 1973.
2
By
reason of clause 4.4 of the Trust deed.